Animal Spirits Podcast - Denominator Blindness (EP.69)

Episode Date: February 20, 2019

Zillow's new home-flipping venture, putting auto loan delinquencies into perspective, rising student loans for people over the age of 60, why the Internet makes it easier to negotiate, how big your nest egg should be at retirement, when errors cancel each other out in the markets, the fuzzy definition of alpha, misperceptions about tax refunds 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

Today's Animal Spirits is brought to you by Whitecharts. Welcome to Animal Spirits, the podcast that takes a completely different look at markets and investing. Hosted by Michael Battenick 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. There's an article in Bloomberg

Business Week. Zillow wants to flip your house. This is really good, definitely worth reading. I didn't really think of Zillow as an ad company until I read this. So they said, Zillow makes money by offering its big audience to real estate agents who pay for the privilege of putting their smiling faces and contact info in front of all of those house hunters. The company expects 2018 ad revenue to be about $1.3 billion. So you just went through the home buying process or the home selling process, I guess, both. I think this actually kind of makes sense in a lot of ways where they will just give you in a amount and say, here it is, take it or leave it, minus their cut.

Don't you think that you probably would have done that if they would have given you a reasonable offer? Maybe. I mean, it says the commissions are higher because, what is it, 6 to 9 percent, which is pretty high. So now Zillow is getting into the house flipping game. and I think they started, this is not brandy. I think they've been doing this for almost a year now.

And what they do is they give all cash offers, but it's not entirely automated. So they have people come in and look, but they charge 6 to 9%. What I have done that? No, because that's way higher than I was looking for. But I do think that there is something to this. And that is definitely like an emotional process trying to like thread the needle between selling your current place on time and buying the new one and having that all match up. So having that one thing out of the way, the fact that your house, that you have a, have a buyer for your own house, it has to put a lot of people at ease.

Yeah. So real estate agents have said, so they interviewed one person. She said, the instant offers give me a thing to compete against. Sellers are coming to me saying, here's my floor. Now what can you do for me? It's a good way to think about it. And the other thing is there's paper thin margins on these. So Zillow says it shows for a 1.5% profit margin in every house because they're then taking the money they make on that community. mission and putting a few thousand back into the house to fix it up a little bit and then trying to turn around and sell it. It seems like this is the kind of thing that probably can't last. I'm guessing they have bigger plans for this sort of thing, and maybe they're just using it to improve their algorithm in terms of pricing a house. Maybe it helps them in some ways. But obviously, there's other places that could come in and sort of compete that away,

maybe not at the same scale as them. We'll get to the algorithm in a second, but to your point about having razor-thin-profit margins. Steve Eisman commented, he said, He's a guy from the big short and he's actually short Zillow. He said, why would a non-distressed seller sell their home to Zillow, which is a fair point at 6 to 9%. And then he also said, there's only two possibilities for that. Either one, Zillow has mispriced the house or there's something wrong with the house. Sorry, sidebar here for a second. The fact that Steve Isman was in the big short, like, I mean, there's pretty much nothing he could do for the rest of his life. I mean, he could be wrong on every single trade for the rest of his life and he'd still be known as

the big short guy and still be do okay, right? I don't know how he's done since done, but he's like, that was a, he kind of nailed the, nailed that one a little bit. So one thing that Zillow said they might do or they are already doing is that they will reach, they will sell leads to real estate agents for people that turn down the all cash offer. So that could be another driver of revenue. Yeah. And maybe the future they could have their own fleet of agents that they just don't pay as much because people are coming, they already have the sort of offer in place.

So it definitely seems like early days in this market. So there are, so this, they were talking about a seller in. in Phoenix. And there are three main, what they call eye buyers in Phoenix, Zillow, open door, and offer pad. And last year, they bought almost 5,000 homes, which was about five, almost 5% of the market. So let's get to the Zestimate, which you've seen if you've gone on Zillow. And when I was looking at houses, two brokers that were showing me a house told me not to pay attention to the Zestimate. Like, they went out of their way to say that the Zestimate is bullshit. I don't think it's right, usually. Do you? Well, right now they say that the Zestimate,

the current error rate is 4.5% I guess either way. So that seems relatively, I mean, that seems pretty good. I'm guessing it's better in bigger markets than they are in smaller markets like I'm in the Midwest. I'm guessing it's better in places like California, New York, where there are more houses and more comparable deals to put it against them in a place like this where there's more spread out. That'd be my guess. Yeah, totally, because it's a logarithm. So they do not use the Zestimate to buy and sell to buy houses. So they actually have a human being go in and check it out just to make sure that everything is copacetic. Right. So again, maybe this is a way for them to, maybe they can help on both fronts where they get their, that just sounds so corny when they say

Zestimate. I'm sorry. But maybe they're making that a little better. Okay. So sticking with the borrowing thing. So the big canary in the coal mine from the past week was auto loans. And so I saw a few of these headlines. And it said more than seven million Americans, are seriously behind in their car payments, and the stat was the Federal Reserve Bank of New York said at the end of 2018, there were 7 million people that were more than 90 days, 90 days or more behind on their car payments, which would mean they're in serious delinquency, and that's a million more people then at the end of 2010. So we'll get to this in a second, but this is these large numbers, it's just denominator blindness.

Yes, totally. You see big million numbers like that, and it scares you and freaks out. And there's a lot of people that were like, oh, well, if a few of the tweets that I saw were, well, if people are behind their car payments, then what else is wrong with them and what else is going bad? No, what I realized? I think that this is one of the hardest things to not fall prey to. Like, I catch myself all the time.

You know who's very good at it? I feel like never falls for it. Who? Jake. Yeah. He's always got the actualies. That's true. A friend on Economic on Twitter.

Yes, he can always put a spin on it that makes you think about it the right way. So I've got a chart here that I looked at. and it shows total household debt balances in their composition. It just, I wrote a piece on this. And so mortgage debt accounts for like 70% of household borrowing. Then the other ones are credit cards, student loans, auto loans, and then maybe like a home equity line. Auto loans are not a rounding error. They're like 9% of household debt.

But comparing that to mortgages and trying to make this the next subprime, seems a little bit of a stretch. So I looked at some charts from our friends at Y charts. Hold on. Let me ask you a question before you get into that. Do you think that, I mean, is anybody actually doing that? Doing what? Like what you're suggesting, that people are saying that this is 2008 all over again. There are some people that are saying, yes, debt is out of control and this is a symptom of a larger issue where auto loans are just the first.

See, the thing is ever since 2008, people want to get that first little thing that can be the start of the next Michael Lewis book. Like, it was some small mortgage operator that went out of business in 2007, American Century Financial or something like that. And that was the thing that was the springboard for the financial crisis, because that was the one that really started and then all the dominoes fell, whatever. And people want to find that again now. So now they're jumping on every one of these data points saying, okay, this is the start of the next big thing. Student loans has Lee Childs written all over it. There you go. Reach will take them out.

So I wanted to understand this a little more because I'm not by any means a macro prognosticator. And so I looked at some charts and Y charts. And so our friends at Y charts, we've used them a lot for things like flows and ETFs and individual companies and drawdowns and a lot of different things. They actually have a lot of macro data too. And so I went to our contact there and said, hey, I'm thinking about writing a piece on this to put it in perspective, what do you got for me? And he came back with seven different charts that show things like auto loans to student

loan debt and credit card debt. And so they've been very helpful to us in kind of uncovering some of this. And I think a lot of ways there's so much data out there these days that anytime you use a service like this. You're only kind of scratching the surface in a lot of ways. So anyway, they're a sponsor of the show. If you reach out to them, you'll get 20% off when you become a new customer. But I'm going to share some of the charts that they helped me create. So it's kind of crazy. Auto loan debt is actually not that far behind student loan debt. And if you look at the chart, I included it in here. So it's like $1.44 trillion

for student loan debt and $1.3 trillion, we'll call it for auto loan debt. But then if you look at the sort of proportion to overall debt, it's pretty much within historical limits. and this goes back to 2000. So student loans, auto loans, credit cards, mortgages, and that's kind of your denominator thing you were talking about. That's the denominator is the total debt. And people think, well, total debt hasn't been this high since X, which is usually 2007, whatever.

But if you look at it in relation, things are constantly growing. And actually, the one that surprised me the most is that the 90-day delinquency on mortgages continues to fall. And it's like at like 1%. So you have a chart in here shows delinquencies. for student loans, auto loans, mortgages, and credit cards, and nothing to worry about just yet. I mean, I'm sure when the time to worry is, it'll be too late, but everything looks pretty good. My point is, yes, obviously this is not a good thing that people are falling behind their car payments,

but that's almost more like a personal finance issue than a macro going to bring down the system issue, as far as I'm concerned. Now, I don't know anything about the car market, but wasn't there I'm just thinking now. I'm definitely going to get this wrong. But wasn't there some charts showing that like the average car in the road was very old? Yeah. And cars are lasting longer. So couldn't that be explained? So maybe people are just buying new cars. So and one of the things that I put on here that's interesting is that how that sales of cars have actually sort of fallen off a cliff since like 2014. And they're down by like 30%, maybe even 40%. But, the amount in credit card and auto borrowing has gone up. And so honestly, I think one of the problems is, so I'm kind of attuned to the car industry

because I'm in Michigan. And so Ford announced last year, they're going to stop making cars altogether. There's no more sedans, which really hurts me. Really? They're only making trucks and SUVs now because that's all people are buying. 70% of all cars sold last year were trucks and SUVs. From Ford or in general? In general.

the whole U.S. stock car market, 70% are trucks and SUVs. So people are spending more and they're taking out longer loans, like six or seven year loans. And I think that's probably the issue why these people are going delinquent because guess what? You're spending more on your car because SUVs are expensive. I'm just going through the process of finalizing a new car now. And my mind was blown at how expensive SUVs are. And you see them all over the road. And I did kind of a tongue and cheek thing a few months ago where I said are SUVs ruining retirement savings. and it could be kind of true because when you look at the monthly payments on some of these, it's crazy to think how high they could be. So I say renting a car, and you always correct me, is it really, is it that wrong to say that you rent a car instead of leasing? I don't think I've ever heard anyone say I'm renting a car, but no, actually people do. Yeah, you can rent a car at a car rental agency. That's why.

Ah, it all makes sense. Did you just learn that now? All right, I stand corrected. That's why you don't, yeah, because there are literally a car. I mean, I'll give you a little bit of a break there since you're from New York City and the car thing is not as important there, but. Nope, fine, but nobody leases a house or an apartment. Okay, yes. You could, I, nope.

There's leasing offices and apartments. You rent an apartment. All right, let's move on. So, oh, so you're renting a car. Go on. Oh, no, you're leasing a car. I'm sorry. The one interesting part about it to me was that the internet has totally leveled the playing field in terms of negotiating.

Like, are you a big negotiating person? Like, do you cringe at that? Or are you okay with it? I don't like it. I've never been a big negotiate either, but the internet makes it easy because in the past, I'd be the guy at the car dealership going, yep, yep, okay, yeah, I guess I have to do what you say, because I don't know what I'm doing. But now you can email all these different dealerships.

You know exactly what the prices are that you want. And so you can walk away anytime you want. And so that's what I do every time I get a different car now is I do the walk away. And, you know, I'm, okay, fine. Thanks. I'll, I'll check back or I'll find something else. And the guy did the, let me go talk to my boss. I'm not sure I can pull this off. But if I talk to my boss, and it's like such an antiquated process, it seems like, but they still have to go through it just to, I don't know, make it seem like they're giving you a deal. Anyway, okay. Speaking of, so I showed some student loan debt in here, too. And you found a story about people who are now over 60 and being crushed by student loan debt, which it's kind of hard to believe. But I guess in a few decades, it's going to, to be like, I'm 80 and crushed by student loan debt? I don't know. So sticking with denominator blindness, U.S. consumers who are 60 or older owed around $615 billion in credit cards, auto loans, personal loans, and student loans as of 2017. That is up 84% since 2010, the biggest increase of any age group. And you know what?

This, I mean, when you see a number like this that's so gigantic, does, do you like, is the implication to assume that these people are all going to default? Like, there's $615 billion in credit and loans that won't be repaid. That's what I mean by the canary and the coal mine thing. People assume, all right, this is it. This is the tipping point. Now it's all downhill from here. So they include an anecdote. And I don't mean to sound heartless because I'm really not. I cry in movies all the time. But here's a story. What was the last movie you cried in? I don't know. I mean. Alien versus Predator 3? No, no, no. I don't cry over stuff like that. But Lion King, maybe.

Okay. Anyway, so they tell a story about this guy who signed up for student loans to attend the Art Institute of New York City in 2003 and 2004 after a restaurant venture failed. At the Art Institute, he studied culinary art and restaurant design and layout to upgrade his skills, he said. Subsequent restaurant ventures didn't work and he's currently unemployed. I mean, yeah, shit happens. Well, and the failure rate in restaurants has to be like, what, 80%? Yeah, is this a surprise that, you know, bad stuff happens to good people all the time. So, all right, to remove the denominator, on average, student loan borrowers in their 60s owed $33,800 in 2017.

So when you get to the averages and to bring back the car thing, the student loans and car debt in total, when we're talking about these big denominators, are pretty similar. So the averages are probably not that far off either. So this is basically the cost of a new car that people are taking out in students. loans. So it's, it seems like a lot, but when you put it in those terms, it's not that bad. This reminds me of Hans Rosling, who said something like, it is not incompatible or in Congress, or I don't know, which is the right word here, to say that things are bad, but things are also getting worse. Like the two things can exist when you say, well, there's still a billion people that are starving around the world. Yeah, that's awful. That's awful, awful, awful. However,

you have to look at like the whole, you know, the whole pie and realize that things are getting better. So, all right, so on the, on the things are still really bad part, the federal government, which is the largest student loan lender in the country, garnished the Social Security benefits, tax refunds, or other federal payments of more than 40,000 people, age 65 and older in fiscal year 2014 because they defaulted on student or parent loan debt. That's terrible. I mean, 40,000 people that are having social security benefits garnished. That is unimaginable. However, and again, not to sound heartless, but the house. However, is that I don't think this is like a, everything is broken type of thing.

Right. The good news is more people are becoming educated. The bad news is there's probably more people taking out loans that they shouldn't be. And then you hear these sad stories. So it is kind of which side do you want to look on. Yep. All right. Let's move on from this student loan stuff.

Okay. So last week we talked about how big your nest egg should be at retirement. And we mentioned the 4% rule and how taking the inverse of that would mean you have to have 25 times. your annual spending at retirement to be considered safe. But I don't think that's really necessarily true, by the way. Okay, well, let's run some numbers. So the Wall Street Journal did a post on this, and they talked, the question was, how big mustard nest egg be?

And they interviewed William Bernstein. I think you need to disclose your relationship. Relationship. I've met the man before. We've traded some correspondence. He's probably one of my favorite authors there is. Anyway, I like the way his brain works on these things. So he talked about, he ran through some examples, and he said, okay, let's say you need

$70,000 a year to meet your expenses and pay taxes when you're retired. If you receive $30,000 a year from Social Security and maybe a small pension, obviously you need to come up with $40,000 for your residual living expense, as he calls it, your RLE. And so simply take 25 times your RLE would give you $40,000 times $25 is $1 million to, sort of give you a safe number. So why do you think that that is not a good way to look at this? No, I don't think that's a bad way. I just don't think that you necessarily need 25 times your income to do the 4% rule. Yeah, I agree. Because obviously, there's so many other factors. And I think that... And honestly, who's how many, what percentage of the

population is able to retire with 25 times their income? Yeah, it's pretty small. And obviously, the variables here that change this equation. I think this is for people who really want to make sure they're ultra safe. And Bernstein even says, when you've won the game, why keep playing? And you should probably take, when you get to that level, take it and put it in something that's ultra safe like tips or a bond ladder or something. So I think that's for people who really want to make sure that there's no issues, you know, that that money's going to be there at all. And so the variables that you can't control here are things like sequence of return risk and what your actual returns are going to be. And so I think

the 4% rule is almost playing it safe in a lot of ways to make sure you are fully covered. And you're right. I'm sure that there's very, it's a very small percent of the population that ever get to that point. So let's stick with taxes for a second. So yesterday morning, I was at a coffee shop and some guy walks in talking to the barista complaining pretty loudly. I was the only other one in there was early about federal taxes and how nobody he knows is getting a refund for the first time ever and he was like, outrageous too strong a word. I don't want to. What was the reaction by the barista for this? I couldn't see. It was probably, I didn't hear him talking. It was probably just nodding. I guess. But I think you wrote about this last week that people paid less in taxes in 2018

likely than they paid in 2017. But because they're not getting a refund up because in many cases they owe money, it just feels crappy. So I went to our resident firm expert on taxes, Bill Sweet, and said, this doesn't compute for me. How is it possible that we're seeing all these stories about? And I guess the average refund, the IRS does update this on like a weekly basis. And they said the average refund is down 9%. And so there's a lot of of people who really banked on that. And if you look at the tax rates, almost across the board, they're down. So if your situation was identical from 2017 to 2018, your tax rates should have gone down. But what happened is you probably saw a big increase in your pay when that tax policy

went through, that changed, that lowered taxes early in the year. And maybe you just didn't account for it then. So your refund is smaller. So, I mean, obviously, there's only two ways to get a lower refund. Either you pay more on taxes up front and you get a bigger refund or you pay less in taxes and you, what did I say? I don't know. I'm lost. Wait, what? But wait. Let me start that one over. No, no, no. Sorry, too late. Do you think I don't think. You get a smaller paycheck throughout the year and then you get a refund or you get a larger paycheck and you don't get a refund. And obviously, there are some differences. And I put this piece out and I got a lot of angry people on the coast saying, No, the salt deductions have been limited, and so you can't take as much for your property

taxes and your mortgage interest. And so the people on the coast feel like they've got the short end of the stick here. That seemed to me like not the point of the post. No, that wasn't the point of the post, but I'm just giving the caveat because a lot of people complain to me about that. And I'm just putting it out there. You are a Midwestern elitist. Yes, right.

So all the people on the coast are really upset that they're paying high property taxes and paying a lot for their housing and not getting as big a tax rate. Put that aside for a second. I do not think that wanting a refund with the understanding that you're providing a tax loan, an interest-free loan to the government is irrational. I don't think it is either because, honestly, yes, it is like an interest-free loan, but some people need for savings. I think we've learned of that because the finances of so many people are so terrible.

So I'm fine with that. I think the problem is you can't expect your refund to be exactly the same every single year in bank on that. Well, I'm going to get five grand this year. Then I'm going to use the pay off my credit card debt and put some savings and take a vacation. It doesn't work like that because your situation is going to change. The tax code could change and your paycheck could change. So I think there's a lot of variables that are moving.

So you have to kind of pay attention to this stuff, unfortunately. And there's no one there to hold your hand and tell you exactly what's going to happen if you're not paying attention. That was the point of my post. But then I got a bunch of angry people on the coast saying, no, no, no. You didn't mention deduction at all. And anyway, okay, so there was a new Mobus and piece out last week, and I think they're always worth reading anytime he does because he puts a lot. I mean, they're probably what 30 or 40 page white papers usually. And his question for this one is who's on the other side? I will say, and I do read everything he writes, this fell on like the shorter end of what I'm used to from him. I guess maybe just I've set the bar too high. What did you think of the quality of this? that you didn't think it was as good as the other ones?

Okay. I could see that. I liked, there was a few key points that I really liked. So I'll say that. I kind of picked them. I'm not going to lie. I'm getting pretty good at being a skimmer. I'm going to have to put out a new book like how to skin.

Hold on. I do want to caveat once again. Just I think he's like an A plus in my book. So this might be like a B plus. Okay. Maybe a B minus. Okay. That's fair.

But I liked the way that he looked at the different efficiencies. My favorite point was the fact that he said, because I think you see this a lot with investors who assume, well, there's so many irrational people in the markets that I'm just going to take advantage of them. Yes. Okay, never mind, A plus. I forgot about that part. And he said, there's a lot of people who fail to realize that the errors can actually cancel each other out. So you can have an overconfident buyer and someone else can be an overconfident seller and then the net result is a correct price. So he says the key is understanding when the wisdom of the crowd flips to the madness of the crowd. And the essential insight is that it has to do

with a violation of one or the other of the core conditions for a wise crowd. So there's, there are so many mistakes going on at once that, and I think probably maybe different time horizons and different opinions, that that doesn't mean that there are just constant profit opportunities out there for people to just pick up off the ground. So we, yeah, we've spoken about this before that you see idiots on Twitter and you're like, I can beat that guy. And yeah, you can, but there's a million idiots and you're not just playing against them. So he had a good line. He wrote about how crowded trades work until they don't. And to your point, or what you just quoted earlier about recognizing when the wisdom of crowds changes to the madness of crowds.

Can that actually be done? And maybe that's a nice segue into Ben Hunt's controversial statement on Twitter talking about how alpha is really just material, non-public information. Yeah. So he was talking about Charlie Munger was at the Daily Journal as an annual meeting every year and he speaks. And once again, Munger did not hold back. It's funny because my grandmother, lived into her 90s, and in the last, I call it five to ten years, you know, the filter was just gone and every, you know, you know how old people get to that stage? And Munger's always kind of been there, but lately he's just been going on a tear. By the way, just real quick, I listened to the Ray Romano thing. Yes. Very funny. Yes, he was good, right? Yeah, he spoke about how old

people don't have filters. Oh, yes. Yes, right. It's, yeah. So sorry, sorry, getting back to Munger. But Munger just said the whole trick is to have a few times where you know something is better and invest only where you have that extra knowledge. And Ben Hunt from Epsilon Theory said alpha equals private information, period, full stop, which I guess there's a few different ways to look at that. I don't know exactly what he's getting at there. But I think the idea is that my way of viewing this is that someone like Munger and Buffett were, they had a huge first mover advantage. They figured out the value investing and quality investing and using your float. and having no LPs to answer to.

They figure that out way before anyone else. So they didn't have investors to answer to, and they could have this long-term patient capital that could constantly be reinvested into businesses, and that's the way that they were able to compound so long. And I think it's, so once that first mover advantage is gone, and people try to emulate that, again, in today's environment, it's much hard to do.

All right. So, I mean, obviously, I think that beating the market is extraordinary, really difficult. And I think somehow people still underestimate how hard that is. But I don't think I agree with this. And I guess like what is even alpha? Is it beating a benchmark? Does it have to be adjusted for risk? Some people insist that it does have to be adjusted for risk. But let's let's say that somebody is just a fantastic stock picker. And they beat the market for 15 years, but their stocks happen to be more volatile. Does that mean that they're not, does that mean? Does that Does I mean that that's not alpha?

Are you saying that quants ruined outperformance because they can explain it in so many different ways these days? I actually kind of agree with you that there's like there's been the papers looking at people like David Swenson and Warren Buffett and saying like we could we could quantitatively show how they did this. Right. So like as value the value factor is that just beta now? Is that just like a loading factor? So I guess the whole alpha thing is is a loaded sort of concept. But the idea that alpha equals private information, period, full stop, it's probably a bit too far. I mean, there's obviously going to be people that outperform the market.

I think that's, I think that's stating the obvious, but maybe finding those people and sticking with those people on their journey, maybe that's impossible. And I think the, like the reg FD things that happen in the early 2000s, I think that has had an impact on a lot of hedge funds probably outperforming the market. But is that the whole reason they're underperforming? No, of course not. There's so much more competition these days. There was a story in the Wall Street Journal a couple weeks ago that said there's something

like 256,000 CFA candidates in the whole world right now. 30% of them are from mainland China. Do you think you had that type of competition for investment opportunities back in the 50s and 60s when these guys were first starting out? Of course not. It's just much harder these days because there's so many more people that are looking for them. Yeah, so excess returns obviously go to someone. Do they get there via the way of superior risk-adjusted performance?

I don't know, maybe, maybe not. But does anybody care about Lucky Alpha? Like, if you beat the market and you got lucky, well, so what? It's still good money. Yeah. The problem was most people trying to emulate Lucky Alpha. That's where the problem lies is people say, I'm like, I'm going to follow these 10 steps. I'm going to get about 430 in the morning, and I'm going to read 10Ks all day.

Wait, are you saying that Buffet and Munga were lucky? No, not at all. I'm saying people who try to emulate what they did now will have a much harder time doing so than starting at the time they did. Obviously, they took advantage of, they used all the things that they had at their advantage that other people didn't and could have done the same thing. But I'm saying that they had a much different route than someone starting out today does. Okay, but no bud, you're right. there were a lot of people that started in the early 80s when P.E ratios were very low, inflation was very high, and how come we've only heard of a few of them?

Right. Yeah. So, yeah, you can't take anything away from them, but it's just, I'm sure a lot of people would gladly trade places in terms of the investing environment to start out in that sort of place. But again, back then, it wasn't as easy because people were saying, well, interest rates are 15%, but they're going to go to 25 or 30, and inflation is it going to go to 30. so it's never as easy as it seems with hindsight. Okay, so Wealthfront is getting into the cash game. So they just announced last week, Wealthfront launched an FDIC cash account,

separate from the investment account, it yields like 2.24%. And I guess this is just a way for, it's kind of, this is another thing that Robin had tried to get into, but this is a little bit better done, I guess, because it's FDIC insured. Don't you think that the banks are going to come around eventually?

We talked about this weeks ago. Like all these places are, finally providing some competition, and then eventually the banks will step in and just squash them because they'll offer, like Goldman already has their Marcus one that is growing like weeds. I mean, it's not like these places are offering things that are impossible to get elsewhere, but I guess they're all just trying to step in to take care of some of those banking needs and hopefully get enough millennials and young people to sign up that they pull them away from the banks. Is that the idea?

I'm waiting for their cash parity account. Nice. So you tweeted the other day, success. people are the worst. I can't even believe this. Where did you find this? It was a CNBC article, I believe. Okay. So successful people are adopting the concept of micro-scheduling, which involves breaking your day into five to seven-minute slots and even planning cups of tea. What is this garbage? I don't know. I don't know why it irks me so bad, but I just can't get over it. I do think that this is the content people, like the producers, whatever, trolling us. Not you

and I. I mean, everyone. Yes. Yes, it must be. I just have to. Okay, let's get into some questions. Okay. So someone asked a really long question about some Gotham funds, which is the funds of Joel Greenblatt, and they do a long short version where when you have a long short fund, and it's listed, let's say you go to Morningstar to see what the expense ratio is. That expense ratio is going to be higher than the actual management fee paying because they count short interest dividends. So when you short a stock, you're essentially borrowing it and you're going to sell it and then try to buy it back at a lower price. But when you short that stock, you still have to pay the dividends to the person you're borrowing it from. And so they countless dividends as part of the expense ratio.

So the too long didn't read is, if a long-only mutual fund doesn't reduce its expense ratio by dividends coming in, why should a mutual fund with short positions be able to advertise an expense ratio that excludes dividends going out and interest-paid? I thought they do include that. In the long-only mutual fund? No, no, no. In the long-short? Do they do? So what's the question? He's saying, for a long short fund, why do they have to show dividends being paid if a long-only mutual fund isn't showing dividends being received?

Oh, okay. Well, fair point. I just think it's better disclosure. I think more disclosure is good. And it's like, but it is a fair point. But that's actually like more of, it's a hurdle rate you have to jump over to actually outperform. So I think it's good to be included. I think it's fine with them showing those.

Because otherwise, the S&P 500. The expense ratio is, what, negative 1.8%. Yeah, if you included dividends. So, yeah. So, yeah, I'm fine with them showing in the shorts because I think more is better in terms, especially in those liquid oil products that a lot of people probably don't understand. More information is better. Okay, I've got a 401k invested in a target date fund with a net expense ratio of less than 0.1%.

Nice work. I'm maxing it out, but in terms of moderating, I've just kind of abided by the set-it-and-forget-it approach. I've recently taken out a life insurance policy with a firm that offers wealth management advice. the advisor is recommending that I let her takeover management of the 401k for a fee of 1%. This 1% fee is charged for advice on the portfolio and guidance in periodic rebalancing. Is the standard practice, does it sound odd? Standard practice can sound odd. I think that target date funds, and there's all sorts of, you know, there's bad target date funds,

but generally speaking, I'm a huge advocate for target date funds inside of your 401K. I would not let somebody charge a 1% fee for giving advice on your 401k allocation. Yeah, I'd want a lot more, especially if you're a set-it-and-forget-it person and you're using that already. I don't think, what else can they, what do you need periodic rebalancing advice for on a Target Day fund that periodic rebalances automatically for you? That's what the fund firm is for. These sort of questions are like hit kind of close to home, so I don't want to sound holier than that because we're not exactly Mother Teresa. I mean, we charge people for advice, but this seems, I don't know if out of balance is too strong, but this is a bit much. You'd want more for that advice than just providing investment advice on a 401k that you're already seemingly in the right direction.

The idea that you're going to tell somebody to not use a target of day fund, you're going to charge a 1% that you're going to do better than that inside of where I don't like that. Right. Okay. Any recommendations for the week? So sticking with the stand-up comedy. My wife claims she doesn't like stand-up comedy. Okay. Which she's never really seen it.

Has she been to a live show with you before? No. Okay. So I don't get the idea that you don't like stand-up comedy. Now, I understand if you don't like going. But that's like saying you don't like to laugh. It just doesn't compute. Right.

So we were packing over the weekend, and I thought it would be some good background music to put on, like, comedy special. So we put on Kevin James. And I thought it was quite funny. And so did she. I like Kevin James' stand-up actually is, I like it, too. So I'm just saying, like, are you kidding me? Yeah. I was like, scolding her.

It's a live show now. Yeah, don't laugh. No, you're not allowed to laugh. Right. All right. So, yes. Did you see the Kevin James special? I thought it was pretty good.

Yeah. He's got one from Comedy Central from like the 2000s. That is hilarious. If you could find an older one, yeah. I read, this week I read an economist walks into a brothel, which is not out yet, but it's out in a few months by Alison Schrager. It was very good. I think this book is going to do very well.

It is, it looks at risk and reward through the prism of real. real life. So, like, for instance, she did go to the Bunny Ranch and interviewed some of the workers there. And she went to a horse horse breeders. Well, it was basically like what they trade off, like how they view risk of reward because they can make X much on the street, but in the brothel, they make much less, but they have, you know, obviously safety. And so it was, it was very good. I definitely highly recommend that. Okay. You done? I'm done. All right. So I picked up to Sell as Human by Daniel Pink this weekend because I saw someone tweeted out that it was on sale for $1.99. And yeah, I really liked. Did you read that one of the much I very much enjoyed it? He's great.

And I think that's one of the ideas I've really come around to the last few years is the fact, or maybe longer than that, but just that everyone is in sales in some aspect, no matter what job you're in. I mean, it's way higher than you'd think. Sticking with a stand-up comedy thing, someone tweeted us or emailed us and said after I mentioned the rear model stand-up bit last week. he said, check out the podcast called A Good One, and it interviews comedians to go through how they came up with the jokes. So they went through a rare amount with the one where he talked about his son losing gas on the freeway or running out of gas on the freeway. And this was an interesting podcast because it's like an hour long and it really deconstructs the whole joke for how did you find it? How did you find tune it? And I think it's important to get through some of these because I think people might mistake like just the fact that these people have good

personalities and are talented with the fact that they work really hard on these. And I was like to see how the sausage gets made in terms of like comedians because a lot of people I'm sure to think like I'm funny I could probably get up and do that but like they put in a ton of time and effort changing like a word here or a structure there and it's kind of interesting to listen to how they go about

making these jokes and they really get in depth oh hold on you know it was great how Ray Romano ended the set where he killed his dog yeah that was perfect yes yeah it was so good he was better than I thought he'd be yes he's definitely funny okay so we started watching friends from college this week on Netflix.

Any good? It's not bad. We're halfway through the first season. I like the fact that it's a half-hour show. I feel like every show is an hour these days. I could do, I could do, I could watch shit for half an hour. It's, yes. And like, you're just kind of like, oh, I know it's going to be over soon.

And it's a little over the top, but it's funny. It's got the guy from Key & Peel in it, the guy from Predator that you hated. He's funny. It's got a bunch of decent actors in it. And it's just these Fred Savage is in it from the one of the years. And it's actually got some really funny parts. Like I laughed out a lot a few times each episode. Oh, my wife.

Speaking of he wasn't in that But we watched Blockers Is that like the title of it? It's with like Barron Holtz And John Sina and Any good? Leslie Munn

So it was It was my wife liked it more than I did I fell asleep But there was funny parts Okay We watched the Sisters Brothers Last week Which was a Western with

John C. Riley And Joaquin Phoenix And it was You know how the A lot of times they use a Western And it'll just be like the dialogue is the best part where the guys are walking on the horse. And at night, they, they're, like, shoot them up.

And then, but during the day, they're, like, they're really philosophical and thinking. That's kind of the way this was. But this was actually pretty good. It was a little slower. It had that Riz Ahmed guy from the night of, and Jake Gyllenhaal was in it as well. And it was one of those westerns where you kind of think, you know, exactly where it's heading. And then it kind of takes some turns and does things a little differently.

But I kind of like it. I will never, I have never and I will never say it's one of those westerns. Okay. All right. A lot of westerns are similar, I'd say. And this one was a little different. Wait, was there, were there any monsters, any giant sharks? No, just, there's always one good brother and one bad brother, and the bad brother dies at the end.

And it was interesting to see John C. Riley as a Western guy. Oh, wait. Hell or Highwater? Follow that exact formula. They all do. And then one guy is like the rough one, and the other guy is kind of the more thoughtful one. And it's always the same. It was an interesting take on Westerns that I haven't seen it a while, so I like that one, too. And, yeah, I think that's all I got.

All righty. Send us an email, Animal SpiritsPod at gmail.com, and we will talk to you next week.