How I Invest My Money with Josh Brown and Brian Portnoy on Infinite Loops with Jim O’Shaughnessy

Check out Episode Page and Show Notes

Key Takeaways

  • People need to talk about money – it’s not rude!
  • Financial advisors should be the buffer between the extremes of fear vs greed and losses vs gains
  • Rules for Designing Portfolios:
    • Rule 1: Balance risk and return
    • Rule 2: Advisors should tell their client the risks that they should take
    • Rule 3: Advisors might consider having clients write letters to themselves – “we are our own worst enemies”
  • “The (financial) jargon is there to keep people confused. This is the Golden age of Investing. It’s about demystification.” – Brian Portnoy
  • Give people investment choices that are reasonable but know there is emotion involved
  • No process of investment strategy is right for everyone
  • Money as a weapon or a control tool never leads anywhere good – i.e. kids and divorce
  • The smarter you are, the easier you are to fool because you don’t think you can be fooled

Intro

Josh Brown (t:@ReformedBroker) is an author, columnist, blogger, commentator on CNBC, and CEO of New York City-based Ritholtz Wealth Management, an independent investment advisory firm he co-founded.

Brian Portnoy (t:@brianportnoy) is an investor, writer, and entrepreneur whose passion is simplifying the complex world of money. His highly acclaimed books in the field of investor psychology include The Geometry of Wealth.

Books

How I Invest My Money by Josh Brown and Brian Portnoy – stories from 25 contributing authors about investing and the keys to understanding how investments work

The Creation of Modern Investment

  • As Josh gave financial lectures around the country to help regular people understand complex financial issues, he heard the same questions over and over: How do I define my value? Am I going to be okay?
  • These people had no understanding of their portfolio
  • Josh’s goal: demystify the language of finance which is not necessarily in the interest of the financial industry
  • “The (financial) jargon is there to keep people confused. This is the Golden age of Investing. It’s about demystification.” – Brian Portnoy

Money: The Taboo Topic

  • People need to talk about money – it’s not rude!
  • You need an advisor who is an active listener- a wingman
  • Because of the fragility of human beings and families, you must separate the emotion of money and what’s going on in the markets
  • Advisors are the buffer between the extremes of fear vs greed and losses vs gains

How Josh Invests

  • Josh likes to buck the norms
  • He doesn’t believe that 100% of your equity investment should be in indexes
  • Josh also thinks financial blogs have gotten too rigid especially when they don’t deviate off the path of rational investing

How Brian Invests

  • Brian grew up in a family that stressed over money issues
  • He says it’s expensive, financially and emotionally, to take care of two generations – his three 3 teenagers and his aging parents
  • Brian’s favorite question: What’s a meaningful life and how much does it cost to live a life without regret?
  • Brian favors purpose-based planning = four buckets of investing
    • Free beta – pick the markets you want and get relatively inexpensive exposure to them
    • Juicy cash – hold more than models say you should, then do something interesting
    • Enterprise income – get the certainty of cash flow (i.e. real estate)
    • Long term options – find angel or VC opportunities with friends

Rules for Designing Portfolios

  • Rule 1: Balance risk and return – you’re not designing the portfolio for you, it’s for other investors
  • The problem is that risk tolerance is a moving target
    • E.g: someone who recently lost their job has a different profile
  • Rule 2: Tell your client the risks that they should take
  • Rule 3:  Advisors should get clients to write letters to themselves – “we are our own worst enemies”

How to Learn and Avoid Repeating Mistakes

  • No. Most people want more money – more is better, it’s a basic principle
  • The quest for more is part of our genetic instinct
  • But satisfaction for enough is also an instinct
  • Modern advisors should help the play between investing for more and investing to be satisfied
  • Create an atmosphere where clients can discuss investing in a language they can understand

Behavioral Investing

  • The idea behind Applied Behavior Finance is that you give people investment choices that are reasonable but know there is emotion involved
  • There’s a hedonic treadmill – a sense you never have enough
  • There are three types of capital:
    • Social
    • Human
    • Financial
  • You can’t do all three to their best at the same time
  • When you retire, you should have plans for all three

Lessons from How I Invest My Money

  • No process of investment strategy is right for everyone
  • “Even if it’s true that rational investment decisions exist, real-life gets in the way” – Josh Brown
  • The financial blogosphere has opened up the tools of investing to everyone in this generation
  • Money as a weapon or a control tool never leads anywhere good – i.e. kids and divorce
  • Normal people should be trusted – because you learn by making mistakes
  • Emotions are an incredibly powerful force toward investing decisions
  • The smarter you are, the easier you are to fool because you don’t think you can be fooled
  • Educate and engage your clients on the decisions that are going to affect them

Other Advice

  • “Deliver unsolicited and unrewarded kindness when you can – do little things that effectively cost you nothing but matters a lot to others” –  Brian Portnoy
  • Be honest and be present with people
  • “Mind your own business. You don’t need opinions about everything, it’s counterproductive to society especially with people sitting in judgment everywhere on multi-social media platforms” – Josh Brown   
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Notes By EWerbitsky

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