Animal Spirits Podcast - Footing the Bill (EP.74)

Episode Date: March 27, 2019

On this week's show we discuss the yield curve inversion, the Fed vs. the bond market, baby boomers vs. millennials, Kahneman vs. Cialdini, why IPOs are almost always oversubscribed, real estate vs. the stock market, Bitcoin trading volume is fake, new hedge funds vs. old hedge funds, simple vs. complex, behavioral lessons from the blackjack table 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 Y Charts. One of the reasons I love using Y Charts is because it makes my life easier. So I did a post over the weekend about the number of stocks that outperform. And I wanted to put the little shaded regions in for when there was a recession to see if the number of stocks had outperformed during recession actually increased. And surprisingly, it did in five out of the last six recessions. But creating those Excel spreadsheet charts is difficult. And so every time I have to put the recession chart, the recession shaded regions in, I have to go look up that blog post from Bill McBride to do it. And on Y charts, every time I have to do it, I forget. And it takes me like a half hour to figure it out. And Y charts actually allows you to

simply hit a button and they show the shaded regions of the recession. And I did that in some of the charts we're going to use today. So that's one of the reasons I love Y charts because it makes my life easier as a blogger and it makes easier to do research. Go to whitecharts.com. If you reach out to them as a new subscriber, you get 20% off by saying that you came from animal spirits. Just mention animal spirits when you call them. And again, whitecharts.com. 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 studied the markets as a passion and invest for all the right reasons. Michael Battenick and Ben Carlson.

work for Ritt Holtz 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 Rithold's wealth management may maintain positions in the securities discussed in this podcast. So we're going to spend just a minute or two on the yield curve because I know you're probably already sick of hearing about it. What percentage of the population do you think knows what the yield curve is?

Well, it's funny. It was actually on the ABC World Nightly News or Nightly World News. Seriously? So that's like the main. That's like the mainest stream. For people 60 and older. Yeah. So I wasn't listening. But Charlie Bellello tweeted over the weekend that the average Fed funds rate of the previous, I guess this looks like eight or nine inversions, the average yield was 6.15%. Today we're at 2.4%. So I guess what typically has happened, is that the Fed hiked to maybe ward off any potential inflation when the economy was overheating and sent the economy tumbling into a recession. And that is not the environment we find ourselves in today. Right. So I actually pull up a chart from Y charts and it goes back to the mid-1970s

and I plotted the effective federal funds rate, which is their short-term interest rate they set and the 10-year, two-year treasury spread, which is the one people look at. It is kind of funny because some people are now looking at different interest rates to try to prove that the yield curve has inverted. Anyway, this one shows as of Friday, 13 basis points for the spread. So hasn't quite inverted yet, I guess, pretty darn close. But the Fed funds rate was so high in the 80s and 90s, trying to compare that period or the 70s to now, even the mid-2000s, it's impossible. So the Fed was coming off of zero. Now it's at 2.4, 2.5 percent or whatever it is. I don't know how you can compare that.

Marked out, give the analogy of like, maybe not with the yield curve. But if we were to go into a recession because growth has been so tepid, that it would be like jumping out of the first floor window. Right. You can't kill yourself jumping off of a one step or something like that. I mean, the crazy part is it was at in 2010, 2011, the spread between 10 year and two year treasuries was like 3%. And the fact that it's compressed that far is pretty crazy because. obviously it means somehow the bond market is arguing with the Fed because the Fed is raising short-term rates. The long end of the curve is not responding basically at all. And so this is putting to

a test our theory about the bond market being smarter than the stock market. It's kind of like who's wrong, the Fed or the bond market. Oh. Well, so there was actually a great tweet this week. Somebody said, I've been wrong on stocks for nine years because the Fed doesn't know what they're doing. Right. But they're still behind the eight ball. And I mean, that's the thing. It's easy to blame the Fed. And so I've made this point before. Whatever happens, the Fed is going to get blamed. So if the Fed keeps raising short-term rates and we go into a minor recession, people are going to blame them for pumping the brakes way too fast. If somehow things overheated and we had a recession down the line, that was even worse, people would say, well, the Fed is just blowing bubbles again. So there's no way they can win. Imagine they backed off and dropped the rates or lowered rates. Yeah, that would be a, how much would stocks go up if that happened? Yeah. Would we get a two or three percent? Obviously, the history of the yield curve inverting, which again, basically means for those

people who don't know, the short term, short duration bonds are yielding more than long duration bonds, which in the risk reward spectrum is not a good thing because you'd expect to be compensated more for taking a longer time horizon. All else equal. Then there's also like direct effects if banks borrow short and less. long, they're going to be less likely to make loans. I know that's a theory that gets floated around. Is there any data on that? Is that actually true? Or is that just something people say? No, I mean, it obviously makes sense, but who knows? Because banks will still figure out ways to make

money. I would like to see some data to corroborate that theory. Okay. I'll leave that up to you to find that. So, but I mean, so here, so going back to the 70s, from the start of the yield curve inversion to the start of like a market correction, there's typically lag time. Unfortunately, Finally, three out of the five times it's happened, there's been kind of a long lag. So it was 19 months in 1980, 20 months in 88, and 23 months in 2005 when it happened. But in September of 1980, it was three months, and in February of 2000, it was two months. And in every one of those instances that stock market fell, double digits, a couple times it was in the teens. One times it was close to 30%.

The other last two times, obviously, it was chopped in half. The problem is no one knows when these things will happen, whether it leads to recession or a bare market. Well, also, another thing that we've said previously with data like this is back in the day, like they didn't know that this meant a resettual was coming. So does the availability of the data make it less likely to hold going forward? Obviously, don't know. I don't really have a strong opinion.

But let's move off this because it's enough. Yeah. My takeaway is another small sample size thing where it sounds crazy. great because it always happens, but that's the kind of thing that markets love the challenge, so who knows? All right. So there is a lot of talk about – and you know what? I don't really like the generational broad brush arguments like boomers suck, millennials

suck, whatever, whatever. But let's hold my feelings to the side for a second because we're going to do just that. So there is a lot of talk how millennials are going to foot the bill or young people are going to foot the bill. It's foot the bill, not fit the bill, right? Foot the bill, yes. What does that mean? The actual origin of it?

I don't know. Well, so young people are going to be taking care of their parents in retirement. They're going to be living longer. Their retirement situation is not great. Well, maybe that's true. Probably true. But that's in exchange for parents taking care of us our entire lives and parents continuing to offer their adult children's support.

So this is the cover story of Barron's nearly 80% of, of parents give some financial support to their adult children to the tune of $500 billion a year according to us blah blah blah. That's twice what parents put into retirement accounts. So they're not putting as much into retirement accounts because they're still taking care of us. So it's our responsibility to take care of them in the future. So that's unfair? Foot the bill dates back to the early 1800s because foot can mean the bottom of something such as the bottom of a mountain. In this idiom, it refers to the bottom of a column of prices on a bill. So originally footing the bill meant to add up the prices of different items on a

the bill and find the total cost. So it's something that's at the top of the bill or the bottom of the bill. I don't know. I still doesn't make any sense, but it's something people say. Yeah, I mean, this is kind of a new will move on your part because we've already actually talked about this survey before in the past, but I guess it is worth bringing it back up again. When did we talk about this? It must have been two months ago, so I guess that's fine, totally out of year. We've mentioned this survey in the past, and it's a crazy stat. So the fact that it's twice the people are, the parents are giving their money twice amount that they're putting

into retirement accounts. Maybe that, is skewed by the fact that we talked about inheritance before, that most inheritances come from people with a lot of money. And so maybe that money transfers coming from the hands of a few, and that's why it kind of skews the averages. But I don't think boomers can plan on having their kids help them out financially. That seems like a stretch to me, especially with the way young people complain about not having any money these days and housing being too unaffordable. Are you saying that everyone is screwed? Is that the point? Well, maybe they are, Ben.

Moving on. So Daniel Kahneman, author of Thinking Fast and Slow, was on a podcast with Sam Harris. Two weeks ago, maybe. And you have something of a hot take? Kind of. I've just, I mean, that is the Bible for people on behavioral psychology. Right. I mean, how many times do you listen to a podcast and they say, hey, what are your favorite books that have influenced you? I mean, four out of five times it's thinking fast and slow, right? The thing about Conman, if you listen to him enough and read him enough, and what percentage of people do you think actually finish the book? Because it is a little drier than most people

assume. I did not finish it. I mean, it's, I thought it got really, I honestly, it got really hard to cover on that one. And it's probably one of the most highlighted books I've ever read, but it took a long time because it is, it's a lot of research. And I mean, obviously you can pull out the best stuff, and that's what a lot of people did. But so anytime you listen to Conman speak, and it seems like from different podcasts and speeches I've heard of his, he doesn't ever really offer prescriptions. And I think maybe he does that on purpose because he's very humble and aware. And he said in this talk with Sam Harris, he said, I've been studying this stuff for 50 years, and I still don't think that my intuitions have really improved significantly.

And so I think the systems, one and the systems two stuff is pretty groundbreaking, obviously, when it came out and it's hard to read a book about investing or decision-making without having that come up these days. Is there a point coming? Yes. I mean, don't you think that because Conneman doesn't really offer any prescriptions, someone like Robert Cheldini and influence is maybe better suited for most people because it actually offers stuff that they can do to overcome this. I mean, obviously the best part about Connman's work maybe is putting a mirror up to our faces and showing that, you know, yes, you are irrational. But he, he, he, I think he does this on purpose. He doesn't really offer any

ways to combat that. And I think that's kind of something that Caldini does in influence. Okay. Well, Robert Caldini also has like a training course. So maybe Connman didn't sell out. And I'm not calling Caldini to sell out, but I'm saying if you read influence, it actually, it not just shows people, yes, people are irrational, but it shows here's how you can take advantage of that. And maybe it's not always in the best ways because a lot of it is like, sales stuff, but he wrote that book in the 80s, and I feel like maybe that's one of the reasons that book stuck around so long because it actually shows people how, like the theory of reciprocity in these things that, like how people can actually use those things to advance

themselves. Okay. So Sealdini is definitely more prescriptive. But I think that Kahneman's point is that these behavioral things maybe just can't be conquered. And he's seen a lot more than we have. So maybe he's just, jaded is not the wrong word, but skeptical for good reason. I saw a conman speaking. Somebody asked him, why didn't you call? So you call them heuristics. Why not like rules of thumb? And he said, because heuristics, like, they just happen where rules of thumb, it almost makes it sound too clean that you're consciously making a decision. Whereas with these heuristics that he talks about, you don't even know what's happening. So I think I fall more in his camp being skeptical, that we can overcome our behavior because it's like in the fabric of our DNA.

Yeah, I mean, that's kind of a cynical way to look at it, I guess. But, I mean, maybe the point is just that once you know it, hopefully you can try to design some sort of processes and decision-making tools to just avoid having those things come in to play altogether. Well, I think that there's probably a good middle ground between the two of them. You know what was the first behavioral book that I read, actually, was Dan Ariely's book, Predictably Irrational.

Ah, yes. He's very good, too. And I think he has another one. He has another one out recently that I saw on the bookshelf recently that I haven't read, but I want to. One of my favorite conneming quotes actually is he said in a talk once, they asked him about his own financial advisor because he said he does have one. And he said that he's intimidated by his financial advisor because he knows how little I know. So again, I think it is maybe studying this stuff for so long has just made him so humble

and aware that it's hard to change and that a lot of other people can't do it either, that he just never wanted to offer that. Here's the 10 steps to living a great life and here's all your life hacks and just get up at 3.30 in the morning and you'll overcome everything. Maybe he just didn't ever want to do that because he knows most people, it won't work for them. Well, I think that, well, so Thaler has definitely offered up solutions, but I think that Conneman, like, again, And because people are predictably irrational that it's so easy to fool them based on framing and other things that like maybe all hope is lost, maybe not. I don't know. But let's stick with this behavioral thing and talk about the piece that you wrote on IPOs. This was interesting.

So I put out just a random tweet saying I noticed Levi's came out with an IPO last week. And every time you see an IPO, it always says it's oversubscribed. And this one, according to CNBC, was 10 times oversubscribed. And I put out just a pithy tweet about it saying the historical research shows IPOs tend out to perform. So why are all IPOs oversubscribed? And some people send me some good data on it. And actually, there's a reason for it because the majority of the returns from IPOs come the first day. So if you can actually take an IPO and get in and get some shares and then flip it after that first day, you're probably actually doing okay. And then it kind of goes on to underperform from there. So they actually found, I found some data from a professor

Jay Ritter who is at the University of Florida. And he's an expert on IPOs. And he has this really cool. I'll put a link into the show notes. He has this really cool update he does of his data, I think, in an annual basis. And he found that he broke him down into categories. And it was basically 7% of them had a first day return of more than 60% and 36% of them had a return of 10 to 60% in the first days. And so almost 70% had positive returns, which makes sense that these investment banks would want to see positive returns to show their clients that they actually did something for them, even though people always say that they left money on the table or whatever. So there is something to this IPO thing. The reason that people want to get in them

so bad is because they want to see that first day pop. But how many people actually take that first day pop and turn around and sell it? I would guess that's more professionals than individuals, but I don't want anything to back that up on. Yeah, I think this is the case of conflating time horizons. Right. Right? Like you, because your initial reaction is, Well, if these returns are so bad, why do people still clamor to get in them? Right. And obviously, people want to hit that lottery ticket. And one of the reasons for that, I think, is the 2000s. So in the 90s, because I put that in there and it shows the average first day return in the 1999, 2000 was like 50, 60, 70 percent, the average first day return. Yeah, that's crazy. Which is insane. But don't, but I think that this, speaking about the behavioral stuff, I think this could backfire because let's say that you do get in pre-IPO.

and it pops to 30%. Do you think that you're then going to take your winnings? You're going to say, no, this is so easy. I can't sell now. Exactly. Yeah, that's what I'm saying. So even if you get that first day pop, it might not help you as much as you'd think.

Apple just announced that there's a credit card. They're doing a credit card. It's 2% cash back and 3% cash back for buying Apple products. Really? So it's almost like the Amazon one. I actually just got denied for a credit card. Ouch. Right?

Which one? All right. So I tried to do the Barclays World Travel. one. And you actually put me on to this. Thank you very much because I just bought a house and I'm going to be basically furnishing the whole thing because I don't have furniture. You said you might as well get points. So I got a capital one card, which is great. It gives you $500 back if you spent $3,000. So I got one for myself and one for my wife. And then I got a Hyatt card because I don't have like a hotel card. And I got another card for the bonus sign-up points. And I wasn't even

thinking about this, but I got denied from Barclays because I was opening too many cards. Yeah, they probably assumed you were doing some fraudulent activity. Yes. Don't check your credit report for a while because that actually is kind of a ding on your credit report too. Oh, really? I mean, for a short period, but you've already got a mortgage, so it doesn't really matter. Well, yeah. So, yeah, I was found guilty of colluding with the credit cards.

So you're saying you're not going to be able to buy the open the Apple credit card, is that what you're trying to say here? I'm not even going to try. Okay. That's not a bad deal. What's that? I like the Amazon one because you get. five percent back for everything you spend on the Amazon card. I don't use my Amazon card for anything other than Amazon. No, either. And the one that I have is the one that it's just for

spending at Amazon. It's not even, I don't even actually have a physical card. It's just in the cloud. That was a funny little visual. All right. There was an article, was this, who wrote this? Was it Tyler Cowen? Yes. Is real estate a better investment than stocks? No. but they said that they constructed a new database going back to 1870, and I'm very skeptical of data from the 1870s. I was not a fan of the conclusions of Cohen's article here. It's basically saying, this would be like saying the returns of stocks have outperformed name and asset class, so you should buy this one single stock, because that's effectively

what this is saying, because this is showing the returns of a diversified stream of houses, and it's saying, so you should buy a house, which of course is not going to give you the same whether that data is good or not. Here's the thing I don't get. When do we get a rebuttal from Schiller on this? Because this is a Schiller's data that goes back to 1871. He said that it was inflation, right? Barely?

Well, these are real returns, aren't they? Because this new database, I don't know what their difference is. It's showing that they outperform stocks, but Schillers shows that stocks outperform real estate by six or seven percent. So one of the reasons for this, I believe, is because trying to, calculate the returns on a house is so hard to do. Like if you're, do you take into account leverage and all the other costs involved? Are you just using price points? I just, I don't think there's an easy way to ever, and then you talk about the imputed rent involved. I don't think there's

an easy way to figure out the, the cost. And then the funnier thing about this one was to me, it was saying that the standard deviation of housing returns is less than half of that for equities, which is dumb because they don't trade that off. And note, it doesn't trade in a daily basis and it's not liquid. So I just don't like making comparisons ever from stocks to the real estate market. It doesn't make any sense. I've probably done it in the past. So if someone wants to dunk on me, that's fine. But it's too hard to do, I think. There's too many variables when trying to calculate real estate returns. And I just, my whole thing is some way or another, unless you're investing in rental properties or like commercial real estate, if you're owning a home, it's a form of

consumption. So it's not an investment. It's a form of consumption. If you make money on that, that's all gravy as far as I'm concerned. Yeah, it's a liability and an asset. So actually, somebody asked us, like, can we talk about renting and versus buying? And I think this is so situational dependent, state dependent, and then obviously location and taxes. And there's a million things to consider. But maybe if you are a rich person and you can invest in real estate deals or just buy rental properties, you can do well because there's obviously a lot of leverage involved. But the idea that you should buy a house instead of stocks, I don't get that. Yeah. And obviously, the other big part of it is where are you out in your life cycle,

how much flexibility do you need? And that's why I think young people complain a lot about not being able to buy a home. And I think it's going to come back to bite a lot of people because that is something that it probably just for that psychic income people need. But keeping that flexibility available as a young person is something that is tough to put a price on too, even if that means you're having to buy a more expensive home later. All right. So the majority of Bitcoin trading is a hoax, new study finds. That was an article from Bitwise.

Did you see over the weekend, actually, there was an article that Jeffrey Skilling of Enron is getting out of jail and he was seen talking to crypto people. Oh, boy, really? That sounds about right. How is it possible that this went from the only thing anyone was talking about to no one is talking about it anymore? Well, an 80% decline will do that or whatever it was. So Matthew Hogan, who is the head of research at Bitwise, basically said they looked

at the data and the market was manipulated. And so he said when you cut away the echo chamber of these nonsense numbers, it should be an efficient, well-abotrash market. and unfortunately, it sounds like a lot of it was just people trading to prop up the volume to show that it's a more mature market. And couldn't you almost say the same thing about the stock market, though? I'm not trying to defend these markets because this is still so in its infancy, but doesn't high frequency trading prop up the volume on stock markets?

Like, couldn't you say, well, that's just a hoax, too, because that's not actual trading among investors? No, I don't think so. Giving them the benefit of the doubt here. Couldn't you say something similar? Well, I'll give them the benefit of the doubt here. So, Jay Clean and head of the SEC said, what investors expect is that trading in the commodity that underlies that ETF makes sense and is free from the risk of manipulation.

Well, can't you say that the PPP is manipulating the stock market every day? Boom. But the other point is, it is sort of funny that there can't be a Bitcoin ETF, but there could be like three-time levered ETFs. So, like what's more dangerous to the average investor? That's true. What happens, like, what if volume got so low that they had to take away the Bitcoin futures? I don't know. I'm not saying that's happening, but is there anything? Like, remember people were saying all Bitcoin needs is an ETF and then this thing is going mainstream. Like, what's the other hand where something bad happens and then it just continues to go to, I mean, that's one of the craziest things is the fact that if all this volume was a hoax, they've managed to keep things pretty well stabilized in that. three to four thousand dollar range for the price of bitcoin for the last seems like nine to 12 months I guess but is there something that comes out that this thing has a huge huge leg lower and then

people kind of it just goes away for for a long time I don't I mean I don't know but you know what really chaps my ass what's that you know when you're in traffic and you let somebody go in front of you like they have their signal on and you stop even though you don't necessarily need to but it's a courteous thing to do. And then you wave them on, you let them go, and they don't reciprocate the wave. Oh, yeah. That's just being a decent human being.

Is that like the worst thing ever? That's pretty bad. Yeah, if you're going to give someone the nice, you at least want the head nod or the wave. It drives me bonkers. I don't know what your neighborhood is like now that you're living in the suburbs, but here's something else you have to get used to.

The fake wave to your neighbors. Oh. That's the worst. So I get yelled at it by my wife because I don't give the fake wave enough. Sometimes I'll forget or I'll be dealing with kids or something and I forget to give the fake wave to the neighbors. And that's just something you have to do.

You know the hand on the steering wheel with just a few fingers up? Yes. Yeah, but when you're in a car, that's all it takes. So speaking of suburban life, on Thursday night, I went to see us. Okay. And I left the movie feeling very confused. Like, I had no read on it. I feel like the first article I read, I could be convinced that it was either

brilliant or horrible. And I think one of the things that really happened was that I was in a theater with like six other couples and they were all over the age of 60, which was very bizarre. It's kind of surprising for that movie. Yeah, right? So I was like, I'm in the wrong place. But anyway, it was such a, um, underwhelming experience in the sense that there were so many empty seats.

But I feel like if I saw it in a crowded theater, I would have had a very different experience. But the first read of the movie is that the critics liked it way more than the audience. And I think, I think I get it. Like, I think the movie was trying to say something, blah, blah, blah, blah, blah, blah, real artsy. That's never a good sign for me that I'm going to like the movie. If the critics like it more than the audience, I'm usually more of an audience likes it more than the critics kind of person. So the critics are like the Fed or the short end of the curve. Yes.

Anyway, I gave the movie like a 64, which is pretty much, I think, around what Rotten Tomatoes has it. Like, it was, I'll give Jordan Peel this much. I definitely want to see more movies from him, and I will see more movies from him. This was, you got to give him points for originality. This is not a cookie-cutter movie. He's going to get the benefit of it out probably for another one or two movies because Get Out was so great. I just hope he doesn't turn into M. Shamanaman Young.

Oh, that's right. He was the, yes, he was the one-hit wonder. He bought Amazon at the IPO and flipped it into GE. Ready, right? All right, so let's get back to business. So there was an article that just 561 new hedge funds were launched in 2018, which is the lowest number since 2000. and in the first 11 months of 2018, hedge fund portfolios run by institutional investors,

delivered average returns of just 1.6% well below expectations of 7.2% according to a survey of 425 respondents by Deutsche Bank. Why does the F-T get to spell percent P-E-R-S-C-E-N-T? Because it's British. Yeah, but why do they get to do that? Can we all agree? Do you know that today used to be T-O-S-D-A-Y?

I did not know that. Did you know, based on some of the YouTube videos that my children watch, that they actually call Z in Britain Zed? I did know that. Why do they do that? I don't get it. My kids are trying to learn the ABCs on a YouTube video, and they're pronouncing ZZ. Anyway, there's a lot of things that British people say that are way cooler than us. But anyway.

The meaty part of this article was that we've always heard anecdotes that younger funds outperform better. and they said that emerging hedge funds with a record of less than two years have delivered annualized returns of 7.2% compared with 4.8% for industry average. Which, and the funny thing is, is the majority of the institutional investors would much rather go with their more mature peers than invest in the emerging funds, which is one of the reasons that Swenson at Yale has done so well because he typically has invested in those up-and-coming funds over the years, and those are the ones that you can actually find that don't have as big of an asset base.

And that's one of the reasons that, and typically they're smaller, too, so that it manages, they're probably hungrier because they can't just live off that 2% anymore. They want to prove themselves. So it definitely makes sense. Obviously, when you're choosing from a field of 11,000 or whatever it is, picking the newest emerging ones is difficult because there's so many to choose from. Somebody just tweeted that the Apple card has no fees, no late fees, no international fees, no fees at all? How is that possible? Do you have to have like a 750 credit score to get access to this? I'm just impressed that you're able to follow Twitter and podcast at the same time. Multi-talented. All right. So did you see this chart?

So Jim O'Shaughnessy had a great tweet thread about how people fall for complexity. And then, funnily enough, like a day later, I saw Dary tweet a really cool chart that I think I disagree with. So it's like a fork at the road type chart with one hour saying simple but wrong and one hour saying complex but right. and everybody is going to the simple but wrong, I actually think this is backwards. I've also thought the same thing about this one. There's a couple variations of this. And yeah, I think it should be. Although I think it depends.

It depends in what field, because in certain fields, this might be right. Yes. But for most people, especially in finance, complex but wrong. Yeah. Is much more taken than simple but right, I would say. I totally agree. Okay. So Eric Baltun has tweeted, since news broke of VOO cutting its expense ratio to one

basis point lower than IVV. It took in $4.3 billion. I don't get it. Is there just an unlimited well of money? Where is this money coming from? It's probably cash on the sidelines. I had to guess. I don't think it's financial advisors that are moving this quickly. It's got to be institutions, I would imagine. But smaller ones, right? Because larger institutions probably just do direct indexing for one basis point. Well, here's the thing. If these ETFs can now do it for this low of fees, does it even make sense to do direct indexing anymore for them? If, I mean, mean, back in the day, they would pay one, two, three, maybe four or five basis points for this stuff. And that's a huge multi-billion dollar ones. If the lower-end institutions can get this

for three basis points and have someone else. I just don't get it. Every time we see a fee cut, there's more money. Like, is there just an unlimited pile of money. I just, I don't understand. Yeah, it is crazy, but it happens every time. And that's why they keep doing it, which is why, again, it's more of a PR thing than anything. So before we get to listen to a question, it's two quick things. One, our colleague and one of the best people I know, Tony Isola, unfortunately had his email list for his blog wiped out. Not quite sure how that happened, but that sucks. So if you are, if you were reading Tony's blog, a teachable moment, we'll link to it in the show notes so you can resubscribe. Okay.

I'm 21 years old and I want to start investing this year. Wait, hold on. Hold on. One last thing. You and I went to a blackjack table in Milwaukee. Okay. And you do not curse. So when you were, when you had a bad loss, you said, did you say bless it?

I didn't want to get thrown off the table. And when we were pressing our bets, we said, I don't curse? Well, not as much as a New Yorker. Yeah. Yes. When we were pressing our bets, we said, drunk it. Yes. I was trying.

And then we both left with zero chips. Well, getting back to the conneming stuff about behavior, the blackjack table is a perfect, like, little petri dish for human behavior. because there's always the idea that when you start losing, well, I'll just wait until I make all my chips back and break even. And the other thing is like pressing your bets. So we figured out when you start to lose, you lower your bets. When I start to lose, I increase my bets. No, no, no, sorry, it's the other way around.

I'm a momentum blackjack player. So when I start to win, I start increasing my bets. And when I lose, I decrease me of the opposite. You know it's funny. You're doing it right. I'm doing it wrong, but we both lost money. We both lost money. Yes.

Yeah, that may have had more to do with. Jack Daniels than anything. But, all right, yes, it's a very, and it's the ultimate card game there is as far as I'm concerned. All right. We wait a good time in Milwaukee. 21 years old, I want to start investing this year to take advantage of compound interest. I'm unsure of which account type I should be purchasing them from. I'm eligible to contribute in a Roth IRA. Would it be better for me to just invest in a taxable account for better long-term returns over the Roth IRA? So this is kind of asking, what's the hierarchy of retirement accounts? the way that I view this is here's the list. Always invest first in the 401K if you get a match or 403B,

whatever it is, 457. If you get a match, it doesn't matter what your investment options are. Take that match. You're getting 100% return right away. If you don't like your investment options, they're too expensive. There's not enough. Then go to your IRA. And then you go back to the 401k because you want to take advantage of tax deferrals. Then you move on to the taxable account. That's my sort of, and that's missing 529s, HSAs, all that stuff. This is just retirement-wise. How much time did you guys put into studying for the CFA? Do you think it was more or less than the average? Do it take more than one trying to pass each exam? And do you think it's worth it to invest the time and energy as a young person today? What do you think? How many hours did you put in? I put in like the max. I was studying literally every single night and weekend because I had no industry experience. I knew literally nothing. I think I said the average is about 300 per exam, which is a lot. And I think I calculated it back. I was all brand new to me. So I definitely put in a ton of hours. I think they say the average is about 300 per exam, which is a lot. And I think I calculated it back of the envelope afterwards and that's probably what I did for each exam. It's about 300. I do think I talked to a group of college students a couple weeks ago and anytime I talk to these people,

they ask, should I get my MBA or CFA or CFP? I think for most people, there's probably going to be more, a better career path in the CFP route because I just think there's so many boomers are going to need help in the coming years. And millennials too and with their finances that a CFP would probably, you'll probably have a better job finding work. But I still think the CFA, if you want to be in portfolio management, it's hard to go wrong there because it's much less expensive than NBA. You can do it on your own study time. I think it still holds a lot of cashé in the industry in a lot of places, frankly, want you to have the CFA or at least be going down that road to even get an interview. So it's kind of a career. It depends where you are in your career and how hard

it is for you to get the job you want, I suppose. Yeah. If you want to be an analyst, then it's almost like you have to do it unless you have like industry connections. Table stakes. All right. Recommendations. Okay. Finish Catastrophe. It was the final season. And I think this is just about the perfect show for the streaming era because it was four seasons. Each season was only six episodes apiece. And they were only about a half hour of time. So you can plow through this quick. And we did every time it came out. And it was so short that it left you wanting more. I thought this was the worst season of them all, but it was still very much worth watching. Probably. I like the way they tied it up. And I think the two of them, Rob and Sharon, who I think they both co-write the show and our co-stars are hilarious. Yeah, they're great. I think Sharon is really funny. And I just think it's a great show, easy to binge really quick. The British people in British entertainment has it figured out doing six episode scenes.

I mentioned this before, but. Oh, Bodyguard. It's perfect. Yeah, it's bodyguard. The new Ricky Jervais one, I'm just starting. I'll give a review on that in a couple weeks when I finish it. Six episodes is great. We watch Green Book.

It's kind of hard to say much about this one because it won best picture, so I'm not exactly like a groundbreaking review here, but it was good. Vigo Mortensen, and Mahershal Ali, we're great in it together. I enjoyed it. And I'm going to give you a book recommendation for the week. This is you personally, Michael. It's called the Checklist Manifesto. Oh, my God. By Atul Gawande. Have you read this? No, but I could definitely use one. Okay, it shows how using checklists can help you make better decisions because in the last week, twice now, we've gone through podcasts, and you have forgot to hit the record button or you plugged in your mic into the wrong report.

So I wanted to give you a checklist that you go through like an airline pilot every time we do a podcast. Okay, fair. So you know what's a good Twitter account? Rex Chapman. Blocker charge? Yeah. Is he an NBA analyst now?

I know he played in the NBA and it was a good college player. I'm sure he is. Speaking of NBA analysts, on the way home from Milwaukee, so I saw Steve Novak, former three-point stud from the New York Knicks. and he's 6.10. I had no idea he was that big. But he sat down next to me at Starbucks and was very friendly. We chatted for quite a while before he got on a plane to Oklahoma City. And you know what? I tried to let him off the hook. Did you geek out like a fan? Well, no. I just said I loved you on the Knicks, blah, blah. And I tried to stop like twice just to not bother him. But he kept going. So we spoke for like 15 minutes before his flight. That was fun. All right. I read a book. So I've been on a fiction kick. And I haven't read fiction in a long time. But Charlie Bellela gave me two great recommendations. the one that I read last week was where the quad dad sing and this is perfect for a movie and I googled it and sure enough it is going to be a movie and I feel like it's like it can't miss it's like a really easy story to tell there's a courtroom drama scene which is

perfect and that's all pretty much all I got so thank you for listening animal spiritspot at gmail.com we'll see you next week