December 15, 2020
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
