Animal Spirits Podcast - Blackswan Growth (EP.36)

Episode Date: July 4, 2018

How Bud Light used Dilly, Dilly to get you to buy more beer, some drawbacks of index funds, why hedge fund fees are finally falling, the payday lending industry, getting rich vs. staying rich, why Liam Neeson is the index funds of Hollywood and much more.   Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, the podcast that takes a completely different look at markets and investing, hosted by Michael Batnick and Ben Carlson, two guys who study the markets as a passion and invest for all the right reasons. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities

discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. We're back in our normal settings. I am in New York. Ben is in Grand Rapids. We were in California during the recording last week for our conference. Ben, what was your favorite part of the event if you had to pick one? Well, there was a bunch of them. I think my favorite speakers were actually all the non-investment people. So Annie Duke was there. She's the former professional poker player talking about her book and thinking in terms of probability and bets that was really good she did a fireside chat with barry which there was no fire but that's what they call it correct the other one was ryan holiday was really good on the stoicism stuff i think sometimes that line of thinking could get a little

preachy but i think his presentation was really well done and and i really liked him he was way better than i expected but i'm not sure about the content it seems just like you can't control what happens in your life but you can control your response i think that's just a little bit too neat like people have issues and your attitude is not everything when it comes to everything. It's sort of a little bit nonsensical in my opinion. But there is definitely a lot of good stuff. It definitely falls out of the category of easier said than done. I'll say that. But my favorite one was Michael Embarty, who is a former NFL executive. I think he was for the Raiders, the Cleveland Browns, and a couple times the New England Patriots. And he has a pretty tight relationship.

Wodgebaum. Yeah. What's that? J.J. Reddick resigned one year, $12 to $13 million with Philly. Did you really need to butt in for that? sorry if we would have been taping during the lebron signing yes then you can give me a woj but j j reddick eh that was no all right go on you get a punch card for that one so michael ombardi was a former NFL executive and he is now on the ringer network with bill simmons and i think he's a podcaster he's in a couple of them and he was really good and before he went to speak you and i actually got a chance to spend some time with him i was walking back from my hotel room and I walked into the room and Lombardi was at the whiteboard

drawing up football plays and it was amazing because he was drawing you from memory the last play when the Seahawks lost to the Patriots a couple years ago in the Super Bowl when everyone in the world thought Marshawn Lynch should have gotten handed off at the goal line but instead Russell Wilson through an interception and yeah that was something and I think he honestly changed my mind on that I was in the that was a terrible call like everyone else and I think the way that he outlined it, I think he changed my mind. I don't think he changed your mind. So he went through that whole exercise and that I said something like, yeah, but Marshall, which. So the way he... But he's like, but I just showed you that there would have been

seven men on six and he would have lost a yard. And I was like, yeah, I know, but... His speech was really good talking about why like NFL organizations are just like any other business. So he's got a book coming out in the fall, which you've already read and I think it's going to be really good. The book is called Grid Hour a Genius and it was really good. one of the things, the best things about his presentation was that he made the talk applicable to financial professionals, but he stayed in his lane. Yeah. Right? Like he didn't get too far into what we do. He was just, he was awesome. I would highly recommend him for anybody looking for a speaker. He was great. All right. So this week, there was a really, really long article by research affiliates.

I think it was called, at least this was a just index funds by high, sell low. And one of the things that they do that I really appreciate is they tell you how much reading time is in before you get involved. Did you notice that? Yeah, it said 60 minutes. It tells you 60 minutes and this was accurate. I think I got 30 minutes through and then gave up. Yeah, not going to lie, I skimmed it. But it was still some good graphs and charts and data in here. Yeah, there's some great stuff. So I'm just going to start spinning out some points. And Ben, you chime in when necessary. You got it? You got it. Okay, this I did not know. This is new to me. Until October 1st, 1989, standard and porous policy was to announce change in the S&P 500 after the market had closed with those changes taking effect at the next day's

closing price. Did you know that? I did not know that. Okay. And then what happened? So from October 1989 through December 2017, the performance of additions lagged discretionary deletions by an average of over 2,200 basis points in the 12 months following the addition or deletion. Can I throw a flag here? 2200 basis points is too hard to figure out of my head. Can they just say 22 percent? Yeah, no, I'm definitely with that. Okay. Actually, one of the things that I noticed in the piece was they said a word that I had never seen before. Monotonically, I had to Google it. You ever hear that? I'm guessing it means single something. It seemed unnecessary, but let's keep rolling. Another thing that, this is probably not too surprising, but kind of interesting nonetheless.

As of February 2018, the seven largest mutual funds and ETFs by assets under management were all index funds. That's pretty good, because it used to be probably PIMCO's total bond fund is probably up there, but not anymore. And I'm sure some of the fidelity ones. Yeah. On average, only three stocks in the top 10 lists when ranked by global market cap remain on the list 10 years later. Oh, that's pretty good. See, so back to our conversation a few weeks ago when we talked about, well, Apple, Amazon, Facebook and all those companies remain. History says no. But this time is differences, yes. Fair. Can't argue with that. So in this study, there were 1125 editions and 1123 deletions from 1970 to 2017. That's probably way higher than I would have guessed. Well, over a, what, 50-year period?

Yeah, I guess that's a decent amount of turnover. But I mean, it only works out to what, isn't at four or five percent turnover a year, if that, maybe two to three? Yeah, that's a good point. Lastly, on average, outperform deletions monotonically with the gap between additional deletions accumulating to 64% over the 12 months prior to the announcement. This is not a typo. New additions beat the market by 36% and discretionary deletions underperformed by 27%. And by the way, they keep saying discretionary because companies can get deleted by acquisitions

and mergers and things like that. All right, so that is a truly big number. So the committee for the S&P are a bunch of performance chasers. Is that the point? Yes. That is the point. However, here's where I disagree with their conclusion. And again, they are speaking to a much different audience than we are.

They're talking their book, which is we're certainly guilty of that. So nothing wrong with that. But here's where I disagree. They say, would most rational investors want to own a portfolio in which the largest holdings has a 95% likelihood of underperforming over the next 10 years, or in which the largest holdings in each sector or each country is likely to underperform by 5% a year over the the next decade. Or a portfolio in which each of the top 10 stocks has roughly 90% odds of underperforming the rest of the portfolio. No. Okay, so fair points. But like if this

is the case, then I don't disagree with the data because it is what it is. But then it always comes back to the question, why is beating the market so gosh darn difficult? I guess in a way you can look at it kind of like a venture capital portfolio where you just need one Amazon to offset all those of all the losers, right? You just need one company that continues to go higher that takes care about those others because it's not like they're adding the biggest companies every year. They're not adding a $500 billion market cap that can make or break the market. I'm sure these additions and deletions are smaller companies. And I assume that Facebook one a few years ago was probably one of the biggest additions I've ever had. So Facebook got added at $100 billion. And that was a

huge red flag that people were talking about. Meanwhile, and of course, we're cherry pick at one company. But that's up to $500 billion today. So think about around $400 billion was created from the Facebook edition. Now, Twitter was recently added. And I think it popped, called 10, percent into the addition. So technically perhaps index funds are buying high. But the idea that they're buying high and selling low, I guess this just kind of shows the distribution of stock market returns. If it was a normal distribution, this would make sense, but it's not because so few stocks in a market cap-weighted index carry the majority of the returns. So that's just the way it isn't in a stock market. There was a few really good tables that they included the top 10 companies by

market cap in the world. And some of the things that stood out to me, was that in 1990, eight of the top 10 were from Japan, and many of them were banks. And in 2010, five of the top 10 were from emerging markets, mainly from China. Oh, that's pretty good. I didn't know that. And then today, eight of the top 10 are from the United States, and most of them, as you would guess, are tech stocks. So there are definitely a lot of takeaways from this. I guess diversification is one of the obvious ones. The one that stood out to me was the fact that I think we spend a lot of time talking about

the 90s tech bubble as like the craziest thing that ever happened in the markets or one of them that at least we can bring to memory. But that Japanese bubble back in the 80s was just insane if you go back and read about that. And I can't imagine something like that happening today. Some of the best resources on that are the devil takes the hindmost. Yes. I got a bunch of good stats from that one. Okay. Against the gods. Yes. And Patrick O'Shaughnessy's book, Millennium Money, has a really good anecdote about what a lemonade stand would be worth if it was valued at what the Japanese bubble. was. Yeah, that's a good one to go back and learn about how, how prices of real estate in Japan were four times the real estate value of the entire United States, even though it's so much bigger and some more people here. It's insane. All right, so let's move away from index funds and on to something that's near and dear to your heart. Hedge funds? Okay, so institutional investor had a story this week, and they talked about the average hedge fund fee. And I guess the average fees for hedge funds have declined from what were 2% of the past to roughly 1.4%. And this was in the first quarter. And so they're basically trying to say that the two and 20 fee structure is really no

longer widely used, according to HFR, which is one of the hedge fund industry practitioners. And so they now say, they said 30% of hedge funds do the two and 20. Yeah, is that higher or lower than what you would have guessed? That's probably about right. And I think the problem is with these numbers, like the average doesn't matter because there's 11,000 hedge funds and all the money goes to the top hedge funds. And guess what? The top hedge funds still charge high fees. So I think this one's a little misleading. All right. So we spoke about Whitney Tolson a few weeks ago, but there was another article and a few things interesting worth mentioning. He does sort of a boot camp for aspiring hedge fund managers. And one of the things that he said was he

recommends charging a 1.5% management fee and 20% of the profits. And he said it's an obscene and usurious fee structure. It's two words. Usurious. I never heard that one before. But it's the industry standard. Anything out of the norm and you waste half your time answering questions about your stupid-ass fees. I think what we've learned here today is the fact that if you to become a well-known money manager, use big words. Yeah, those were both outside my purview. I think this kind of rings true because it would almost be a red flag in the due diligence meetings that we'd have in the past if someone had a different type of fee structure. People would always wonder, don't we get what we pay for here? And why are you doing something

differently than everyone else? If everyone else can charge these fees, why wouldn't you? And so anytime we'd see a fund, they would only have a profit fee like the 20% and they wouldn't have a management fee or something that was just different. It would always be a red flag to people. And so half the time, it wasn't even worth it for them to do it because there'd be so much pushback. Yeah, that's pretty wild. So like charging something other than the norm is like a red flag for investors. Yes, it's easier to fail conventionally than to succeed unconventionally. And so it was kind of like, this is the way we've always done things. So why don't we just keep doing them? And that's part of the reason I think that they've had such a hard time in that space

because they continue to charge these enormous fees, which is an extremely high hurdle rate, even though there's way more money and way more funds chasing those returns these days. So two other things that were interesting about this article. One, I didn't realize that Tilson had such incredible returns after, and I know a lot of value investors did really, you know, this is like their golden age, but between 1999 and 2010, he did 184% compared with 2.6% for the SMP 500. It's pretty darn good. Yeah. So it was basically just after that, that his returns were so terrible and he had to close up shop. And then lastly, there was a video that I found that I think was mentioned in this article from March 2009, CNBC had

Whitney Tilson on the show, and they referred to him as the profit. The kiss of death, basically. Yeah, and that, like anything, just did not age well. Yeah. So the New York Times had an article, maybe two weeks ago, title was hedge funds looking to profit from personal injury suits. And one of the most amazing things about this mass tort industry is that it's now a $10 billion industry, and people were saying that the field is starting to get a little crowded. Isn't it crazy how quickly these things fill up? Like, I guess I wouldn't even have realized, that this was a niche within the hedge fund structure. And it's already people are worried about getting too crowded. It just shows how, like, if there's money to be made, someone will find it

and then guess what competitors will immediately jump in. In further signs that perhaps the hedge fund industry is getting a little bit too large, there was an article in the Washington Post last night a way of monetizing poor people, how private equity firms make money offering loans to cash-strapped Americans. So the gist of this article was there's a company called Mariner Finance that is owned by Warburg-Pinkus, and what they do is they mail millions of checks to strangers in the hopes that they will cash them and then hit them with 30% interest rates. Honestly, I can't believe that this is actually a business model. It's pretty wild, but they actually just mail checks to people, and then they have the

ability to cash them or not. One of the quotes in here was it's basically a way of monetizing poor people, which doesn't really come off on the due diligence packets very well, I don't think. Another quote is, some of the largest private equity firms today are supercharging to pay and subprime lending industry, said Jim Baker over the private equity stakeholder project, a nonprofit organization that has criticized the industry. In some cases, you've got billionaires extracting wealth from working people. That's pretty shitty. That's pretty bad. So to play the sort of devil's advocate here, there was, Freakonomics had a, had a podcast. I think it came on in 2016.

I'll find the link and put it in the show notes. It was called, our payday loans really is evil as people say. And they actually go through kind of both sides. And I would be the one who would immediately say payday loan industry is predatory. It's charging people obscene amounts of money to take out a short-term loan, and they actually found that there can be some good from some research that's been done on the topic. So it's not all bad, but I'd say this one by the private equity industry sounds pretty bad. So news last week that the head of New Jersey's pension is leaving, and I think that turnover has been a consistent theme within pensions, I get specifically in New Jersey. And this is a crazy statistic. So this guy, Chris McDonough,

is getting paid $200,000, which is, you know, it's hard to feel bad from that.'s a quite a nice salary. He's getting paid $200,000 on a $78 billion. And of course, he shouldn't be paid like a hedge fund manager, but $200,000 on $78 billion is the equivalent of getting paid $256 on $100 million. That's one of the reasons that pension funds struggle so much because there's so much politics involved that they don't want to be seen paying millions of dollars to investment officers. So, of course, that means they pay less and they don't attract the best talent. And actually, the best sort of model for pensions, I think, is in Canada. They run a lot of their money in-house, but they pay up for good managers and good investment

people, and they have some of the best returns of anyone in the institutional world. So I think this is true where you see all this turnover in pension funds. And this is obviously why if you can't pay for the talent to manage that. I mean, managing almost $80 billion is no joke. Obviously, that doesn't mean you have to be paid millions of dollars, but it's going to be hard to attract talent for managing that much money, especially with the headaches involved. And, all the politicians you're dealing with in the politics, I don't think that would be worth the headache for that much money. Finally, there are some bad actors going to jail. There was an article showing that ex-Morgan Stanley advisors were sentenced to prison for fraud. This is something

that it just seems like it's a permanent future of the markets, right? Like there will always be bad actors just doing outright fraudulent things. What are some of the ways that people protect themselves from this? Well, it is hard for a lot of people who are seeking out advice don't know how the markets or the industry really works. So the first person that comes along, it sounds like they know what they're talking about. It's easy to just write them a check and hit over the money and think, okay, this person has my back. We'll figure it out. So I think in a lot of ways, like the fiduciary arguments we have a lot, I think that's more of an industry thing because I think a lot of people just don't even understand what that is. They just assume everyone, of course,

would have their best interest in mind when they're managing their money for them. So it's tough because the best salespeople often are people who can do these scams. Otherwise, they wouldn't be able to get people to turn money over to them. So I don't know. What do you think people should do? Well, unfortunately, nobody listening to this will be helped. True. Right? It's always like people that just don't know any better. I mean, there's some obvious things like making sure that the advisor is not taking custody of the assets, make sure that they're getting duplicate confirmations. But even still, there are ways to be tricked, right? Like people could just write over them and make them look like they're real when they're just fake statements. I think it also comes down to

like being a good client as well. It's easy to say like, well, I'm, I'm offloading. this onto my advisor and I'm going to let them handle it and I trust them. But I think you can never really outsource the understanding of what's going on with your money and what's going on with your portfolio and really understanding what you own and why you own it. So I think in a lot of ways you can't just hand over the keys and then close your eyes. You have to still pay attention and understand exactly what's going on and maybe learn a little bit along the way and so you can understand what they're doing. So last week I questioned the often heard statement that 10,000 baby boomers are retiring every day. Somebody sent me an article saying that, in fact, that is the

case. I think this is from the Washington Post. This is a good fact check here. Yeah, this is good. Thank you for whoever sent this to us. There were 76 million people born between the years of 1946 and 1964, the traditional window for the baby boom generation. That means that they will retire over a 19-year period and simple math shows that 76 divided by 19 is 4 million or almost 11,000 people a day. You're willing to admit defeat on this? This isn't a Marshawn Lynch thing? Yes, I fold. All right. So I wrote a piece this weekend, and I talked about how basically staying rich is harder than getting rich.

And I found some interesting studies that I wanted to go over a little bit. And a few people actually sent me some more afterwards. And so one of the pieces I was sent was called The Myth of Dynamic Wealth, The Rich Get Poor. And this was another one by Rob Arnaut and William Bernstein, actually. And they found that the trick is, it's not necessarily that people make bad investments. a lot of time it's generational. When you have that generative transfer of wealth, that's when it gets just destroyed. And so they found that really wealthy people have a half-life of anywhere from 8 to 24 years

where their money just completely gets cut in half. And they found that the first generation is typically pretty good. The second generation halves its wealth within 24 years. And these are people from the Forbes 400 list. And the third generation halves their wealth within 11 years. So basically hand the money down and watch it get destroyed. One of the amazing things that you wrote about was, over 50% of Americans will find themselves in the top 10% of earners for at least one year

of their lives. And you know what? That doesn't sound right. Where did you find this? I've linked to, I had to look these up too because it does sound, this was, I think a couple years ago the study came out. It was actually done by some Cornell researchers. So you just don't trust math lately. You're a... No, I do trust math, but I'm going to have to check but verify. Okay. I looked at the study. Maybe the study authors are wrong, but at least there was a study by some Cornell professor, so it sounded legit to me. And did this cover the period from 1,200 BC to today? Of course.

All right, whatever. I'm suspect, but I will look into this. One thing that you wrote, though, is chef's kiss. Acting rich isn't that hard. You know what's hard, acting like you're not rich, even when you make a decent chunk of change. Right. So that's the way to think about it is like there's a difference between spending a million dollars and saving a million dollars.

Obviously, the first one's much easier. The second one's a lot harder. And so no matter how much money you make, you have to keep that art of delayed gratification to actually build your net worth. I think people that have, like, real money have no problem wearing a Timex watch. Is that right, Timex? Yeah, that makes sense. That's like the Millionaire next door thing.

Yeah, or driving, whatever, a Honda Civic, like, for example. But it's people that are, like, sort of in between that want to drive the nicer cars. Honestly, if you get to a certain point of income or wealth, most likely, like, a higher income, and you get to the point where you don't really need to budget anymore. Like, I think if you make under a certain amount of money, you probably almost have to budget to know where your money's going. And a lot of people probably don't. But I think when you get to a certain level of income and you don't have to budget anymore, it's easy to just spend it because you're not really paying attention to what you're spending on anymore. Yeah, you said something about lifestyle inflation.

That was really good. Right. I think it's easy. Like, as you start making more money, you just start spending more. And that's impossible to get ahead that way. So if you don't keep, you know, maintain a little bit. And so that's why I like the idea of, especially when you're young and you first got out of college, we get a lot of people asking us, like what are your personal finance?

It's my biggest one is live like you're still in college for a few years and learn how to save and try to get ahead a little bit and not just go blow it all because you're actually making some real money for once. Well, I give you a verbal retweet and the like on that post. It was excellent. Okay, thank you. So I saw this post and I thought, what in the world is going on?

The Wall Street Journal said that professional video games are getting their own stadium. So Arlington will begin construction on a 100,000 square foot e-sports facility called e-sports stadium Arlington. What do you make of this? So explain this to me. This is people who play video games on a huge screen at a stadium and then people go to cheer them on. Oh my God, this is amazing.

Is that how it works? Yes, I think that's the gist of it. Players will have warm up space to run through simulations with their coaches as well as hair and makeup stations to get them camera ready. By the way, imagine telling somebody that you coach a video game errs. Yeah, that's true. Honestly, like this is, I never, I think the last video games, game console I owned in my life was a sick of genesis. So, I mean, middle school. Oh, really?

Yeah. I mean, maybe Nintendo 64 in college we played a little bit, but I never made it past that stage. So the video game thing just kind of, I was just when I was younger, obviously I don't get it, and I don't want to be an, get off my lawn old man here, but the counterpoint I saw to this, I think someone said this in a podcast or on Twitter was, yes, it seems ridiculous that other teenagers or whoever is watching this or watching people play video games, but old people watch other people play golf on TV. So can it really be that? You know, I don't really agree with it, but that's the counterpoint. Okay. So, e-sports are on track to generate $905 million this year. Crazy. I remember vividly watching my friend and his brother play Tecmo Bowl. And I was like so

annoyed that they wouldn't let me play. And I thought watching them was like the most boring thing ever. Now granted, Tecmo Bowl is like pretty shitty graphics, but I don't get it. I'd like to know who branded this e-sports, because I don't see where the sports comes in. Are these athletes? I don't know. All right. I don't get it, but hey, whatever, you know, whatever makes you happy, I suppose. All right, so a tweet this week that was pretty incredible from Tracy Allaway.

Flow is following Flows. Money going to tech is on course for a record $37 billion this year. So this just shows tech flows going back to 02, and the last two years really, really stand out. Honestly, it's kind of hard to believe that it took this long. This graph will post it in the show notes. It's kind of nothing, nothing, nothing, nothing. And then the last two years, huge flows. And this is, again, from Bank of America, Merrill Lynch into tech.

I don't know how exactly they're defining this. But, I mean, if you look at the returns from, like, the NASDAQ 100 ETF, the QQ, over the last 10 years, it's got 15% in returns over 10 years, 21% over the last 5 years. It's even shown 13% over the last 15 years, which is pretty insane. And well above the S&P 500, I'm kind of surprised that there hasn't been more money chasing this performance sooner. Well, I guess it's the underreaction and overreaction type thing.

Right. So we just explain the momentum phenomenon. There's your, boom. In 2016, if you look, and I'm pointing as if people could see where I'm pointing to it, but there was huge outflows. And if I recall correctly, the Fangstocks got like murdered in early 2016 during the sell-off. Yeah, that sounds right.

And now they've all completely come back. So the other side of this one was from the Wall Street Journal. And they had some data from the Lutehold Group. and they're showing the level of quote-unquote defensiveness within the S&P 500, and they're showing the number of defensive stocks. And so they show, again, this is another graph we can provide, and they show the percentage of market capitalization comprised by traditional defensive sectors. And they found since 1990 it's gone from almost 35% to 15%.

So this is like a huge sea change of the former defensive stocks, which I guess you would call healthcare, utilities, consumer staples. It says it right here. utilities, telecoms, pharma, and consumer staples. Okay. So that's gone from 35% to 15% since 1990. And I think one of the big reasons for this is because tech has grown to be such a bigger part of the index. And so, I don't know, I guess the takeaway is the market's not going to react to like it has in the past when these things happen.

Or is it? Well, I thought we already decided that this time is different. This is a good chart. Good chart. Yeah, we'll provide it in the show notes. So our friend Patrick or Sean to see had Eric Belchunis from Bloomberg on his podcast this week. And one of the stats that he said here that I thought was interesting, and he's a pretty good defender of terrible ETF hot takes. He's a really good mythbuster. And so he, people are

worried that index funds and ETFs are going to steal all the lunch money from active funds. And he said, revenue for active mutual funds is $70 billion. And then the trading revenues Wall Street gets from the turnover of these funds is $140 billion, which is kind of mind-boggling. For ETFs, the numbers are $7 billion in revenue and $3 billion in trading. So actively managed funds just continue to prop up the financial system and ETFs are such a small piece. He said Vanguard from their $5 trillion in AUM makes about $3.7 billion in fees, which means they pay the equivalent of that pension fund manager in New Jersey. Yeah, that's wild.

Another thing that he said was in 2008, Vanguard took in money every month. I did not know that. I didn't either. That's pretty amazing if you think about it. Maybe they already have business case studies for MBA. It's about Vanguard in the years ahead. Like, I feel like it's, it gets so much attention, but I feel like it's almost still underappreciated how amazing their run has been over the last 10, 20 years.

Yeah. Their brand is just, maybe this is calling the top, but I mean, it feels like their brand is bulletproof almost, doesn't it? Is it the kiss of death? No, definitely not. All right. You can fill this my face in 10 years. So Eric, Eric said that designing an index is the new active.

I thought that was really clever and spot on. And to that point, there was a. filing, I think it was this week, or I just saw it this week, from Amplify. They have a Black Swan Growth and Treasury Core ETF. And the perspective is like a bazillion pages. But one of the things that they said is the index. And by the way, it's so funny that this is an index, right? Like, every product needs an index. Yes. Right. So this is just one of them. The index endeavors to provide investment returns that correspond to those of the SP 500 index while mitigating against significant losses. And I think the thing that threw me off here is correspond to, because I guess that

can mean that, you know, that leaves a wide range of interpretations. But what they're basically doing is 90% of the assets are going to be invested in, I think, intermediate term bonds and 10% will be invested in leap call options. So I understand how it will protect the downside, but I'm not sure how it will correspond to the SP 500. And maybe they've figured out the deltas and the gammas and whatever, but I don't know about this one. The leaps are basically call options for way in the future. So if they come true, then you make a big money. I think you make a huge profit is the idea, I think. But it's got to be really choppy returns.

And did you actually look through the prospectus on this thing? I mean, I started to read it and then there wasn't much. I'm just curious how many investors ever actually look at a prospectus for a fund? 1%. No, way less. You think less than that? So there was the old Charlie Munger quote. He said, anytime anybody offers you anything with a big commission and a 200-page

prospectus, don't buy it. Yeah, that's pretty good rule of thumb. I just feel like this is the kind of thing where people probably just don't understand what they're getting themselves into, but... Well, I know where my role of Iowa is going. My general rule of thumb is anytime there's a buzzword in the title of the said fund, probably good idea to stay away. That's just me.

You know what? I didn't even catch this the first time, but Black Swan Growth? Yes. Right? That's true. All right, that's the name of this podcast. There you go. Mark it down.

You guys just saw how the sausage was made. Yeah. Okay. So I wanted to just point out a quick story in CNBC. And here's the headline. It says beer sales are rising. helped by Bud Light's dilly-dilly popularity. And this Morgan Stanley actually says that Bud Light's dilly-dilly ad campaign may be a driver of rising beer sales, which maybe this is just

pure speculation on their point. But I think it gets to the broader theme of if people really are swayed by some stupid advertisement campaign by Bud Light, doesn't it say a lot about human nature and how these decisions are made? I don't even know what the dilly-dilly is. We talked about this beforehand. I can't believe you've never seen the dilly-dilly ads before. Even doing like a basketball game, never? No, but what are they going for, dilly? What does that mean? It's just like the member the what's up ads. I don't want to say it because it's so dumb. Yeah. It was like that. It's just kind of a phrase that gets people saying it. And they're saying that this ad campaign is the reason for increased beer sales in Bud Light. Are you buying it? Maybe. I think if we're talking about the

inability of humans to think rationally through these things, then yes, I think advertisers are probably be smarter than other humans in a lot of ways. All right, Ben, just cover your beer short. Yes, all right. Okay, let's get to some listener questions. Here's one. Wait, one last thing before we get there. By the way, you do that to me every week.

Well, you forgot something. Cliff Astis got the Trent Griffin treatment in a dozen things. Yeah, it was really good. And one of the things that Cliff said that was great is every time someone says there's a lot of cash on the sidelines, a tiny part of my soul dies. There are no sidelines. those saying this seem to envision a seller of stocks moving her money to cash and awaiting a chance to return, but they always ignore that the seller sold to somebody who presumably moved to precisely equal amount of cash off the sidelines. So what's the bull case on stocks now, then? I've got nothing. Listen to her questions. My whole life is a lie. All right. How do you respond or suggest to when someone says, I don't trust the market or I prefer real estate because I can physically see it? Okay. I definitely don't respond to that.

Okay. No, nothing. I mean, I probably, if somebody said that to me, I've gotten similar questions in the past. Like real estate is something fungible. I can see it. I can have rental houses. I know it's going to be there. I guess my one point would be you have a complete lack of diversification in real estate. You're tied to a local economy. There's so much more risk involved when you do something like that, especially when you don't know what you're doing. I guess the serious answers to this question would be, it depends who's asking. If this is just like somebody that I for the first time and they're saying that off the cuff, I would just probably nod my head and just whatever, I've, you know, try and talk about something else. If you start off with the idea of I don't trust the market, it's going to be really hard to change in those minds. Yeah, yeah, like that conversation is going nowhere fast. And if you're trying to sell that person something, that's an uphill battle. I think it's better to pick your people who are giving advice to or pick your clients better. Yeah, I would just say, yeah, buy gold. Right. Okay. Does it make sense to have risk your assets in your IRA that you can't touch until you're 60 effectively forcing a longer time horizon.

Well, you can touch them. I mean, yes, you can't take it out and spend it. I mean, you can with a penalty. But I think maybe this is not a terrible idea. But I would suspect that the behavior inside of somebody's IRA is not better than the behavior somebody's brokerage account. If that is where this question is going. I think at least there's another barrier up there to kind of keep you invested in. So I think if you're investing in a 401k or an IRA or something, you know, theoretically you're not supposed to touch it. So I think it can, I don't know, get people a little nudge to better behavior. I agree that if people really need the money or they just, they have nowhere else to turn, they're going to take it out of there and pay the

penalties. Yeah, I would say on the margin, perhaps this will encourage some better behavior, but I don't know, I'm skeptical. Yes, it does make sense to have risk your assets in your IRA if you know that you're going to have decades and decades ahead of you, but it's just gets down to can you live with that. All right, dilly, dilly. What are your recommendations for the week? So we went to see the new Jurassic World this weekend, my wife and I. I'm dying to see it. I can't believe I haven't seen it yet. How was it?

I'm usually not a fan of the remakes and the sequels, but I liked it. I really enjoyed the last one, and I thought this was good. It wasn't as good as the previous one, but it was entertaining. I enjoyed it. Every time Jurassic World is on TV, I watch it. Yes, I think it's really good. And this one is a little different than I expected to be, actually. It was good.

And so on the flight back from California, I had about three or four hour flight, And my rule is usually like no internet on flights. I just want to read or relax and not have to deal with the world. And so I watched The Commuter with Liam Neeson. Have you seen this one yet? Is that taken sex? Pretty much. It's taken on a commuter train.

And it was a guy who commutes every day to New York. I wouldn't be spoiling anything if I told you what happened because here's the thing. Here's what I came away with on this one. It was exactly what I expected from a Liam Neeson movie. There was cheesy one-liners. It was totally unrealistic. The plot was like had holes in it all over the place. But I still enjoyed myself.

Okay. Did he have his accent? Like the Liam Neeson accent? No, no accent. But here's what I came away with. And you can stop me if I'm wrong here. Liam Neeson is the index fund of Hollywood movies because you know exactly what you're getting from every single time, right? For better or worse, you know what you're getting from Liam Neeson in a movie. He is the index fund of movies. That's all I got. And Adam Sandler is the three-time levered ETS. Yes. There you go. Okay. On Saturday night, I saw a game night. I had never seen a trailer for this, but we were just, like, flipping through and it did well on Rotten Tomatoes, which is sometimes good enough for me. And it started out a little slow,

like the first 20 minutes I wasn't so into it. And then it just was not what I expected. I enjoyed it. What did you think? We watched that a few weeks ago. I got some laughs out of it. Just like you, I'd never, I'd never even heard of it before. But it was kind of one of those movies where it was a dumb plot. And so you have to kind of like get over that immediately. But once you get over the fact there's a dumb plot, it was funny. I got five or six laughs out of it. So not a bad. Yeah. If you're hurting for a movie, that's not a bad one.

Okay. And there's a book that I've seen every single time I go into Barnes & Noble called Barbarian Days. Have you ever seen that one? No. What's that one about? So it's a memoir of a surfer. And I figured, you know, we were in California. I picked it up and I bought it for the flight home.

I'm not done with it yet. I'm halfway through it. And it's like totally different than what I normally read. I'm not quite sure where it's going. It's just like this guy's life is a surfer. And even in his 20s, he's still just like surfing and, in Australia, and I'm very curious to see how he ends up as a writer, but I don't even know why I'm talking about this. I wouldn't recommend it. You recommend it? It's just, it's not something

that I normally read, so I'm sort of enjoying it. It's light reading. By the way, if they did a dilly-dilly sale in Barnes & Noble's, you would definitely, that's you, because you always are attracted to, you judge a book by its cover when you buy books. Is that fair? A hundred percent. Okay. Yes. A hundred percent. Well, I normally know what I'm going to read, but if I do see a shiny cover. Amen. Okay. All right. I think that's it for this week. We discussed replaying our live animal spirits, but after further review, we figured it was actually better to be there because there's a lot of visuals and it doesn't really work for transferring to a podcast. So sorry to everyone who asked, wanted to hear that, but we'll try to do that one again sometime if we can.

Give us an email, Animal Spiritspot at gmail.com. Thanks for listening.