When Should You Turn Bearish on the Stock Market?

Summary

Podcast Summary: Ask The Compound

Episode: When Should You Turn Bearish on the Stock Market?
Date: July 29, 2026
Host(s): Ben Carlson, Duncan Hill
Guest: Josh Brown
Duration: ~49 minutes

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Episode Overview

This episode of "Ask The Compound" dives deep into listener questions about investing, the mindset of long-term investors, when (if ever) to “turn bearish” on the stock market, handling volatile stocks, portfolio strategies, and practical advice on wealth, inheritance, and financial literacy—especially for beginners and international audiences. Ben Carlson, Duncan Hill, and Josh Brown answer a mix of technical, philosophical, and situational queries about managing risk, active management, building an investment philosophy, and the emotional realities around inheritance.

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Key Discussion Points & Insights

1. Shake Shack’s Volatility and the Long-Term View

(02:08–13:10)

• Listener Question: Given Shake Shack’s recent 60% drop, is it a ‘buy the dip’ opportunity?
• Josh Brown’s Take: As a long-term shareholder, Josh remains bullish on Shake Shack but doesn’t recommend new money to buy in before seeing resolution to the company’s challenges.
  • The company routinely faces volatility due to its small market cap (~$2B).
  • Recent troubles stem from a Q1 surprise loss connected to spiking input costs (food, paper) and operational challenges, leading the market to distrust management.
  • Growth prospects remain with plans for 15% yearly store growth over a decade, but credibility needs to be restored (esp. through next earnings call).
  • Quote [07:08]: “No, I’m going to hold it no matter what...But the street doesn’t trust this company.”
  • Importance of in-app value, drive-thru expansion, and brand as levers for future success.
  • “Popularity is not the hard part…The trick with quick service—what they’re all trying to do—keep the app cranking. The app is the key.” [11:06]
• Ben Carlson: Highlights the disconnect between stock popularity and performance.
  • “We’re within, I don’t know, 2% of all time highs. And there’s so many stocks like this that are down 50% from the highs. That’s what makes the stock market great.” [10:47]

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2. Active Management, Momentum, and Cognitive Dissonance

(13:18–24:55)

• Listener Question: How do you reconcile advocating for index-driven, long-term investing while also launching an active momentum strategy (Porterhouse)?
• Ben Carlson:
  • Sees value in systematic, evidence-based strategies as a complement to index funds.
  • Momentum feels “behavioral” and counterintuitive, but systematic approaches can remove emotional bias.
  • On portfolio construction: “If you need 10% of your portfolio in a strategy like this to leave the other 90% alone, then it’s totally useful.”
• Josh Brown:
  • Clarifies Porterhouse is rules-driven, not stock-picking intuition.
  • Momentum isn’t contradictory: “The S&P 500 is the world’s greatest momentum strategy.” [18:40]
  • Most investors can’t actually buy or hold high-momentum stocks when intuition says otherwise; rules-based systems can.
  • Value is not in always outperforming, but in strict discipline and broader diversification.
  • “This is a sleeve that’s…designed to run in concert with a diversified portfolio. We wouldn’t…throw out their diversified portfolio and just chase the biggest winners. That would be insane.” [19:49]
  • Psychological benefit: built-in sell discipline counteracts the “when do I sell?” worry.
• Duncan Hill:
  • Notes how predetermined buy/sell rules and removal of ad hoc decisions help clients stick with a plan, especially those sensitive to market trends or “itchy” to own the hottest stocks.

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3. Bearishness, Perma-Bulls, and Portfolio Adjustments

(25:10–32:49)

• Listener Question: Why don’t “perma-bull” advisors ever recommend selling/lowering equity exposure?
• Ben Carlson:
  • Adjusting allocations is about individual goals and excess success, not a shift to bearishness.
  • “It’s not about bullish or bearish…it’s more about what makes sense for each individual client.” [26:39]
  • Market outperformance provides an opportunity to reduce risk and rebalance if already ahead of target goals.
• Josh Brown:
  • Dismisses “perma-bull” vs. “perma-bear” as pointless social media noise.
  • Long-term optimism is rational unless you think society/capitalism will end; the alternative (not investing) often creates more risk.
  • Quote [27:57]: “You act like this country isn’t a collection of 150 million adults who mostly wake up every day and try to improve their lives. Explain to me…how we don’t have a higher stock market a decade from now…”
  • Job of an advisor is to help clients take suitable risk, not “avoid the rain,” because “predicting the future” is impossible.
  • Memorable moment: Discussion of risk trade-offs—taking risk now vs. being left behind by inflation later.
• Duncan Hill:
  • Reiterates the futility of “perfect” asset allocation—risk is always present in some form.

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4. Financial Literacy and Cultivating Rational Investors—Brazil Example

(32:51–40:42)

• Listener Question (from Christian in Brazil): How do you instill evidence-based, disciplined investing in a culture drawn to speculation and low financial literacy?
• Ben Carlson:
  • Emphasizes starting with curiosity and providing engaging, relatable resources (newsletters, books, podcasts in local languages).
  • Financial literacy develops over time; behavior change often follows costly mistakes ("market tuition").
  • Quote [36:07]: “It’s so much easier to learn these days than it ever was in the past.”
  • International trends show increasing stock market participation as necessities shift (Italy anecdote, India, Germany).
• Josh Brown:
  • Encourages targeting those ready to learn; distributing accessible books (e.g., Morgan Housel’s Psychology of Money, Nick Maggiulli) is practical.
  • Cultural shifts: Young people will increasingly participate in wealth creation, not just protest inflation.
  • Observes that in many countries, wealth came from land and inheritance; investing is a newer phenomenon.
  • Quote [39:37]: “Nobody learns from other people’s mistakes. You have to do it yourself.”
  • Be patient; people who speculate and lose small amounts early often find their way to discipline later.
• Duncan Hill:
  • Speculating, while risky, isn’t necessarily a poor learning experience for the young; hands-on experience is educational.

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5. Navigating Large Inheritances & Family Trusts: Psychological and Planning Advice

(40:43–48:19)

• Listener Question: Recently lost father, large inheritance in a trust—should I plan as though I’ll get nothing, or is it okay to factor in the potential windfall?
• Josh Brown:
  • First step: have an open, familial conversation now (ideally with professional advisors present) to clarify the trust’s terms.
  • Quote [42:18]: “What does the trust say…are you just nowhere to be found in the paperwork? You gotta talk to your mom.”
  • Purpose of the trust is to avoid confusion, ensure rules and timelines are clear, and provide stability.
  • Emotional impact is profound; inheritance can feel strange or unearned when tied to loss.
  • “I think the uncertainty would keep me up at night. Like, where is this all going?” [45:23]
• Ben Carlson:
  • Acknowledges awkwardness of planning for windfalls after a death; urges proactive discussion.
  • It's reasonable to adjust risk or try new ventures if inheritance is probable, but not before understanding the trust's details.
  • Notes how many people may prefer to use inherited money differently to create memories or tribute, even if not always optimal financially.
• Duncan Hill:
  • Raises the point that property purchases or other “meaningful” uses may arise from emotional motivations, not pure financial calculation.
• Josh Brown (humorous close):
  • Jokes about commemorating inheritance with an investment in Nvidia (“She loved Jensen Wong…Big fan of the leather jackets.” [48:17])

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Notable Quotes & Memorable Moments

• Josh Brown on momentum investing [18:40]:
  “The S&P 500 is the world’s greatest momentum strategy…It takes the stocks that just went up the most and it overweights them… Not only is this not in conflict, it actually is the purest expression of [the idea that] markets work because they are momentum based.”

• On perpetual bullishness [27:57]:
  "You act like this country isn’t a collection of 150 million adults who mostly wake up every day and try to improve their lives…That’s who you want to bet against?…Yeah, I’m a perma bull."

• On market “tuition” [39:37]:
  "Nobody learns from other people’s mistakes. You have to do it yourself. And you have to—Oh, I’m not gonna do that again—and then pick yourself up and say, I better go learn something."

• On family trust uncertainty [45:23]:
  “A lot of these conversations are about worst-case scenarios, but they’re also about rules…It’s really important for you to have the details so that you don’t walk around in your mid-30s like, I wonder what’s gonna happen.”

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Timestamps for Important Segments

• Shake Shack Q&A and Growth Analysis: 02:08 – 13:10
• Active Management vs Indexing, Momentum Strategy: 13:18 – 24:55
• Bearishness, Perma-Bull Debate, Portfolio Adjustments: 25:10 – 32:49
• Financial Literacy in Brazil and Building Investor Discipline: 32:51 – 40:42
• Inheritance, Trusts, and Emotional Planning: 40:43 – 48:19

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Final Thoughts

The episode blends tactical investing insights with bigger-picture philosophy—reminding listeners that logic, discipline, and personal context should trump market noise and impulse. The tone is direct and friendly, with the hosts’ chemistry shining as they trade anecdotes, poke fun at each other, and offer actionable, empathetic guidance to investors in all stages of their journey.

Key Takeaways:

• Long-term investing is about discipline, adaptability, and removing emotion—whether dealing with a volatile stock or a sudden windfall.
• Rules-based strategies help investors avoid costly behavioral errors.
• True bearishness is rare among professionals; portfolio recommendations always start with client context, not market outlook.
• Education and curiosity are the best antidotes to speculation and FOMO, both for beginners and in emerging markets.

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For questions, email: [e-mail]

Transcript

[A]

Welcome to Ask the Compound, the show where you ask and we answer. I am Ben Carlson. Many wealth managers preach about the virtues of long term investing. I sure do. So what would cause a self described long term investor such as myself to turn bearish on equities? Or maybe recommend clients that they should trim their stock allocations? I'm going to answer these questions and more on today's show with a little help from Josh Brown. Hit the music guys. Let's do it. Askthecompoundshowmail.com is our email here. If you have a question, shoot it to us. If you're on the live stream, ask us now. We're pre taping this because I'm traveling this week on the road.

[B]

Any guesses who all is in the chat?

[A]

Dave is in the chat. Cliff is in the chat.

[B]

So Dak.

[A]

Jason Duncan's mom. Definitely in the chat.

[B]

Probably, yeah. Chris. Yeah.

[A]

Holding it down as always. Talking to each other, having fun. Shoot us your questions. We pull the questions right from there as well. But if you have one, email us. We love all your questions. Every week our inbox is full. It's great. And every week it seems like there's new and interesting questions. We have some good ones this week too. First, today's show is sponsored by Betterment. Every RIA knows attention. You don't want to turn people away. You don't want to require high minimums, and you want to help clients who are just getting started. Because that's where long term relationships begin. But here's the truth. Those simple accounts, they take a lot of work. Account opening, trading, rebalancing. Before long, your staff and back office are underwater and trying to stay afloat. That's why established RA is our turning to Betterment Advisor Solutions. It's a platform built for segmenting your book and streamlining those smaller and simpler accounts. The onboarding experience is automated and paperless. The portfolio management is streamlined and tax efficient. The client experience is consistent and exceptional. Explore what segmentation can do for your firm today. Lower your operational lift, but keep your standard of service high. All with Betterment Advisor Solutions. Your biggest regret will be not doing it sooner. Learn [e-mail] advisors. Duncan, you weren't here last week to celebrate Oatley. Oatley was up 30% in a day because of earnings.

[B]

It was. Yeah. It's up big today too.

[A]

Yeah, so now it's only down 95% from the highs.

[B]

Of course, I've sold some calls against my position, so you know, I won't enjoy all of the run up.

[A]

But okay, you've been the income play. All right.

[B]

Yeah, Barry's going to get onto me, but, you know, is what it is.

[A]

All right, good questions today. Let's do it.

[B]

Yeah. Up first, we got one from Thomas. And we're talking stocks right off the bat. I like it. Shake Shack took a severe hit in May following its Q1 2026 earnings. Shares plummeted from the high 90s down to the low 60s. The stock is down almost 60% in the past year. I'm thinking about plugging my nose and buying. What does Josh think about its long term story?

[A]

All right, you asked for him by name. We'll bring him out here.

[B]

Yeah.

[A]

Josh Brown.

[B]

Hey, Josh.

[A]

Shake Shake correspondent.

[B]

Yeah.

[C]

It's so nice to be invited on a show to talk about a stock I own that's down 50% from its high. What a great. What a warm intro. You know, we're sick of listening to Apologize with us. To Apologize today is downtown Josh Brown.

[A]

I said this the other day. I'm sick of talking about everyone's big winners. Let's talk about some losers because there's plenty of them. It's funny. My son is like a burger connoisseur. Everywhere we go, every restaurant, he gets a burger. It doesn't matter where we are, what we're eating, he will get a burger. He gets a burger.

[C]

I like this kid already, right? I like this kid already.

[A]

He likes Shake Shack. I was just reading Bill Gurley's new book. He had a whole chapter on Danny Meyer's story, which I've heard a little bit before, but it was really interesting. You've been talking about this stock for a while. Is it too much competition from other fast casual restaurants and doordash or what? Put the chart on real quick, guys. This is Shake Shack. I think going back to the ipo, it's obviously a volatile stock. It has these huge booms and huge busts. What's going on now?

[C]

All right, so to answer the question directly right off the bat, I still like the long term growth story here. I do not think though that I would take fresh cash and be a buyer just yet if I weren't already in the name. And just so people understand, I bought this on the IPO and have never sold it. And it's been killed probably every 18 months it reports a bad quarter. Put the chart back up real quick. Like if you're going to be long this name, you have to be ready to buy. And I've bought every one of these Pullbacks, including the most recent one. And over the long term, I do think the stock's gonna work. It's tiny. It has a market cap of $2 billion. Two billion? That's like. That's one of the smallest companies I own, maybe the smallest. So the volatility is coming from just the fact that it does not have huge institutions that are involved in the name and size. It's like small cap fund managers and a couple of ETFs and then some random retail traders. Like, it's just. It's not a mature name. So this comes with the territory, but I guess let's talk about why it got killed in May. And this is why I would say, like, it needs a little bit of. It needs a little bit of seasoning. Pun intended. So they reported their Q1 number and shocked the street with. With just a surprise jump in costs, which I'll get to in one second. The stock was in the 90s, and it fell into the 50s, ultimately. So it's down 60% in the last year. To your questioner's point, revenue missed 366 million for the quarter versus 372 expected, but they still grew 14.5% year over year. They also swung to a surprise loss, which people do not. Like this, it turns out, when you're supposed to earn money and you say, actually they lost $300,000, is it higher cost?

[A]

What is it?

[C]

Yeah. So it's an operating loss for 2.6 billion. And cash flow fell 9.3% because 2 of the most expensive inputs to what they do just out of nowhere spiked, and they weren't ready for it. Food and paper Costs rose to 28.3% of sales in the quarter, which was up from 27.8%. GNA expenses also jumped. So this is investing in headcount, in infrastructure, et cetera. Then they had a weather problem, which I guess nobody could have seen coming. It was the winter. Is there bad weather? Sometimes in the winter? Fine. They threw that in. Then they threw in their Middle east licensing business. This is sort of important when Shake Shack opens overseas. They don't own the store in the United States. They own everything.

[A]

So what, they opened a bunch of restaurants in Iran. What happened?

[C]

Franchisees? Yeah. The Strait of Hormuz. Shake Shack was impacted by the events in February. No. So they have partners overseas, like franchises, and they get license revenue. And obviously, if you're opening stores in Abu Dhabi and Dubai and places like that, which they are, it makes sense for there to be some concern there the last thing is they widened their full year EBITDA guidance. And widened is never a good thing.

[A]

So it sounds to me like you're pretty tentatively dipping in toe here.

[C]

No, I'm going to hold it no matter what. The question from the person is, should they?

[B]

Yeah.

[C]

And so it got worse after that bombshell report. 26 days later they filed another 8k with another guidance cut for Q2, which is the quarter they're about to report. They took revenue guidance down, they took same shack sales down and they didn't really have much.

[A]

Wait, did you make that up or do they call it that? Same shack sales.

[C]

Same shack sales. Yeah, like that. So the next earnings call is August 5, which is like a little bit more than a week away. And I just think like, look, I'll get to why I'm still bullish long term. But the street doesn't trust this company. They had a premium multiple and the premium was deserved. They are one of the best operators. They have one of the biggest runways for future growth out of any of the publicly traded quick service. And they have this like brand premium because like the shake shack customer is willing to pay up for a better, to your son's point, Ben, for a better burger. But they've, they're losing that premium multiple because the street just doesn't trust that they have a handle on these problems. The, the good news is while they were guiding down, they actually raised guidance on how many stores they're going to open this year. They're going to open 60 to 65 company operated stores, mostly in the US and they're still targeting a 15% unit CAGR over the next decade. They think they can grow each individual store by, excuse me. They think they can grow the number of stores by 15% over the next 10 years. The growth is still going to be here. But I think what they need to use this next conference call for is, is to demonstrate how they're tackling the spike in paper prices. Beef got up to $6.75 a pound in January. It was a total shock. And they have to like the CEO is this guy Rob lynch who they recruited. He turned around Papa John's which was a disaster. They brought him in, he fixed it and so he really hasn't earned the trust of the street. The prior CEO has only been gone for two years. So that's what I think they'll use this conference call for. I'm going to stay regardless. I'm a long term investor. I've bought it lower, I've bought It higher. And I just believe ultimately they'll figure these short term problems out.

[A]

You know where one of those new locations is opening in? 2027? Grand Rapids, Michigan, roughly. Hey now, 300 yards from my office here.

[B]

I thought Shaq saved Papa John's. Is that not

[C]

adding Shaq to the board helped the company fix its relationship with the African American community? Because the prior guy was just a complete psychopath. Said some stuff on an open line that was recorded. Yeah, I remember the founder. They had to chase him out of the company. Then he was suing the company for firing him. And it just, he. It doesn't matter. Rob lynch had nothing to do with that, to be clear. But the key thing is I think Papa John's is like 5,000 stores or something. Shaq is tiny.

[A]

How many stores is it?

[C]

Hundreds. It's in the hundreds.

[A]

Okay.

[C]

Yeah. And not the high hundreds. So they have a lot of room to grow. And that's what I would bet on.

[A]

This is just one of the reasons I love the stock market though. We're within, I don't know, 2% of all time highs. And there's so many stocks like this that are down 50% from the highs. Yeah, that's what makes the stock market great.

[B]

It's also a stock that doesn't follow its popularity. Like Shake Shack is popular. There's vines, you know, around Manhattan. When you see one, there's lines, you know, it's just weird to hear that the market cap.

[C]

Hey, Duncan, I'm going to teach you something somebody taught me a long time ago. Popularity is not the hard part. If I open up a retail store and I say I'm gonna sell $100 bills for $80, I would have a line wrapped around 5th Avenue three times.

[B]

Fair.

[C]

That doesn't mean I can actually stay in business for more than a week. So the trick with quick service, what they're all trying to do, keep the app cranking. The app is the key. Shake Shack's got a great app and a lot of people don't wanna show up at the store and stand in a line. They want their food to be waiting for them. And they've got as little human interaction as possible.

[A]

That's where we are these days.

[C]

This is the goal and the drive through construction on existing stores and new stores. Shake Shack started as like something you walk up to. And during COVID they realized we have to change the way that we're so kiosk ordering, app ordering, rewards programs, drive thru getting the brand into locations like the Middle east and China and places where people have heard of it or they recognize the logo, but they've never had a chance to try it. And then on the advertising front, they are one of the most creative. They're constantly rolling out new concepts, new burgers, new Shakespeare, new flavors. Danny Meyer is not running the company, but the Danny Meyer influence, Shake Shack, started as his baby, is still very much a part of the culture. And I think they'll be fine. It's just, I wouldn't tell anybody. Like, yeah, they just reported a surprise loss. Hurry up and buy. I'd rather buy the stock higher. I mean, it's a $2 billion market cap. If you buy it at 70 or 90, what's the difference if you think it's going to work, it's going to get way bigger over time. But I would just rather get some demonstration from the company that they're on top of the things that have caused them to warn.

[A]

Good segue to our next question about momentum. Let's do it.

[B]

All right, up next, we got one from Anthony. I'm a follower of all things rwm, so I couldn't help but feel that the theme of Ben's book, namely how difficult it is to beat the market over short periods, seems to contradict the Porterhouse active management strategy the firm just put out. How would you articulate the value of an investment advisor making active decisions for some portion of a client's portfolio if you simultaneously also believe it's very difficult to outperform the market? Or is RWM Franklin Templeton just that good?

[C]

Well, the question is, who do you trust more, me or Ben?

[A]

No, hey, this is a fair question. So he's saying, like, how does Porterhouse fit within the risk reward framework? And I think it totally fits. So I was on the Bogleheads podcast last week and they asked a similar question. And Josh, I wanted to say this question because you inspired the strategy, obviously. Then Michael and I and the rest of our investment team took it to the folks at o' Shaughnessy and Franklin Templin and said, all right, make this Josh's list a portfolio. And I think the biggest thing here, and I have a whole chapter in my book about the importance of making good decisions ahead of time. I talk about Marty Short and how hard it is to make it look easy. That's the thing to me that I don't have the ability to buy the hard charging momentum stocks. I can't. The idea of value investing in an indexing made sense to me immediately. The light bulb Went off. Oh, I'm going to buy a dollar for 60 cents or 70 cents. That's easy. But the idea about momentum just did not intuitively make sense to me. The reason is because it's behavioral. It makes you feel like an idiot. Like, wait, I'm going to buy stock? A stock that just went up 100% in three months? Are you crazy? Are you insane? I want to buy things that are down 50%, like Shake Shack. I don't want to buy things that are going up. And so for me, the momentum strategy makes the most sense because it's rules based and it takes me out of the equation. And I think the way that I look at it personally. And you can tell me if you have a different mindset, Josh, like, obviously if this strategy outperforms, that would be great. But it's also a wonderful diversification strategy because obviously for clients and for me, the biggest holding are index funds still. But this is a complement to index funds and like other sort of valuation based strategies. And so I think there are huge diversification benefits from momentum as well that you don't get. And I personally wouldn't be able to take my stock picks and double down on these stocks and hold them forever. But if it's in a rules based strategy like this, I can not only do that, I feel good about rebalancing into the pain and buying more of this strategy when it's not working, because it won't work all the time. So how do you think that? It's like having two competing ideas in your head. The cognitive dissonance allows people not have that. I think that we have the ability to have these two competing strategies and that's okay.

[C]

I would just say the questioner is conflating three different things in the question. There's no contradiction at all. And I'd also say, congratulations, you are now about to listen to probably one of the top five market commentators alive. Completely disentangle these conflated questions and give you one of the best answers you've ever heard to any question that anyone's ever asked. I think about this.

[A]

I always say, start the bar, keep the bar low, low expectations, out of the gate.

[C]

There's nothing I spend more time thinking about. There's nothing that I have spent more time researching, reading and writing about. And I'm going to tell you right now a couple of things. He says, how would you articulate the value of an investment advisor making active decisions? I wouldn't. We're not making active decisions. This is a rules based Strategy that's run quantitatively. At no point did anyone in the creation of Porterhouse say, you know, it'd be a cool idea if we have a meeting every week and pick which holdings we don't like. This works in the opposite way. We know we can't do this.

[A]

Right?

[C]

Respectfully, whoever's listening, you cannot buy Micron after it goes up 300 points. I know you can't. But then it goes up another 300 points. Who gets that money? Two people get that. People who are invested in a strategy that's designed to make that decision for us. And psychopaths. Those are the only two people who get the next 300 points in micron. No one else gets it. In fact, the people that you think are smart, the hedge fund managers on Twitter, they're shorted. Nobody can do this. And that's the point of Porterhouse. These are trades that you can't. I can't do it. I cannot bring myself to do it. So, okay, put that aside. Theme of Ben's book, how difficult it is to beat the market over short periods. The data is there. If you can express the momentum factor correctly in a portfolio, you will beat the market. And do you want to know why? And it's a bit of a tautology, so. So buckle up. The market is itself a momentum strategy. The S&P 500 is the world's greatest momentum strategy. Right?

[A]

The ones rise to the top. Right?

[C]

What does it do? It takes the stocks that just went up the most and it overweights them. That's why Nvidia and Apple are 10% of the market, because they just went up the most. So not only is this not in conflict with the message of the firm, it actually is the purest expression of this idea that markets work because they are momentum based. 1, 2. We already know that advisors or clients cannot place these types of active trades. They will not buy the ones that work, and they will buy the ones that are getting killed thinking that they're buying the bot. We already know that people can't do this. And then number three, and this is probably the most important, we understand that there are periods of time where momentum will underperform. It's not an all in bet. We have core portfolios. We own everything. We own international stocks, we own value. We own small cap. This is a sleeve that's been designed to run in concert with a diversified portfolio. We wouldn't allow or advise anybody to throw out their diversified portfolio and just chase the biggest winners in the market. That would be insane. We don't do that.

[A]

Right.

[C]

How'd I do, guys?

[A]

That was great. I have a few things to add. Duncan. So one of the questions that.

[C]

Anthony. Anthony. It's a good question, dude.

[A]

It really is.

[C]

I get very animated. But it's not about you. Not everything's about you, Anthony.

[A]

Duncan. One of the questions we receive more than any other about big stock positions is when do I sell? And the other part about Josh, you said, like, no one has the ability to buy these. This strategy also has a predetermined sell discipline. And so the other part that people don't know is, like, I'm sitting on these huge gains. When do I get out? This strategy has predetermined rules of when it will sell these stocks. Now, it's obviously not going to buy at the bottom and sell at the top. Nothing can. It's going to miss. It's going to miss the turn, obviously, because that's how momentum strategies work. But it has a sell discipline, too. And I think that's the part where if I was picking these stocks myself, I would have a hard time buying them first. Then I had a hard time knowing when am I going to sell them. So if you don't have rules around that, that's the piece.

[C]

It's both of it. And it's so much bigger than that. When we first went live. So this is 100 years of market data that went into the research for the way we built this portfolio. I want people to understand the amount of time and effort and the amount of professionals who have worked on this project. It's. It's a substantial project. Before we can trade live, the first accounts to trade live were mine. I think maybe I might have put a portion of my wife's IRA in this.

[B]

First.

[C]

I'm not sure what I did then. I put my own money, Ben's money, Michael's money. We put our own money at risk before bringing this to any clients. And immediately, within the first monthly rebalance, it sold Corning glw, which is a name on my list of best stocks in the market and a name that I have a buy. Want to own it. I want to be long it. Why are you selling my Corning? So my instant reaction is, what? Wait, I don't understand. How are they selling Corning? How is it not earned its spot in Porterhouse? Because, like, two weeks after they sold it, it started rallying again. But, like, you have to, like, disentang. You have to go backward. Well, it sold that. What did it buy? Oh, it bought Dell which went up even more. Or, like, whatever, the mental gymnastics is. 52 names in the portfolio right now or something. The mental gymnastics involved in trying to do this portfolio wide with a flexing accordion of between 40 and 60 stocks. You cannot do it. We know that. Nobody can do it. So the systematizing, and then to Ben's point, that willingness to have sales look foolish in hindsight, to have buys look stupid in hindsight, but just to have this systematic way of saying, okay, this is not about batting average where every trade has to work. This is about the strategy as a whole over long stretches of time, that's the bet that we're making. Not that we're gonna love every stock it owns or be thrilled every time it buys or sells something. But, like, we've done the work. We know that in our view, this is the optimal way to manage a momentum sleeve. It's, I think, superior to an ETF for a whole host of reasons we don't have time for. And I think it's way better than having somebody, like, ad hoc, just, like, trying to, like, talk to companies or whatever nonsense. Like, we like our version of this better.

[A]

Yeah. And it's not like we're putting every client in this. This isn't for everyone. This is a concentrated strategy. It's aggressive. So for people who like to be aggressive, there are people who we have who have a sidecar account and are picking stocks on their own and decided, like, maybe I shouldn't be doing this and I should be doing something better with my time, and I'll put it in something like this that is systematic. I don't have to worry about it as much.

[C]

One of the best. Yeah, one of the best things about it for the clients that are very market sensitive, meaning they watch CNBC every day. They're, like, reading news about the stock market, Barron's subscription, blah, blah, blah. Or even the people that maybe are not constantly focused on the market. However, when they go to cocktail parties, they do like to know what their tickers are and share them with their buddies. These are those stocks. This is that shit. Like, these are the stocks that your friends are talking about. We're gonna own those. It doesn't mean they're gonna go up. But I'm saying, like, this is the itch that this strategy scratches.

[A]

Right? And some people need that itch. Scratch. The whole point of my book was perfect is the enemy of good. And if you try to optimize for the perfect portfolio, but you can't stick with it, it's gonna Be a failed investment plan. If you need 10% of your portfolio in a strategy like this to leave the other 90% alone, then it's totally useful. Even if it doesn't always work. That's the way I look at it.

[C]

At the risk of turning this into a infomercial for our investment strategies, let's get to questions.

[A]

Hey, Anthony. Asked.

[C]

It's true.

[B]

It's true. Asked and answered. All right, up next, we got one that we don't have a name. This must have come in on Twitter or something.

[A]

I think it was a Twitter.

[B]

Yeah. Okay. The issue I have with Permeable Advisors.

[C]

Wait, wait, look at the question. Of course it came from Twitter.

[A]

Yeah, that's true.

[B]

The issue I have with Permeable Advisors on social media is that most won't answer a simple question. What would cause you to turn bearish and actually encourage retail investors to lower equity holdings?

[A]

You know, I think someone asked me, has been a permeable before on this show, and I think I answered it that I'm not necessarily a permeable, but I'm long term optimistic. It's funny because here's an actual conversation we had with our advisors a few weeks ago. We said, listen, you have clients who came to us three years ago, five years ago, 10 years ago, and you, you laid out a plan for them and you set expectations and you said, here's the different paths you could possibly take depending on what the market does. We don't know what the market's going to do. The market is in a such better place now than it would have been than anyone would have imagined three, five, and ten years ago. No one could have possibly predicted it would do so well. So guess what? You have clients who are overfunded based on what you thought their goals were and their expectations you set. So if they have a 9010 portfolio or an 8020 portfolio, maybe it's time to say, hey, could we scale back to 70, 30 or 75? 25 or 60, 40 even. And those are the kind of discussions that our clients are actually having. But it's more about what the market did for you and also where are you in line with your goals and your time horizon. And for some people, they can be more conservative because, man, I thought I was going to have $7 million by now, but I actually have 10.5. Wait, so the market did so well,

[C]

the case that you're making is it's not about bullish or bearish on the market. It's more about what makes sense for each individual client. So this idea that financial advisors never tell their clients to sell is stupid. You have to have zero experience in this business to think that that's the same thing as being bullish on the long term. For stock, of course we sell. What do you.

[A]

We rebalance.

[C]

People live on the money.

[A]

Yes. You use the money to. Yeah, you sell the portfolio, buy stuff. Yes, exactly. That's the thing. It's not permeable or perma bearish, but you're only in circumstances.

[C]

Anyone using those terms needs to get off Twitter and get a life. This perma bull. What are you worried about what other people think? Who cares? Oh, you're just a perma bull. Oh, okay. Well, also, I have been for 30 years. How's it going?

[B]

Well, that's what I was about to say is, is it naive to think that if you don't believe that society is going to completely collapse, that, yeah, it's smart to be perma bullish. Like over.

[A]

Why are you investing in the first place if you're not thinking the future is gonna be better than the present?

[B]

Yeah, of course.

[C]

You know how crazy American style capitalism is. Like there are people that will make money from the world crumbling like, like

[A]

it's, you know, bear newsletters make the most money.

[C]

Right, Right. You act like, you act like this country isn't a collection of 150 million adults who mostly wake up every day and try to improve their lives. Explain to me in that world how we don't have a higher stock market a decade from now. How everybody working at a Fortune 500 company, an S&P 500 company, a Nasdaq 100 company, everyone working there, it's their job to help increase the profits and thereby the valuation of these companies. That's who you want to bet against. You want, you want to bet against a collection of the most innovative, hard working type, triple A. People who do nothing but wake up and look for ways to make even more money. You want to be on the other side of that? Are you insane? Yeah, I'm a perma bull.

[A]

Lolol.

[C]

He's never gonna sell.

[A]

No.

[C]

When the client needs the money, we sell.

[A]

Right. And the reason that there are balanced portfolios and there are defensive rules in our strategies is because we know bad stuff will happen.

[C]

It's like this badge of honor. Oh, I'm suitably. I'm skeptical enough for you. Now you take me seriously? Cuz I repeat all the same things. Everyone talks. All right, here it goes. Ready? The national debt is high. Trump is crazy. The socialists are coming to tax us into the Stone Age, the midterms, interest rates, inflation. Okay, did I recite the whole litany for you? Now can you take me seriously? Yeah, I'm aware of the Strait of Hormuz. Are we good?

[A]

You were early on that, by the way. You had the straight of Hormuz thing before anyone, right?

[C]

Stock market commentator. Bingo. Yes, my guy. I could tell you like next week what the narrative will be like.

[A]

Yes.

[C]

I can't tell you what it'll do for stock prices, but I can tell you what they'll be talking about.

[A]

I mean, do most financial advisors have equity heavy portfolios? Of course. Because even retirees could have 20, 30, 35 years to grow their capital retirement. You have to take some risk. But they also balance it out with cash and bonds and other strategies that offset the risk. That's the risk.

[C]

Well, we're getting paid to help people take the risks that they're supposed. That's the job. The job is not to dance around and try to avoid the raindrops. The job is to help people walk through a storm here and there and continue to take the risk that they need to take. It's not, how do we avoid the rain? That's not possible. I would love to do that. I would love to do a macro, whatever, where I can forecast all the bad things that are going to happen and then put the trades in in advance. But if I looked at you with a straight face and said, I can do that, pay me for it, you would think I'm crazy. Wait, you're going to predict the future for me? Yeah. Come on. Come on. The job is to help people take the risk that they wouldn't otherwise be able to take on their own. That's what we do.

[B]

And a core point that you guys make time and again, but I think people need to keep hearing is in the scenario where we're living in a fallout world in 20 years, like, who cares about.

[C]

I had the wrong asset allocation for that.

[B]

Yeah. Who cares then? Like, we have bigger problems, you know, but.

[C]

Yeah, well, so the last thing on this, what sounds riskier to you? 40 years old, potentially another 25 years to invest, potentially another 40 years to live if all goes well. Knock on wood, right? 40 years old, earning probably the highest income you'll earn, or heading into your peak earnings years, putting money in stocks now. Okay, does that sound risky? I get it. Market's at all time highs, valuation, blah, blah. Okay, that's one risk. Here's the other risk. Don't invest. And the price you pay for everything. Triples in the next 15 years. And the cost of living? The cost of every component of living is higher. Well, the good news is 15 years ago, you didn't have any volatility in your portfolio. That's the good news. The bad news is you invested in treasuries at a 3.5% yield, inflation was 3% and your buying power has been cut by 75%. So, which sounds more risky now that I've laid it out? So when do you want your risk? Do you want it now or do you want it later? If you want it later, sit in cash and you will have the risk of, oh my God, my savings ran out and my bills keep going up. You could have that risk if you want. Our clients take the risk today.

[B]

Yeah.

[A]

Josh is on a heater. Let's do another one.

[B]

That sounds better. Okay. Up next, we got one from Brazil, from Christian here in Brazil. Financial. Literary. Sorry. Financial literacy remains relatively low. Only a small portion of the population invests, and even among those who do, many are still drawn towards speculative strategies, short term narratives, and the constant pursuit of extraordinary returns. In many cases, the greatest obstacle is not access to financial products, but the absence of a sound investment philosophy. If you were in my position advising clients and writing in a market where financial awareness is still developing and where speculation often sounds more appealing than discipline, what positioning would you adopt? How would you frame the value of a rational, long term, evidence based approach in a way that could genuinely resonate with people at the beginning of their financial journey?

[A]

So I do think we take for granted the amount of.

[C]

Is your book published in Portuguese?

[A]

It should be. I don't know if we got the Portuguese.

[C]

The new one, probably not yet. But I'm asking about A Wealth of Common Sense. Your original book.

[A]

That's a good question. I don't know.

[C]

Cause that's the answer. Distribute copies of A Wealth of Common Sense. Just keep buying. By Nick Magiulli. The Psychology of Money by Morgan Houselike. Distribute books to people that are willing to learn. Now if you say, eh, people aren't gonna read books, all right, well then they're not gonna become serious investors either.

[A]

Yeah, if they're not interested in the topic, they're never gonna follow through with your advice, right? You can't say that.

[C]

Don't try to make people do something that they're not capable of doing. You wanna teach someone who's not capable of learning? So like, focus on the people that seriously do wanna learn. And I mean, there are some incredible books you don't have to read books from the 1950s. You don't have to read Ben Graham. There are some incredible books that my friends have written that are probably translated for a Brazilian audience. And they can read them right now and instantly become among the best investors in the country.

[A]

Throughout the chart here, this is from Paul Kudrowski. He shows the ownership percentage across the world in different countries. Brazil's not on here, but I'm guessing it's pretty low. It's kind of crazy. India is only 6% of the population that invests in the stock market. Japan is 15% troughed off. Guys, I think the point is, I think we take for granted how familiar everyone here is with the stock market. That doesn't mean everyone is saving and investing for the long term, but enough people are. I told this story before, but I went to Italy in 2015. They had me come give a speech about Bob, the world's worst market timer. And they said, listen, for centuries the only thing people invested in Italy was were real estate and government bonds. And then government bond yields went negative. And they're like, now we're forced to invest in the stock market. We're trying to explain the stock market to a whole new group of people. And so I came and gave a speech and then 10 years later they had me back for another speech. And now I felt like, oh my gosh, they have picked this up. Like they get it now. They're all, you know, people understood the stock market better. They were investing in the s and P500 index funds and all this stuff. And I think the good news is that it's so much easier to learn these days than it ever was in the past. Josh mentioned it's podcasts and there's so much newsletters and all this stuff.

[C]

I think the developed world has gotten a crash course in the importance for every country to have a robust stock market. And if they didn't learn it from the recovery post financial crisis, they have definitely learned it from the post Covid recovery. And you are seeing, like in Germany they have these ETF savings accounts. I think this is a global phenomenon and we've talked about this on this show.

[A]

Those numbers are coming up in the next few decades. Those are not gonna stay that low.

[C]

The young people understand the importance of ownership. They understand like, like the way to fight inflation is not to protest in the street. The way to fight inflation is to become part of the investing class. They understand. They're not stupid. They're not stupid. They may not have grown up in A country where the stock market was emphasized as, like the way to build wealth. And in a lot of these places, the only, like real upper class are people who like their great, great, great, great, great great grandfather, like, besieged a castle, slaughtered the family that lived there, and declared themselves the duke. And then 500 years goes by and all their money is still in land. Like, that's a lot of countries. That's what rich people are.

[A]

Is that the latest House of Dragon episode?

[C]

Yeah, but I'm saying that's where wealth, that's where wealth had come from for the European experience is almost like the same people who are rich now. You look up their family names. They were rich in the 1700s. They even have their money at the same banks in the Netherlands and in Italy. First of all, the word bank comes from Italy. Banco. It means bench. This is literally Jewish money changers sitting on benches and handling people's money. There are people that have the same bank account for 400 years in Amsterdam, in some of the capitals of Europe, in Italy. So the wealth is almost like it's dynastic, it's real estate based. And then for everyone else, it's like a socialist system where it's not about building wealth, it's about protesting to get a higher pension. The Greeks want to retire when they're 48 years old. Whatever it is. I'm joking, guys. Nobody get upset. But, like, I don't think it's fair.

[A]

Today we're really big in Croatia.

[C]

So the attitude, the attitude is changing. They have smartphones.

[A]

It's never been easier to get ahead. They know barriers to entry are so much lower. I agree. So here's. So he was asking. He said he wants to start his own newsletter. I took some of the email out. So here's my quick and simple things. Make it interesting, make it useful, make it easy to understand. And don't talk down to people. Like, don't talk over their heads. And then the other thing is just, yeah, you can't save everyone. And some of these people are gonna have to pay their tuition to the market gods. Cause they're speculating. They'll find you later. Like, maybe they won't understand it right away.

[C]

It's actually good. It's actually good for young people to blow themselves up in the market. The dollar amounts are small.

[A]

Yeah. They learned about what not to do. Then they realized, okay, we're doing something else right.

[C]

You know, we'll end with this. Nobody learns from other people's mistakes.

[A]

You have to do it yourself.

[C]

You have to do it yourself. And you have to, oh, I'm not gonna do that again. And then pick yourself up and say, I better go learn something that will happen for people over time. You can't force them into that. You could just be there as a resource and know that if and when they're ready to get serious. You're doing great writing and content, and you'll be found.

[A]

Yeah, bring me and Josh down there for a speech. I've always wanted to see the big Jesus statue. We'll come to him first.

[C]

You want to go to Sao Paulo?

[A]

Yeah, why not?

[C]

Chris just went to Brazil recently. He went to. I think he went to Rio de Janeiro recently.

[A]

Yeah, Everyone in his contact list. He was texting. Pictures, too.

[B]

Let's be honest, too. What would young people be doing better with their money than speculating in the stock market historically?

[A]

Right. You know, what else is there? Right, Duncan? There's nothing better. Yeah, you're right.

[C]

Starting a business.

[B]

I don't know. Yeah, I mean, like. I mean, like college age, you know, it's like.

[A]

Yeah, yeah.

[B]

Speculating. Going to the box.

[A]

Not the worst. One more question.

[B]

Okay, last but not least, we got. We got one from Juan, longtime listener here. I really appreciate the thoughtful advice you give and would love your perspective on a situation it's difficult to find guidance on. My father recently passed away unexpectedly and left a very large estate, over $20 million. Everything is held in a trust that is now controlled by my mother. I have one brother and one sister. How should someone in my position plan for the future? Should I continue saving and investing as though I'll never inherit anything? Should an expected inheritance change how I think about retirement, career decisions or financial independence? Or is the only prudent approach to completely ignore it until the assets are actually mine? I'm in my 30s, have a good career, save aggressively for retirement, and have no intention of counting on money that isn't mine. At the same time, it feels strange to plan as though this future event doesn't exist. I'd love to hear you hear how you would think about this from both a financial planning and psychological perspective. Thanks for all you do, and keep up the great work.

[C]

Dude has to talk to dude. I talked to his mom.

[B]

Yeah, that was my first time.

[C]

Of course, but you got to talk. First of all, you got to get to your mom before she starts dating again. This is really important. No, I don't mean to be. I don't. I don't. I don't. I don't mean to. I don't mean to be flippant about

[B]

sounds like a Murphy.

[A]

No, you're right. You get you, she has a twin

[C]

mother, I might start dating her.

[A]

You get all of them in a room together and talk about. I agree. And maybe you have a third, an objective third party, an advisor or a trust attorney or estate attorney. Whatever it is, you're right. You have to talk about this first.

[C]

Well, I need more information. What does the trust say?

[A]

Right?

[C]

Like does the trust list you, your brother and your sister as the eventual beneficiaries? Like are there dates at which you come of age and you inherit or are you just nowhere to be found in the paperwork on this trust? Are you not even part of it? Like, you gotta talk to your mom. So like there's nothing we could tell you until you find out whether or not there's a structure by which eventually some of this makes its way to you.

[A]

And you know that there are rules in place on. Right, that's what I was gonna say. It'll spell it out.

[C]

You can't just do whatever the purpose of a trust. We do this work for hundreds of households. The purpose of the trust is so that somebody is not in your position walking around like, I wonder what's gonna happen. There should be dates at which you and your siblings come of age and how much you inherit when. And some of this is around tax planning. And like you have to, you got to get, you got to get into the details here.

[B]

That's why I was going to. We can't help. We. A trust would prevent you from just like cashing out for 20 million one day just because you want to. Stuff like that. Right? It has time based rules. Typically, yeah.

[C]

And then, and then the thing I was kidding about, I'm not actually kidding about like, hopefully somebody new comes into her life after, you know, a normal period of mourning. We don't want her, we don't want mom to be for to alone forever.

[A]

Right?

[C]

So we want to get the answers to these things before there's another voice in the conversation.

[A]

The best case trust would be this is a Brewster's Million situation where you've got to spend the 20 million and then you get 300 million if you spend it in 30 days.

[C]

Remember that movie, Kid's dad just died. Take it easy with Brewster's Millions.

[A]

It's a great movie.

[C]

Forget Ben just did that.

[A]

But listen, you can't pretend if this money is going to be yours someday, whatever, if 5 million of it, it's going to be yours. Let's say, you know, each of the kids gets 5 million or something. Like, you can't just pretend like it doesn't exist. And if it's being invested in a prudent manner, and let's say you can touch it when you're 50 or something, I don't know when it's probably going to be larger than that. So, yeah, you can. Maybe you could take more risks in your life if some of this money is coming to you. You can take some more risk potentially. Right. Try something new that you wouldn't have otherwise. Sounds like he's already saving in his mid-30s. Like, maybe you could try to take some risks if this is the case. But I agree with you, Josh. This is everyone at the family table. We're having a discussion here.

[C]

So we're doing this. This resonates with me so much because we're actually in the middle, like the dead middle of this process right now. Sprinkles and I, we had a transaction at Redholtz wealth earlier this year and we kind of did like an internal succession thing at the firm. And it was like a good time to evaluate my own ownership in the business. And, you know, who I want to inherit money and how I want to set my wife up, just in case. I know I'm a picture of health right now, but you never know what could happen.

[A]

But the thing is, people don't like having these conversations. Cause it feels like it.

[C]

I didn't want to.

[A]

You have to have them. You have to have them.

[C]

I'm so right. I put this off. But like a lot of the work that we're doing, and we're working with Brian Rosen, who's a financial planner at Redholtz, and we're working with Bill Sweet, and we're working with our attorneys, et cetera. But a lot of these conversations are about worst case scenarios, but they're also about rules. And so that trust, it's not just like an account that's set up. It's an account that's accompanied by some sort of a document where it sort of lays out how the money will be used, who is responsible for distributing it. Like, it's a. It's a. It's really important for you to have the details so that you don't walk around in your mid-30s like, I wonder what's going to happen. Like, you should have a little bit more certainty that now it doesn't mean, oh, you're good, like, you're inheriting 10. Don't worry about anything. No one's going to tell you that but, yeah, I think. I think the uncertainty would keep me up at night. Like, what. Where is this all going? So I really think. Let's double down on. What's Ben saying. What I'm saying, unfortunately, you gotta have a talk with mom. What? You know, what happens if something happens to you? What's written in the documents?

[A]

And it's a weird thing because that money has a more emotion. He talked about the psychological parts of it. The money is gonna feel bizarre because it happened because your father passed away. There's a.

[C]

You're not celebrating the inheritance.

[A]

No, it's a very weird that. It's kind of a weird emotional component, and you almost feel like the money's not yours and it doesn't feel right. But this is something that's going to be happening to millions and millions of people in the years ahead as the baby boomers slowly but surely pass away. Unfortunately, this is just a reality. Father Time is undefeated. And having these discussions beforehand is way easier than to have them after the fact. And I think that's what he's learning like, man. Obviously, there wasn't any talk about this before, and maybe the number was a surprise even.

[B]

Do you think for that reason that a lot of people will buy things like property instead of invest their inheritances because of that psychological component?

[C]

I had that property in trusts, no junk.

[A]

And I had that with a friend that parents passed away and decided, like, I want to do something different. I'm not just going to put it in a portfolio.

[B]

It's almost like it represents. Yeah.

[A]

They bought, like, a vacation property in Florida. And I think there was like, I'm going to do something to, like, create memory. Like, so you're right. There was a more emotional component to the decision. They're like, this probably wasn't the greatest financial decision we could have made, but we wanted to do something with the money that would make them happy, potentially. So. Yeah, you're right. There's a different element to it.

[C]

I know when my grandparents passed, they wanted me to be invested in Nvidia. So to commemorate their passing, we went full boat. Nvidia.

[B]

I thought you were gonna say Shaq,

[C]

like, five stock splits ago. And every time I punch up nvda, I feel like I'm honoring my. My grandmother. She.

[A]

She.

[C]

She loved. She loved. Jensen Wong.

[A]

Yeah. Big fan of the leather jackets.

[B]

Yeah.

[A]

All right. You have a question for us?

[C]

I don't know how we. I don't know how we. Where we go from there.

[B]

It's a good place to end.

[A]

Wait, I don't shop.com if you want one of the dad Compound hats of Dunkin. Oh Animal Spirits new mug. All right. I got, I got a hat behind me somewhere there. Yep.

[C]

We have like the world's coolest long sleeve tee on on the site. Public equity.

[A]

I don't shop like it. I don't shop dot com. My kids love the compound towels in the summer too. Ask the compound [e-mail] if you have a question for us. Thanks everyone. Thanks Josh. We'll see you next week.

[B]

See you everyone.

[D]

Thanks for listening to Ask the Compound. All opinions expressed by Ben Carlson, Duncan Hill and any of their guests are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.