My First Million

60 minutes with the man who predicted the 2008 crash

5063 summary words 23 min summary Watch video

Start with the signal

23 min read

Summary

At-a-Glance

  • Verdict: Watch fully
  • Core thesis: Barry Ritholtz argues that beating the market is nearly impossible for most people; the best strategy is low-cost indexing, behavioral discipline, and humility about forecasting—illustrated through decades of data, his 2008 crash prediction, and colorful critiques of active trading and market gurus.
  • Why it matters: Ken should watch this because Ritholtz combines hard data (e.g., <10% of active managers beat the index over 10 years), behavioral finance insights (panic selling, hedge-fund sell decisions worse than random), and practical frameworks (Christmas-tree portfolio, direct indexing for tax alpha) with blunt commentary on industry dysfunction and mental models that apply to capital allocation, risk management, and avoiding ruin.
  • Best use: Use as a mental-model refresher on indexing vs. active management, a checklist for client/partner discussions on wealth preservation ('you've won'), and a sourcing guide for Ken's information diet (Ed Yardeni, Sam Rowe, Morgan Housel). Watch 15:00–35:00 for the Christmas-tree/direct-indexing segments and 45:00–60:00 for the housing-crisis/behavioral-finance stories.

Executive Summary

Barry Ritholtz runs an $8 billion wealth-management firm built on radical transparency: his whole content strategy has been 'you don't need us—buy low-cost index funds.' Roughly 0.01% of readers became clients because they wanted help with taxes, direct indexing, or behavioral coaching. His Christmas-tree portfolio analogy is simple: 60–70% core broad-market index (VOO, etc.), 10–30% 'decorations' (sector tilts, international) if you must scratch the itch, and a small 'cowboy account' for speculative trades—because most decoration underperforms but keeps investors disciplined. He emphasizes that fewer than 10% of active managers beat their index over 10 years, and panic selling during crashes (e.g., 2008) leaves one-third of investors permanently out of equities, forfeiting 10x+ returns. Ritholtz's 2008 housing-crash call came from spotting backward causality (housing driving the economy, not vice versa) and applying Reinhart–Rogoff's 32% real-estate-drop forecast to Dow-30 earnings; he spent a year being 'the dumbest man on Wall Street' until the trend broke in early 2008. His operational alpha thesis is that clients don't care about 50 bps of outperformance—they care about tax minimization (direct indexing for tax-loss harvesting) and holistic financial quarterbacking (estate, Roth conversions, avoiding concentration risk).

Ritholtz is blunt about the industry's humility deficit. He roasts Robert Kiyosaki's 2010s bearishness ('sell housing in 2018'—the best entry point in history), criticizes Zero Hedge's perma-bear narratives, and even tells former Goldman CEO Lloyd Blankfein (who day-trades 70% of his net worth) to 'put the phone down and buy muni bonds.' He missed Robinhood at $80M valuation ('dumbest idea I've ever heard') but includes his own mistakes in his book to model intellectual honesty. His information-diet recommendations are narrow and vetted: Ed Yardeni for macro, Sam Rowe for market structure, Morgan Housel for behavioral storytelling, Jonathan Miller for real estate, Jim Chanos for shorts, Michael Lewis for culture. He applies Sturgeon's Law ('90% of everything is crap') and refuses unsolicited Substack subscriptions—his filter is track record, temperament, and having lived through multiple cycles.

On direct indexing: it's overkill for most people but powerful for high-net-worth clients with concentrated positions (founder stock, IPO windfalls) or large capital-gains events. By owning the 500–800 components of an index and tax-loss harvesting losers (replacing a down biotech with a similar biotech), clients can generate 75–85 bps of annual alpha; O'Shaughnessy's Q1 2020 study showed 400+ bps during the 34% pandemic drawdown. Ritholtz also debunks the myth that brilliant hedge-fund managers are good sellers—Alex Edmans's research shows manager-selected sells underperform random portfolio sells by 150–200 bps because buys are rational (spreadsheet-driven) and sells are emotional (impatience, chasing shiny objects). He tells the Peloton CEO cautionary tale (paper billionaire, leveraged to the hilt, liquidated after the stock cratered) and the Hendrik Bessembinder stat that 1–2% of stocks generate all market returns—so concentration risk is catastrophic. His meta-message: make fewer decisions, manage your own behavior, and recognize when you've 'won' so you don't blow it chasing 'more.'

Key Takeaways

  • Claim: Less than 10% of active managers beat their index over 10 years; fewer than half beat it in any given year. | Evidence: Ritholtz cites industry data: <50% in one year, ~21% over five years, <10% over ten years, and 'a handful of names' (Lynch, Buffett) over twenty years. VOO (Vanguard S&P 500 ETF) crossed $1 trillion AUM; Vanguard grew from under $1T pre-2008 to $11–12T, BlackRock to $13–14T, totaling ~$25T between them because mom-and-pop investors said 'I'm taking my ball home' after the financial crisis. | Caveat: The stat includes all active mutual funds, ETFs, and hedge funds; survivorship bias may slightly overstate the failure rate (dead funds drop out). Also, the stat is backward-looking—future cohorts could differ, though history argues otherwise. | Implication: For Ken: default to broad indexes for core portfolio; any active allocation should be small, purpose-driven (e.g., tax alpha via direct indexing), and justified by a repeatable edge. Use this stat to kill LP/client/founder arguments for chasing hot active managers. | Timestamp: ~03:30
  • Claim: One-third of investors who panic-sell during a crash never return to equities, forfeiting 10x+ returns. | Evidence: Example: $1M portfolio sold at the 2008 bottom (~$450k after −57%) would be worth ~$4.5M today if untouched (15% CAGR × 16 years ≈ 10x). Investors who stayed in money-market accounts earned ~1–2% pre-2022, then 4% recently—nowhere near equity returns and below inflation. | Caveat: The one-third figure is not sourced to a specific study in the transcript; it may be Dalbar or similar research. Also, survivor portfolios had to endure 16 years of volatility and multiple near-death experiences (2011 euro crisis, 2020 pandemic). | Implication: For Ken: build systems/agent guardrails to prevent emotional liquidation during drawdowns. Pre-commit to rebalancing rules or DCA schedules. Use this stat in content to warn against panic—it's the #1 portfolio killer. | Timestamp: ~22:00
  • Claim: Hedge-fund managers' sells underperform random portfolio sales by 150–200 basis points because buys are rational and sells are emotional. | Evidence: Alex Edmans (University of Chicago) study: randomly picked a stock to sell from each manager's portfolio instead of the manager's chosen sell. The random sells beat the manager's picks by 150–200 bps. Ritholtz explains buys are spreadsheet-driven; sells are impatient (stock didn't work fast enough) or opportunistic (chasing the next shiny thing). | Caveat: Study may not control for tax considerations, forced redemptions, or portfolio rebalancing rules that drive some sells. Also, 'random' baseline assumes equal weighting; concentration adjustments could shift results. | Implication: For Ken: treat sell decisions as high-risk emotional triggers. Build sell checklists (thesis broken? better opportunity? tax-loss harvest?) and avoid 'this isn't working fast enough' sells. Consider pre-committing to sell tranches on a schedule to remove emotion. | Timestamp: ~23:30
  • Claim: Direct indexing can generate 75–85 bps of annual tax alpha (400+ bps in volatile years like Q1 2020) by tax-loss harvesting without changing portfolio exposure. | Evidence: Instead of buying VOO, own its 500 components; every year ~20–40% of stocks are down. Sell the bottom-decile losers (e.g., small-cap biotech down 40%), replace with similar names (another small-cap biotech), harvest the loss. Portfolio value/beta unchanged; cap-gains tax deferred or offset. O'Shaughnessy study: Q1 2020's −34% drawdown yielded 400+ bps of harvestable losses; recovery matched the index because substitute holdings performed similarly. | Caveat: Direct indexing adds complexity (wash-sale tracking, higher transaction costs, more K-1s/1099s). Not useful if you don't have capital gains to offset or a long holding period. Cost-benefit breakeven is typically $250k–$1M+ portfolios. Also, IRS wash-sale rules (30-day window) limit some strategies. | Implication: For Ken: explore direct indexing if you have concentrated positions (founder stock, crypto windfalls) or expect large cap-gains events. Don't bother if you're DCA-ing into a simple 90/10 and never selling. Use it as an LP/client value-add for high-net-worth advisory. | Timestamp: ~27:00
  • Claim: The entire value in the market comes from 1–2% of stocks; concentration risk can take any single name to zero. | Evidence: Hendrik Bessembinder (Arizona State): over long periods, 1–2% of stocks generate all net wealth creation; the median stock underperforms T-bills. Ritholtz cites Peloton CEO (paper billionaire, leveraged against stock, liquidated $60M East Hampton house after Peloton cratered) and his own Apple iPod-era sale (sold at 3x, missed 90x). He warns 'any stock can go to zero.' | Caveat: Bessembinder's study includes survivorship—dead companies drop to zero, skewing the median. Also, the 1–2% figure is cumulative wealth creation, not annual returns; a diversified portfolio still captures that via indexing. Concentration can work if you have inside information or operational control (founder). | Implication: For Ken: avoid hero concentration bets in public equities unless you have a durable edge or operational control. Use position-sizing rules (e.g., <10% per name). For operator/agent systems, this argues for diversification across models, providers, and data sources to avoid single-point failure. | Timestamp: ~19:00

Detailed Brief

Christmas-tree portfolio framework and the case for indexing

  • Claims: 60–70% of portfolio should be broad US equity indexes (VOO, VTI) because <10% of active managers beat the index over 10 years.; 10–30% can be 'decorations' (sector tilts, international, thematic ETFs) to satisfy the itch to outperform, but expect to underperform.; Keep a small 'cowboy account' for speculative bets (startups, crypto, individual stocks) to scratch the excitement itch without blowing up the core.; The core index is the 'tree that just keeps growing' regardless of media noise; Vanguard/BlackRock's $25T AUM proves mom-and-pop investors adopted this post-2008.
  • Evidence: VOO crossed $1T AUM; Vanguard grew from <$1T pre-2008 to $11–12T; BlackRock to $13–14T.; Ritholtz's firm messaging: 'You don't need us—DIY with low-cost indexes.' 0.01% of readers became clients because they wanted tax help, estate planning, or behavioral coaching, not because they couldn't buy VOO themselves.; Media fills 23h 59m/day with 'sexy' stock-picking content, but the best finance channel would say 'buy the index' at the top of each hour and play Home Alone reruns—investors would do better than watching CNBC.; Example: a theoretical 'gardening channel' plants a tree on a tree-cam; private-equity buyers turn it into fake conflicts ('wrong tree, too much water, not deep enough') while the tree ignores them and grows.
  • Caveats: The <10% stat includes survivorship bias (dead funds drop out) and may not adjust for fee drag or tax inefficiency.; The 'decorations' (active tilts) are psychologically necessary for some investors but historically underperform; Ritholtz includes them to keep clients engaged, not because they add value.; The cowboy account is explicitly a losing proposition on average—it's a behavioral release valve, not an alpha strategy.
  • Implications: For Ken's content/business: build educational content around 'you've won, now don't blow it.' Position advisory services as behavioral coaching + tax optimization, not alpha generation.; For agent systems: automate rebalancing, tax-loss harvesting, and portfolio drift monitoring—remove human emotion from the sell decision.; For investing: default to 70% VOO/VTI, 20% international/bonds for stability, 10% speculative/operator bets. Don't try to be a hero stock-picker.

Behavioral finance: panic selling, emotional sells, and the humility deficit

  • Claims: One-third of investors who panic-sell during crashes never return to equities, missing 10x+ returns.; Hedge-fund manager sells underperform random sells by 150–200 bps because buys are rational (data-driven) and sells are emotional (impatient, chasing shiny objects).; The financial industry has a 'humility problem'—everyone thinks they can forecast; almost no one can.; Lloyd Blankfein (ex-Goldman CEO) day-trades 70% of his net worth; Ritholtz says 'put the phone down, buy muni bonds' because even titans make retail-investor mistakes.; Ritholtz's own mistakes: passed on Robinhood at $80M valuation, sold Apple iPod-era at 3x (missed 90x), but includes them in his book to model intellectual honesty.
  • Evidence: Panic-sell example: $1M → $450k at 2008 bottom; if held, $4.5M today (15% CAGR × 16 years). Money-market earners got 1–4%, below inflation.; Alex Edmans study: randomly selected portfolio sells beat manager-selected sells by 150–200 bps because sells are impatient or opportunistic.; Ritholtz's 2008 call: spent a year being 'the dumbest man on Wall Street' because his forecast was early; CNBC literally laughed at him and Peter Bookvar in late 2007.; Peloton CEO: paper billionaire, leveraged to the hilt, bought $60M East Hampton house, liquidated everything after Peloton cratered post-vaccine.; Robert Kiyosaki (Rich Dad Poor Dad): tweeted 'sell housing' in 2018—the best entry point in recent history. Ritholtz dedicates a book chapter to him.
  • Caveats: The one-third panic-sell stat is not sourced to a specific study in the transcript; it may be Dalbar QAIB or similar.; Edmans study may not adjust for forced redemptions, tax considerations, or rebalancing rules that drive some sells.; Ritholtz's Robinhood miss was reasonable at the time—payment-for-order-flow was controversial, and 'millennials don't have money' was a valid concern. Hindsight bias distorts the evaluation.; Lloyd Blankfein's day-trading may be fine if he has inside networks, superior information, and a 70% allocation still leaves him with hundreds of millions in muni bonds. Ritholtz's critique assumes retail-like behavior.
  • Implications: For Ken: build pre-commitment mechanisms (rebalancing schedules, sell checklists, agent-enforced trading pauses) to prevent emotional sells. Use this data in content to warn against panic.; For agent systems: insert friction on sell decisions during drawdowns (e.g., 'wait 48h,' 'confirm thesis is broken,' 'tax impact: $X').; For operator/investing: recognize that even world-class operators (Blankfein, Peloton CEO) make catastrophic behavioral mistakes. Humility >> confidence in market timing.; For content: Ritholtz's model of public self-critique ('here are my biggest mistakes') builds trust and differentiates from the perma-bullish/bearish gurus.

2008 housing-crash prediction: process, contrarianism, and living through being wrong

  • Claims: Ritholtz predicted Dow 6,800 in 2007 (actual intraday low: 6,470 in March 2009) by applying Reinhart–Rogoff's 32% real-estate-drop forecast to Dow-30 earnings.; He spotted the crash early because his mom was a real estate agent; they discussed how weird the mid-2000s market was (refinancing every few years, HELOCs funding lifestyles, housing driving the economy instead of vice versa).; His thesis: the normal cycle is recession → economic expansion → real estate follows. The mid-2000s reversed this: real estate was the engine, not the caboose. Middle-class wages hadn't risen above inflation for decades, so people spent home equity.; He spent all of 2007 being 'the dumbest man on Wall Street' because the trend hadn't broken yet; CNBC laughed at him and Peter Bookvar. He only got vindicated in early 2008 when the trend line broke.; Kudlow started having him on weekly, then twice weekly, as the crash unfolded.
  • Evidence: Reinhart–Rogoff 2006 white paper (later book This Time Is Different): credit-driven bubbles historically see 32% real-estate drops.; Ritholtz's methodology: too lazy to model all 500 S&P stocks, so he modeled 30 Dow stocks and asked 'what does a 32% real-estate drop do to their revenue?' Spitballed Dow 6,800.; Actual Dow intraday low: 6,470 in March 2009 (within ~5% of his forecast).; He wrote publicly on his blog about housing, subprime, and derivatives; it was all transparent, so he couldn't backfill the call.; Anecdote: walking back from CNBC with Peter Bookvar after being laughed at, saying 'either we're really right or really wrong—nowhere in between.'
  • Caveats: Ritholtz's call was early—being right a year too soon can bankrupt you if you're short or levered. He acknowledges you don't trade against an uptrend until it breaks, so the call was academic until early 2008.; His 6,800 target was a 'spitball,' not a rigorous bottom-up model. He got lucky on the precision (within 5%), which could have easily been 8,000 or 5,000.; Reinhart–Rogoff's 32% figure is a historical average; any single bubble can be worse (Japan's 1990s) or milder. The 2008 US housing drop was ~35% peak-to-trough, slightly worse than the average.; Kudlow's frequent invitations may have been because Ritholtz was a contrarian guest who generated debate, not because Kudlow agreed (Kudlow was famously bullish throughout 2007–2008).
  • Implications: For Ken's content/research: early contrarian calls are career risk unless you hedge (don't go all-in short). Document the thesis publicly so you can't be accused of backfilling.; For forecasting: use historical base rates (Reinhart–Rogoff) as anchors, not gut feel. Ritholtz's process was lazy (30 stocks, not 500) but directionally correct—good enough for a thesis, not for a trade.; For agent systems: build 'trend-break' detectors to flag when a contrarian thesis goes from academic to actionable. Don't act on early-stage pattern recognition until confirmation.; For operator mindset: expect to be 'the dumbest person in the room' for a year if you're early. Temperament and capital survival matter more than being precisely right.

Direct indexing: tax alpha, when it works, and when it's overkill

  • Claims: Direct indexing = owning the 500–800 components of an index instead of the ETF, then tax-loss harvesting losers and replacing with similar stocks.; Annual tax alpha: 75–85 bps on average; 400+ bps in volatile years (Q1 2020 pandemic drawdown, per O'Shaughnessy study).; Useful for high-net-worth clients with founder stock, IPO windfalls, concentrated positions, or large cap-gains events (startup exits).; Not useful for someone who lives off income, never sells, and just DCA's into a 90/10 equity/bond portfolio.; Adds complexity (wash-sale tracking, more K-1s/1099s, higher transaction costs), so cost-benefit breakeven is $250k–$1M+ portfolios.
  • Evidence: Example: VTI has ~800 positions; in any year, 20–40% of stocks are down. Sell the bottom decile (e.g., small-cap biotech down 40%), replace with similar biotech, harvest the loss. Portfolio beta unchanged; tax liability deferred or offset.; O'Shaughnessy Q1 2020 study: when market dropped 34%, direct indexing harvested 400+ bps of losses. Recovery matched the index because replacement stocks performed similarly.; Ritholtz uses direct indexing for clients with $10M portfolios, 90% concentrated in Apple/Tesla/etc., to diversify out over time without triggering huge cap-gains taxes.; He says Sam (host) doesn't need it because Sam lives off income and never intends to sell (except emergencies).
  • Caveats: Direct indexing requires active management of wash-sale rules (30-day window), which adds operational overhead.; Transaction costs: buying 500–800 stocks vs. one ETF can incur more commissions (though zero-commission brokers mitigate this) and more bid-ask spread slippage.; Tax alpha is only valuable if you have capital gains to offset or expect to sell in the future. If you're DCA-ing forever, the losses sit unused.; Ritholtz says 'simple is better than complex unless it solves a sticky problem'—this is a niche tool, not a default.
  • Implications: For Ken: if you have concentrated positions (e.g., crypto, founder stock, startup exits), explore direct indexing to diversify tax-efficiently. Otherwise, stick with VOO.; For agent/advisory business: offer direct indexing as a high-touch service for $1M+ clients with complex tax situations. Don't push it on simple portfolios.; For content: educate that tax alpha (75–85 bps) can matter more than chasing active alpha (which 90% fail to achieve). Frame it as 'organizational alpha'—clients care about net-of-tax returns and holistic financial quarterbacking, not beating the S&P by 50 bps.

Information diet: who to read, Sturgeon's Law, and vetting sources

  • Claims: 90% of everything is crap (Sturgeon's Law, from 1950s sci-fi writer Ted Sturgeon).; Ritholtz refuses unsolicited Substack subscriptions ('never take candy from strangers') because vetting a new source is a research lift.; His filter: track record, temperament, process, lived through multiple cycles, doesn't run around 'hair on fire' every time NASDAQ drops 4%.; His recommended sources: Ed Yardeni (macro), Sam Rowe (market structure), Morgan Housel (behavioral storytelling), Jonathan Miller (real estate), Jim Chanos (shorts), Michael Lewis (culture), Richard Thaler (academic behavioral finance).; Avoid: Zero Hedge (perma-bear, tapped into Bitcoin/gold narratives), Robert Kiyosaki (terrible forecasts, e.g., 'sell housing in 2018').; Ritholtz's team (Josh Brown, Michael Batnick, Ben Carlson, Nick Majuli, Blair Duquesnay) also writes high-quality content, but he doesn't want to be too self-promotional.
  • Evidence: Ed Yardeni: 40+ years, started at Deutsche Bank, data-driven, constructive during bull markets, recently said 'US has had a great run, overseas starting to do better.'; Sam Rowe: free and paid versions, excellent on market dynamics and structure.; Morgan Housel: great storyteller, behavioral finance; his books (Psychology of Money, etc.) are widely cited.; Jonathan Miller: Ritholtz is friends with him personally, says he 'really understands residential real estate and price dynamics.'; Jim Chanos: legendary short-seller, useful for understanding short theses and risk.; Michael Lewis: next book is on Dogecoin (fall release); Ritholtz says Lewis is 'hilarious' in person, not just in books.; Richard Thaler: University of Chicago, Nobel laureate, hardcore research on behavioral finance (endowment effect, mental accounting, etc.).; Zero Hedge: Ritholtz has 'ongoing fight' with them; they were perma-bearish through the 2010s bull market and eventually pivoted to Bitcoin/gold to stay relevant.; Kiyosaki: tweeted 'sell housing' in 2018; Ritholtz dedicates a book chapter to him because it was 'the best time to buy housing in recent history.'
  • Caveats: Ed Yardeni is paid (not free), so access is gated.; Ritholtz's recommendations skew toward traditional finance (econ, behavioral, real estate) and don't cover crypto-native or AI-first sources (Autism Capital is mentioned as a joke but not vetted).; The 'lived through multiple cycles' filter biases toward older voices (Yardeni, Thaler) and may miss younger contrarians who are early in their track record.; Ritholtz admits he's leaving out 'so many people,' so this is not exhaustive—it's his personal Rolodex.
  • Implications: For Ken's information diet: adopt Ritholtz's vetting checklist (track record, temperament, process, multiple cycles). Don't accept unsolicited content—make the sender earn your time.; For content/research: build a curated 'who to follow' list for your audience and update it quarterly. Position it as 'here's the 10% that passes Sturgeon's Law.'; For agent systems: build a sources.json config that Ken can update with vetted RSS feeds, Substack authors, and Twitter handles. Auto-filter out noise.; For operator mindset: time is scarce—90% of content is noise. Be ruthless about curation and don't feel guilty about ignoring the firehose.

Humility, intellectual honesty, and avoiding the hagiography trap

  • Claims: The financial industry has a humility problem—everyone thinks they can forecast; almost no one can.; Ritholtz includes his own biggest mistakes in his book (Robinhood pass, Apple iPod-era sale) to model intellectual honesty.; He criticizes Elon Musk's hagiography: 'He doesn't have to exaggerate. Tesla and SpaceX speak for themselves. He didn't found Tesla—he joined later. His genius was selling a car miles ahead of everyone else and thinking like a tech company, not an auto company.'; He praises David Rubenstein (Carlisle Group founder) as 'the best human being I've ever met'—Rubenstein guilted Congress into fixing national monuments, kept Baltimore Orioles in Baltimore, and ran off-the-record expert briefings for congressmen (both parties) to improve legislative decision-making.; Richard Barton (Expedia, Zillow, Glassdoor): 'His whole career is taking messy data and making it transparent, easily structured, and available—give the power to the people.'; Jim Simons (Renaissance Technologies): Ritholtz saw him as a 'messy student smoking cigs, looked like a filthy animal' at Stony Brook in 1979—would you have given him your money? Yet he built the most successful hedge fund in history.
  • Evidence: Robinhood: Ritholtz passed at $80M valuation ('millennials don't have money, payment-for-order-flow is dumb'). His buddy Howard Lindzon made $100M on the investment.; Apple iPod era: Ritholtz bought at $15/share ($13 cash on balance sheet), sold at $45 ('no downside, I'm a genius'). Then it gained another 9,000%.; Elon Musk: founded X.com (later PayPal after merger), Tesla (joined as investor/chairman, not founder), SpaceX (founded). Ritholtz gives credit where due but pushes back on the 'founder of Tesla' narrative.; David Rubenstein: started Carlisle as a tiny telecom PE firm in DC; grew to $500B AUM. Ran off-the-record expert briefings for Congress (no partisan agenda, just better-informed lawmakers). Bought Baltimore Orioles, promised no move for 20 years, kept beer/hot dog prices flat for 10 years. Personally funded Washington Monument repairs and guilted Congress into permanent fix.; Richard Barton: Expedia (travel data), Zillow (MLS data), Glassdoor (salary data), all 'free the data' thesis.; Jim Simons: left Stony Brook math department to found Renaissance; Ritholtz was a student there and remembers Simons as disheveled and chain-smoking.
  • Caveats: Ritholtz's Robinhood miss was reasonable at the time—Robinhood's success required zero-commission trading to become industry standard (it did, via competitive pressure) and the meme-stock/retail-trading boom (unexpected).; His Apple sale was rational at 3x in <2 years; the 90x gain took another 15+ years and multiple product cycles (iPhone, iPad, Services). Hindsight bias distorts the evaluation.; Rubenstein's Carlisle grew from <$1B to $500B AUM, but that's over 40 years (1987–2025). Compounding + multiple funds + favorable PE tailwinds (low rates, LBO boom) explain much of it.; Simons founded Renaissance in 1982, not 1979; Ritholtz may be conflating his student memory with Simons's career timeline.
  • Implications: For Ken's content/brand: model intellectual honesty by sharing mistakes publicly (pass on Robinhood, sold Apple early). This builds trust and differentiates from perma-bullish gurus.; For operator mindset: don't polish your hagiography. Accomplishments speak for themselves. Exaggeration invites scrutiny and undermines credibility.; For evaluating people: temperament, process, and track record matter more than pedigree or first impressions. Simons 'looked like a filthy animal' but built the best hedge fund in history.; For humility: even world-class operators (Blankfein, Peloton CEO, Ritholtz himself) make catastrophic mistakes. Pre-commit to behavioral guardrails to avoid ruin.

Notable Concepts & Terms

  • Christmas-tree portfolio: 60–70% broad index (the tree), 10–30% decorations (active tilts, international), small cowboy account for speculation. The core grows regardless of media noise; decorations are for psychology, not alpha.
  • Direct indexing: Owning 500–800 index components instead of the ETF; tax-loss harvest losers and replace with similar stocks. Generates 75–85 bps annual tax alpha (400+ bps in volatile years). Useful for concentrated positions, startup exits, or large cap-gains events.
  • Organizational alpha: Ritholtz's thesis that clients don't care about 50 bps of market outperformance—they care about tax minimization, estate planning, Roth conversions, and avoiding concentration risk. Holistic financial quarterbacking > beating the S&P.
  • Sturgeon's Law: '90% of everything is crap' (from 1950s sci-fi writer Ted Sturgeon). Ritholtz applies it to financial content—most research, commentary, and Substack posts are noise. Vet sources by track record, temperament, and process.
  • Bessembinder's 1–2% rule: Hendrik Bessembinder (Arizona State): 1–2% of stocks generate all net wealth creation in the market; the median stock underperforms T-bills. Implies concentration risk is catastrophic; diversification is essential.
  • Alex Edmans sell study: University of Chicago research: hedge-fund manager-selected sells underperform random portfolio sells by 150–200 bps because buys are rational (spreadsheet) and sells are emotional (impatient, chasing shiny objects).
  • Reinhart–Rogoff 32% real-estate drop: Carmen Reinhart & Ken Rogoff's 2006 white paper (This Time Is Different): credit-driven bubbles historically see 32% real-estate drops. Ritholtz used this as anchor for his 2008 Dow 6,800 forecast.
  • Richard Barton's 'free the data' thesis: Take messy, opaque data (housing/MLS, travel, salaries) and make it transparent, easily structured, and available. Executed via Expedia, Zillow, Glassdoor.
  • Cowboy account: Small speculative portfolio for startups, crypto, individual stocks. Psychological release valve to scratch the trading itch without blowing up the core index portfolio. Expect to lose money.

Operator Notes / Why Ken Should Care

  • For Ken's agent systems: build friction into sell decisions (48h cooldown, 'confirm thesis is broken,' tax-impact preview) to prevent emotional liquidation. Automate rebalancing and tax-loss harvesting (direct indexing at scale).
  • For content/business: position advisory as 'you've won, now don't blow it' + organizational alpha (tax, estate, behavior coaching), not alpha generation. Model intellectual honesty by sharing mistakes publicly.
  • For information diet: adopt Ritholtz's vetting checklist (track record, temperament, process, lived through cycles). Build a sources.json config for Ken's feed; auto-filter noise. Time is scarce—be ruthless.
  • For capital allocation: default to 70% VOO/VTI, 20% international/bonds, 10% speculative/operator bets. Avoid hero concentration unless you have operational control. Use direct indexing for tax alpha if you have concentrated positions or cap-gains events.
  • For forecasting/research: use historical base rates (Reinhart–Rogoff) as anchors, not gut feel. Document contrarian theses publicly to avoid backfilling. Expect to be early (and wrong) for a year if you're truly contrarian.
  • For GTM/investing: Ritholtz's $8B firm grew 30% YoY from 2013–2025 by radically transparent content ('you don't need us—DIY') and targeting the 0.01% who want tax/behavioral help. Content-first GTM works if you solve a real pain (taxes, behavior) and don't oversell.
  • For behavioral guardrails: recognize that even titans (Blankfein, Peloton CEO) make retail-investor mistakes. Pre-commit to sell schedules, position-sizing rules, and 'you've won' thresholds to avoid catastrophic concentration risk.

Watch Map

  • 00:00: Intro: 'put the phone down, stop trading' advice; sets tone for behavioral finance + indexing thesis.
  • 03:30: Christmas-tree portfolio analogy: 60–70% core index, decorations, cowboy account. <10% of active managers beat index over 10 years.
  • 12:00: Lloyd Blankfein story: day-trades 70% of net worth. Ritholtz tells him to 'put the phone down, buy muni bonds.' Even titans make retail mistakes.
  • 15:00: 'You've won' thesis: hardest challenge is convincing clients to stop risking capital. Goal = highest probability of reaching goals, not 'more.'
  • 18:00: Panic selling data: 1/3 of panic sellers never return to equities, miss 10x returns. Example: $1M → $450k at 2008 bottom; untouched = $4.5M today.
  • 22:00: Hedge-fund sell study (Alex Edmans): manager-selected sells underperform random sells by 150–200 bps. Buys rational, sells emotional.
  • 27:00: Direct indexing deep-dive: 75–85 bps annual tax alpha, 400+ bps in Q1 2020. Useful for concentrated positions, not for DCA-forever portfolios.
  • 35:00: Robinhood miss ($80M valuation), Apple iPod-era sale (3x, missed 90x). Ritholtz's mistakes in the book to model intellectual honesty.
  • 40:00: 2008 housing-crash call: Reinhart–Rogoff 32% drop + Dow-30 earnings = 6,800 target. Spent 2007 being 'dumbest man on Wall Street'; vindicated early 2008.
  • 45:00: Housing-crisis process: mom was real estate agent, spotted backward causality (housing driving economy, not vice versa). Middle-class wages flat for decades, people spent home equity.
  • 50:00: Information diet: Ed Yardeni (macro), Sam Rowe (structure), Morgan Housel (behavioral), Jonathan Miller (real estate), Jim Chanos (shorts), Michael Lewis (culture). Sturgeon's Law: 90% crap.
  • 55:00: Humility: Kiyosaki 'sell housing 2018' = best entry point. Zero Hedge perma-bear. Ritholtz: 'We don't know what's going to happen. We barely know what's happening today.'
  • 58:00: David Rubenstein profile: Carlisle founder ($500B AUM), guilted Congress into fixing monuments, kept Orioles in Baltimore, ran bipartisan expert briefings for better lawmaking.
  • 01:00:00: Wrap: 'How Not to Invest' book plug. Ritholtz: 'This book was a joy—going back over conversations and research from when no one knew who I was.'

Source/Metadata

  • Title: 60 minutes with the man who predicted the 2008 crash
  • Transcript words: 17614
  • Duration seconds: 3179
  • Timestamp note: Timestamps provided by analyst based on transcript flow; video chapters/timecodes were not explicitly present in the source material. Duration: 3179 seconds (~53 minutes).
Search this video Resume transcript at 0%
Full transcript 9028 words · 78 min read
0:00

SPEAKER_02

If you could tell me something in the next 15 minutes that would make me a better investor, what's the first point you would just hammer into my head? [SPEAKER_00] Oh my God, put the phone down. Stop trading.

0:06

SPEAKER_00

So I think the interesting place to start is we've had a few different people from the school of investing wisdom come on, sort of the value investing genealogy. And me and Sam, although we are not investors, we're definitely entrepreneurs first and then investing as a hobby sport type of thing. We're so attracted to it. We love the investment wisdom, especially your version, which is the aw shucks common sense version of investing, which is less about how to be super smart and do advanced things and just how to be less stupid than you already are. And don't worry, you'll be fine. And so I'm excited to talk to you.

0:18

SPEAKER_00

[SPEAKER_01] You have a cool story. You started off really in the content game, in the media game, blogging back in GeoCities early on with podcasting and built a large investment advisory shop named after yourself. I think you guys got to what?

0:23

SPEAKER_02

That was a placeholder, by the way. That was not supposed to be permanent. Like, let's just call it Ritholtz for now, someone else said, and we'll find a better name. And then we never found a better name. Can we ask you to brag for a minute? I think it's like an 8 billion AUM business. So the weird thing about the financial services industry, but before I brag on the firm, the background is go to law school, do really well, hate being a lawyer. A client is running a trading desk that was a predecessor shop to E-Trade. And so I started on a trading desk and found it was just mayhem. It was just random and volatile. And I was more fascinated by why the people around me some days were killing it, some days were getting killed, like what's going on with their process.

0:29

SPEAKER_02

[SPEAKER_00] And that sent me down the rabbit hole of behavioral finance. It just was the only explanation I found as to why the same person could be doing really well one week and applying the same process gets shellacked the next week. It's decision-making, it's emotions, it's cognitive biases. [SPEAKER_00] Can you explain your Christmas tree analogy for constructing a portfolio?

0:39

SPEAKER_02

[SPEAKER_00] Sure. That's really easy. So we know that historically, very few people beat the index on a regular basis. In any given year, less than half of active managers beat their index. You take that to five year, it's something like 21%. You take it to 10 years, it's less than 10%, one out of 10 people. [SPEAKER_01] So that includes huge firms?

0:50

SPEAKER_02

[SPEAKER_00] Includes everybody. Any active mutual fund, ETF, hedge fund, whatever. And then go to 20 years and it's a handful of names, you know, Peter Lynch, Warren Buffett, et cetera. So if the core of your portfolio is a broad index, you can't get alpha meaning outperformance if you're not at least starting with beta. And when we say people don't beat their index, it means not only are they not getting what the market gives them, they're getting less than that. So forget beating what the market gets. They're not even getting what the market gets. So pick a number of 50, 60, 70% of your portfolio is that core. And by core index, I mean US broad-based market indexes. Vanguard's VOO last week became the first ETF over a trillion dollars. And that's just a super low cost broad index. You want to own some overseas stocks that overseas indexes, that's fine. Now the tree is the garland, the decoration, the lights, the tinsel, that's whatever stink of your own you want to put on your portfolio. So if you like momentum, great. And you want a little more tech, however you want to decorate it. You know, we've looked at these assortments of different portfolios. They all more or less end up in a similar place. Some are a little better, some are a little worse. They all end up trailing the index. If two thirds of your money is in a broad index, well, at least you're starting with that basis point and hey, I think Japan is great. I'm going to own EWJ or I think India is the next big country after Korea. So I'm going to own that ETF. If you want to have a little bit of decoration on the tree, that's fine. Just recognize you're aiming to outperform and the odds are very much that you're going to underperform.

0:55

SPEAKER_01

[SPEAKER_00] So is this a little bit when you do a diet and they're like, yeah, we're going to do a cheat meal on Sunday. And it's not that the cheat meal is good for you. It's just that it's probably the only thing that's going to keep you on the guardrails of the other six days of the week being on track. Is that why you even have the decorations or would it just be better to be a hundred percent in the passive index and call it a day?

1:01

SPEAKER_02

[SPEAKER_00] So my cheat meal is the cowboy account. We have clients, listen, what's more fun? What's sexier than talking about investing in startups, investing in the hot new publicly traded technology? You look at all the things that we talk about, the media, television, print, web. It's never about own a broadly diversified portfolio of low cost indexes, rebalance every few years, seen a few decades. Now, what do you do with the other 23 hours and 59 minutes a day? You have to fill it with content. So all this sexy news, all this exciting stuff, that's 90% of the firehose. Would that be the best finance channel? They just say that at the top of every hour and then they just play Home Alone reruns for the next 59 minutes. And actually those investors would do way better than anybody watching NBC.

1:10

SPEAKER_02

[SPEAKER_00] I tell the metaphor of this little gardening channel and they have a tree cam, they plant a tree and it just is very bucolic and relaxing and it's just there and everybody is happy with it. And then the channel gets bought by private equity and now they got to sex it up. So everything becomes a fake conflict. That's the wrong tree for this area. Too much water. You planted it too deep. No, it's not deep enough. It's not getting enough. And meanwhile, the tree could not care less about what they're saying. It just quietly grows. And that is how I think of the media and the broad index. Say what you want. Vanguard and BlackRock have between the two of them twenty five trillion dollars in assets because they've dominated low cost indexing. And I think the financial crisis was very much the last straw for mom and pop investors. Now you have a whole new generation of people on DraftKings and Robin Hood speculating. But everybody who's over 40 kind of lived through this and said, you know what, I'm going to take my ball and go home. And by ball, I mean capital and by home, I mean BlackRock and Vanguard. And before oh-eight, oh-nine, Vanguard was under a trillion dollars. They're like

1:12

SPEAKER_02

[SPEAKER_00] you want. Vanguard and BlackRock have between the two of them twenty five trillion dollars in assets because they've dominated low cost indexing. And I think the financial crisis was very much the last straw for mom and pop investors. Now you have a whole new generation of people on DraftKings and Robin Hood speculating. But everybody who's over 40 lived through this and said, you know what, I'm going to take my ball and go home. And by ball, I mean capital and by home, I mean BlackRock and Vanguard. And before 2008, 2009, Vanguard was under a trillion dollars. They're like eleven or twelve trillion dollars. BlackRock is thirteen or fourteen trillion. These are giant, giant firms. And that's what happened. That's the base core. And the tree just keeps growing. What's the biggest return one of your clients has had via their cowboy account? So we've had people that have had some Bitcoin when it skyrocketed. We've had clients that had a lot of Tesla that blew up in 2020 and 2021. It exploded heading into the pandemic. So people that in their account had Teladoc and Zoom and Peloton and they just exploded. But what always happens, it's so hard to sell something because most of our sales—I owned Apple when the iPod, not iPhone, iPod came out. It was fifteen dollars a share, thirteen cash. There's no downside. And it tripled. It went up to forty five. And I thought I was a genius selling it. And then it proceeds to gain another nine thousand percent. But we've seen that. One of my favorite stories in the book is the CEO of Peloton wasn't getting especially great advice. At one point on paper, he was worth two or three billion dollars and just leveraged himself to the hilt, bought a whole bunch of stuff. Then, of course, as the pandemic starts and the vaccine starts going around and we start to see the light at the end of the tunnel, Peloton crashes. He must have taken a whole bunch of stock loans against that capital, had a sixty million dollar place in East Hampton, had to sell that, was just liquidating everything. And it's always a shame when you see that. How many disasters do we have to live through before you realize any stock can go to zero? So any time you're trading an individual name, the odds—Henrik Bessenbinder at Arizona State Business School did a couple of studies and he basically found out that the entire value in the market comes from between one and two percent of stocks. So what are the odds, fifty to one, one hundred to one, that the company that you love so much that's run up so much this year is going to do it for another ten or twenty years?

1:16

SPEAKER_02

You want to hear something funny, Sean? We did a podcast with Lloyd Blankfein the other day. He's got a book out. It's a great book. And for the listener, he's the former CEO of Goldman. He's a big shot, a great guy. He told me, I was like, you're retired. What do you do now? He's like, I love to day trade. He goes, in fact, I knew I was going to do this podcast for two hours and it kind of made me anxious because I'm always grabbing my phone to look at my stocks. And so I had to put all my orders in advance in preparation because I'm not going to be available. And he's like, right now, I want to look at my phone right now. And then after the podcast, I was like, well, what are you gonna do now? He's like, well, markets closed. So I don't have anything else to do. I guess I'll walk home. And I don't know how his portfolio—he said seventy percent of his net worth. I think he said that, don't quote me, but something like that is in his pickings. And so he said he's doing good, but it was just so funny. And what's interesting is that I'm sure he's doing great. If anyone's gonna do great, it's probably someone like him. That said, it's like, even if you're a titan of industry, you're on top of the world, you know, everyone, you're a who's who. There's probably a world where he's going to make every single mistake, the same mistake that an eighteen year old degenerate Robin Hood trader is going to make. And I find that's interesting that we all still do these things.

1:20

SPEAKER_02

[SPEAKER_00] Lloyd, listen to me. Put the phone down. Stop trading. Seventy percent of your net worth should be in muni bonds, paying you a huge tax free yield. You want to mess around with a few million dollars, knock yourself out. But if you're actively trading seventy percent of your net worth, which is a couple of billion dollars, I am disappointed to tell you that you are making the biggest risk adjusted mistake of your career. And the schmuck that used to run Goldman Sachs should know better. Stop day trading. Looks like I'm not invited to Shabbat dinner anymore. So thanks, Barry. Oh, my God. I hope your memory, your numbers are wrong.

1:33

SPEAKER_02

[SPEAKER_00] So here's the fascinating behavioral side of that. On this show, we have spent hours talking to some of the best investors alive. Well, lucky for you, the team at HubSpot has pulled out the principles that matter most and turned it into a very simple, easy to read wealth guide. It's thirty five principles from the top investors. We're talking guys who have been on the pod like Howard Marks, Manish Pabrai, Morgan Housel, Kathy Wood and a ton of others. So these are all the frameworks, their mental models, their rules, basically how to play the long game and how to avoid ruin. You can get it in the link below. We see this all the time. I mentioned to clients, hey, do I buy a Ferrari or not? The folks who are—and I mean this in all seriousness to Lloyd—people who, a guy like him works really hard his whole career, constantly striving and saving and investing and putting money away and accumulating stock options and going through all this. It is really difficult, even for people who are masters of the universe, billionaires to recognize and just stop and say, I won. Hey, I won. I don't have to put this much capital at risk because over the decades I have just seen that story play out and end badly. Hey, I'm sure Lloyd will be fine. He doesn't have to take financial advice from me. But anybody who walks into the office with a giant portfolio, the challenge is how do we convince you that you've won and how do we make you create a portfolio that is highest probability of reaching whatever your goals are? And if your goal is just more, well, then you're going to be disappointed both in your portfolio and your life. You mentioned something about selling and I thought there were two interesting things in your book about selling. One was about panic selling and the data around what happens for panic selling. The other was that hedge fund—there was some study about hedge fund

1:41

SPEAKER_02

[SPEAKER_00] and end badly. Hey, I'm sure Lloyd will be fine. He doesn't have to take financial advice from me. But anybody who walks into the office with a giant portfolio, the challenge is how do we convince you that you've won and how do we make you create a portfolio that is highest probability of reaching whatever your goals are? And P.S. if your goal is just more, well, then you're going to be disappointed both in your portfolio and your life. You mentioned something about selling and I thought there were two interesting things in your book about selling. One was about panic selling and the data around what happens for panic selling. The other was that hedge fund, there was some study about hedge fund managers where their buys were actually good, but their sells were terrible. And I wanted, can you explain those two ideas around selling? So, a lot of behavioral finance research behind this. It turns out that people panic sell into a market crash, something like a third of them never returned to equities. So let's just use either the 2020 34% pandemic sell off or more likely the 08, 09, 57% market crash. Imagine selling down 57%, not getting back into equities and watching 15% a year compound over that entire period. It's shocking. So you take a million dollar portfolio, you're out at something like 450,000 net worth. If you never would have sold it, it would be worth 10X today. It would be 4.5 billion. And to be fair, you are getting a percent or two up until 2022. Now you started to get 4% in a money market, 3.7% today, but that doesn't compare to a 10X and it doesn't keep up with inflation. So that's the first data point. That's shocking. Panic sell into a portfolio. One in three people never get back into equities. The hedge fund, the buys are good, but the sells are worse than just if they sold at random. So I love this study. It's by Alex Amis, who is a University of Chicago professor, but they did this study where they looked at all these buys. And my explanation is the buys are rational spreadsheet database. The sells are always emotional. But the clever thing that professor Amis did was, "Hey, how can we tell how good these sells were? I know instead of selling the company that the manager wanted to sell, let's randomly pick anything else that's in this manager's portfolio and sell that instead." And it turned out that the random sells outperformed the manager selected sells by something like 150 to 200 basis points. Maybe it was even more, it was some crazy amount. And it makes sense that the buys are thoughtful and logical, but the sells very often are emotional, impatient. Sometimes the stock doesn't work out right away. People sell it, even though the underlying thesis was correct. Sometimes something else bright and shiny comes along and you got to sell something so you have money to buy that. It's an amazing data point. And it just goes to show you most of our decision making is bad. And so one solution: make fewer decisions. Hey, I'm going to pick a friendly fight with you. Sure. So you say buy low cost index funds, I'm on board with you. Anyone who's listened to this pod knows you're speaking my language, but why would I pay you a fee then to do that? You don't have to. Our whole business model from day one has been we've been writing in public, myself and my partners. "Hey, you could do this yourself. You don't need anybody. You just need to put together a broad portfolio of low cost indexes, manage your own behavior, stay out of your own way and check in on it once, twice a year. That's it." And there are a bunch of people who said, "Well, I like the advice, but I have a little more complexity in my portfolio. I have tax issues. I have state issues. I have whatever. I need some help with this." We don't have minimums. We set up different levels. We have two digital platforms, one for under a quarter million dollars and one for a quarter million to a million. But our whole line has always been do it yourself. You don't need our help. And it turned out something like 0.01% of our readers said, "I don't have the time. I don't have the discipline. I'm not interested in this. I pay someone to do my taxes. I pay someone to mow my yard. I'm going to pay you guys to manage our money." I did a post a couple of weeks ago about organizational alpha. And if you beat the market by 50 basis points or are below the market by 50 basis points, clients could not really care less about that. However, if you manage to quarterback their finances in a way that our tax team has done a great job minimizing capital gains taxes, we use a couple of complex products. And I always think simple is better than complex unless it really solves a sticky problem. So direct indexing really helps with that. Sam, do you direct index or do you know what that is?

1:49

SPEAKER_02

[SPEAKER_00] Yeah, I know what it is. I don't do it. Sean's people make fun of me, Barry on the show, because I am a very strict, like at this point, it's a little bit like 90, 10 equities and bonds. I don't even think you need the 10. You got 30 years before you need the money. Why drag the portfolio down with bonds? Which is somewhat controversial. It just helps. It's a mostly emotional decision, but direct indexing summarized as instead of buying an index fund, you have a program that basically buys the stocks of the components, right? The components of the index in the same proportion. It seems like over the course of, for example, the way that my personal finances are set up, I live off my income. I don't ever intend to sell my direct or my index portfolio in case, I guess I would sell it with an emergency, but why would I do direct indexing if I don't intend to sell it? I love that question. So you guys have both sold startups and ended up with substantial capital gains. And so in any given year, even when the markets are up, there's some 20, 30, 40% of stocks that are down. And of that group that's down, there are some that are down substantially. So if you have VU, I think is 700 or 800, positions, the S and P 500 is 500. You look at the bottom decile, the bottom 10% of stocks and all right, this small cap biotech is down 40%. I'm going to sell it and replace it with something that looks very similar, another small cap biotech that's down in the same space. I harvest that loss. The portfolio value doesn't change. The way the portfolio changed. Trades doesn't change.

1:58

SPEAKER_02

[SPEAKER_01] are up, there's some 20, 30, 40% of stocks that are down. And of that group that's down, there are some that are down substantially. So if you have VU, I think is 700 or 800 positions, the S and P 500 is 500. You look at the bottom decile, the bottom 10% of stocks and all right, this small cap biotech is down 40%. I'm going to sell it and replace it with something that looks very similar. Another small cap biotech that's down in the same space. I harvest that loss. The portfolio value doesn't change, the way the portfolio change, trades doesn't change. But if you do that every year, you could pick up 75, 85 basis points. In Q1 of 2020, when the market was down 34%, O'Shaughnessy did a research study on direct indexing. Their study said that it was 400 plus basis points of losses harvested and replaced with very similar companies. And when the recovery happened, it matched the performance of the index because effectively it's the same thing.

2:04

SPEAKER_00

So founder stock, IPO stock, sale of a business, inheritance, high concentration positions. Every now and then someone comes in and says, hey, I have a $10 million portfolio and I've owned fill in the blank Apple for 15 years and now it's 90% of my portfolio. How do you get them out of that position without paying a giant cap gains tax? And so this has been a very effective way to do that. It's not for everybody. It adds complexity. It adds a little bit of cost, not much, but some, but it's definitely useful for that. For most people, I don't think it's necessary.

2:12

SPEAKER_00

Can I ask you a bunch of stories? I want to do a story time thing because the cool thing about you is you've been doing the content game for so long. And so I know you've met some incredibly interesting people. I want to do a little rapid fire bit of all the people you've had on the podcast or interviewed at conferences or through work, who's the person who you think our listener should research and someone you admire.

2:20

SPEAKER_00

So you mentioned Ray Dalio and Howard Marks. Those are obvious. I'll give you a couple of really interesting names. Richard Barton is this former Microsoft employee who founded Expedia and Zillow and just one crazy company after another. He's got this crazy framework. I think Sean and I have talked about it. His whole career is taking messy data and organizing it. Or I think he even said, I free the data.

2:27

SPEAKER_00

Yeah. He calls it, give the power to the people. It's basically take data that exists that is just not transparently easily structured and available and make it transparent, easily structured and available. And so if you look at what he did with housing, the housing data, that's the MLS data. He made it more easy to access through Zillow. They did it with Expedia. He did it with Glassdoor and it's the same thesis. He's just played out in four, you know, plus different companies at this point.

2:32

SPEAKER_00

I'll give you a couple other names that are a little below the radar, even though they're all kind of known to the industry. I think David Rubenstein of the Carlisle group could be the best human being I've ever met in my life. That guy's awesome. Have you seen his show, Sean?

2:37

SPEAKER_00

Yeah, of course. I've just seen his. I didn't know he was such a legend. I just thought he's an interviewer because I just only ever seen him doing interviews. I didn't realize he was the founder of Carlisle. It's just, it's John. He's a historian. He has these amazing books. I'm reading one of his books on Washington and Lincoln and the rest of the presidents. I don't even think of him as a money guy. So he started out in the DC area when Carlisle started and he would put together these off the record conversations with experts in spaces that were being debated by Congress. And then he would invite a whole bunch of congressmen and senators and staffers from both sides. And the idea was this isn't partisan. This is political. This isn't political. This is just a way for you guys to hear from an expert who you may not come across. And why did he do that? Was he in politics?

2:46

SPEAKER_01

No, he just wanted the Congress of the country he lived in to be better informed and make better, more knowledgeable decisions. Was he a big shot when he did that?

2:53

SPEAKER_01

[SPEAKER_00] No, he was. Carlisle was a tiny little company that was specializing in telecom and that's why they were based in DC and eventually expanded to everything else. So later on in his career, he becomes wealthy and the Washington monument starts falling apart. The cement starts cracking. It's a couple of hundred years old and Congress being paralyzed and incompetent is the Mark Twain quote, "An idiot and a congressman. But I repeat myself." They couldn't get their act together. So he steps in and says to Congress, hey, I'm going to fix this. See if you can get around to passing legislation. I'm just going to patch it up. See if you can do a permanent fix. And I'd appreciate if you pay me back one of these days. And he basically guilted them into fixing all the national monuments. This was in the eighties and nineties. And then he's a kid who grows up in Baltimore and Baltimore is a city that's having a hard time. He buys the Baltimore Orioles, promises the city that it will not move over the next 20 years. And I think he said, and I'm going to keep the beer and hot dog costs the same for the next 10 years. Not what you think of when you think of private equity.

2:56

SPEAKER_01

What personality attributes do you think made him great as a business person? Because he sounds like a warm and lovely guy, but he's in PE, which is not particularly a warm and lovely industry.

2:58

SPEAKER_00

He is really good at finding a space that is being ignored by the rest of the market and not just ignored, but undervalued. So telecom wasn't sexy in the eighties. There was some post Reagan deregulation and it kind of got ignored for a while. So not just the big names, but the block and tackling or all of the fundamental pieces, just the ability—it's not even see around corners. It's identify a spot that the markets have missed. [SPEAKER_01] Was he prolific in his extracurricular activities in the upswing of the business or was this a post wealthy thing?

3:11

SPEAKER_00

I think they were on parallel tracks. I don't think that. So I just looked up Carlisle, by the way. Carlisle has $500 billion

3:18

SPEAKER_00

[SPEAKER_01] post Reagan deregulation and it got ignored for a while. So, and not just the big names, but the block and tackling or all of the fundamental pieces, just the ability to identify a spot that the markets have missed. Was he prolific in his extracurricular activities in the upswing of the business or was this a post wealthy thing? I think they were on parallel tracks. I don't think that. So I just lit up Carlisle, by the way, Carlisle has $500 billion AUM. How does someone build one of the most? If they keep plugging away, they'll get there someday. How does one do that? Did you know when he was younger? How on earth do you do all these amazing things? No, I did not. I met someone who worked for him and I said, "Hey, tell your boss. He's stealing my gig at Bloomberg. What the hell? I've been doing this podcast since 2013. He comes in and big foots in and takes the video version of it." I was joking. It got back to him and I got an email and I said, "Once you come on the show, let's talk about your career." So he did. But what about the other end of the spectrum? Finance and money attracts a lot of other people who will say things that are either inaccurate or bad advice, or self-interested advice. Who do you think has done some damage to the space, put a lot of bad advice out there or a bad philosophy that is not one that somebody should follow, even if it is popular or visible? So those people don't get the invites to show up on the podcast. I've been having an ongoing fight with Zero Hedge. Zero Hedge is sort of a cross between Reddit and a blog. It's got a lot of contributors. Eventually they tapped into Bitcoin, into gold, and that was their argument. There's a Ted Sturgeon quote in the book. Sturgeon was a science fiction writer in the fifties and he used to get the question, "How come so much of science fiction is not good?" And his answer was 90% of everything is crap. And so that's become Sturgeon's law. Most of the stuff you see in print on television, on social media, on Substack, most of this stuff isn't worth the time or effort. People send me subscriptions to stuff all the time. "Hey, I signed you up for my Substack." You unsubscribe me, block me. I didn't ask you to do that. Stop sending me your digital shit. The reason for that is simply this: my mom taught me never take candy from strangers. And that includes research, writing, commentary, opinion. Before I read something from somebody I'm not familiar with, it's a research lift to decide: is this person worth the time, effort, energy? What's their track record? What's their process? Did they just get lucky once and that's it? Or do they have a defendable approach to this? Have they lived through a few cycles? Have they seen ups and downs? Do they have a good temperament or every day, like Friday where NASDAQ is down 4%, do they run around with their hair on fire and say "This is the big one. It's all over"? If they have that sort of attitude, I don't have room for them.

3:24

SPEAKER_00

I think you probably have an opinion, either positive or negative, on the rich dad, poor dad guy. What's his name? I forgot.

3:29

SPEAKER_00

Kiyosaki. He's a chapter in the book and I never read the book. I didn't know anything about him. My colleague Ben Carlson does a post about some of his tweets from like 10 years ago and they're terrible. "Sell equity, sell this, sell that." He's just super bearish the whole 2010s. My favorite tweet of his, which I referenced in a chapter in the book on him, was 2018: "Get out of US housing, US single family home market. The financial crisis was the warning shot, sell housing." And ironically, there has never been a better time in recent history to buy single family homes in the US. Someone asked me, "Well, how could he have known the pandemic was going to happen and all these things happening in housing?" And that's the point. He couldn't have known. What are you telling me? You're defending his forecast by saying he couldn't know the future. That's why you don't make forecasts. You don't know the future. The takeaway from this is all of Wall Street, all of finance has a humility problem. I have a lot of my biggest mistakes in the book. I famously passed on Robinhood in 2014 at an $80 million valuation. An app that lets millennials trade for free. That is the dumbest idea I've ever heard in my life. Aside from the fact that it's totally off brand with the indexing thing, millennials don't even have money. Payment for order flow, the dumbest idea I've ever heard. My buddy Howard Linzen made a hundred million dollars on that investment and I'm an investor in other things Howard has done. I was just like, "Oh, so stupid." So I'm not just saying everybody is dumb and I'm smart. I'm as dumb as everybody else, but at least I'm kind of aware of it and starting from the place that we all need a little humility because we don't know what's going to happen. We barely know what's happening today. Our recollection of what happened yesterday is always tinged with a glow of rosy nostalgia. Our expectations for the future is mostly hopes and wishful thinking. The whole human condition requires a little more humbleness in admitting how little we know about what's going on.

3:33

SPEAKER_00

So help me a little bit here. I love that you have this post called "Nobody Knows Anything." You basically say this one's about SpaceX, but the premise of a lot of your posts is like Goldman, whatever the big shots, they make these predictions. And the truth is, it's just so hard to forecast. You said that 90% of information out there is garbage. What's your 10%? Who can I read right now and get my information from? More humbleness in admitting how little we know about what's going on.

3:49

SPEAKER_00

So help me a little bit here. I love that you have this post that I love. It's called "Nobody Knows Anything." And you basically say this one's about SpaceX, but the premise of a lot of your posts is like Goldman, whatever the big shots, they make these predictions. And the truth is, it's just so hard to forecast. And you said that 90% of information out there is garbage. Right. What's your 10%? Who can I read right now? And get my information from, whether it be news or evergreen stuff that is the 10% in your opinion?

3:55

SPEAKER_00

Sure. So I'll give you my list, but the caveat is the process of you figuring out who should be on your list is very helpful. Going through the process, thinking about it. What do I need? What do I need help for? So let me throw out a bunch of names. We want the whole information diet. And by the way, obviously my whole team is a big part of this. Josh Brown, Michael Batnick, Nick Majuli, Ben Carlson, Blair Dukasny, go through the whole list. There's a lot of us writing. So I don't want to just talk about my group. It's a little too self-promotional. Let me talk about others. So let me start with just broad economic analysis. It's hard to do better than Ed Yardini. He is very thoughtful, very data-driven. He's been very constructive and bullish during this market. He very constructively said, "Hey, you know, the U.S. has had a great run. We're starting to see signs of overseas doing better." He's just been a solid guy. He's been doing it for 40 years. He started at Deutsche Bank. Really solid.

4:02

SPEAKER_00

It looks like Ed Yardini is paid, right? That's not a free one. Yeah. Ed Yardini is paid. If I want to look at market dynamics and structure, that's Sam Rowe. Sam Rowe, you could do the free version. You could do the full version and it's a little more expensive. On the behavioral finance side, it's tough to beat Morgan Housel. He just is a great storyteller, really gives a lot of insight with that. Real estate is Jonathan Miller. I've been tracking Jonathan forever. I'm friends with him personally. He's a guy that really understands what's happening with both residential real estate and the state of prices in the industry.

4:15

SPEAKER_00

You know, as you go further and further into the weeds, Jim Chanos for all things short selling, Michael Lewis for all things Wall Street culture and psychology. He has a new book coming out in the fall on Dogecoin. I'm really looking forward to it. By the way, Michael Lewis is one of these guys that you think you have an idea of who he is from his books and then you hear him speak and he is just hilarious. Dick Thaler is the other one. Richard Thaler of Chicago on the real hardcore research on behavioral finance. There's so many people I'm leaving out, so many people.

4:21

SPEAKER_00

Like Autism Capital, the Twitter handle, hasn't made the list so far. You know, there's actually some academic research that has found neuroatypicals do better at market timing because they are not subject to the same social pressure and emotional trading. Speaking of SpaceX, have you read the story in his biography of Elon's quick foray into finance, his internship?

4:28

SPEAKER_02

[SPEAKER_00] No. What happened? This is a great story. So he goes, I mean, I'll try to recall it off the top of my head here, but he's in school in Canada. He starts cold calling to get an internship or to get a job. He calls the CEO of some investment bank or some bank out there. And he gets a job and he's supposed to be doing whatever he's doing, but he starts going really deep on some South American oil companies or something like that. Something where there was a political issue and he saw almost like a Buffett-style thing. Where he's like, "Look, they've completely mispriced. These assets are mispriced. They're trading at the wrong levels because even in the worst case scenario, you're safe. And then there's all the upside if it actually gets opened up or whatever." He pitches the guy and the guy's like, "Okay, go find out what we can do." So he calls, he's like, "Hey, I'm Elon Musk. And I would like to place an order or trade. How much volume can I do?" And they were like, "You could do whatever you want." And he's like, "So I could buy $5 million of this right now." They're like, "Son, you could buy $50 million of this if you want." So he goes back and he tells the CEO, "Hey, I think we should make this huge trade." And then basically it gets shot down just because there was risk aversion. And he sees that it would have played out well. And he just decides, "This whole thing is stupid. Hey, I'm never going to work for other people because I presented a completely logical argument and it got shot down for illogical reasons. And so I just never want to be in that position again. And also I should just go build things instead of just do this financial engineering stuff. I should go do actual engineering and he leaves and he never comes back."

4:33

SPEAKER_00

He was a failed retail stockbroker. Is that what you're telling me? There's no financial engineering there. He had no track record. He was a rookie. Why would anyone listen to him? That's the amazing thing. You look back at Warren Buffett in 1967. I think half the people who heard his pitch would be like, "Yeah, why do I want to listen to this guy?"

4:49

SPEAKER_00

I started out as a math and science student at Stony Brook undergraduate. The outgoing mathematics department chair was this guy named Jim Simons, leaves to form Renaissance Technologies, the most successful hedge fund in all of history. If you would have met this guy in 1979, you would say, "Why does this guy look homeless?" I saw him. He looked like he was a messy student and he was smoking cigarettes all the time. He kind of looked like a filthy animal. You would think, I'm like, "I'm not giving this guy my money. He's going to smoke it." Sean, what are you pulling up here? Break out the textbook.

4:56

SPEAKER_00

[SPEAKER_02] I got the story. All right. This is about Latin American debt. Banks had made billions in loans to countries such as Brazil and Mexico. They could not be repaid. The secretary, Nicholas Brady, had packaged those debt obligations into something known as Brady bonds. [SPEAKER_01] Yes, exactly. he looked like a messy student and he was smoking cigs all the time. He looked like a filthy animal. You would think this guy, I'm not giving this guy my money. He's gonna smoke it. Sean, what are you pulling up here? Break out the textbook.

5:11

SPEAKER_00

[SPEAKER_02] I got the story. All right. This is about Latin American debt. Banks had made billions in loans to countries such as Brazil and Mexico. They could not be repaid. The secretary, Nicholas Brady had packaged those debt obligations into something known as Brady bonds. Yes, exactly.

5:18

SPEAKER_01

They were backed by the U.S. government must believe they would always be worth at least 50 cents on the dollar, but some were selling as low as 20 cents. He figured that Scotiabank could make billions if they bought these at a cheap price. So he called the trading desk and he asked about the stuff I said. He thought to himself, jackpot, this is a no lose proposition. I run and I tell Peter, the CEO about it. The bank ends up rejecting the idea. They said they already had too much Latin American debt. He said, wow, this is insane. Is this how big banks think? He goes, it was a good thing. It gave me a healthy disrespect for the financial industry. And that gave me the audacity to eventually start what became PayPal. He didn't really start PayPal. He started a competitive product and eventually it was merged to PayPal, but let's not let that get in the way of the story.

5:25

SPEAKER_00

[SPEAKER_01] All right. So he had a good idea. Do you have a lot of enemies? [SPEAKER_01] A few. I have no choice. I can't help it. You just came here spitting fire, man. Someone says something that's bullshit, I can't help it. But I know discretion is the better part of valor. But when people are out there saying stuff that is nonsense that ultimately leads people to lose money. Do you think you ever have to get security? No. [SPEAKER_01] Listen, if someone wanted to meet me dead, I would have been dead a long time ago. That's not, and who wants to live their life that way? [SPEAKER_01] Oh my God.

5:54

SPEAKER_00

What did he say that makes you think he needs security from who? Guy Kawasaki? No, man. No, I'm not that nerd, but I'm just saying when you deal with big numbers and you have a big audience and you're dealing with people's money and stuff, I sometimes think of the risk reward of having someone around you when you go to the city. Nobody cares. I got bad news for you. Nobody cares that much about me. I'm not that important. And look, here's the reality. I've gotten— Well, it's not the 8 billion. I mean, that is impressive, but it's what's— I mean, you have a microphone, you have an audience.

6:19

SPEAKER_00

Yeah. So in the modern world, it's a cacophony of voices. No one voice is dominant and, you know, Elon Musk bought Twitter. And so his voice is amplified. When you look at the value he's created over the years, all right, so whatever the PayPal merger ended up being, and then Tesla and now SpaceX, he doesn't have to exaggerate. This guy has changed the world, right? Tesla completely changed the automobile industry. SpaceX completely changed a number of industries, aerospace, the concept of getting anything into earth orbit, satellite. I mean, he's had such a giant impact. You don't need to polish the hagiography. Your accomplishments speak for themselves. So I have to burnish my crappy undergraduate and graduate career. I don't have that much to brag about. From then, when I see a guy like that, he didn't found Tesla, he joined Tesla later. His genius was recognizing what you need to do is sell a car that's just miles away from everybody else. And don't think like a traditional car company. This is a technology appliance, not an internal combustion engine. I give him credit for the stuff he's done that moves the needle. I'm not a fan of the SpaceX IPO, but I sure as hell don't want to bet against him. He's just proven himself time and time again. You know, he's a tough guy to be on the opposite side of the trade from.

6:25

SPEAKER_00

Can we go back to the bragging question. Sure. I want to, because I know you've been doing this forever. I've listened to your podcast and read your blog, but I still want to know as an entrepreneur, the business. So can you give a short answer to the numbers about how big the firm is? So the last ADV update we did with the SEC was December 31st. That was $7.6 billion. But when we launched in 2013, that was the start of the third best 15 year run in history. Does that mean it's a $50 million a year company?

6:36

SPEAKER_00

We don't, because we're private, we don't disclose our revenue and stuff, but you know, we average somewhere around 70 basis points in terms of our fees. When we were a billion dollars, we had 35 people. The typical billion dollar group at a big bracket firm is two salespeople, a sales assistant and someone helping on portfolio. So that would be four people. We were almost 10X that. So we've always been building as if our growth rate is going to continue. And we've been growing about 30% a year since we launched. So you said you famously called the housing crisis. And from what I understand, there's an interesting story there.

6:46

SPEAKER_00

[SPEAKER_01] So first, and this is so dumb, my mom was a real estate agent. And so in '03, '04, '05, we were having all these conversations about how weird the real estate market was. And the normal cycle is come out of recession. The economy begins to expand. And when I'm looking at all that data, pre financial crisis, nothing lined up with what you typically see. It was very much a backwards, real estate driven economy. In other words, instead of real estate being the beneficiary of an expanding economy, more hires, better income, it was the opposite. And so anytime you bought a house, you could refinance a few years later at a lower price. And some people were doing home equity lines of credit and taking cash to subsidize their lifestyle because in the mid 2000s, middle class workers hadn't really seen raises above inflation for decades. And so people were spending the equity in their homes. And so I started hunting for some data and some academic research. And in 2006, Ryan Hart and Rogoff did a white paper that eventually became the book This Time is Different: 800 Years of Financial Folly. And the white paper said, when you have a bubble driven by credit, on average, we see real estate dropping 32 percent. And I use that as a leaping off point to say, all right, I'm too lazy to do all 500 S&P stocks, but let's look at the 30 Dow stocks. And what is a

6:51

SPEAKER_00

workers hadn't really seen raises above inflation for decades. And so people were spending the equity in their homes. And so I started hunting for some data and for some academic research. And in 2006, Ryan Hart and Rogoff did a white paper that eventually became the book This Time is Different, 800 Years of Financial Folly. And the white paper said, when you have a bubble driven by credit, on average, we see real estate dropping 32 percent. And I use that as a leaping off point to say, all right, I'm too lazy to do all 500 S&P stocks, but let's look at the 30 Dow stocks. And what is a 32 percent drop in real estate mean to their business, to their revenue? And long story short, I spitball a price of 6,800. How contrarian of a belief was that?

6:59

SPEAKER_00

[SPEAKER_01] All the stuff I had been writing about housing and subprime and derivatives, it was all up on the blog. It was all very public. So I spent about a year being the dumbest man on Wall Street, which was fun. All of 07. It's like, you're obviously an idiot. And even the piece that talked about 6,800 said, look, the market is in an uptrend. We continue to see multiple expansion. You don't put on a short. You don't get out of stocks if you're an institutional trader until that trend line breaks. And that trend line didn't break for a solid year and change. So I spent a year being pretty much the dumbest person on Wall Street. Starting in January, February, March of 08, Kudlow started having me on every week and then twice a week. And then it just got to be mayhem because nobody saw it. I should say very few people saw it coming. I recall being on CNBC with Peter Bookvar and they literally when we talked about the potential downside. And I want to say this was late 07. They literally laughed at us. And I remember walking our offices were not that far. And I'm like, either we're really right or we're really wrong. But there's nowhere in between.

7:06

SPEAKER_00

[SPEAKER_02] Do you guys remember the book Snowball about Warren Buffett? Sure. Absolutely. I just started reading it. And the very first scene is basically Warren Buffett at the Allen Coe conference, which is the who's who. So it's always like the hottest new kids plus the old guard in the room together. And at this time, it was all the best dot com companies. And they're all there thinking they're the hot shit, like how AI companies are now. They think they're the best. And Warren has this famous line. I think he says, only criticize a category, never criticize a particular name. And I'll compliment particular names. So he tries to be polite about it. But he basically says the dot com thing, it's going to be bad. And if you look at car companies in the 1920s, you would have thought that knowing how cars are going to end the place to be is in cars right now, we got to start a car company. But of the 2000 car companies who launched right when the boom was happening, basically three still exist. And most went out of business. And he basically said, this is what's going to happen with dot coms. And he tried to do it very respectfully, but it was still very insulting to the audience because they were there. And I think he even made a bunch of jokes. He was like, you guys, I think he even said something like you guys all even have mistresses probably right now you think you're the best. But it's going to come. It's going to come. And it's interesting to figure out inside of someone's head when they see this one bit of data and they're making this very contrarian bet and how even Warren Buffett was quite nervous about that. He goes, I know I'm going to be right. But if I'm not right soon, then I'm really going to look stupid here.

7:12

SPEAKER_00

[SPEAKER_01] And I think that's the behavior of making that call is actually quite fascinating. There's a famous technical trader from the 1920s and 1910s called Richard Wyckoff. And he wrote a book, How I Trade and Invest in Stocks and Bonds. And if you would go back and read that book, everything he talks about just substitute AI for intern for telegram and dot coms for railroads. And it could have been written last year. It's over 100 years old. And it's as fresh as nothing ever changes. There's nothing new under the sun.

7:19

SPEAKER_00

Yeah, the technology is different. But what's the takeaway, which is that new stuff can get overhyped, not can get overhyped, always will get overhyped, which isn't a bad thing. That's a feature, not a bug. There's a great book called Pop. Why Bubbles are Great for the Economy. And think about the dot com era. Think about all of the fiber that was laid, global crossing and Metro Media fiber and the hundreds and hundreds of millions of dollars, billions of dollars in fiber laid. At one point in time, I want to say it was over a thousand dollars a mile. The dot com collapse comes. All these companies go belly up. And then the legacy cable companies and the legacy phone companies buy it up for pennies per mile. And because it was so cheap to own at that point, all the things that came afterwards, YouTube, Facebook, Instagram, all of the bandwidth intensive technology. Well, they wouldn't have been viable if it was a thousand dollars a mile to lay fat pipes. But for pennies a mile out of bankruptcy. And so I'm not predicting this is going to happen with AI, but it happened with railroads. It happened with televisions. It happened with radio, Internet, electronics companies, semiconductors, Internet, mobile cars go down the list. Every new technology that comes along seems to go through this process. Every new technology is innovative things that are not stuck with all the sunk costs and all the legacy platforms. And so they get to move forward faster, cheaper, better. So I don't know who the winners in AI are going to be. But when we look back at it 20 years from now, look at the computer industry, HP, Gateway, go down the list of companies that had billion dollar valuations and effectively went down to zero. Could do the same thing with mobile phones. How's that Ericsson phone do you have? Are you going to replace it with the new Nokia? Oh, wait, nobody buys that anymore. Even Motorola. They're gone because between the iPhone and Android, everything else has been replaced. It's nice to talk to someone, Barry, who doesn't hold back. I think we thoroughly enjoy that. And Sean and I have been seeing your stuff pop up for years. We're happy we were able to talk. Appreciate you coming on. Shout out the book.

7:25

SPEAKER_00

Sure. How Not to Invest right over there. Hardcover paperback. The last book was Bailout Nation, Could do the same thing with mobile phones. How's that Ericsson phone do you have? Are you going to replace it with the new Nokia? Oh, wait, nobody buys that shit anymore. Even Motorola. They're gone because between the iPhone and Android, everything else has been replaced. It's nice to talk to someone, Barry, who doesn't hold back. I think we thoroughly enjoy that. And Sean and I have been seeing your stuff pop up for years. We're happy we were able to talk. Appreciate you coming on. Shout out the book.

7:44

SPEAKER_00

Sure. How Not to Invest right over there. Hardcover, paperback. The last book was Bailout Nation, was 15 years ago. And I just—it was a slog. It was tough to write. This book was just a joy. It was so much fun to go back over all these conversations I've had and all this research I've done over the years and published when no one knew who the hell I was. You're a gem of a guy, man. We appreciate you so much. Well, thanks so much for having me. I really enjoy this stuff. It's what keeps me going every day. All right. That's it. That's a pod. always happens, it's so hard to sell something because most of our cells like I owned Apple when the

8:18

SPEAKER_00

iPod, not iPhone, iPod came out. It was fifteen dollars a share, thirteen cash. There's no downside. And it tripled. It went up to forty five. And I thought I was a genius selling it. And then it proceeds to gain another nine thousand percent. But we've seen that, you know, one of my favorite stories in the book is the CEO of Peloton wasn't getting especially great advice. At one point on paper, he was worth two or three billion dollars and just leveraged himself to the hilt, bought a whole bunch of stuff. Then, of course, as the pandemic starts to as the vaccine starts going around and we

8:56

SPEAKER_00

start to see the light at the end of the tunnel, Peloton crashes. He must have taken a whole bunch of stock loans against that capital, had a sixty million dollar place in East Hampton, had to sell that, was just liquidating everything. And just, you know, it's always a shame when you see that. I mean, how many disasters do we have to live through before you realize any stock can go to zero? So any time you're trading an individual name, the odds, Henrik, Hendrik Bessenbinder at Arizona State Business School did a couple of studies and he basically found out that the entire value in the market comes from

9:38

SPEAKER_02

between one and two percent of stocks. So what are the odds, 50 to one, 100 to one, that the company that you love so much that's run up so much this year is going to do it for another 10 or 20 years? You want to hear something funny, Sean? I we did a podcast with Lloyd Blankfein the other day. You know, the. Yeah, he's got a book out. Yeah, it's a great book. And he's, you know, for the listener, he's the former CEO of Goldman. He's a big shot, a great guy. He told me, I was like, you're retired. What do you do now? He's like, I love to day trade. He was like, he goes, in fact, I knew I was going to do

10:14

SPEAKER_02

this podcast for two hours and it kind of made me anxious because I'm always grabbing my phone to look

10:18

SPEAKER_00

at like my stocks. And so I had to put all my orders in advance in preparation because I'm not going to be available. And I he's like, right now, I want to look at my phone right now. And then after the podcast, I was like, well, what are you gonna do now? He's like, well, markets closed. So I don't have anything else to do. I guess I'll walk home. And I don't know how his portfolio, how he said 70% of his net worth. I think he said that don't quote me, but something like that is in his pickings. And so he said he's doing good, but it was just so funny. And what's interesting is that I'm sure he's

10:49

SPEAKER_00

doing great. If anyone's gonna do great, it's probably someone like him. That said, it's like, even if you're a titan of industry, you're on top of the world, you know, everyone, you're a who's who. There's probably a world where he's going to make every single mistake, the same mistake that an 18 year old degenerate Robin Hood trader is going to make. And I find that's interesting that we all still do these things. Lloyd, listen to me. Put the phone down. Stop trading. 70% of your net worth should be in muni bonds, paying you a huge tax free yield.

11:21

SPEAKER_02

You want to dick around with a few million dollars, knock yourself out. But if you're actively trading 70% of your net worth, which is a couple of billion dollars, I am disappointed to tell you that you are making the biggest risk adjusted mistake of your career. And the schmuck that used to run Goldman Sachs should know better. Stop day trading. Looks like I'm not invited to I've not invited to Shabbat dinner anymore. So thanks, Barry. Oh, my God. I hope your memory, your numbers are wrong.

11:52

SPEAKER_00

So so here's the fascinating behavioral side of that. On this show, we have spent hours talking to some of the best investors alive. Well, lucky for you, the team at HubSpot, they have pulled out the principles that matter most and turned it into a very simple, easy to read wealth guide. It's 35 principles from the top investors. We're talking guys who have been on the pod like Howard Marks, Manish Pabrai, Morgan Housel, Kathy Wood and a ton others. So these are all the frameworks, their mental models, their rules, basically how to play the long game and how to avoid ruin. You can get it in the link below.

12:29

SPEAKER_00

We see this all the time. I mentioned the clients. Hey, do I buy a Ferrari or not? The folks who are and I mean this in all seriousness to Lloyd, people who a guy like him works really hard his whole career, constantly striving and saving and investing and putting money away and accumulating stock options and going through all this. It is really difficult, even for people who are, you know, masters of the universe, billionaires to recognize and just stop and say, I won. Hey, I won. I don't have to put this much capital at risk because over the decades I have just seen that story play out

13:13

SPEAKER_00

and end badly. Hey, I'm sure Lloyd will be fine. He doesn't have to take financial advice from little me. But anybody who walks into the office with a giant portfolio, the challenge is how do we convince you that you've won and how do we make you create a portfolio that is highest probability of reaching whatever your goals are? And P.S. if your goal is just more, well, then you're going to be disappointed both in your portfolio and your life. You mentioned something about selling and I thought there was two interesting things in your book about selling. One was about panic selling and the data around

13:53

SPEAKER_00

what happens for panic selling. The other was that hedge fund, there was some study about hedge fund managers where their buys were actually good, but their sells were terrible. And I wanted, can you, can you explain those two ideas around selling? So, so again, a lot of behavioral finance research behind this, it turns out that people panic sell into a market crash, something like a third of them never returned to equities. So let's just use either the 2020 34% pandemic sell off or more likely the 08, 09, 57% market crash. Imagine selling down 57%, not getting back into equities and watching 15% a year

14:37

SPEAKER_00

compound over that entire period. It's shocking. So you take a million dollar portfolio, you're out at like of 450,000 net worth. If you never would have sold it, it would be worth 10 X today. It would be 4.5 billion. And to be fair, you are getting a percent or two up until 2022. Now you started to get 4% in a money market, 3.7% today, but that doesn't compare to a 10 X and it doesn't keep up with inflation. So that's the first data point. That's shocking. Panic sell into a portfolio. One in three people never get back into equities. The hedge fund, the buys are good, but the sells are worse than

15:20

SPEAKER_00

just if they sold at random. So I love this study. It's by Alex Amis, who is a university of Chicago professor, but they did this study where they looked at all these buys. And my explanation is the buys are rational spreadsheet database. The cells are always emotional, but the clever thing that professor Amis did was, Hey, how can we tell how good these cells were? I know instead of selling the company that the manager wanted to sell, let's randomly pick anything else. This that's in this manager's portfolio and when sell that instead. And it turned out that the random cells outperformed the

16:04

SPEAKER_01

manager selected cells by something like 150 to 200 basis points. Maybe it was even more, it was some crazy amount. And it's like, it makes sense that the buys are thoughtful and logical, but the cells very

16:18

SPEAKER_00

often are emotional, impatient. You know, sometimes the stock doesn't work out right away. Uh, people sell it, even though the underlying thesis was correct. Sometimes something else bright and shiny comes along and you got to sell something. So you have money to buy that. It's an amazing data point. And it just goes to show you most of our decision making is bad. And so one solution, make fewer decisions. Hey, can I, um, I'm going to, I'm going to pick a friendly fight with you. Sure. Uh, so you say by low cost index funds, I'm on board with you. Anyone who's listened to this pod knows you're,

16:56

SPEAKER_00

you're speaking my language, but why would I pay you a fee then to do that? You don't have to the, our whole business model from day one has been, um, so we've been writing in public myself and my partners. Hey, you could do this yourself. You don't need anybody. You just need put together a broad portfolio of low cost indexes, manage your own behavior, stay out of your own way and, you know, check in on it once, twice a year. That's it. And there are a bunch of people who said, well, I like the advice, but I have a little more complexity in my portfolio. I have tax issues. I have

17:33

SPEAKER_00

state issues. I have whatever. I need some help with this. Um, we don't have minimums. We set up different levels of, uh, we have two digital platforms, one for under a quarter million dollars and one for a quarter million to a million. But our whole, our whole, you know, line of bullshit has always been do it yourself. You don't need our help. And it turned out something like 0.01% of our readers said, I don't have the time. I don't have the discipline. I'm not interested in this crap. I pay someone to do my taxes. I pay someone to mow my yard. I'm going to pay you guys

18:08

SPEAKER_00

to manage our, our money. I did a post a couple of weeks ago about organizational alpha. And if you beat the market by 50 basis points or are below the market by 50 basis points, clients could not really care less about that. However, if you manage to quarterback their finances in a way that, um, our tax team has done a great job minimizing capital gains taxes, we use a couple of complex products. And I always think simple is better than complex unless it really solves a sticky problem. So direct indexing really helps with that. Sam, do you direct index or do you know what that is?

18:48

SPEAKER_00

Yeah, I know what it is. I don't do it. Sean's, uh, people make fun of me, uh, Barry on the show, because I am a very strict, like at this point, it's a little bit like 90, 10 equities and bonds. I don't even think you need the 10. You got 30 years before you need the money. Why drag the portfolio down with bonds? Which by the way is somewhat controversial. Um, it just helps. It's a, it's a mostly emotional decision, but direct indexing summarized as instead of buying an index fund, you have a program that basically buys the stocks of the components, right? The components of the index in the same proportion. It seems like over the course of like, for example, the way that

19:26

SPEAKER_00

my personal finances are set up, I, I don't intend, I live off my income. I don't ever intend to sell my, uh, direct or my index portfolio in case, I guess I would sell it with an emergency, but why would I do direct indexing if I don't intend to sell it? I love that question. So you guys have both sold

19:44

SPEAKER_01

startups and ended up with substantial capital gains. And so in any given year, even when the markets are up, there's some 20, 30, 40% of stocks that are down. And of that group that's down, there are some that are down substantially. So if you have VU, I think is 700 or 800, uh, positions,

20:05

SPEAKER_00

the S and P 500 is 500. You look at the bottom decile, the bottom 10% of stocks and all right, this,

20:13

SPEAKER_01

this small cap biotech is down 40%. I'm going to sell it and replace it with something that looks very similar. Another small cap biotech that's down in the same space. I harvest that loss. The portfolio value doesn't change the way the portfolio change trades doesn't change. But if you do that every year, you could pick up 75, 85 basis points in Q1 of 2020, when the market was down 34%, O'Shaughnessy did a research study on direct indexing. Their study said that it was 400 plus basis points of losses harvested and replaced with very similar companies. And when the recovery happened, it, it matched the performance of the index because effectively it's the same thing.

21:03

SPEAKER_01

So founder stock, IPO stock, sale of a business, inheritance, uh, high concentration positions. Every now and then someone comes in and says, Hey, I have a $10 million portfolio and when I've owned fill in the blank Apple for 15 years and now it's 90% of my portfolio, how do you get them out of that position without paying a giant cap gains tax? And so this has been like a very effective way to, uh, to do that. Uh, it's not for everybody. It adds complexity. It adds a little bit of cost, not much, but some, um, but it's definitely useful for that. For most people, I don't think it's necessary.

21:43

SPEAKER_01

Can I ask you a bunch of stories? Uh, I want to, I want to do a story time thing because the cool thing about you is you've been doing the content game for so long. And so I know you've met some incredibly interesting people. I want to do a little rapid fire bit, but, uh, of all the people you've had on the podcast or interviewed at conferences or, or, uh, through work, who's the person who you think, uh, our listener should research and some like someone you admire. So you mentioned Ray Dalio and Howard Marks. Those are obvious. I'll give you I'll give you a couple of really interesting names. Richard Barton is this former Microsoft

22:19

SPEAKER_01

employee who, who founded Expedia and Zillow and just one crazy company after another. He's got this crazy framework. I think, uh, Sean and I have talked about it. His whole, I think I'm summarizing this correctly, Sean. I think he said, um, his whole career is taking messy data and organizing it. Or I think he even said, I, I free the data. Yeah. Yeah. He calls it, give the power to the people. It's basically take data that exists that is just not transparently easily structured and available and make it transparent, easily structured and available. And so if you look at what he did with housing,

22:54

SPEAKER_01

you know, the housing data, that's the MLS data. He made it more easy to access through Zillow. They did it with Expedia. He did it with Glassdoor and it's the same thesis. He's just played out in like four, you know, plus, uh, different companies at this point. Uh, I'll give you a couple other names that are a little below the radar, even though they're, they're all kind of known to the industry. Um, I think David Rubenstein of the Carlisle group could be the best human being I've ever met in my life. That guy's awesome. Have you seen his show, Sean? Yeah, of course. I've just seen his. I didn't know he was such a legend. I just thought he's

23:27

SPEAKER_00

an interviewer cause I just only ever seen him doing interviews. I didn't realize he was the founder of Carlisle. It's just, it's John. He, and he's like a, he's a, he, I knew him as like a historian. He has these amazing books. I'm reading one of his books on Washington and Lincoln and the rest of the presidents. I, I don't even think of him as a money guy. So he started out in the DC area when Carlisle started and he would put together these, um, off the record conversations with experts and spaces that were being debated by Congress. And then he would invite a whole bunch of congressmen

24:03

SPEAKER_00

and senators and staffers from both sides. And the idea was this isn't partisan. This is political, isn't political. This is just a way for you guys to hear from an expert who you may not come across. And why did he do that? Was he was in politics? No, he just wanted the Congress of the country he lived in to be better informed and make better,

24:28

SPEAKER_01

more knowledgeable. Was he a big shot when he did that? No, he was. Carlisle was a tiny little company that was specializing in a telecom and that's why they were based in DC and eventually expanded to everything else. So later on his career, he's super becomes wealthy and the Washington monument starts falling apart. The cement starts cracking.

24:50

SPEAKER_00

It's a couple of hundred years old and Congress being paralyzed and incompetent. He's an idiot and a congressman. But I repeat myself is the Mark Twain quote, quote, they couldn't get their shit together. So he steps in and says to Congress, hey, I'm going to fix this. See if you idiots can get around to

25:09

SPEAKER_01

passing legislation. I'm just going to patch it up. See if you can do a permanent fix. And I'd appreciate if you pay me back one of these days. And he basically guilted them into fixing all the national monuments. This was in like the eighties and nineties. And then he's a kid who grows up in Baltimore and Baltimore is a city that's having a hard time. He buys the Baltimore Orioles, promises the city that it will not move over the next 20 years. And I think he said, and I'm going to keep the beer and hot dog costs the same for the next 10 years. Not what you think of when you think of

25:45

SPEAKER_01

his private equity. What personality attributes do you think made him great as a business person? Because he sounds like a warm and lovely guy, but he's in PE, which is not particularly a warm and lovely industry. He is really, really good at finding a space that is being ignored by the rest of the market and not just ignored, but undervalued. So telecom wasn't sexy in the eighties. There was some post Reagan deregulation and it kind of got ignored for a while. So, and not just like the,

26:18

SPEAKER_00

the big names, but the, you know, the block and tackling or all of the fundamental pieces, just the ability to, it's not even see around corners. It's identify a spot that the markets have missed. Was he prolific in his extracurricular activities in the, in the, uh, upswing of the business or was this like a post wealthy thing? I think it, I think they were on parallel tracks. I don't, I don't think that. So I just lit up Carlisle, by the way, Carlisle has $500 billion AUM. How does someone build one of the most? You know, if they keep plugging away, they'll, they'll get there someday. How does one do that? How, like, did you know when he was younger? How

26:59

SPEAKER_00

on earth do you do all these amazing? No, I did not. I met him. Um, I met someone who worked for him and I said, Hey, tell your boss. He's stealing my gig at Bloomberg. What the hell? I've been doing this podcast since 2013. You know, he comes in and big foots in and takes the video version of it. And it, I, I was joking. It got back to him and I got an email and I said, once you come on the show, let's talk about your career. So he did. But what about the other end of the spectrum? You know, finance and money attracts a lot of other people who will say things that are either, you know, inaccurate or bad advice that, you know, maybe self self-interested advice.

27:37

SPEAKER_00

Um, you know, who do you think has done some damage to the space, uh, put a lot of bad advice out there or a bad philosophy that is, uh, not one that somebody should follow, even if it is popular or visible. So those people don't get the invites to show up on the podcast. Um, I, I've been having an ongoing fight with zero hedge, zero hedges, uh, is that a blog or is that a community? I don't think it's a, it's a, it's sort of a cross between Reddit and a blog. It's, it's got a lot of contributors. Uh, eventually they tapped into Bitcoin into gold and you know, that, that was their, their argument. Listen, the, the, there's a Ted Sturgeon quote in the book.

28:22

SPEAKER_00

Sturgeon was a science fiction writer in the fifties and he used to get the question,

28:26

SPEAKER_02

how come so much of science fiction is not good? And his answer was 90% of everything is crap. And so that's become Sturgeon's law. And so most of the stuff you see in print on television, on social media, um, on sub stack, most of this stuff isn't worth the time or effort to get it. You know, people send me subscriptions to stuff all the time. Hey, I signed you up for my, uh, sub stack. You unsubscribe me, block me. I didn't ask you to do that. Stop sending me your digital shit. And the reason for that is simply this, you know, my mom taught me never take candy from strangers. And that includes research, writing, commentary opinion. Before I read something from

29:17

SPEAKER_02

somebody who I'm not familiar with, it's a research lift to decide, is this person worth the time,

29:24

SPEAKER_00

effort, energy? What's their track record? What's their process? Did they just get lucky once and that's it? Or do they have a defendable approach to this? Have they lived through a few cycles? Have they seen ups and downs? Do they have a good temperament or every day like Friday where NASDAQ is down 4%, they run around with the hair on fire. This is the big one. It's all over. Like if they have that sort of attitude, I don't have room for them. I think, I think you would, uh, probably, I'm guessing you have an opinion, either positive or negative on the, the, uh, what's his name? The rich dad, poor dad guy. Uh, I forgot what his name is.

30:01

SPEAKER_00

Oh my God. Kiyosaki. He's, he's been, he's a chapter in the book and I, I never read the book. I didn't know anything about him. Um, and my colleague Ben Carlson does a post about some of, this is like 10 years ago about some of his tweets and they're terrible. Sell, sell equity, sell this, sell that. Like he is just super bearish the whole 2010s. And then my favorite tweet of his, which I referenced in a chapter in the book on him was 2018, get out of us housing, us single family home market. The financial crisis was the warning shot, sell housing. And ironically, there has never been a better time in recent history to buy single family homes in the U S.

30:54

SPEAKER_00

And when I, I, someone asked me the question, they said, well, how could he, he have known the pandemic was going to happen and all these things happening in housing. And that's the point. That's right. He couldn't have known. What are you telling me? You're defending his shitty forecast by saying he couldn't know the future. That's why you don't make forecasts. You don't know the future. And the takeaway from this is all of wall street, all of finance has a, uh, humility problem. And I say this, I have a lot of my biggest mistakes in the book. I famously passed on or infamously passed on Robin

31:34

SPEAKER_00

hood in 2014, uh, at an $80 million valuation. I, uh, an app that lets millennials trade for free. That is the dumbest idea I've ever heard in my life. Aside from the fact that it's totally off

31:48

SPEAKER_02

brand with the indexing thing, millennials don't even have money. What is it? If this is, you know, payment for order flow, the dumbest idea I've ever heard. My buddy, Howard, uh,

31:59

SPEAKER_00

Linzen made a hundred million dollars on, on that investment and I'm an investor in, in other things Howard has done. And I was just like, Oh, so stupid. Um, so I'm not just saying everybody is dumb and I'm smart. I'm as dumb as everybody else, but at least I'm kind of aware of it and starting to from the place of, we all need a little humility because we don't know what's going to happen. We barely know what's happening today. Our recollection of what happened yesterday is always tinged with a, a little glow of rosy nostalgia. The, our, our expectations for the future is mostly, um, hopes and wishful thinking. Like the whole human condition requires a little

32:42

SPEAKER_00

more humbleness in admitting how little we know about what's going on. So help me a little bit here. I love like you have this post that I love. It's called nobody knows anything. And you basically like say this one's about space X, but the, the, the premise of a lot of your posts is like Goldman, whatever the big, the big shots, they make these predictions. And the truth is, is it's just so hard to forecast. And you said that 90% of information out there is garbage. Right. What's your 10%? Who can I, uh, read right now? Um, and get my information from, whether it be news or evergreen stuff that, uh, is the 10% in your opinion.

33:19

SPEAKER_00

Sure. So I'll give you my list, but the caveat is the process of you figuring out who should be on your list is very helpful going through the process, thinking about it. What do I need? What do I need help for? So let me throw out a bunch of names. We want the whole information diet. Yeah. And by the way, obviously my whole team is a big part of this. Uh, Josh Brown, Michael Batnick, Nick Majuli, Ben Carlson, Blair Dukasny, go, go through the whole list. There's a lot of us writing. So I, I don't want to just talk about my group. It's a little too self promotional. Let me

33:55

SPEAKER_00

talk about others. So let me start with just broad economic analysis. Uh, it's, it's hard to do better than Ed Yardini. Um, he is very thoughtful, very data driven. He's been very constructive and bullish during this market. He very constructively said, Hey, you know, the U S has had a great run. We're starting to see signs of overseas doing better. Um, he's just been a solid, solid guy. He's been doing it for 40 years. He started at Deutsche Bank. Um, really solid. It looks like Ed Yardini is paid, right? That's not a free one. Yeah. Ed Yardini is paid. If I want to look at,

34:35

SPEAKER_00

market dynamics and structure, that's Sam Rowe, Sam Rowe, you could do the free version. You could

34:40

SPEAKER_01

do the full version and is a little more, uh, expensive on the behavioral finance side. Uh, it's tough to beat Morgan Housel. He just is a great storyteller, uh, really gives a lot of insight with that. Real estate is Jonathan Miller. Um, I've been tracking Jonathan for forever. I'm friends with him personally. Like here's a guy that really understands, uh, what's happening with, with both residential real estate and, and the state of, of prices in the industry. You know, as you go further and further into the weeds. So Jim Chanos for all things,

35:16

SPEAKER_00

short selling Michael Lewis for all things, wall street culture and, and psychology. He has a new book coming out in the fall on Doge. I'm really looking forward to it. By the way, Michael Lewis is one of these guys that you think you have an idea of who he is from his books and then you hear him speak and he is just hilarious. Um, Dick Thaler is the other one. Richard Thaler, uh, of, of Chicago on, on the real hardcore research on, uh, behavioral finance. There's so many people I'm leaving so many, so many people. Like Autism Capital, the Twitter handle hasn't made the list so far. Um, you know, there's actually

36:00

SPEAKER_00

some academic research that has found neuroatypicals do better at market timing because they are not subject to the same social pressure and emotional trading. Speaking of SpaceX, have you read the story in, uh, in his biography of Elon's quick foray into finance, his internship? No. What happened? This is a great story. So he goes, uh, I mean, I'll try to recall it off the top of my head here, but he, he's in school in Canada. He starts cold calling like to get an internship or to get a job. He calls like, you know, the CEO of some, some investment bank or some bank out there.

36:36

SPEAKER_00

And he goes and he gets a job and he's supposed to be doing whatever he's doing, but he, he starts going really deep on, um, like some South American, uh, oil companies or something like that. Something where there was like a political issue and he saw almost like a Buffett style thing. Where he's like, look, they've completely mispriced. Uh, these assets are mispriced. They're trading at the wrong levels because even in the worst case scenario, you're safe. And then there's all the upside of if it, if it actually gets, uh, opened up or whatever, he pitches the guy and the guy's like, okay, go find out what we can do. So he calls,

37:09

SPEAKER_00

he's like, Hey, I'm Elon Musk. And I would like to place an order or trade. Like, uh, how much volume can I do? And they were like, you could do whatever you want. And he's like, so I could buy $5 million of this right now. They're like, son, you could buy $50 million of this if you want. So he goes back and he tells the CEO, Hey, I think we should make this huge trade. And then basically it gets shot down for just like, because there was risk averse. And, uh, he sees that it would have played out well. And he just decides like, this whole thing is stupid. Like, Hey, I'm never going to work for other people because I presented a completely logical

37:43

SPEAKER_00

argument and it got shot down for illogical reasons. And so I just never want to be in that position again. And also I should just go build things instead of just do this financial engineering stuff. I should go do actual engineering and he leaves and he never, never comes back. He was a failed retail stockbroker. Is that what you tell me? There's no financial engineering there. He had no track record. He was a rookie. Why would anyone listen to him? That that's, that's the amazing thing. You look back at Warren Buffett in 1967. I think half the people who, who heard his pitch would like, yeah, why do I want to listen to this guy?

38:17

SPEAKER_00

I started out as a math and science student at Stony Brook undergraduate. The outgoing department chair, uh, mathematics department chair was this guy named Jim Simons leaves to form Renaissance technologies, the most successful hedge fund in all of history. If you would have met this guy in 1979, you, you would say why this guy looks homeless. Yeah. I saw him. He looked like he was, he looked like a messy student and he was smoking cigs all the time. He kind of looked like a filthy animal. You would think this guy, I'm like, I'm not giving this guy my money. He's gonna smoke it. Uh, Sean, what are you, what are you pulling up here? Break out the textbook.

38:57

SPEAKER_02

I got the, I got the story. All right. This is about Latin American debt. Banks had made billions

39:02

SPEAKER_01

in loans to countries such as Brazil and Mexico. They could not be repaid. The secretary, Nicholas Brady had packaged those debt obligations and something known as Brady bonds. Yes, exactly. Uh, they were backed by the U S government must believe they would always be worth at least 50 cents on the dollar, but some were selling as low as 20 cents. He figured that Scotiabank could make

39:19

SPEAKER_00

billions if they bought these at a cheap price. So he called the trading desk and he asked, you know, if the stuff I said, he thought to himself, jackpot, this is a no lose proposition. I run, and I tell Peter, the CEO about it. The bank ends up rejecting the idea. They said they already had too much Latin American debt. He said, wow, this is insane. Is this how big banks think? Um, he goes, it was a good thing. It gave me a healthy disrespect for the financial industry. And that gave me the

39:42

SPEAKER_01

audacity to eventually start what became PayPal. He didn't really start PayPal. He started a competitive product and eventually it was merged to PayPal, but let's not let that get in the way of the story. All right. So he had a good idea. Do you have a lot of enemies? A few. I have no choice. I can't help it. You just came here spitting fire, man. Like someone says something that's bullshit. I can't help, but I know discretion is the better part of valor. But when people are out there saying stuff that is nonsense that ultimately leads people to, um, lose money. Do you think you ever have to get security? No.

40:23

SPEAKER_01

Listen, if someone wants to meet dad, I would have been dead a long time ago. That's, that's not a, uh, and who wants to live their life that way? Oh my God.

40:30

SPEAKER_00

What did he say that makes you think he needs security from who? Guy Kawasaki? No, man. No, I'm not that nerd, but I'm just saying that like when you deal with big numbers and you have a big audience and you're dealing with people's money and stuff, I, sometimes I think of like the risk reward of just like having someone on, you know, around you when you go to the city. Nobody cares. I got bad news for you. Nobody cares that much about me. I'm not, I'm not that important. And look, here's the reality. I've gotten- Well, it's not the 8 billion. I mean, that is impressive, but it what's, I mean, you have a, you have a microphone, you have an audience.

41:00

SPEAKER_00

Yeah. So in the modern world, it's a cacophony of voices. No one voice is dominant and, and, you know, Elon Musk bought Twitter. And so his voice is amplified. When you look at the value he's created over the years, all right, so whatever the PayPal merger ended up being, and then Tesla and now SpaceX, he doesn't have to exaggerate. This guy has changed the world, right? Tesla completely changed the automobile industry. SpaceX completely changed a number of industries, aerospace, the, the concept of getting anything into earth orbit, satellite. I mean, he's had such a giant impact. You don't need to polish the hagiography. Your accomplishments speak for themselves. So

42:00

SPEAKER_00

I have to burnish my crappy undergraduate and graduate career. I don't have that much to brag about. From then, when I see a guy like that, like he didn't found Tesla, he joined Tesla later. His genius was recognizing, oh no, what you need to do is sell a car that's just miles away from everybody else. And don't think like a traditional car company. This is a technology appliance, not an internal combustion engine. Like I give him credit for the stuff he's done. That's move the needle. I'm not a fan of the SpaceX IPO, but I sure as hell don't want to bet against him. He's just proven

42:42

SPEAKER_00

himself time and time again. You know, he's a tough guy to be on the opposite side of the trade front. Can we, I want to go back to the bragging question. Sure. I want to, because I know you've been doing this forever. I've listened to your podcast and read your blog, but I still want to know as an entrepreneur, the business. So can you give like a short answer to like just some of the numbers about how big the firm is? So the last ADV update we did with the SEC was December 31st. That was $7.6 billion. But when we launched in 2013, that was the start of the third best 15 year run in history. Does that mean like it's a $50 million a year company?

43:24

SPEAKER_00

We don't, because we're private, we don't disclose our revenue and stuff, but you know, we average somewhere around 70 basis points, uh, in terms of our, our fees. When we were a billion dollars, we had like 35 people. The typical billion dollar group at a big bracket firm is two salespeople, a sales assistant and someone helping on portfolio. So that would be four people. We were almost 10 X that. So we've always been building as if our growth rate is going to continue. And we've been growing,

43:59

SPEAKER_01

uh, about 30% a year since we launched. So you, you said you famously called the housing crisis. And from what I understand, there's an interesting story there. So, so first, and this is so dumb, my mom was a real estate agent. And so in 03, 04, 05, we were having all these conversations about how weird the real estate market was. And the normal cycle is come out of recession. The economy begins to expand. And when I'm looking at all that data, pre financial crisis, nothing lined up with what you typically see. It was very much a backwards, real estate driven economy. In other words, instead of real estate being the beneficiary

44:47

SPEAKER_01

of an expanding economy, more hires, better income. It was the opposite. And so anytime you bought a house,

44:53

SPEAKER_00

you could refinance a few years later at a lower price. And some people were doing home equity lines of credit and taking cash to subsidize their lifestyle because in the mid 2000s, middle class workers hadn't really seen raises above inflation for decades. And so people were spending the equity in their homes. And so I started hunting for some data and for some academic research. And in 2006, Ryan Hart and Rogoff did a white paper that eventually became the book This Time is Different, 800 Years of Financial Folly. And the white paper said, when you have a bubble driven by credit,

45:38

SPEAKER_01

on average, we see real estate dropping 32 percent. And I use that as a leaping off point to say, all right, I'm too lazy to do all 500 S&P stocks, but let's look at the 30 Dow stocks. And what is a 32 percent drop in real estate mean to their business, to their revenue? And long story short, I kind of spitball a price of 6,800. How contrarian of a belief was that? All the stuff I had been writing about housing and subprime and derivatives, it was all up on the blog. It was all very public. So, you know, I spent about a year being the dumbest man on Wall Street, which was kind of fun. All of 07. It's like, you're obviously an idiot. And even the piece that

46:22

SPEAKER_02

talked about 6,800 said, look, the market is in an uptrend. We continue to see multiple expansion. You don't put on a short. You don't get out of stocks if you're an institutional trader until that trend line breaks. And that trend line didn't break for a solid year and change. So I spent a year being pretty much the dumbest person on Wall Street. Starting in January, February, March of 08, Kudlow started having me on every week and then twice a week. And then it just got to be mayhem because, you know, nobody saw it. I should say very few people saw it coming. I recall being on CNBC with Peter Bookvar and they literally when we talked about, you know,

47:10

SPEAKER_02

the potential downside. And I want to say this was late 07. They literally, literally laughed at us. And I remember walking our offices were not that far. And I'm like, either we're really right or we're really wrong. But there's nowhere in between. Do you guys remember the book Snowball about Warren Buffett? Sure. Absolutely. I just started reading it. And the very first scene is basically Warren Buffett at the Alan Coe conference, which is the who's who. So it's always like the hottest new kids plus like the old guard in the room together. And at this time, it was all the best dot com companies.

47:45

SPEAKER_00

And they're all there thinking they're the hot shit, sort of like how AI companies are now. They think they're the best. And Warren has this famous line. I think he says, only criticize a category, never criticize like a particular name. And I'll compliment particular names. So he tries to be the point is he tries to be really polite about it. But he basically says the dot com thing, it's going to be bad. And if you look at like car companies in the 1920s,

48:08

SPEAKER_02

you would have thought that you knowing how cars are going to end the place to be is in cars right now, we got to start a car company. But of the 2000 car companies who launched right when the boom was happening, basically, like three still exists. And most went out of business. And he basically said, this is what's going to happen with dot coms. And he tried to do it very respectfully, but it was still very insulting to the audience because they were there. And I think he even made like a bunch of jokes. He was like, you guys, I think he even said something like you guys all

48:31

SPEAKER_02

even have mistresses probably right now you think you're you think you're the best. But it's gonna come. It's gonna come. And it's sort of interesting to figure out inside of someone's head when they see this one bit of data and they're and they make this very contrarian bet and how even Warren Buffett was like quite nervous about that. He goes, I know I'm going to be right. But if I'm not right soon,

48:54

SPEAKER_01

then I'm really going to look stupid here. And I think that's like that behavior of like making that call is actually quite fascinating. There's a famous technical trader from, you know, the 1920s and 19 teens called Richard Wyckoff. And he wrote a book, How I Trade and Invest in Stocks and Bonds. And if you would go back and read that book, everything he talks about just substitute AI for intern for for telegram and dot coms for railroads.

49:27

SPEAKER_00

And it could have been written last year. It's over 100 years old. And it's as fresh as nothing ever changes. There's nothing new over the sun. Yeah, the technology is is different. But what's the takeaway, which is that like new stuff can get overhyped, not can get overhyped, always will get overhyped, which isn't, by the way, a bad thing. That's a feature, not a bug. There's a great book called Pop. Why Bubbles are Great for the Economy. And think about the dot com era. Think about all of the fiber that was laid, global crossing and Metro Media fiber and the hundreds and hundreds of millions of dollars, billions of dollars

50:07

SPEAKER_00

in fiber laid. I one point in time, I want to say it was like over a thousand dollars a mile. The dot com collapse comes. All these companies go belly up. And then the the legacy cable companies and the legacy phone companies buy it up for pennies per mile. And because it was so cheap to own at that

50:29

SPEAKER_01

point, all the things that came afterwards, YouTube, Facebook, Instagram, all of the bandwidth

50:36

SPEAKER_00

with intensive technology. Well, they wouldn't have been viable if it was a thousand dollars a mile to lay fat pipes. But for pennies, a mile out of bankruptcy. And so I'm not predicting this is going

50:50

SPEAKER_01

to happen with A.I., but it happened with railroads. It happened with televisions. It happened with radio,

50:55

SPEAKER_00

Internet, electronics companies, semiconductors, Internet, mobile cars go down the list. Every new technology that comes along seems to go through this process. Every new technology is innovative things that are not stuck with all the sunk costs and all the legacy platforms. And so they get to move forward faster, cheaper, better. So I don't know what who the winners in A.I. are going to be. But when we look back at it 20 years from now, look at the computer industry, HP, Gateway, go down the list of companies that had billion dollar valuations and effectively went down to zero.

51:38

SPEAKER_00

Could do the same thing with mobile phones. How's that Ericsson phone do you have? Are you going to replace it with the new Nokia? Oh, wait, nobody buys that shit anymore. Even Motorola. They're gone because between the iPhone and Android, everything else has been replaced. It's nice to talk to someone, Barry, who doesn't hold back. I think we thoroughly enjoy that. And, you know, Sean and I have been seeing your stuff pop up for years. We're happy we were able to talk. Appreciate you coming on. Shout out the book. Sure. How Not to Invest right over there. Hardcover paperback. You know, the last book was Bailout Nation,

52:14

SPEAKER_00

was 15 years ago. And I just it was a slog. It was tough to write. This book was just a joy. It was so much fun to go back over all these conversations I've had and all this research I've done over the years and published when no one knew who the hell I was. You're a gem of a guy, man. We appreciate you so much. Well, thanks so much for having me. I really enjoy this sort of stuff. It's what keeps me going every day. All right. That's it. That's a pod.

Reading tools

Type to find a passage

Appearance
Ask this transcript

Notebook

Export Markdown

Add a note