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The Stacking Benjamins Show
Even the Pros Are Wrong Half the Time. Here's What They Do Differently SB1820
01:09:52
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- [00:01]
Joe
AI Is incredible. It can teach you how to fry an egg and even write a poem, pirate style. But it knows nothing about your work. Slackbot is different. It doesn't just know the facts. It knows your schedule. It can turn a brainstorm into a brief. And it doesn't need to be taught, because Slackbot isn't just another AI It's AI that knows your work as well as you do. Visit slack.com meetslackbot to learn more.
- [00:31]
Claire Flynn Levy
With Sam's Club, you have the freedom to shop your own way. Curbside pickup delivered to your doorstep. Come in and grab it yourself. Yes, yes, yes. They've got plenty of options. Your call. Say yes to shopping the way you want. Join now@samsclub.com yes. And you must be 18 years or older to purchase a membership, and membership is subject to qualifications. Visit samsclub.com yes. And for details,
- [01:00]
Doug
who's with me?
- [01:05]
Joe
All right, let's do this, people.
- [01:14]
Doug
Live from Joe's mom's basement, it's the Stacking Benjamin Show. I'm Joe's mom's neighbor, Doug, and how would you like to be a stock market maestro? Today we're talking to two researchers who've studied the best and brightest for over a decade, and today will report on their findings. It's Claire Flynn Levy and Lee Freeman Shore.
- [01:45]
Joe
Yeah.
- [01:46]
Doug
And believe it or not, with all those names, it's still just two people. In our headline segment, more and more financial advisors and pros are using AI Is there a potential downside we haven't yet imagined? We'll pose this question to OG but we don't do that. Before I pose to you my awesome trivia question, I'll bet you get today's right so you can brag to all your friends. And now two guys who brag to their friends that they get to help you with your money habits. It's Joe and. Oh, Juja. J.J.
- [02:21]
Joe
well, hey there, stackers. Welcome back to the Stacking Benjamin Show. We're super happy you're here. Sit down and relax. You found us. Grab whatever you're going to take notes with because we're about to help you do better with your stock portfolio. I'm excited. We haven't talked stocks in a long time, OG and with markets you know are going down, the markets bump around a lot. On a normal day, we always laugh, be like, oh, the market's volatile. The market's always volatile. But it might be a little bit volatile lately. So good time to talk about analyzing your portfolio. How are you doing today, man?
- [02:56]
OG
I'm a little upset. We are recording this on opening day of March Madness, which is ridiculous timing and planning on our parts. So I might be a scos distracted.
- [03:06]
Joe
Well, let me tell you what's going to be really fun today. If you've ever had a coach analyze your swing, if you've played a sport or more importantly, if trying to have
- [03:17]
OG
Doug analyze my skiing one time, all he did was laugh.
- [03:20]
Joe
Well, that's his analysis.
- [03:22]
Doug
Don't suck that much and I won't laugh.
- [03:24]
Joe
Yeah. Or even more importantly, if somebody's given you you've had a great coach that's helped mentor you, help you work. Man. Our guest today, Claire Finn Levy and Lee Freeman Shore. Yes. Only two people, Doug, they are incredible, have a great background and they're going to coach you on better investing habits.
- [03:44]
Doug
Today they're hogging all the names. They should give some back.
- [03:49]
Joe
I think they're also hogging all the bio because listen to this. Claire Flynn Levy, she's the founder and CEO of Essentia analytics and they're a fintech firm that what they do. They work with investment managers and people who are capital allocators, right. For these big pension funds. They help them look at how they make decisions through analytics to know where their biases are, mistakes that they often make, how to stop making those mistakes to see where the opportunities are just 100% data driven. Before that she spent 10 years as a fund manager. She ran over a billion dollars of pension funds for Deutsche Asset Management. Later she was CIO of Avisec Capital Management in London. Claire has done it but she's paired with because we get all the best coaches here in the basement. Lee Freeman Shore, 16 years in investment management, one of the world's top fund managers. He was co head of equity research at Old Mutual Global. He has written several books on making better investing decisions. So we're bringing it stackers. We're bringing the best and brightest to help you invest better. So we got Claire and Lee coming up next, but before them we have a couple sponsors who help us keep on keeping on and we can bring great people to you like Claire and Lee for free. We're going to hear from them. And then Claire Finn Levy and Lee Freeman Shore join us to help you with your portfolio. You never know how much life insurance really matters until you see it in action. As a guy that was a financial planner for 16 years and also I've had some family members that have passed away, you just notice how things change and how transformative life is for those people who need help after you're gone. Two things I think stop people from getting life insurance. Number one is just the thought of it. Well, we all know that we're going to die someday, right? None of us makes it out here alive. But the second one is just this application process and it just seems like it's going to be so onerous that we don't do anything about it. Well, Ethos makes getting life insurance fast and easy. It's 100% online. You get a quote in seconds, apply admittance and get same day coverage. No medical exam. You just answer a few simple health questions. You get up to $3 million in coverage. Some policies are as low as $30 a month. That is of March of 2025, Business Insider named Ethos the number one no medical exam, instant life insurance provider. Ethos has 4.8 out of 5 stars on Trustpilot. Over 3,000 reviews. Protect your family with life insurance from Ethos now by going to ethos.comsb in as little as 10 minutes, you get your free quote and up to $3 million in coverage@ethos.comsb that's E T H O S.comsb ethos.comsb application times and rates may vary. I had a breakfast mentoring meeting yesterday with a young woman who was just amazing. She is graduating from college with a degree in wealth management and she reached out hoping for some pointers. And listen, if somebody's in Texarkana and wants to go into this beautiful field of personal finance and helping people get their money together, that is incredible. But even more incredible is how she reached out, how she was trying to network and I was having a discussion that finding the right person and avoiding the wrong person for a role, that's what can make or break an organization. And we just don't see that many qualified people. So how do you find them? Well, Indeed sponsored Jobs is a boost whenever you need to find quality talent. If you're hiring, Indeed is all you need. You can stop struggling to get your job post even seen on other sites you'll match with quality candidates with Indeed Sponsored Jobs get matched with and higher quality candidates who can drive the results you need. Reach candidates who meet your specific criteria like skill, certifications or location. Drives me crazy when I'm matched with all kinds of people who aren't a fit. I don't have that kind of time. People are finding quality hires on Indeed right now in the minute I've been talking to you. Companies like yours made 27 hires on Indeed according to Indeed data worldwide sponsored jobs posted directly on Indeed are 95% more likely to report a higher than non sponsored jobs. Spend less time searching and more time actually interviewing candidates who check all the boxes. Less stress, less time, more results when you need the right person to cut through the chaos. This is a job for Indeed. Sponsored job and here's what's cool. Stackers, you're going to get $75 in sponsored job credit to help get your job the premium status it deserves to at indeed.com/podcast just go to indeed.com/podcast right now and support Stacking Benjamins by saying you heard about Indeed right here at stacking Benjamin's Indeed.com/podcast. Terms and conditions apply. Hiring do it the right way with Indeed. And I'm super happy we have these two, I'll call them maestros at Research here with us. Lee and Claire joined us on my dad shortwave radio. Thanks for coming on. I appreciate it.
- [09:40]
Claire Flynn Levy
Yeah, thanks for having us.
- [09:42]
Joe
We've had Jack Schwager on a couple times talking about stock market wizards. These people that you know are traders, they're heavy duty. And the general thing Jack Shares has shared with our stackers before Claire and Lee is that these people are remarkable. You don't want to be them. Stick with index funds. What's the difference between a wizard and a maestro? The work that you two really focus on And I guess Lee, I'm assuming you may have coined the term stock market maestro together.
- [10:12]
Lee Freeman Shore
We coined the term. We're trying to think of a name of what to call our experts. Wizards and maestros. In my mind and in Claire's mind, I think the difference is wizards to us are people that are more short term orientated, more trading. The 12 stock market maestros we each feature in the book, which are phenomenal investors, award winning investors are just that. They're investors. They tend to take a longer term view. They're investing in public equities, names you'll have heard of the big cap, but we've got small cap guys in there. But that's the key distinction. They take a longer term view. They're investors, not traders. And the phenomenal executors of ideas. And that's why we call them maestros. And Claire can probably chat about, you know, Claire, maybe what we looked at to determine how good they are at executing their ideas.
- [11:01]
Claire Flynn Levy
Yeah, sure. I mean I think of both wizards and maestros are holding wands and the wizards going zap, zap, you know, like point and shoot, direct. The maestro has like long sweeps and is you know, conducting a symphony and it's a much more fluid and less. There's something more musical about that to me. But the maestros and wizards are very similar. It's, you know, they're both good. There's nothing that's not a question of is one better than the other. The maestros that we've interviewed, they're all public equity long only. Well, no, some of them are hedge fund managers, but all public equity fund managers and maestros, you get traders who trade all sorts of different things, not just public equity, but in that way they're sort of closer to us. Us being, you know, any old person who maybe invests in the stock market or doesn't, but invests in mutual funds or ETFs or the like. Like they're doing the long term investment thing is what we're all supposed to be doing. So the learnings that come from them hopefully are very applicable to people who are not fund managers, but who have yet to make decisions with their money. We all do.
- [12:09]
Joe
Claire, your company has a series of metrics to evaluate these people and help them to evaluate themselves, which I find fascinating, and to look at the traits that make them better investors. Is it more about process or is it more about results that makes them a maestro?
- [12:25]
Claire Flynn Levy
I mean, in the end. And this is how Lee and I actually met. So 10 years ago, Lee wrote a book called the Art of Execution, which was a study effectively of a bunch of different fund managers who he had allocated money to. So he and I were both, we both used to be fund managers. And in his book he documented what he learned from running money with these different managers. And I read this book and it really resonated for me because I just started my company, Essential analytics, and having been a fund manager, what I was trying to do was create analytics that would be like sports analytics but for investment decision making. So to make it possible to reflect in the same way an athlete reflects on their own performance, that's what I had been looking for as a fund manager.
- [13:11]
Joe
Almost like Claire. Like where the hitches are in your swing or where you're throwing the ball the wrong way.
- [13:16]
Claire Flynn Levy
Exactly. You know, people spend a lot of money on golf analysis. It's like this is no different. This is actually your livelihood, unless you're a professional golfer. But the way that Lee was looking at things is very similar to how we're looking at things at Ascension, and that's what ultimately led to us working together. But what he found was that in the end, the success of the manager or the investor, any one of us. It's not just about getting it right all the time. Even the professional, very best fund managers typically do not get their ideas right 50% of the time. It's how they behave when they are right and how they behave when they're wrong that makes all the difference. And that applies to every one of us. But it is the sort of thing you can see in data. So in stock market meisters, we, we vetted lots that we vetted a long list of award winning fund managers, 70 odd award winning fund managers, and then got their data and analyzed it and narrowed it down to these ones. Because these are not all people who have a batting average over 50%. In fact, on average they're under 50%. But what they do well is the slugging part. If people are baseball fans, in the end, it's like you can be wrong a lot as long as when you're right, you're very right. And when you're wrong, you're only a little bit wrong. So you've got to get the big things right.
- [14:38]
Joe
I remember Peter lynch saying something like that a long time ago, that he lost far more often than he won, but when he won, he would be able to win big enough that it would make up for a bunch of losers. Lee, it fascinates me when Claire talks about your earlier works. You actually, in the intro to this project, you focus on the different types of investors that Claire is beginning to shine a light on for us. These different people, the rabbits, the assassins, the hunters, the raiders, the connoisseurs. I love these terms. Can you walk through this? Because I think, I think we all make these mistakes. We become the wrong type of investor at precisely the wrong moment, which wr what could have been a great position for us to hold as an investor.
- [15:20]
Lee Freeman Shore
So just reiterating what Claire says, I mean, I discovered the chance of an idea making money is 49%. And these are the best investors in the world. Very successful. Toss the coin as to whether an idea makes money. And yet people obsess about stock picks. What my research showed is. No, no, no. What matters is what you do when you're losing and winning. So going back to your avatars, if you like the tribes. So if you're losing, people will typically fall into one of three tribes. They'll become a rabbit, a hunter, or an assassin. You don't want to be a rabbit. A rabbit is a losing trait. A rabbit, someone that when they're losing, they do nothing. And what's bad about that is that Invariably, if you do nothing, you could hold something that goes down a lot. And if you understand just geometry returns, you know, if you're down 50%, you need 100% to break even. If you're down 75%, you need 300% just to break even. You don't want to dig such a big hole. So they're rabbits. And when I found rabbits in my team of professional investors, I fired them because they're managing between 25, $150 million for me. So you don't want to be a rabbit, you want to be an assassin or a hunter. I'm guessing for the audience of this show, an assassin is probably the easier one. To be an assassin is someone that says, okay, I've lost somewhere between 20 to 40% in this name. I'm getting out like a cold blooded killer. You just kill the position and that ensures you're not going to lose too much and you're not going to permanently impair your capital and you can move on. The market's kind of saying either your ideas sucked or your timing sucked or both. The hunter is someone that basically when they're down 20 odd percent or more, they kind of think, well, I still believe in the idea. Nothing's broken, it's just the market. I'm going to throw a lot more money at the name. Now that I would argue is a lot more difficult to do because when you've lost money, throw more money at an idea. You know, it kind of plays with your mind thinking, what am I, you know, kind of doubling up might be a mistake. So, you know, for a professional, might be a bit easier to do that. So that's on the losing side, on the winning side of the ledger.
- [17:23]
Joe
It's all right, can we, before we get to the winning side of the lecture, because I do want to talk about when we're losing, because when I began investing, my natural reaction was, this is a good idea. My timing. To your point, Lee, I might have been a little early. The position is going down. So I'm going to keep dollar cost averaging into it. Right. I'm going to make my average lower so it's easier to bring it back. But then I realize, reading people like the two of you, that this might just be my ego getting in my way and I need to be okay with the fact that I called it badly.
- [17:58]
Lee Freeman Shore
Yeah, I couldn't agree with you more. I think the ego is the enemy. I mean, that's the biggest enemy of all of us. Mean, it's very hard when you're when you're in a, you know, you've done a lot of research on an investment, you put your money in it, and then you see you lose. You know it's losing and you kind of. It's hard to walk away, especially if you still believe in the name. And sometimes you just have to acknowledge you've got it wrong. But to your point, I mean, if you've done a lot of work and you think you're right and the market's wrong, which is. Can be a bit of a dangerous way to think, then pound cost averaging would make sense. Or my guys, they didn't do, I guess the difference is, for me, they didn't do pound cost averaging. The difference between a hunter and a pound cost average is a pound cost average would go, I'm putting say $100 a month into a name. And over time, that's a great strategy, by the way, if you're going into something like index funds. Yeah, I can't fault that strategy that way. But in individual names, what my guys would do is they'd go down 30% and then they'd double up and they put a lot more money in. And that's a very different beast to pound cost averaging. And that if you don't know what you're doing, that can be very dangerous. And you can go to the poor house pretty quickly. Which is why I said earlier, for an average investor, I was thinking someone like my mum and dad, it's probably better for them to adopt being an assassin when they're losing than trying to be a hunter. Or they could do what pound cost average, what you suggest isn't a bad idea if they're doing it in the traditional fashion of a little bit every month in a name, which is a bit of a different game. I mean, Claire, would you add something?
- [19:23]
Claire Flynn Levy
I mean. No, I would just say the key thing to wrap your head around is that you have a less than a 50% chance that your idea is right. So if it starts losing to automatically want to buy more, you're assuming that this is one of the ones that you're right about. Okay. So that it's already. You've got a less than 50% chance that this is one of them, but you're saying it is one of them. Okay. You know, with a hunter, the hunter is saying, I've done the extra diligence. I've got really good reason to believe that this really is one of the 49% or the 40. Today I see average hit rates closer to 40%. So you have to be able to work from the baseline of, wow, I know I'm going to be wrong more often than I'm right. So then it becomes about being aware when I am wrong sooner rather than later, and being aware when I really do have very high conviction that I'm right and revisiting that every time to say, nope, this is one of the 49%. This is definitely one of the 40. In which case, double up. But I think most people innately believe that they're right more than 50% of the time.
- [20:32]
Joe
We're all above average, Claire. We're all above average.
- [20:35]
Claire Flynn Levy
Yeah. Yeah. Unfortunately, that's called overconfidence, and it's very well documented behavioral bias, and it's something we all struggle with. But if we can be very honest with ourselves and objective and forgiving, not saying, I get it wrong more than 50% of the time because I'm a bad investor or I'm stupid or whatever. No, that's just you being a normal person, but knowing when you're wrong in other parts of life, you have signals that tell you, like, hang on a second. I have a feeling I'm barking up the wrong tree here. Or I'm, you know, this is not the right person I should be with. The red flags are there. You know, we have to learn how to recognize them when they're there, cut our losses and move on and. And take it on the chin. And I think it's easier to get to that humble space when you've taken more punches, you know, the longer your life has gone on.
- [21:29]
Joe
I love that because, you know, often a lot of our younger stackers, they're afraid of making the mistake when they first start. And what you're alluding to is make mistakes more often, fail forward.
- [21:39]
Lee Freeman Shore
Yeah.
- [21:40]
Joe
I do have a question, though, that I'm sure some of our stackers are yelling at their device. Why is it 49%?
- [21:45]
Claire Flynn Levy
I mean, actually, most in the stock market, Maestro's book, the median. The Maestro's median was 49%. The long list medium was 45%. So it basically just looked at every single position that these people have ever held and said what percentage of those actually outperformed the relevant benchmark over the period?
- [22:04]
Joe
Which means then, Claire, this is why your 40% earlier is important. Because you're saying for our average stacker out there probably would be closer to 40 or maybe even less than that.
- [22:14]
Claire Flynn Levy
Yeah, I mean, that's a good reason to invest in a fund if you want, you know, to not have to Wear the stress of only being right 40% of the time, because it can be stressful if you don't get used to that.
- [22:27]
Joe
Just as a basic fact, guys, I love that sidebar. But Lee, you were about to transition into the winners on the winning side. Where we get it right and where we get it wrong.
- [22:36]
Lee Freeman Shore
Yeah. So when you find yourself winning, people are typically falling into one of two camps. They will either become a connoisseur or a raider. And as much as I like raids of the lost ark, you don't want to be a raider. Raiders, these are people that make 10 or 20% and they bank the profit, move on. Now, when you realize your success rate is less than tossing a coin, banking 20%, believing that you're going to rotate that profit into a better investment is a bit of a fool's errand, I'd argue. And the main finding is you want to be a connoisseur. Connoisseurs are people that the Peter lynch you run your winners and you win big. You let your winners compound out and win big. And I can tell you that the guys on my team that were successful, they all had one common factor amongst them. On the winning side, two or three big winners accounted for the majority of their returns. So if you strip out those two or three big winners, their returns profile of their overall portfolio becomes very average or bad. And you see, can't underestimate the importance of having one or two big winners. So if you've got a process whereby you're selling out of your winning names after making 10, 20%, and then you're holding onto your losers and ride them down 50%, you're going to go to the poor house pretty quick. So be a connoisseur when you're winning. That's the lesson.
- [23:55]
Joe
The case studies on these people, on these connoisseurs, to me, is so fascinating. And the things that they share, the things that you got out of them are incredible. I'd like to talk about. Well, let's focus on one at first and then just talk about some traits that you found throughout the book. But Claire, let's start where you start with Josh Goldberg. Who is Josh Goldberg and why did he make it into your very, very short list of maestros?
- [24:20]
Claire Flynn Levy
Well, Josh is a hedge fund manager based in New York, and he actually, of all of the maestros, has maybe the most, one of the most traditional backgrounds in the sense that he went to Wharton and he, you know, went to work for hedge funds and he worked with all these well known fund managers. And learned his trade. But what he has developed is a strategy that is very process driven, very straightforward in that it's based on earnings surprise and it on taking signals from the market. And it kind of goes back to the same point. It's like, you know you're going to be wrong at least 50% of the time. So you need to constantly be asking yourself, what evidence am I getting back from the market that this, this is one of the right ones. And, and for him that's earnings announcements where, you know, a company reports their corporate earnings and the market responds very positively. And he doesn't mean just like a little bit positively, like big gaps positively to him that contains information and it reinforces his conviction that he's right about that one. So it becomes, yes, I think this is one of the 49%. And then he has implemented rules around, you know, what, what does it take to get into the portfolio? So you're either convinced or you're not. So you're not going to have tiny little positions for any length of time. It's either going to show you it's going somewhere or it's not. But also when things start going wrong, he's got signals worked out through analysis. And you know, he is a client of Essentia Analytics. Although I should say only half of the maestros are people I ever had met before. The most. The other half are totally random, but people who I was able to get the data for, just to focus for
- [26:05]
Joe
a moment on that note, for him, he uses your data to get better. He subscribes to your data to find out what he's good at.
- [26:13]
Claire Flynn Levy
Yeah, he is a continuous improver by nature. And I would say all of the maestros, that is something that they have in common. They're all humble enough to look in the data mirror, which is not, you know, it sounds like of course you would be. But no, looking in the mirror can be kind of mortifying sometimes. And not everybody is feeling brave enough to do that. But these guys have all gone there, had a good look, figured out what it is that they're not perfect at, and either created rules or signals to help them manage their own emotions and mitigate the biases, or they've used it, what they've learned to substantiate, like, okay, here's how we hold onto our winners. So to achieve what Lee described in the having a handful of really big winners, you have to hold on to them. And that's a brave thing to do a lot of the time. So it's like You've ever heard the quote about you don't want to be watering the weeds and cutting the flowers?
- [27:10]
Joe
Oh, yeah, yeah.
- [27:12]
Claire Flynn Levy
It is like a garden if you think about it that way. When you plant all the seeds, every one of those seeds is a precious. This is going to be the best flower ever. And you put them in there and you water them and then things start growing. Some of them work out way better than you thought they were going to be. Some of them, there's nothing there. It's not growing, you know, and you just have to keep on testing the soil, you know, watering, fertilizing, doing the things and nurturing the ones that are going somewhere and clearing out the ones that are going nowhere so you can plant something else in their place. And that's what these people are doing both with their portfolios, but also with their investment processes.
- [27:50]
Joe
Let's use Josh to kind of dive into some of the tactics of getting in. As you just explained, he uses this idea of earnings surprise. Does he try to predict which company has an earnings surprise beforehand or does he do it after they've had an initial earning surprise? Lee?
- [28:06]
Lee Freeman Shore
No, he always waits until there's been an earnings surprise. So not trying to be a soothsayer and forecast the future. A company was surprised on earnings and then he and his team will dial up the research on the name.
- [28:18]
Joe
It makes it easier than to filter, I would think, Lee. I mean, working from this whole wide range of companies to just a few every quarter, that probably surprise.
- [28:26]
Lee Freeman Shore
Yeah, yeah. It helps narrow down the universe. Then it'll jump on those that have surprised and decide which ones to allocate to. And I think the other key thing about Josh is, you know, he does that, he allocates capital to them, but then it's how long do you ride it for? All the maestros have one thing in common, which is they're masters of execution, because it's how you execute the idea matters. So in his case, what does a connoisseur mean for Josh and what you find with him? Thanks to working actually with Claire, he's discovered that his sweet spot is to hold a name for about 15 months. So during that time, generally speaking, the earnings will surprise and keep surprising. But if you hold on after that, you risk kind of round tripping the name. But during all that time, him and his team are constantly on it, looking at it, thinking whether it would go more. But he's got that flag that pops up around 15 month mark, which is okay, okay, usually this is where it can start. Fizzling out. Do we still want to be in it? And, you know, that's some of the wisdom he's learned working with Claire over the years and feeding back and improving his game.
- [29:29]
Joe
This way of getting in, you know, sounds like a machine, Claire. He starts off the machine with an earning surprise. They go into the funnel and then, you know, then he works it through all of his other processes that he has. To me, this kind of speaks to the idea of an investment policy statement. Right. How big is an investment policy statement to these maestros? Not just Josh, but all the ones you looked at, versus my gut tells me that Apple's going to be big next quarter.
- [29:56]
Claire Flynn Levy
Once upon a time, you know, that is what we thought made a good trader, that they were born that way and they had a great good. Now, it is possible that some people are better at pattern recognition than other people and that their gut is that. But all of these maestros have process, documented process that they follow. And it typically involves other people, not just themselves. You know, they have teammates that they converse with when things hit certain levels or when certain things come up. Some of them have very formal, when this happens, we sell this percent. James Inglis Jones and Samantha Gleave from Lion Trust, who are also maestros profiled in here. They have what some people would call that a systematic fund. The humans in their case are making decisions, but they've literally implemented rules that say, we always do this when this happens. In Josh's case, he's not applying that rule as rigidly. He's saying, okay, I get a flag at month 15. I look at that and say, all right, here's five other reasons that it's probably time to get out of this stock and the fact that it's hit its 15 month birthday. We know statistically that in the past that's tended to be the end of the road.
- [31:08]
Joe
Yeah, I'm in the danger zone now.
- [31:10]
Claire Flynn Levy
Yeah. And it's just the odds start to move against you that this is one of the ones that's going to keep performing. So now you have to ask harder questions of yourself to justify hanging on to it. So he's sort of taken a slightly more human approach to applying these statistical rules. But in the end, they both use computers to work out where is it historically that I should have made a decision, what. What should that decision have been? And now I might use that to always make that as a rule in the future, which is what James and Sam did. Or in Josh's case, say, okay, well, I'm going to Use that as a guideline for helping me make a. Make a decision as a human.
- [31:50]
Joe
I'm glad you focused on that because I feel like too many stackers out there, too many just individuals, hear about their buddy at work, did something, or they're in this wonderful fund, and because of that, it's going to fit my portfolio. And it could be right for you and might not be right for you. And it also might not be any good for the person who's telling you about it. Who knows what process they use. I love that all of these maestros also, Lee, have a process of getting out. And often, and you talked about this earlier, you know, with Josh, there's this risk after 15 months that he might follow it up and then all the way back down. Right. And you definitely don't want to do that. What are some of the keys to figuring out when I'm going to get out of a position that might not serve me anymore?
- [32:33]
Lee Freeman Shore
So for each of the maestros, the point of the case studies where we follow them in one of their investments or two other investments, in terms of which worked and didn't work. So you can actually see what signals enable them to sort of decide, I'm getting out or not. If we stick with Josh, he will not lose more than 1% of the fund in any idea. So once he's lost 1%, he's out. And some of them have those kind of hard rules, which is, you know, once I've lost this much of my money, I'm out. I don't care if I like it still, it doesn't matter. I've lost enough money. Idea could still be good, but I've lost enough. So some of that, others will have different signals which trigger them as to when they should be getting out. A lot of the times if they're wrong, obviously these are professionals. They'll be getting signals from the company itself. You know, in terms of looking at the fundamentals and things like that, this little trigger them actually get out.
- [33:25]
Joe
And that's why this is like a new earnings report comes out or something or more news comes out.
- [33:30]
Lee Freeman Shore
Yeah, it could be something like that. Yeah. Where the something, some news flow comes out about the company, or they read the quarterly report or they have a meeting with the CEO management, and if something doesn't quite smell right, and they think, now I'm getting out. So I think you'll find that quite interesting for each of the investors, that there's a myriad of soft signals. Right. Which could trigger you to get out in terms of there's loads of them. So you have the soft signals from the meetings with managers, reading reports and then you have the hard ones, which is that's it. Some will have rules like, okay, I'm down 20%, let's review the name. And they do, you know, that's a trigger, you know, so it's not a stop loss. Like I think, you know, a wizard or a trader will have stop losses, you know, lose five tenths out Maestros because they play a longer term game in public markets. Investing in stocks, you know, they're more, okay, down 20%. Let me review. Get the analysts together or they start looking at the investment case again. And then they have questions that ask themselves, which are simple but powerful questions such as, okay, if I didn't own this already, would I buy it today? And you've got to be honest with yourself. And that's the difficult part. Try and forget you've lost a lot of money and just say, if I was looking at this today, looking at the share price like this, everything I know, would I buy, say? And I think a lot of people, if you ask yourself that very simple question, you'll probably go, hell no. And if that's the answer, you sell, you run for the hills.
- [34:54]
Joe
But what I would think, Lee, helps you there is if you've built a system like we talked about. You have an investment policy statement. You just apply the top of the funnel of your investment policy statement. If the answer is no, I wouldn't have bought this. It wouldn't have fit in the top of my funnel. Then it makes it easier to get around your ego. In that case, I would think, yeah.
- [35:12]
Lee Freeman Shore
A big, big fan, Claire. As I think you know, in my first book, the Art of Execution, I always talk about the importance of having a plan of action before you put capital in a name. Because trying to decide what to do when something's lost money and you're in a hot emotional state, it makes it 10 times worse. If you've already got a plan of action as to if things go wrong, here's the checklist of what I'm going to look at. If I see these, it's red flags. If I lose this much money, I'm going to get out. You know, you should have all that set up before you even put a single penny in a name.
- [35:42]
Claire Flynn Levy
Then you have to follow it, right?
- [35:44]
Joe
Then you have to follow it.
- [35:45]
Claire Flynn Levy
Yeah, people will put a ton of work into their investment policy document. And now the document's in a file. And now we've never Seen that again, that's the human in the end undermining him or herself. So that's where having, using technology is key because you don't want to have to dig that thing out every time it needs to be super handy. Really easy to do, actually easier to do it than not do. It would be even better. That's, I think, the biggest piece of the puzzle. How do you get yourself to actually follow the process? Because you have great intentions, but if you make the process too complicated, you're not going to follow it.
- [36:23]
Lee Freeman Shore
With all the sophistication in today's world, a couple of the maestros adopt simple tricks that even I did when I was a fund manager. One of them, Stephen Annis, he has a laminated piece of paper stuck on his desk. So he's got these key learning messages and golden rules. Everything there just to quickly flip down it and just to remind him of things that matter. And another one, John Lin, who's arguably the greatest investor in China and for him, he has behind his desk he's got a court board and on there he's got pinned key rules which every day he can look at, just glance over his feet and look at, just to remind him of the salient things in the moment that are there so you don't have to, to Clare's point, dig out that policy document and remind yourself of various rules I have.
- [37:06]
Joe
My screensaver was some of my big important things to remember when I walk in my office in the morning. Like they were on the screensaver before I shook my mouse there it was right in front of me.
- [37:15]
Claire Flynn Levy
Yeah, I like that.
- [37:16]
Joe
Yeah, same thing. I do have a couple more questions before we say goodbye. 1. Lee, you mentioned international maestros. Claire, did you find anything that really changed when you're looking internationally versus just looking one country specifically?
- [37:32]
Claire Flynn Levy
I mean every, every one of these maestros has a different strategy. And you know, there are a few that are looking at small cap stocks and a few that are looking at large. So they might have a little bit of commonality in terms of what they're looking at, but they're all looking for different things. And I, I think only in the case of John Lin probably is there a very region specific thing going on. And that's really to do with the characteristics of the Chinese market being so dominated by retail investors and way that prices behave is it's like how they behaved decades ago in Western markets. So he's able to do a strategy that you probably wouldn't be able to do elsewhere just because of the market opportunity that exists. Lee, would you agree?
- [38:20]
Lee Freeman Shore
Yeah, yeah, 100%. In China, the taxi driver will buy something on Monday, sell it on Friday. Professional fund managers, he was even telling us, which is quite shocking, their bonus structures can be based on weekly and bi weekly performance. So they're incentivized to basically lock in profits very short term and trade like crazy. So a lot of momentum investing approaches that work, Maybe in the U.S. for example, would be a disaster in China. And he shares these insights with the reader of the book. And I think that's an interesting case that he's the most differentiator, I'd say, of all of them because the Chinese markets are so very different.
- [38:53]
Joe
Yeah, I just found the case study so fascinating and to your point, I think you said it earlier, Claire, just how different their strategy is, but their adherence to it. They would come in every day and just work the system, work the system and improve the system. And man, that resonates through everything that these men and women do. You know, one place that our stackers are doing something different than your maestros are, which is, you know, they're trying to put together portfolio for their retirement. So instead of focusing just on small cap or large cap or international or whatever, where a lot of these people are focused on one market, they're focused on the broad, broader getting some of each, but still diversification. It seems like Claire matters to these people. Like having only so much money in a certain position. Is there ever a time that you see that for somebody it makes sense to begin selling it, even though it's a winner just because your exposure becomes too high and the risk becomes too high.
- [39:49]
Claire Flynn Levy
I mean, that's actually an interesting one in that we have different approaches amongst the maestros. So there's one maestro called John Barr who, he's a, a small cap specialist who he knows his particular part of the tech space like especially well because he used to work in that industry.
- [40:06]
Joe
I felt like he was that kid. You made a baseball reference earlier, Claire. He was my friend growing up who knew the back of every baseball card. He knew which farm team kids played for, like all their middle names. He knew everything. John Barr seems like that kind of person.
- [40:19]
Claire Flynn Levy
Definitely is that guy. He definitely is. But what he does, and we call this the lumberjack tribe, a brand new tribe, is plant seeds and then, you know, let them grow really, really big. Like way bigger than a lot of the other maestros would. Some of them would say, I never let a position become more than 4% of the portfolio. Now sometimes it's because the rules of the fund that they're running are such that, you know, they can't. But in John's case, he really takes running your winners to heart and lets them become very large. That's a. That's a way of making money.
- [40:54]
Joe
What does he think about the danger in that? Because he clearly is a brilliant guy. He knows that his Achilles heel gets bigger as that tree gets bigger and bigger and bigger, and he doesn't chop it down. How does he handle the risk of that?
- [41:07]
Claire Flynn Levy
That's a good question. I think he. Now, he is not an essential client. So I don't actually know the. The detail of. Of the way that he does it, but I think that he's watching drawdowns, and he's definitely. When he has a big winner that then comes back a good way, he's reevaluating on the basis that. Is this still. Does this story still hold? Is this really. Has it got that much more juice left in it? Because it's so easy to fall prey to the endowment effect, which is, you know, the bias whereby we value something highly because it's ours. And you can fall in love with a stock, you can fall in love with pretty much anything. You know, the longer you have it, it grows on you. And maybe it's made him a lot of money, it grows on you that much more. But the risk is you don't see the cracks start to form, you know, and then suddenly it's over.
- [42:00]
Joe
It's like Lee said earlier, that you put it back at the top of the funnel. Would I buy this today? Is kind of what you're saying that he do. But it's funny, Claire, that you bring that up because you're really showing him is different for most of them, then it really does matter when something. Because if you're. If you're showing shining a light on John where it doesn't. I think what you're also saying is for the majority, though, it does matter.
- [42:22]
Claire Flynn Levy
You mean the. How big the. The position gets.
- [42:25]
Joe
Yeah. How big the percentage of the fund is dominated by one or two different investments? Or are you not saying that it
- [42:31]
Claire Flynn Levy
depends on what type of vehicle they're running, you know, because different vehicles will have different rules attached to them. But for most of them, and Lee, feel free to disagree, but I think for most of them, they do have a strict rule about not getting bigger than a certain size. And that might be 5%, that might be 4%. It's somewhere in that region.
- [42:53]
Lee Freeman Shore
Yeah. I mean, I'd just jump in and say, so if you look at someone like James hanbury, for example, UK hedge fund manager in the UK is very famous. He's a guy that made over 100 million in 2016 from positioning his portfolio, from benefiting for the UK, leaving the European Union. If you look at him, we share an example in there of some like +500, where he's made. He's been in it since 2013, he's made over 6,000%. And this is a name that's had, you know, 50, 60, 70% drawdowns along the way, but the way he controls risk and he's being able to win, so big is he will adjust the position size. So at various points you'd see that name being as low as 1% and then as high as 9%. But the way he tries to size it so he plays a sizing game is he moves incrementally. So he's aware that psychologically, emotionally, we want to do the wrong thing at the wrong times. So he'll increase and decrease his positions in half percent steps. So if he's 9% and he thinks, oh, maybe this has gone up a lot in the short term, or maybe I should take some chips off the table, he'll go from nine cent to eight and a half century, then it'll take it to eight percent, then seven half. So it moves like that slowly and incrementally. If you have someone like James English, Jones and Samantha, the UK pair, but they invest in European markets, they'll have a process whereby it's more systematic. But if something's working during the year, they let it run. They're looking at the quarterlies every quarter and as long as it's working, it's fine. And then every year they have the hard reset. Would we buy this today at that point, if they would still buy it today, but it's one and it's gone up to say it's growing for they started around 3% position, but if it's grown to about 6 or 7%, what they'll do is they'll take it back down to, say, 5%. They don't take it down to 3%, though, like a starting, which you would start because they recognize that often winners keep winning. So to hack it right back would be a mistake and sell out would be a definitive mistake. So, I mean, that's what you'll tend to see a lot of them don't let positions get too. Greg Badia, who's another one, us, great vest of us, he'll tend to let invest at about a 2% position and he'll let it run up to about 6% position. I mean, if you think about it, to go from 2% to 6% of your fund, it's got to have done very well. And when it gets about, then he'll start trimming it back, but all of them will trim back. And one last thing I'd say about John Barr is he's made 100x in Nova since he's been in it 100x. But if you look at what he does, he'll invest in it at outset very small, say 0.1 or 0.2% very small. When he invests, he calls it a hidden compounder. So he realizes in early no one's focused on the name and it could go wrong. But if it goes wrong and it's only 10 or 20 basis points, it doesn't matter. That's why we call him a lumberjack, because if it goes down 78%, he can kill the position like an assassin would. But it hasn't cost him a lot, which is different to Rabbit. It'll be 4% position and drive it down that much. But then as it works, it starts to growing. He'll let it grow to a 2% to 5% position. And the point when it's a 2 to a 55 cent position that they've become what he'll call a quality compounder. So he's what was hidden is now there on public view. People know about it and it's delivering. And Claire's point earlier is as long as it keeps delivering, he'll keep riding it. But again, he's not going to let it get too much bigger than that. You won't see anyone holding more than 10% in a name.
- [46:10]
Joe
I found that fascinating though, because he can plant a lot of seeds when he's planting them that small.
- [46:14]
Lee Freeman Shore
Yeah. Earlier I said you don't want to be a rabbit. Right. And that's because rabbits, in my world, when I was investing, my guys invested in just 10 ideas, very focused funds. If one of those ideas goes wrong and it's a 10% position and you write it down 90%, you've cost yourself 9%. At a fund level, it's a huge hit. But for someone like John Barr, if he's got a 0.2% position, or let's say a 0.1% position, it goes down 90%.
- [46:44]
OG
Nothing.
- [46:44]
Lee Freeman Shore
He's done nothing. So it doesn't matter. So hence we had to come up with a new name for him, which we called the lumberjack. And just to explain the lumberjack, his background, his family background is from Chicago, and his family is a lumberjack family. And he ordinarily would have gone in the family business, but as he describes, he wasn't really cut out for it. He shares a story about him driving the truck with all the trees on the back, all the tree trunks on the back, and he went around the corner and all the loads spilled over the road. And, you know, it took him all day to get those logs back on the back of the truck. And he says, yeah, word. He wasn't cut out for family business. So Claire and I were thinking what's what sort of captures that and the fact he invests with small position sizes at outset, sort of that forestry kind of horticultural kind of background. And planting seeds seemed to be well. And Claire came up with Lumberjack, which I thought was great.
- [47:33]
Joe
I absolutely love case studies. I learned so much more through case studies. So I was super happy when I heard that the two of you had created this marvelous project. It's called Stock Market Maestros, the winning habits, strategies, and mindsets of the world's best investors. And it's available everywhere, correct?
- [47:52]
Claire Flynn Levy
Correct. Yes.
- [47:53]
Joe
Awesome. Claire Lee, thank you so much for shining a light on this for our stackers that don't get to look really at what the pros do. And it's so enlightening and I think so helpful what you did today. Thank you so much.
- [48:06]
Lee Freeman Shore
Thank you for having us.
- [48:08]
Claire Flynn Levy
This is Aaron from Colorado Springs, and when I'm not teaching three boys how to patch hockey stick holes in drywall, I'm stacking Benjamin's.
- [48:22]
Doug
Hey there, stackers. I'm Joe's mom's neighbor, Doug, and it was on today's date, back in 1983, that Michael Jackson did the impossible. He performed a move called the moonwalk during the taping of a TV special for Motown's 25th anniversary, creating a craze that lit up the nation and the world. When I think of the important things in my life, I probably put learning the moonwalk as a solid number one ahead of being born and marginally ahead of that One time I scored a free desert of the Sizzler after Todd the manager, screwed up my order. That was so awesome. In fact, I'd rank Michael Jackson's moonwalk as one of the greatest things in the past 70 years ahead of the birth of Taylor Swift and the actual first moonwalk. Here's the question, though. While Michael banked some serious Benjamins doing his moonwalk all the other moonwalkers did was create history. Who was the first person to actually walk on the moon? I'll be back right after I go see if I can moonwalk upstairs to the refrigerator. Never tried it on a stairway. Maybe that's the next big craze. Zootopia 2 has come home to Disney.
- [49:41]
Joe
Let's go get ready for a new
- [49:43]
Claire Flynn Levy
case where victorious partners, new friends Gary the Snake and your last name the
- [49:48]
Joe
Snake Dream Team New habitats Zootopia has
- [49:51]
Claire Flynn Levy
a secret reptile population.
- [49:53]
Joe
You can watch the record breaking phenomenon at home. Zootopia 2 now available on Disney Plus. Rated PG. Right now you can get Disney plus and Hulu for just $4.99 a month for three months with a special limited time offer. Ends March 24. After three months, Plan Auto renews at $12.99 a month. Terms apply. The world moves fast.
- [50:12]
OG
Your workday even faster.
- [50:14]
Joe
Pitching products, drafting reports, analyzing data Microsoft 365 Copilot is your AI assistant for work built into Word, Excel, PowerPoint, and other Microsoft 365 apps you use, helping you quickly write, analyze, create and summarize so you can cut through clutter and clear a path to your best work.
- [50:34]
OG
Learn more@Microsoft.com M365 copilot pilot refreshing wild
- [50:41]
Claire Flynn Levy
Cherry Cola meets Smooth Cream. The treat you deserve. Pepsi Wild Cherry and Cream Treat yourself.
- [50:59]
Doug
Hey there stackers. I'm Moon Walker and guy who just found a loose step on the stairs the hard way. Joe's mom's neighbor, Doug. Ah, the joys of moonwalking. I love the idea of the backwards walk. In fact, I was doing it going down the street and I almost ran into the postman. Seriously, I never saw him coming, you know, because I was. I was walking backwards. Anywho, today's question was this. Who was the first person to walk on the actual moon? Well, the answer is nobody, because we all know that stuff was fake, right? But you know, if you want to go with NASA's official story with some guy allegedly named Neil Armstrong, that's one small step for trivia, but one giant leap for your bragging rights with your friends and colleagues.
- [51:47]
Lee Freeman Shore
You're welcome.
- [51:48]
Doug
And now back to Joe and og.
- [51:52]
Joe
Doug, before we recorded, you brought up something great. How old are you? If you automatically just go, Neil Armstrong.
- [52:00]
Doug
People of a certain generation like you couldn't even finish that question before they would answer Neil Armstrong.
- [52:08]
Joe
I was telling Paula Pant earlier in the day about this trivia question and I got it half out. She goes, Neil Armstrong 1969.
- [52:14]
Doug
Oh, wow.
- [52:15]
Joe
Just.
- [52:15]
Doug
Paula.
- [52:16]
Joe
Paula.
- [52:16]
Lee Freeman Shore
Paula.
- [52:17]
Joe
I know.
- [52:18]
Doug
All right, so we now know if she needs a point and a Friday trivia contest, this is the question we gotta, we gotta put in there. Just give her a soft toss point.
- [52:30]
Joe
Yeah. And weirdly, we're gonna change the Friday Apollo. You're gonna go first instead of last.
- [52:34]
Lee Freeman Shore
Right.
- [52:36]
Joe
Big thanks to Claire and Lee and just a couple points OG number one, their emphasis on these maestros. No gut decisions. 0.0 gut decisions. All data driven all the time. No. You know what my gut says I should get? I'm just thinking this thing's going to go up.
- [52:56]
OG
I don't have any oil in my portfolio. It's up 30% since I last looked at it. Maybe I should buy oil.
- [53:01]
Joe
Gut decisions. And I think it's doing real good. Not, not the way you make moves.
- [53:06]
OG
There's a very real factor of investment return that is called momentum. That's a very real thing. But it's hard to quantify on your own whether or not it's momentum that is driving it forward or if it's just your personal observation of the market going up that's driving that forward. And that can be a very dangerous thing with, without having a very solid IPS in place. And this is where this time of the investing season, whatever you want to call this chaos that's going on right now, it also happened last April, also happened in 2022, also happened during COVID All these times are perfect examples of why it makes a bunch of sense to when it's not chaotic to just sit down calmly and go, this is my investment policy statement.
- [53:56]
Joe
Yeah. And that was my next point, was the importance each of these maestros has on building a machine over just making moves. You can just continually react to the situation, react to the situation, react to situation. Or you go, wait a minute, this occurs all the time. Why wouldn't I build a machine and operate the machine that will help me make better investment decisions in the future? I love that.
- [54:23]
OG
Yeah. That's what an IPS does. That's what hopefully a good advisor does for you is run the system that you guys created together. That's what a good partner does. You know, if you're working on your financial plan with other spouse or partner, whatever, where we see people get in trouble is when they make decisions that are not based on the facts that they already had established earlier. Short term volatility in the market is a given. I'm doing some research right now on investment portfolios and the best that I can come up with is 76% of the time in one year returns is positive. So there's a one in four chance that this year it's negative anyway, no matter what you do. That's your basic VTI portfolio. It's one in four times. It's going to be not positive. So if you go into it with that knowledge base of, you know, short term results, short term volatility does not mean this is how. This is long term and frankly, your money, you shouldn't be looking at it on a daily basis anyway. If this, you know, if this is your investment account, this is for 10 year money.
- [55:31]
Joe
Claire's point, having looked at all the data through her company, her point that these pros who are picking stocks, they make the right call 49 of the time. And then you look at the broader list of pros. The broader list of pros make good picks 40% of the time. Take the stacking. Benjamin's audience that isn't a pro hasn't lined up a lot of shots, isn't doing this over and over and over with any process at all. In many cases, what's the chance you're landing a good shot which goes back to indexing? But still, also an important point, even if you're indexing, is the fact that these pros are humble enough to study their mistakes and to not make the same mistake over and over again and to learn from the mistakes. Like the one guy, Josh Goldberg, they talked about who's like, listen, I know I get in trouble on this stock if I do xyz, so I need to guard against that. How many times have you sat with somebody og and they're like, oh, I'm going to, I'm going to make this change as soon as this stock comes back. Like, what are you talking about? I remember one person that I sat with who had Ford stock and Ford was trading at $20 a share. And they're like, well, I bought it at $30 a share. So when it gets back to 30, that's when I'll sell it. The next time we talked, Ford was trading at $8 a share.
- [56:53]
OG
Yeah, the systems account for that, you know, and when you don't follow the system, you're more likely to get burned. You're going to have some success too. Honestly, the reality is, is that there's going to be an opportunity for luck involved there. Luck is not an investment plan.
- [57:07]
Joe
And we will link to stock market maestros. Just if you like case analysis of people who do stuff, well, man, they brought it. Let's do a headline. Hello darlings.
- [57:18]
Lee Freeman Shore
And now it's time for your favorite
- [57:20]
OG
part of the show. I was stacking Benjamin's headlines.
- [57:23]
Joe
Our headline today comes to us from financial planning.com written by Rob Burgess. I want to run this by you og, because as I was reading this I was thinking about potential downsides. Financial Planning is a website that financial planners, financial advisors read people in the industry. And the headline was how Vibe coding is filling the white spaces in Advisor tech stacks. Rob writes he's only been using it for about a week, but Tim Witham said Vibe coding building apps by intuitively prompting AI so he doesn't know any of the code. He's just writing, I want you to create for me XYZ and blah blah blah blah blah. And then it makes it right without knowing it. That's what vibe coding is for. People that don't know that term. This guy Tim says it's already dramatically changed his practice in the past few weeks.
- [58:11]
OG
A whole week. It dramatically changed it. Wow, that's pretty.
- [58:14]
Joe
In a week. Yes, literally. He's been using it for about a week in the past few days with him. The founder of Balanced Life Planning in Villa Hills, Kentucky said he's begun using Anthropic's new Claude model Opus 4.6. The software is more than paid for itself, he said it allows him to give prompts and receives code that he can use to build tools or modify a website without the in depth knowledge required to write the code himself. I'm paying a hundred dollars a month for the AI now and it's already generated thousands in added value, he said. As a solo advisor, this is game changing. And I thought about this. I'm glad you call it Spidey Sense went up when you heard he's been using it for a week because that was the first thing that caught me. But the second thing that caught me is that he's using AI that's been built by somebody else that somebody else owns. And while it certainly for all of us can make things go better, faster, stronger, give us more opportunities to find out where we can make a difference and where we can't, I just wonder. In the world of financial advising, there could be somebody on the other end of this, even though there's not, might not be today. The people behind Claude might be altruistic and well meaning today, but Claude gets sold to some other conglomerate 10 years ago and they're like, hey, you know what? We got all this data from these financial planners and what they're using this stuff for, I think security wise, I wonder if we might be stepping in it by not knowing who's mining the stuff that we're using AI for.
- [59:55]
OG
Well, a couple things. I think this matters what level of subscription you have in terms of what the tools are. I'll use some other tool that more people are familiar with, like Dropbox, for example. Right. So ShareFile, Dropbox, these are online filing systems that many, many, many people use. And all of these tools now have undergone intense scrutiny and security procedures to say, hey, we meet these levels of security. And I'm too dumb to know what they all mean, but I know that we have to have a certain level of to, you know, we use Schwab as a custodian, for example. Schwab says your stuff needs to be this way from a tech standpoint. In order for us to, you know, work with you. You have to have this level of insurance and so on and so forth.
- [60:44]
Joe
Well, and I guess my question is, do you think that Tim, the guy in this piece, has looked at Claude that way and has said, hey, you know What? I'm paying $100 a month. Am I looking at who's behind this data? And I hope so.
- [60:56]
OG
That's a fundamental obligation. I think, I still think that you are wanting to be safe with client data, you know, no matter the tool, whenever possible. You know, you don't want to email stuff. I mean, this goes back to like basic operational security 101. Right? Just don't email tax documents, you know, that sort of thing. But we do individually. Right? Like, I'm sure, Joe, I mean, I sent you your K1 through Slack. We have this agreement that we go, we think this is secure enough, you know, for our use. I think advisors owe another level of. What's the word I'm looking for, Doug? Another level of scrutiny. How's that? A higher level of scrutiny to make sure that when they're using any tool, whether it's a financial planning tool that we've all accepted as safe, or a custodian or an email provider or a digital document solution or something new like AI, we as advisors owe it to our clients to make sure that we've done our due diligence on that, to make sure that it's as secure as we can make it. And there are different levels where they explicitly say in their contracts, if you pay us this, we provide this level of security. If you don't pay us this, then we're not going to.
- [62:08]
Joe
Because I do know that's a danger with Some of the free off the shelf stuff like Copilot, the meta thing, the, you know, Google Gemini, just if you're using the free version, they are clearly open that they are mining your stuff.
- [62:20]
OG
I was talking to a guy, so I'm doing this bike race and I went to a professional bike fitter and it turns out that the guy is a exercise science guy, professor at a big school. And we were talking about AI and that sort of thing. And he said that the simplest way to look at AI is it's just a language model of prediction. He's like, if you looked at the temperature today and we were talking about the weather and the temperature in Dallas and I said, boy, Joe, it sure is. What outside, what would you say would go in the blank?
- [62:52]
Joe
Warm, warm, hot.
- [62:54]
OG
You know, the simplest form, what AI is, is doing is it's going. You're typing this in, it's going, we think we know what the next. Boy, it sure is hot out. Like it already knows that you're doing that.
- [63:05]
Joe
Well, based on. And how did I even say warm? It's because we're recording this at a certain time of day, at a certain month, it's a certain thing and AI is doing the same thing. It's taking all of that data and going, okay, I'm going to predict the next thing is X.
- [63:19]
OG
The interesting thing, we've talked a little bit about this offline. My team sent me a funny meme about AI and all corporate executives spoon feeding. And it wasn't even spoon feeding, it was like, you know, the meme was like somebody pouring a bucket of water into a stuffed animal. You know, like, drink all this AI Kool Aid. And we are very heavy into looking at all of this for opportunities for us. I wouldn't say that it radically changed our. I mean, I've been using it for two full weeks, so it definitely is radically. No, we've been using it for a long time.
- [63:50]
Joe
At least 11 days.
- [63:51]
Doug
You're a vet.
- [63:52]
OG
At least 11 days has radically changed, I think a couple of things. One, it is changing so fast and the tools and the companies that are existing and I mean the quality of it's getting better every single day. But it is still just a tool. We are using it for research, we're using it for interesting deliverables of like, how do I make this look pretty? I'm too dumb to know how to make PowerPoint look cool, you know, with cool graphs and backgrounds and that sort of thing. And you can feed that into Claude and say, here's Our brand guidelines. Here's the colors we like to use. Here's me doing the presentation. Can you make this into a PowerPoint slide? That looks neat, but I will have one little story that should give everybody pause if they're just hell bent on diving headfirst into it and just going, sweet. I freed up all the time. Well, two stories. Number one, I read an article that said even the most adaptive AI, the companies that are using it the most in terms of AI, still have found zero productivity gains. There is no productivity benefit yet in AI and maybe there never will be. And now is that because people are able to do more and they just take time off and they're not actually adding productivity?
- [65:01]
Joe
I don't know which would be great.
- [65:02]
OG
Which could be. Yeah.
- [65:03]
Joe
If that's the goal, it could be quality of life.
- [65:05]
OG
The number two thing, and this is the dangerous piece with it is AI is very supportive. Right. It's like your mom who just like, you can do it, buddy. Of course you can. Yeah, you're doing great.
- [65:16]
Joe
It's like I talked about the other day, where if new employees had that same approach.
- [65:20]
OG
Yeah.
- [65:20]
Joe
Where they came in every day just like, I don't know anything, but, man, I love you and I love working here. Like, those would be my favorite, like, people. If they train people to be like that in college.
- [65:30]
OG
Yeah.
- [65:31]
Joe
That would go so far.
- [65:32]
OG
Well, there's a story about, and this is actually an advisor story, who built a tool using AI and was very excited to show this off. Right. And was just like, build this thing. Cool. Let me. Now I'm going to use this in my client presentations. And was like using this thing. And it was this very interactive tool. And unfortunately he didn't fact check at first.
- [65:54]
Joe
Oh, no.
- [65:55]
OG
Of course, an astute client notices and goes, wait, how's that number get to 3 million? It's like, oh, it's just a slider here. And we just look at your portfolio like, no, I understand the mechanics of the.
- [66:08]
Joe
Right.
- [66:09]
OG
I'm challenging your math. And of course, you can imagine the sheer terror on this advisor's face when he realizes that he did not actually check the math on this before he started launching this into client presentations, only to find out that the math was off by a factor of 12. Oh, it had somehow somewhere in there, did a multiplier of 12 because it just decided that that was a good thing to do.
- [66:37]
Joe
What's that old Bob you for line, Doug? Just a bit outside.
- [66:41]
OG
Tried the corner and missed.
- [66:42]
Lee Freeman Shore
Yeah.
- [66:44]
OG
Ball four, ball eight, ball 12. So AI is super helpful. I guess what I'm saying is it's super helpful if you already know what the hell you're talking about. I mean, I'm sure you guys have used it for health. Got this sore. What is it? It's probably nothing. Turns out it's something. Or it's something and it turns out it's nothing. You know, I mean, this has been going on since Google started, so be careful.
- [67:09]
Joe
I was helping a friend who had just gotten inheritance fill out the beneficial IRA forms, and last year there was a bunch of changes. And I just went to check and see if the rules around beneficial IRA had changed. And I look it up in a restaurant on my laptop and AI gives me the wrong answer. And to your point, OG you have to know enough about the topic. And I was telling my friend this. You have to know enough about the topic to know that it's wrong. And I knew the answer it was giving me, and I knew the answer it was giving me was based on just picking some of the words. It was based on IRA rules. It was going, oh, that rule changed from 70 to 71, 72. It depends on how old you are. I'm like, it doesn't depend at all on how old you are. What are you talking about?
- [67:53]
OG
Yeah, it's still not even as good as Google from a Q A standpoint.
- [67:57]
Joe
Yeah.
- [67:57]
OG
So be careful with that.
- [67:59]
Joe
Yeah, I think it is interesting and I think it's a good conversation to have with your advisor too, about how they're using AI and, and what's going on. And if you're Tim's client and he's like, yeah, I've been using it for a week and it's, it's changed my world. And then, and then financial Planning, frankly, if financialplanning.com calls and I've been using it for a week, I'm like, no comment. I don't want to be in this
- [68:19]
OG
interview or, or say I've tried it out for a week. I'm really interested to learn more.
- [68:25]
Joe
Yes, exactly. Yeah. Yeah.
- [68:27]
OG
Wow.
- [68:28]
Joe
It's changed my world. All right. Very short back porch today. We are going to tonight have a movie screening. It's only seven minutes long. It's not War and Peace. It is called Retirement plan. It was up for an Oscar, sadly. Spoiler. If you didn't see it, it lost. But the fact that it made it as an animated. How often is there an animated short about personal finance? Number one. And then number two, combining retirement and animation in a seven minute short movie. That's very well done. I believe the New Yorkers behind it, just fantastic.
- [69:03]
Doug
Remember in school how excited you were when the TV got rolled in at the beginning of class on the cartoon and you could tell she was going to show some YouTube movie or something like that's how excited Joe is about this.
- [69:16]
Joe
It's going to be great. It is such a good movie and I know that for those of you that have seen it, you already know it's a great movie. I can't wait to show it. But then we're going to have about a 45 minute discussion with our friends Tom and Don from Talking Real Money. But also they're the creators of the Retire Meat conference. So these guys are going to help us deep dive a little bit on the themes that come up in this movie. So it'll be Doug and I, you and your popcorn. Bring your popcorn and Tom and Don from Talking real money tonight, 8pm Eastern, 5pm as Doug likes to say. Specific Hope you can join us stacking benjamin.com movie get you there or just navigate over to our stacking Benjamin's YouTube page. Man, big thanks again to Claire and Lee for hanging out with us and and teaching us about stock. So important. And before we start wrapping this up, I know on Monday we talked about your cash and inefficiencies with cash. Today we talked about inefficiencies in your portfolio. If you would like to see where you stand and evaluate where you are now and what opportunities you have to be better, head to OG's team's scorecard. It's stackingbenjamins.com scorecard and when you're looking at your cash, you're looking at your investments. Where do you stand? They will give you a score and you can take that rating and make better decisions much like we did today with Claire and Lee. Stacky benjamin.com Scorecard all right, that's going to do it. We'll see you on Friday where Paul Merriman's going to join us talking about stocks.
- [70:50]
Doug
The Paul Merriman 800 pound gorilla in the space. And we got him.
- [70:56]
Joe
Doug, you've got it from here, man. What should we have learned today?
- [70:58]
Doug
Well, Joe, take some advice from Claire Flynn Levy and Lee Freeman Shore. You can invest better by st with a plan. Maybe not by picking better stocks but by understanding that pros don't try to time markets. They work from an investment policy statement and they don't cut and run based on emotions. Second, while AI is great, remember that you have zero knowledge who's on the other side harvesting everything you're feeding it. Protect your credit and your identity and use AI as the helper if you can be just be sure you're going into it with eyes wide open. But the big lesson, don't even try to ask Joe's mom to moon dance. She'll turn that into a reason to teach you to do the Carlton. The Carlton, you ask? Look it up, man. It is so addictive. Thanks to Claire Flynn Levy and Lee Freeman Shore for joining us today. You'll find their new book Stock Market Market Maestros. Wherever books are sold, want to help the show. We'll also include links in our show notes@stackingbenjamins.com and if you use it, Amazon will pay us $1 million for every book you order. That's just a little finder's fee so that I can use like an actual microphone that really works for these episodes.
- [72:16]
OG
Oh, boy.
- [72:18]
Doug
This show is the property of SB Podcast, LLC, copy Copyright 2026 and is created by Josal Sehai. You'll find out about our awesome team@stackingbenjamins.com along with the show notes and how you can find us on YouTube and all the usual social media spots. Come say hello. And oh yeah, before I go, not only should you not take advice from these nerds, don't take advice from people you don't know. This show is for entertainment purposes only.
- [72:47]
Lee Freeman Shore
Before.
- [72:47]
Doug
Before making any financial decisions, speak with a real financial advisor. I'm Joe's mom's neighbor, Doug, and we'll see you next time back here at the Stacking Benjamin show.