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Mind Your Money
Transitory Bear Markets, the Power of Doing Nothing, & Big Tech's Dominance | Ben Carlson
00:37:54
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- [00:00]
A
Welcome, everyone, to the Mind you'd Money podcast, a show by Public.com that examines the relationship between investing, human behavior and happiness. I'm Morgan Housel partner at the Collaborative fund and author of the book the Psychology of Money.
- [00:14]
B
I'm Douglas Bonaparte, the president at Bonafide wealth. And in this episode, we're going to talk about whether bear markets are transitory and how financial history is the best guide for an investing plan playbook.
- [00:28]
A
We're also going to discuss the evolution of financial advice and ways to be wealthy that don't require money. And with us to talk about this is our good friend Ben Carlson, director of Institutional Asset management at Ritholtz Wealth Management, one of the best damn financial bloggers you will ever read and what I've been reading for years. Ben, thanks so much for joining us today.
- [00:46]
C
Hey, guys.
- [00:47]
B
All right, so we're going to kick things off here with Ben and talk a little bit about market outlook. You know, markets ripping in 2023, big bounce back from 2022, makes us wonder, are bear markets transitory? How swiftly do these things just fade off into the distance? So, Ben, what's your take on that?
- [01:07]
C
I did a blog post where I said bear markets are transitory, basically as a troll, because that's just one of the words that we have in our lexicon now. I think soft landing and transitory have been added to the finance definitions in the last couple of years. I guess the whole take for me is usually that all things in markets are cyclical. Nothing lasts forever. The trees don't grow to the sky. Right? Some things can get worse than you think. Some things get better than you think. But I guess the hard part about all of the recency bias that we all have is that when things are going well, you think they're going to go well forever. When things are going poorly, you think they're going to get worse. And in 2022, people at the end of the year thought, okay, things can only get worse from here. Inflation is high. Now that inflation is falling, things are getting better. People think things can only get better from here. And that's the hard part about investing, is that you always think you should have taken more risk when things are going up and you really wish you would have taken less risk when things are going down.
- [01:57]
A
But I feel like the question of, you know, now show Japan, like that meme that exists in Twitter of, like, Japan as the example of the bear market that virtually never ended, I feel like what, what that really should come down to is, like, is A bear market going to match your financial, your personal financial time horizon and risk tolerance. And for some people, a bear market that lasts, let's say 10 years, which is effectively what happened from 2000 to 2010. Like there was a bunch in between, but 10 years of going nowhere. If you are in retirement or starting retirement at that period, that sucks. That was terrible. If you were 22, it didn't matter and it didn't make any difference in the world. So the question of like, how long do these things last and will they last forever. To me it's always just been like, does it match your financial goals? And that's so different for everyone.
- [02:41]
C
Right. Risk is circumstantial depending on where you are on your investing life cycle. You young people do not want to hear this, but if you're in your 20s and 30s and you have decades ahead of you to save, you want a 10 year bear market so you can keep buying shares at a lower price. Right. No one's going to want to live through that. But that's the truth, is that you want to. I remember someone told me, they said, I started saving at the end of 1999 when I first started my first job and by 2010 I had put in more money than my market value was. Right. The market value was lower than the amount they had put in. And they're like, this sucks. I can't believe I did this. And I, I wanted to. I wish I could have fast forwarded 10 years to see how they felt in 2020 because that was the best thing that ever could have happened to them. They had 10, 11 years of putting money in at lower and lower prices. It's just hard to, hard to wrap your mind around that. Yeah.
- [03:25]
B
Two, two things, you know, one, what we want are, are these bear markets that don't kill jobs. Right. We want that 20% discount on the regular with, with the idea that, you know, we're going to get that back and then more to which was last.
- [03:40]
C
Year, last year was a non recessionary bear market.
- [03:42]
B
Exactly. We're going to get to where the recession went in just a second. But I once said investing is being willing to lose 30% in order to gain 300% and I think that works nicely there. You know, whether, whether that's actually going to happen every single time is another thing. So speaking of the recession, you know, this was the most highly anticipated recession ever that I guess never came. If you do a textbook definition, you did clock two consecutive quarters of negative gdp. Many will say the White House has changed the definition of what a recession is. It didn't happen. But I'd love everyone's take on, you know, where. Where did this go? Are we. Are we clear? You know, are we going to, you know, let the bulls ride here on out?
- [04:26]
C
I guess we're never totally clear because everything is cyclical and it happens. But I think people really underestimated just how prepared consumers were heading into a potential slowdown and how much people repaired their balance sheets during the pandemic because they weren't spending and they were getting money and they were cutting back on travel. And so I think we just. We really underestimated the power of people to put that money to work. And then once they started spending again and it snowballed, it was hard for people to pull back then because they got a taste of it and they realized, like, wait a minute, I. I went 12 or 15 months without spending money on going out to restaurants and traveling, and now I'm going to do that stuff even more. And I think we all underestimated the power of the consumer. And if there's one thing we do in America is we know how to spend money, right? If there's, like, the National Financial Olympics, USA is hands down the best spenders of anyone in the world. We love to spend money. And having that taken away from us for a short period of time, I think forced people to realize, like, oh, no, I want to do that again. And I'm going to do it even more now.
- [05:23]
A
To me, it's like. Like, how many examples do we need of people's inability to predict recessions? And when people are like, everyone anticipated this and it never came, like, how. How many times you need to be reminded that it's always like this? And the big recessions that we did have, 20, 20, 2008, go back to the periods before that, even go back to, like, early 2008, when we were technically already in a recession. The narratives that dominated CNBC and what existed of Twitter back then was, by and large was, we're not going to have a recession. We're going to skirt this. That was a message coming from Ben Bernanke at the time. That was what tended to Dom. The people who are actually saying, shit's going to hit the fan were the minority. And in hindsight, we give them the credit and the attention, but that was a minority view. It's like, there's so many examples of this, of big recession was coming that nobody saw, or recession that everybody saw coming that didn't happen.
- [06:14]
C
It's funny, you had the opposite last year of people saying, I'm pretty sure we're already in a recession. We just don't know it yet. Whereas the opposite in, like 2007, 2008, was people saying, no, it's fine, and we were already in one. Right.
- [06:23]
A
It's like, it's so, it's so impossible to predict these things, but the allure of doing it is never going to go away because it's so comforting. And you can make so much money if you can predict these things. So, like, no matter how many examples we have of not being able to do this, it's. People are never going to stop trying.
- [06:40]
B
Love it. Love it. All right, so let's, let's transition a little bit here and talk a little bit about a successful investing playbook that's based on history. I know you guys love studying history, so let's talk a little about why financial markets, you know, from a historical perspective and how emotional discipline are vital for investing success. How do these two things come together, the study of history and knowing thyself really create the best playbook for investing?
- [07:14]
C
I was reading William Bernstein's new book or the updated version of his book the Four Pillars of Investing, this week, and one of the quotes he had was something like, the only black swans that exist is the history you haven't read yet. And the idea is that crazy stuff has happened in the past all the time, and the stuff that happens in the future that's crazy is probably going to be a little different, but the range of outcomes is still just extreme. And I think that's the only comfort I get from reading history is that, you know you're going to be surprised by something in the markets. But just don't be surprised that you're going to be surprised, because crazy stuff has always happened and it's going to happen in the future. I think that's the life in the financial markets is just preparing yourself for a wide range of outcomes.
- [07:54]
A
There's this great quote from Kahneman that I love where he says something like, the correct lesson to take away from when you are surprised is that the world is surprising. It's not to update your worldview with like, oh, I didn't know pandemics can throw everything upside down. So let me, like, include that in my toolbox. The correct takeaway from 2020 is the next risk is what you don't see coming and that nobody's talking about. And no, it's not in any analyst forecast. It's just the correct lessons from surprises is to be comfortable with being surprised.
- [08:21]
C
That the hard part about that, too, is that we're always fighting the last. Where after 2008, everyone was doing it. This is how Zero Hedge became enormous, right? Because everyone said, I missed the 2008 crash. If I could do it all over again, I would have nailed it just like those five people did. And so now I'm really going to nail the next one. And it was double dip recession predictions, and, okay, here's the next big one. And this is the top and all these things. And then look what happened. And then it's going to happen this time around. The next time around, too. People are going to. The next time we have. We have some sort of big takeoff in the economy, people are going to be hard landing or soft landing, and it's going to be just like the pandemic. And, you know, it's going to be different. Only we can't. We can't make our brains think that we always fight the last war and try to think of like, oh, if I would have just done this, then I would have been able to handle this better. And. And the next time you try that, something else works.
- [09:07]
A
What's always so interesting to me, too, is that Even the, the five people or whatever who predicted 2008, by and large, with a couple exceptions, most of them, even if they got the calamity right, they got the details wrong. So a lot of the people who predicted 2008, their prediction was that after this financial crisis, interest rates are going to surge to double digits and the federal government is bankrupt. That was like, the details of their prediction. It was the exact opposite. Interest rates went to zero. We did $20 trillion in deficit spending. It was the exact opposite of what they predicted. So even if you get the calamity right, getting, like, how to invest profitably in it is a completely different game.
- [09:44]
B
It is so, so hard. And to Ben's point, you know, the whole. I wish that 2008 would happen again because I missed it. You know, as an advisor who basically cut their teeth and, you know, grew up in those years or started their, their whole New York experience while the world was collapsing, I vowed to myself that, you know, I will be prepared to take advantage of that next one. I will advise my clients appropriately the next time this comes around. And sure enough, here's now March 2020. You know, S&P is down 33.5%. And I figure, all right, here we go. We've been training for this. We know all the things to say and all the things to do. Beautiful analogy. Email goes out to all the clients on how to buy this dip. And sure enough, it is more difficult than I ever could have imagined. And the expectation that I had for people to bite down on this, I was like, cool, I can get at least 60% of my clients here to take advantage of this opportunity. It probably was 17%. The good news is you got everyone to do the one thing they shouldn't do, which is sell the bottom panic and game over themselves. But this notion that even when you've trained them up and you've hopefully put them in a position to act, that they would. I have to tell you, when facing whether it's a global pandemic or a financial crisis like 2008, Ben, you're right. You know, just getting people to do anything in that kind of environment is extremely difficult now. I know. And if it happens again, my expectations are now set much, much lower. And maybe you think about what, what could have happened in order to get more people to take advantage. It's just not easy.
- [11:32]
C
To Morgan's point earlier about the Japan thing, your baseline during a bear market is always, okay, this one's going to be the worst one ever. Like, I know the last ones we all recovered from, and those were fine. But this one, this one's really going to get bad because I'm feeling it. I can just tell that, like, something else is going to happen here and. And it's not going to be good. And that's always the feeling then.
- [11:54]
A
Ben, I'm always so curious, like, it's easy to blog about these things and say what you should be doing. Talk a little bit about, like, what's happened inside your own head and your own household during these moments, whether it's in 2020 or like, preparing for the recession. What do you do personally with your own money around these ideas?
- [12:12]
C
I actually think growing up early in my career, living through 2008 was the best thing that's ever happened to me as an investor because I came into the business in 2005. I started a new job in the summer of 2007, like a couple months before the things peaked. In fall of, I think it was October 2007, the stock market peaked. And I lived through that. And I was just starting my investing journey then, and I saw all these really experienced investors do all the wrong things at this point. I'm still reading all the Buffett stuff and Howard Marks, and I'm like, listening to these contrarians talk about buying into the pain. And I'M seeing people that I work with putting their entire 401k into money markets or stable value funds and advising me to do the same. And I'm thinking, geez, I'm in my late 20s, I'm going to be, I'm not going to need this money for another 30 or 40 years. Why would I not be buying stocks hand over fist? And if the stock market doesn't come back from this and the financial system comes to an end, well, it doesn't matter what my money's invested in. Right. The money markets are going to be gone too. And so I leaned into the pain and it worked. And I realized, like, oh my gosh, that's the thing to do, because the opposite of the world coming to an end, I don't care what my portfolio looks like. So obviously I have those same feelings and emotions, but I think for me it's just, it's automating everything. And my contributions are automated, my rebalancing is automated. So when things get out of whack when they fall like that, during the pandemic, when you had this horrible, horrible. I think it was like the worst month since the Great Depression where stocks fall 20% or whatever. And rebalancing, it's not me, like going in and being like, oh, I'm a hedge fund manager, I'm going to do this and hit the button. It's like it's done automatically for me. And I try to make those decisions ahead of time so I don't even have to think about it at the time because I still feel those emotions and it felt scary. And that time sticks out just as much because it really, I mean, it feels like a whirlwind because it kind of happened and it was over so quickly. But in the moment, it felt like it lasted a lot longer than it actually did.
- [14:11]
A
Yeah, I definitely remember some phone calls in March of 2020 with smart people who I really admire who had these apocalyptic visions that thankfully never came true. But they made a lot of sense. And I'm not saying they were wrong for bringing them up. Like, things could happen. I remember one person saying, hey, the entire banking system has $3 trillion of capital. You don't need to be that imaginative to see how all of that has gone in the next two months. And I was like, what happened? So he said, oh, in that scenario, the dollar goes to zero and you have to come up with a new currency. And I remember hanging up, just being like, what do we, what do we, what do we do? But I Think like that those things could have happened. And I think that's what makes moments like March of 2020 so terrifying. It's easy for when things are going well like today to try to imagine, say, oh, how would I feel if the market fell 40% and be like, oh, I would view it as an opportunity. It's so easy to think that. But then when you're in that moment in October 2008 or March of 2020, it feels different. Even if you have like your head is completely screwed on straight, it's a very different emotion than you anticipated it would be.
- [15:11]
C
Which is why I think it's so important to have your time horizon figured out in advance. I had a similar thing in 2008 where I had a hedge fund friend who worked at a hedge fund called me and said, on a Friday, get as much money as you can out of the ATM today, because you might not be able to get money out on the, on Monday. Right. And that stuff is really scary. So that's why, like, I have people ask me all the time, should I put my down payment money into the stock market or should I put the money for my wedding into the stock market? And that's the kind of thing where I think you really need a barbell of your money you're going to need for retirement or these far off goals. I think anything five plus years into the future, that's fine in the stock market, but below that, I think you have to have it in something safe and liquid that you can get to immediately. So you're not panicking out of the stock market. You have that fallback of, no, it's okay. I have this liquid funds that's going to see me through, so I can just leave the stock market alone and let it do its thing because I know it's going to go up and down. And in a lot, in some cases.
- [16:04]
A
This is an area where I think people underestimate the return on cash. It's different today, but in the last couple of years, like, oh, cash returns, you know, 0.1%. But actually if having cash prevents you from panic selling your stocks, then the actual return on your cash is like 5% even when the interest rates were zero. And so that's like, it's, it's, it's hard to measure that return. But if holding cash prevents you from panicking in March of 2020, it's one of the highest ROI assets that you have.
- [16:33]
C
Yeah, it's a behavioral release valve, right?
- [16:36]
B
Yeah, absolutely. So I remember saying when things had gotten Back to their pre pandemic levels when, you know, you were more or less at a break even here. I remember saying congratulations to all the invest that did nothing, right? So if you just stuck with it, you did all right. You know, you're back in the game. And of course, if you sold at the bottom, you just blew your foot off and it's not growing back. So let's kind of dive into that a little bit, right? This idea of doing nothing, the. The passive investor, but is it really doing nothing? Is the something your ability to actually not give in to your emotions when, as Morgan would say, things get wild, or is it really just tuning it out, not looking at your statements, not logging into the account? Let's talk about the power of doing nothing specifically with your portfolio and why that may be a great idea.
- [17:39]
C
We had a talk the other day with a group of our advisors. We had a new advisor that joined our firm, and they were asking for an update from the investment committee, which I'm on. And. And some of the other advisors on the call were kind of saying, hey, how come we haven't done anything to the portfolio in the last 12 months or so? And we walked through all the different strategies we've looked at and all the different allocation changes that we've talked about. And my whole thing was like, we've been talking about doing a lot, but we've been fighting against doing. We've been fighting for doing nothing, because that's our default most of the time. As long as we have a plan in place and that plan says to do nothing, we would rather do that than do something unless it really makes sense to make a change. The problem with investors these days, I think there's never been a better time to be an individual investor. The access you have to funds that basically cost nothing and the different strategies you can get and the fund structures and the taxable retirement accounts and all this stuff is stuff that people in the past could only dream of. But this infinite amount of choice now tempts you all the time into, like, making a change for the sake of making a change. And so it's. I think it's. It's easier to do something than it is to do nothing, because it feels like if you're taking action, then you. You must be moving forward. Because, like, if I'm just sitting here on my hands, what. What am I actually doing to earn my keep here?
- [18:57]
A
I feel like there's also. There's almost no other industry where doing nothing is the right thing to do. Like if you're in poor physical shape and you want to get better, you need to move and do and like be active. If you want to get better at golf, you need to go practice and go swing a club. But if you want to get better at investing, you should do nothing. It's so counterintuitive versus every other endeavor that we have in life.
- [19:16]
B
Right.
- [19:17]
C
You're not taught, no one teaches you how to do nothing. Right. As long as you have a good plan, place set up ahead of time and you've figured out where your money's going and how it should be allocated and you've automated some of it, just leaving your hands off and letting it do its thing. It is the hardest thing to do because yeah, we're taught that hard work in showing something is how you get ahead in life.
- [19:36]
A
I wrote in my book, the last chapter of my book talks about what I do with my own money and it's, I'm an index, I'm a dollar cost average index investor. And the number of people who, the number of readers who made a comment along the lines of that proves you don't know what you're doing or how boring it is. And I think like the knee jerk reaction to people is that if you're, if you're a passive investor, you clearly just don't know what you're doing. Has always been so interesting to me. I understand why it occurs, but it just shows like it's not a natural tendency to get that for most people. I think it's, I think it's because most other fields you have to be active if you, if you want to get better at your skill, whatever the skill is, you have to be moving and doing something 24 7.
- [20:17]
B
That, that's why I'm such a great financial advisors, guys, I mean listen, I do nothing, you know that, that's the skill and it's, it's literally, it's literally the investment advisor and financial advisor's dilemma. Right? It's like the market's going down, do something about it. Someone's screaming at you and, and now you're going into 30 minutes of, you know, historical data of why you should not do anything and if you're lucky maybe you'll get them to. And then you're going to tell them, oh yeah, let's go buy, you know, and, and that was going back to that March of 2020 thing. I would get a lot of reactions that was, I appreciate you telling me, you know, all the history and you know, this is an opportunity but I don't know if daycare is opening tomorrow. The world's going to be here. My job is around. I'm not going to do anything. But you're out of your gourd. To think I'm going to take any risk free money, cash or otherwise, and put it into the market today. And of course that would have been an awesome decision, but it brings us full circle to, yeah, that, that's really hard. So, yeah, you know, props to all the advisors out there doing nothing. You guys are, you guys are awesome. You guys and gals are great.
- [21:27]
C
Great.
- [21:28]
B
Ben Morgan, Me.
- [21:31]
A
You okay?
- [21:32]
C
Yeah.
- [21:34]
A
Ben, I saw, I saw this video with your colleagues Josh and Mike this morning where they're talking about the percentage of returns from the s and P500 or from the total stock market index that are concentrated in seven companies right now. It's like Amazon, Apple, Microsoft, Google, those guys. That accounts for everything that's going on in the market. And these kind of statistics pop up every couple of years because it's usually the case that in the s and P510 or so companies account for a big chunk of the return. But it's more concentrated now than it's been in a very long time. And Josh, I want to, I'm paraphrasing him, but he said something like that's the kind of statistic that we might point to a year from now and be like, oh, it was obvious that that was the top when seven companies were leading 100% of the return. What's, what's your take on these, these numbers that come across every couple years.
- [22:20]
C
It is like 30% of the market now. So it's much higher than it was, I think like 10 years ago the top 10 holdings were 20% of the market. Now it's 30. So it's becoming more and more concentrated. If you look at history, there's a. Hendrik Bessembinder, professor from Arizona State, looked at the history of the stock market going back to 1926 and it was like 40 companies made up like 80% of the returns or something. It was a ridiculous number. Like if you had these gigantic winners in your portfolio and then the majority of stocks underperformed T bills. Right. And that's kind of the way market cap investing works. If you're an index fund that like the cream just rises to the top. And I think, I don't know, I think if you own index funds, you shouldn't really be that worried because you're just owning the stock market in proportion to what all the other investors are owning them as right. The investing public outside of index funds has set these as the biggest companies. It's not like, it's not like they got there on accident. Right? This is, this is actually the stock market in terms of the order which other investors hold them. And so it doesn't really freak me out that bad. I think part of it is because these companies are so big now. How many different business lines are within Google and Microsoft and Amazon now? They're not doing one thing where if that one thing falls off a cliff, they're screwed, they're going under. And I think it definitely makes it harder to outperform the market when this happens. But I also think this is just the kind of the top heavy way that the world works now. You have these extremes and the people who point to that as being something to worry about. You can't show another study that shows when this happened in the past and the market crashed, because that hasn't happened before when these other companies got really huge. That's not typically what happens. It seems like it should be scary, but history doesn't show that.
- [24:07]
A
I remember seeing another study a couple of years ago that as concentrated as it can be in America, we're actually one of like the least concentrated countries around the world and that there's a time when like the Swedish stock market was like 90% Nokia and other countries that are like way more concentrated than we are. So I think it's just a natural part of capitalism that you're going to have fewer than 10 companies that are really dominating the industries that they're in.
- [24:30]
C
Well, the US is so big now, I think Apple's market cap itself is bigger than the whole stock market in Germany or the whole stock market in the uk. So like, you're right. These other, if you're, if you're concentrated in another country, you might have 60% of your top five in five companies or whatever. So yeah, the US is now 60% of the total global market cap. So it's just, it's so massive that these companies have to be bigger.
- [24:55]
A
I think these statistics can really irk stock pickers too. Because if you're a stock picker, if you don't own one of the seven big companies over the last year, like huge chance that you've massively underperformed. And so it just, it makes it super frustrating that of the 4,000 stocks you can pick from, if you didn't own these seven blue chips, like, forget about it, you're done.
- [25:15]
C
Take a look at take a look.
- [25:17]
B
At the equally weighted, you know, s P500 I think is a good example of what you may have missed out.
- [25:22]
C
Right.
- [25:22]
B
If you wanted to favor everything equally, you know, over the last five years, a very growthy period of time where the companies we're talking about really performed, you left something like 13% off the table. So it's not a massive spread. And I think if you narrow that to just the last year. Yeah, about 5% spread. I would tell you this much. I wouldn't want to miss out on 5% if it was a matter of just investing in the S P500 versus an equally weighted index. I don't really see a period of time here in the last 10 years where equal weighting would have been the move here. Ben, do you think that's a good proxy for why you just stick with normal cap weighting versus trying to, you know, game this thing?
- [26:08]
C
I think the whole, this whole exercise just proves to me that like, people need more diversification than they assume because I don't think we can ever predict ahead of time what asset class is going to do well or what stock is going to do well or what strategy is going to do well. So I'm, I'm a big fan of just broad diversification and understanding that the winners are going to rise to the top, but we never can pick them in advance. I think Nvidia wasn't even in the top 10 of the NASDAQ 100 as recently as like 2020 or 2021. And then the stock just went on this tear and now it's one of the biggest companies in the world and no one was predicting that it was going to happen at the time that this company is going to happen and AI is going to happen. And so I think that's the thing about this, is that trying to pick those winners is much harder than it sounds. So be as broadly diversified as possible and the winners will rise to the top eventually.
- [26:57]
A
It's pretty crazy if you think about 1999 when there was also a heavy concentration in the market. I'm pretty sure the big companies that were dominating were Cisco, Dell, ge, a few other companies that don't dominate anymore. And I'm sure 10 years before that it was probably IBM and a couple like, like there, there's a, there's a cycle and it's, it's hard for people to grasp, but almost certainly 10 years from now, 20 years from now, the big companies are not going to be Amazon, Apple, Microsoft, Google in the 60s.
- [27:25]
C
Microsoft is like in the 60s and 70s, AT&T was the biggest stock, and I think it was over 10% of the market, which is bigger than Apple is now. And there was a story this week that AT&T stock price is now back to 1990 level. So, yeah, you're right. It's not only that the winners rise to the top, but they more than make up for the losers. GE is down 50% since it was the biggest stock in the world in 2005 or something.
- [27:44]
A
Right. And which, which makes Microsoft, I think, all the more impressive that this is a company that's almost 50 years old now and is dominating more than they ever have today. It's pretty amazing.
- [27:55]
B
All right, Ben, as Morgan mentioned, you're, you're definitely one of our favorite financial bloggers out there. We love your writing. And one of your recent pieces was about the evolution of financial advice. I, I loved it as a financial advisor, seeing, you know, where we've been and where we are today. You also talk about the influx of information and how that has made it particularly difficult sometimes for investors to make the right decisions. So there's a lot of good and bad things here. Would you mind bringing us through that piece? I thought it was excellent. Would love your main, your main takeaways on that.
- [28:29]
C
I actually put together that presentation for a speaking gig that Morgan and I were doing together in Canada about a month ago in Montreal. The idea was just that we've had all these leaps forward in investment products. The first index fund came in 1970s. We had the first discount brokers in the 1970s as well when Charles Schwab came along. Money market funds didn't come along till the 1980s, ETFs in the 1990s. So we've had all these leaps forward. Then Robo Advisors came to allow more automation in the 2000s. And all these things have been great for individual investors. And costs have gone from being egregious. You used to have to pay 2 to 3% just to buy a share of stock. Right. The first index fund had like a 9% fee just to buy it. Right. A load on it. And so after you take all these frictions away and make it easier than ever, you can sign up for a Robinhood account on your phone and have it funded in five minutes later and start trading because, well, we're going to give you the money from your bank. You take all that stuff away, all the frictions, and it's a wonderful thing until you realize the only thing that's left over is behavior. And that's like the last frontier that is impossible for technology to completely solve. You can automate your investing as much as you want, but you can override that automation at the bottom of a bear market to hit the sell button. So I think especially for advisors, that is always one of the big things. Expertise as an advisor is always going to be table stakes in terms of insurance and taxes and financial planning and estate planning, all that stuff. That's table stakes these days. Right. Where in the past maybe you were just picking some stocks or mutual funds for someone, but helping them through difficult periods, whether that. And that could be the markets or their life. Right. Doug, you've, I'm sure you've dealt with plenty of clients who. It's not been the markets or the economy that has caused them problems. It's making a decision in their life like, should I do this or should I not do this? And I think that's where advisors can, can really add value, is helping people make decisions in times of uncertainty, which when you're thinking about the future is always the case.
- [30:19]
B
Yeah, 100% just today. And it's, by the way, it's most of that. And when you make it clear to individuals that we're getting more commoditized on the investment planning, really just the investment management side of things, I've noticed increasingly over the years, especially out of the demographic I serve, when people get really busy, they just don't want to do things themselves. They don't have the time to do it. It's not a function of whether or not they can index invest or put a portfolio together or trade account says. They really just don't have the time. What they want to know is when Activision and Blizzard finally merges with Microsoft, what happens to their RSUs? What happens if they have to negotiate their position? What happens if they don't like working there anymore? Who wouldn't want to work at Microsoft and then, you know, have to figure out where their family is going to move. I mean, the complexities around that are far greater than great. We're, you know, adding 1% to large cap U.S. stocks because that's what our model tells us to do.
- [31:14]
C
I thought it was the hardest question for most people to answer from an advisor that they want is, am I going to be okay if I buy this second house? Am I going to be okay if I buy this car? Am I going to be okay if we move here and take a new job? Am I going to be okay? And I think that's what people want.
- [31:27]
A
To Know, Ben, you've written about this a couple of times over the years and you wrote a piece recently about measures of wealth that don't involve money things, just about lifestyle and happiness or whatnot. I'm curious before we get into a couple of them, where this topic comes in for you, do you see this with clients? Do you see it with yourself or your friends?
- [31:47]
C
I do see it personally a lot more. I think having kids has just turned me into a big SAP where I think more deeply about these kind of topics. Were in my, whatever, 20s and 30s, I never would have thought about it. But I think about things like I had the ability to take my kids to daycare every day. I drop them off and I'd pick them up from the job because I had a flexible job. I've started now that my kids are older. I started coaching them a little bit. And sometimes I have to take off early from the office to go coach my son's baseball team or my daughter's soccer team or whatever it is. And I think it would be hard to put a dollar amount on having the ability to do that thing. I saw a study recently about how much is your short commute worth to you? And my first job, I had like an hour and a half commute, hour and a half there, hour and a half back in Detroit. Traffic that was just awful construction and traffic and it was just soul sucking. And I think, and I saw a stat that said like 35% of people said that, like that's worth like a $10,000 raise to them. They'd rather have the short commute than $10,000 in their income or whatever. And so I like to think about these things in terms of when you get comfortable, like how much would you have to pay to take a different job or whatever, right. Like, if you love your job, how much more is that worth to you? Then okay, you're going to double your salary, but you're going to get a job that you actually absolutely hate and all these things. So a lot of these things you can't quantify. But I, I think thinking through them in terms of your, where you are at in life is, is helpful to realize, like, this is a really good part about my life and this is a part that I'd like to improve on.
- [33:13]
A
I mean, there's, there's this buffet quote that I love where he's like, I think someone asked him the definition of success and he said success is when the people who you want to love you, they do actually love you. And it's like, I thought it was interesting from, like, the. One of the richest guys in the world. It's nothing to do with money. It's nothing to do with what? It's just like, who are the five people that you want to love you? Do they actually respect you? Like your spouse, your kids, your parents? If they respect you, like, that's about as high as you can get in terms of success.
- [33:36]
C
Which is funny because the three of us are all in finance, and we pay attention to all this stuff more than the average person. But every time, anytime I see either of you two and we talk, we talk about the personal stuff because that's kids we care about, right? Yeah.
- [33:47]
A
And by and large, we talk about. We talk about our kids because that's, that's. That's nothing else matters. Matters more than that. The other statistic I remember hearing recently was, like, of the top 10 richest men in the world, like, among them, there's 15 divorces. Or it's something like that.
- [34:02]
C
Yeah.
- [34:03]
A
And it's like, that's. You realize particularly you see Bill Gates in the last couple years. So I, I live in Seattle. It's like Bill and Melinda Gates are like the king and queen of Seattle. And when they announced their divorce, it was so shocking to people, a. Because they did such a good job, kind of like bringing the. The vision of, like, such an amazing life. You create the greatest company your generation, you become the richest man in the world, you give it all away and, like, virtually cure malaria. It's, like, so amazing. And then you get this insight into actually, like, no, things actually weren't that great at the time. There's a lot of issues right there that money did nothing for, or maybe even money exacerbated. The biography of the Snowball, too, about Warren Buffett is really interesting because it's the only book that really gets into his personal life, a lot of which is not something you would envy.
- [34:47]
C
Yeah. He didn't love that book very much, did he?
- [34:50]
A
Right. I'm sure. I'm sure it hurt. And maybe there were parts that were not 100% accurate. I think that's part of why he didn't like it. But still, you read parts of it and you realize, like, it's. It's never as good as it looks, particularly if you're only looking at the money. There's always other things that are so much more important to your happiness and how much money you make.
- [35:06]
C
I think you see this with friends who put out this Persona on social media, on Instagram or something. And it's like you see them project the perfect life on there and you're like, wait, I know your life. And I know that it's not as great as you. And I think just knowing that that's the kind of thing that can make you realize, like, if you envy other people, you're jealous of their success or like, you just never know what's going on behind the scenes or what it takes to get to that level in just taking a step back to think before I have these. These feelings about someone else and allowing it to impact me, maybe I should think about, like, where I am in my station of life and what I have to deal with.
- [35:38]
A
I almost feel like it's a counter indicator that when someone on Instagram posts a picture of their spouse and says, I love my spouse so much, they're so great, they're so perfect, I'm like, ah, there's some issues there right now. It's always a counter indicator.
- [35:52]
B
I gotta go delete some photos. But I, I love this idea that, you know, you don't have to spend money to, to feel wealthy and I think, you know, to give people. I'll tell you how I think about it in terms of, like, things that you can do. And you got what? We got three. Got seven kids, Ben. Your. What's your oldest is how old?
- [36:15]
C
Nine years old.
- [36:16]
B
Nine. Okay. I was gonna make the claim that we got seven children under the age of 10 between the three of us. So that's an accurate statement if you're looking for stuff to do that doesn't break the bank. You know, basically anything that makes your kid happy, like, think of the things that make that if you're making them happy, and then you can think about all those things that don't. Like, literally going to the park with my 4 year old is a lot of happiness for that individual. So go run around a Park for 30 minutes. You know, it's not. We tend as parents, I think, to overthink that the level of wealth. Ben, you said it best. My favorite thing is walking my child to elementary school in the morning. We have a very walkable, you know, neighborhood. I will, I will move anything out of my way to make sure that that can happen. So as long as. If it brings happiness. And I think this is true for adults as well. Usually you got something, you know, that you should do, especially if it doesn't cost any money. So happiness, no money.
- [37:14]
C
Boom.
- [37:15]
B
You win.
- [37:17]
C
Love it. Yep.
- [37:20]
A
All right, we're at, we're at 40 minutes. Once you once you wrap it, Doug?
- [37:24]
B
Yeah. You good with that? You good?
- [37:25]
C
Ben? Yeah.
- [37:27]
B
You want to change? We can change into another floral shirt. And really, like, we had a full clown. We had a whole breakdown of that last week. And by the way, I wore this specifically knowing you would do the same thing.
- [37:40]
C
Okay.
- [37:41]
B
I can't thank Ben Carlson enough for being here. He's always a good friend. And that's going to do it for this episode of Mind you'd Money if you enjoyed listening. Do not forget to subscribe and we will see you next time.