Animal Spirits Podcast - How to Ask the Right Questions (EP.56)

Episode Date: November 21, 2018

The 40-year history of the 401k, why the retirement system is far from perfect, the problem with cashing out your 401k, the pros & cons of multi-factor funds, competitive in factor investing, morning routines, financial regrets of the elderly, why the American dream is dying for so many in the middle class, why no one finishes non-fiction books 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 presented by J.P. Morgan ETFs. Face it, the principles you need to build a stronger portfolio haven't changed, but the tools that you need to have, which is why J.P. Morgan is bringing new ETF solutions to the marketplace. It's time to evolve your portfolio for a new world. Let's solve it. Investing involves risk. JPMorgan ETFs are distributed by JPMorgan Distribution Services, Inc. Welcome to Animal Spirits, the podcast that takes a completely different look at markets and investing, hosted by Michael Battnick 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 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 Rithold'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. Welcome to Annal Spirits with Michael and Ben. This week, the 401k turned 40 years.

old, which is kind of crazy. And there was a few pieces that we read. One of them, the cover story of Barron's actually took a look at the good, the bad, and the future of the 401K. And there's a lot of things in here that I actually didn't know about. So kind of want to dig into some of this stuff. First of all, the 401k was started in what year? 1978? Okay. Why did you just ask that? I mean, didn't we just say it's a 40th anniversary? I can't do math. I can't do math and talk at the same time. The thing that kind of shocked me about this one, though, is that they talked about the fact that when the 401K was rolled out, people actually liked it as opposed to a defined benefit plan because they could see their balance is rising, especially for young people. They thought that it was actually better because it's hard to put a price tag or market value on a pension, especially for younger people.

It doesn't really mean as much. So there was actually a lot of groundswell support for 401ks when they first. came out, which it's kind of different from today where a lot of people are saying, I wish we could go back to the old system of pensions and not having to do this on our own. Well, there are certainly no perfect retirement systems. Each one presents their own challenges, but you remember back to the CFA stuff when there was a section on pension accounting, and what a freaking headache that was. So imagine you're 43 years old, you've been in the system for whatever, 20 years, and they give you a formula to figure out what your pension benefits are. Now, I don't know. I don't

know if they gave you an actual dollar amount, but what if they didn't? What if they just gave you like a sort of framework to think about what your pension is going to be? Of course, seeing the dollar account in your 401k is a much more attractive option. And I think maybe the pension stuff was probably a little overblown. I'm trying to put together a piece on that I'll hopefully put out this week that shows it wasn't as prevalent as some people would assume. Meaning that it was like not everyone was covered. Not as many people had pensions as most people assume. Because right now 401Ks are about 50% of the workforce has one. Is that right? I think that's what this story showed. Do we have any sense of what it was? So what I found is that the numbers are

closer to, like, it was actually a census report that looked at the percentage of someone's income 65 or older that came from a pension. And as of 1980, it was only like 27%. It rose to like 37% in 1990. And now it's still steady. And the numbers only go through 2008, but it was like 35% of someone's income 65 or older came from a pension. Well, what percent of giant corporations had a defined benefit plan. That's, I mean, that's probably part of what it was, is that it was just so many of the well-known places, especially if you worked at one of the car manufacturers, they would have them. So I think that's probably part of it.

I think we saw somebody, right, so if you were outside of corporate America, chances are you probably didn't have a plan. Yeah. And this story talks about the fact this guy, Ted Bena, who I guess is credited with helping create the 401k system, they talk about it says here in Barron's. In one memorable moment, Bena met with the executives of Bethlehem Steel, a human resource as a manager politely dismissed his suggestion that they should add a 401k, noting that the company took care of its employees.

Then the kicker here is the steelmaker went bankrupt in 2001, and the pension benefit guarantee corporation had to take over their obligations with many employees getting a cut and expected benefits. So maybe that's part of the problem is it's just asking too much to have these companies that don't stay around as long shoulder that burden. Somebody tweeted this week, I believe that the biggest holder of general electric stock is the pension. Which kind of hurts. What is that? Eight dollars a share these days now? But what about like Microsoft, for example? True. You wonder if any of those tech firms actually have one.

I don't know, I guess. Send us in any updates on that if anyone knows. The other part of the article that was interesting was how the rise of the 401K really transformed the money management business. So a third of all mutual fund assets reside in 401Ks and half of all fund assets are in some sort of retirement establishment, including IRAs. Yeah, you could make the case that for places like Fidelity or Vanguard, the 4-1K has been just everything for them almost. The whole retirement thing is such a big part of it, which is one of the reasons that I think is going to take a lot longer for ETFs just to plant mutual funds as much as people think that it would make more sense because mutual funds just have so much market share in these

401ks and there's what $5 trillion in the 401k market, I think it says. Well, also just buying, just purchasing dollar amounts of mutual funds makes it a lot easier. Yes. Right. It's just easier to do because you can. can do fractional shares and it's just so I mean it's possible I guess ETFs could make it in there and maybe in a lot of ways ETFs don't make as much sense because you already have the tax deferral in there so you don't get the tax benefits of that but I guess it seems like it's taking a long time for to get ETFs in those plans which I guess that's that kind of gives the mutual funds a stronghold on their market share in some ways certainly there's room for

the reverse three times VIX products are they not obviously how are you supposed to blow up your retirement without them it says eight out of 10 four one K programs offer target date funds, which I can't believe that they all don't by now. Yeah, I was thinking like, what about the other two out of ten? I think that's actually one of the better things to come out of the last few decades. Those things are far from perfect. But if you can just put someone in that instead of putting them into the cash value account or whatever it's called where it gives you a set amount of interest, I think that's a win

for people just because it automatically diversifies them. So in terms of the 401K not being perfect, you're asking a lot of people to responsibly invest their money. This article said that the average 401k plan had 29 investment options. which is obviously way, way, way too money. Correct. And so they also found that 60% of the investors that were aged 18 to 34 indicated that they had taken money from their retirement accounts.

So that's kind of the other problem is that when people change jobs, and that's one of the reasons they think they went away from pensions is because people didn't stay at those places long enough to make it make sense. And now it seems like people are just cashing them out any time they leave. So do you think that there should be some sort of either a higher penalty? Because I don't think that a higher penalty would necessarily make people not take the money out. Do you think there should be like a lockup thing? Is that even legally possible? I just wish that there was an easier way to make these things more accessible to people

where it's not even tied to the company. That it's just one big universal account. What do you mean? So instead of having a 401k and IRA and a 529 all these things and you have to open it up at different financial firms or each firm has their own program, I wish the government would just make one big one and up the limit to make it way easier on people. So put a $50,000 max contribution limit for all three of those in a given year and give people the TSP their savings retirement plan options and just make it way easier on people for saving for retirement. Because the other side of this is they said in this article they wanted to get up to like

95% of firms that would offer 4.1K, that was the hope when it first was rolled out. And the highest they got is 50 and now it's going into the direction where it's less than half of firms even offer this to people. So there's so many people out there who are working that don't even have access to a retirement plan like this. Yeah. So sticking with the 401K, there was an article in the journal, Labor Department clears path for automatic 401K transfers, meaning that companies could start automatically transferring small retirement accounts belonging to employees who changed jobs to the 401K plans of their new employer, which is pretty great because 30% of people leaving jobs elect to cash out their 401K, which is obviously a huge, huge,

huge leakage on the system. And we spoke about this a few weeks ago, but I thought that this article was timely. There's a really great chart in here that we'll put in the show now that just shows it's a really, really high percentage of people that cash out. And especially it really stings because it's younger people. So it shows people 20 to 29, it's over 40%. And those are the dollars you want compounding for decades and decades. And yeah, like you said, I agree with you. I don't know if there's much you can do to dissuade people from doing this because they're going to do what they want, but I wish there was just an easier way for people to keep it in there and not have to worry about this. So there was another stat. As many as 80% of people leaving jobs

with less than five grand in their accounts eventually cash out. And I don't know how you prevent this from happening because I have a Roth IRA with a small balance and I was thinking about maybe like cashing it out for, I'm buying a house. So maybe like using that for furniture or something, but then like I stop myself, but it's easy to take the money out. Okay, I hate to be one of these people who does this, but like it's kind of like the latte effect. But, Let's say you left that five grand in there, and you're a 25-year-old or something, and you get 6% on it over the course of 40 years. I mean, that's, that five grand turns into 50 grand, basically.

It's, I mean, it's a huge amount you're taking out from your future self every time you take these little dips and dabs out when you're young. So I think right now, yeah, that's a good point. I think right now the way that it works is that it says on their current law, employers can mail a check to former employees with balances of $1,000 or less. So if you do that, it's just like a hassle to get the check to the check to the deposit it to roll it into a financial institution. It's just a giant headache. And of that money, you're like, you're like, screw it. I'll pay, you know, I'll pay, even if it's

10%, I get, I get $9003. Fantastic. It is, I did when I changed firms a few years ago to come work with you. It was kind of a pain to change my 401k and roll it over you. I mean, it took a few weeks, basically. And like you said, they give an actual paper check, which seems so antiquated at this point. But they want to make it hard for you to take your money out of there because you're taking your fees with you that you were paying them. Currently, almost, 15 million Americans with 401k cancer change jobs annually. That is a big, big number.

Right. Okay. So now we're going to move on to a new segment that we're doing called Talk Your Book. Basically, Michael and I are going to be doing short interview segments with fund providers and fund managers to get a better sense of how they think about their products and their funds and how they structure them. And the idea is

to kind of get a better idea of the types of questions that we think about when looking at a fund and performing due diligence and obviously these questions are not going to be exhaustive by any means, but that's kind of the idea just to get a better sense of how we think about these things in terms of portfolio management. So this first one is going to be a talk your book segment with someone from J.P. Morgan, and here we go. We are sitting here with Yasmin, DiBildger, head of the America's Investant Specialist team for J.P. Morgan's beta business. And we're going to talk today about JPMUS. And it says that this fund

is designed to provide domestic equity exposure with potential for better risk-adjusted returns than a market cap weighted index. So the question that we have is, if market cap weighty is so suboptimal, why is it so difficult to be? I think really that goes back to the markets that we've been operating in, particularly in U.S. equity markets for the last several years, really since the financial crisis. And the reality is that a large part of the market right now has been driven by a very concentrated set of sectors and stocks. In fact, since the beginning of 2017, up until the end of Q3. Technology plus Amazon plus Netflix was 41% of the return of U.S. equity markets. So exposure was historically enough in the markets we've been operating in. But I don't think

that that's the main thing to be thinking about. The bigger picture question for me is what do we expect on a forward-looking basis. So as we think about what U.S. equity markets should return, there is a difference between what they've done in the last three years, which is roughly 15%, versus what we expect on a 10 to 15 year basis, which is more like between 5 and 6%. So the markets we've been operating in the U.S. have been hard to beat, but I don't believe that's going to be true on a go forward basis. And then secondly, if you look at our process, for example, we actually apply a similar process across international markets and emerging markets, emerging equity markets.

And what you'll see is actually we've been able to drive a significant amount of outperformance and some of those periods of stress where they haven't been one way up in the last several years. So with a multi-factor fund like this in terms of portfolio management, do you look at this as like a core holding that would replace something like an S&P 500 or a large cap U.S. fund is that a moral complement? I see it absolutely predominantly as a core. In fact, philosophically, that's what it was built to be. The philosophical ankle point of JPS. It's meant to be a core equity allocation that improves upon some of the opportunities that we believe exist in market cap. Or another way of saying that is, if a client's looking for a diversified exposure to an equity market in a passive format,

we think there's some things you can change in the rules of the index. Importantly, number one, actually having diversification in your exposure, we think of that is more of like a defensive step in our process. And then secondly, using factors like good valuation, good quality, good momentum to own stocks that we think will outperform. So first and foremost, I see it as a replacement to your market cap that can deliver you a more outcome-oriented exposure. Another way we've seen clients use it, though, and I think this is quite interesting, is in complement with market cap. They're splitting the

ticket of their core. And the reason why you would do that is if tracking error to your benchmark matters a lot. You may want to keep a portion of that anchored to the benchmark itself. So let's get into the fund a little bit. So looking at, as of 1031, 2018, the price to earnings ratio of this is 1685 versus the Russell 1,000 of 1837, price to book, 29 versus 3-2. So less pricey and then the Russell 1000, but what really stood out to me was the weighted average market cap is $61 billion versus the Russell of 224. Now, is this just sort of like a mid-cap strategy in disguise? Like, is that going to be the differentiated driver of returns and talk to us about how the factors come into play? That's a really great observation.

And what it gets to is the goal of our product to actually have more balance across sectors and stocks. And so in our process itself, we more evenly weight sectors and we have more equal weight across stocks. The goal is actually diversification. And you'll see that appear in some of the stats you listed, but also if you look at like the top 10 holdings. Right. That's a big one. We have much less in the top 10 holdings than a regular market cap index. So let me plug that for a second. So the percent in the top 10 stocks are JPMUS is 4.7 percent versus the Russell 1000, IWB in particular. It's 19.3 percent. So a huge spread. Absolutely. But we're playing in the same sandbox as market cap. And I think that's important. The universe in which we use as a starting

universe is the Russell 1000. So the sandbox is the same. What we're saying, though, is if you don't have an active view, which we view as a role of an index, have broad diversification. You're not getting that from your market cap index, both by some of the stats that you quoted around top 10 holdings, but also if you look at sector allocations and the extreme amount you have towards technology and financials. So it's not about lowering your cap size as it is so much around being diversified. And I think what you also should focus on is that what you quoted as point in time. market cap in terms of its cap structure changes over time depending on how concentrated the market is or how diversified it is. So we will always be diversified by our process. How will compare

to those stats? And market cap will be a reflection of how concentrated market cap is. So you mentioned the tracking earlier. How comfortable are you with it or how comfortable are your clients with it in terms of how far you'll stray from the actual index? I think this is a really important question as it relates to this category of product, which some people call factor investing, some people call smart beta. The first thing to say on that is the products in these categories can vary quite a lot

as it relates to how benchmark oriented they can actually be. We philosophically do not anchor ourselves to market cap in our process because ultimately, the, in fact, the goal of our product is to improve upon some of those areas. And so how we'll look versus market cap

is very much dependent on how concentrated market cap is. The benefit of actually having an index or specifically a rules-based process is there are rules in the process as opposed to the reality of being able to stray outside of it. So I think our clients can gain a high degree of comfort of what to expect because there's a methodology document. They can understand what we're trying to achieve

and the rules that get followed. So for me, tracking error is in fact a point of our product. In fact, it's supposed to correct for concentrations. People pay you to be different. It's really philosophically the point of the product altogether. But what's good is because there's a set of rules behind it, you can get comfortable with what to expect on a first. forward-looking basis. So let's talk about the rules. You mentioned that it's rules-based,

which is terrific. You're not having people just guessing on direction of the market. So for the multi-factor strategy, you're using value, momentum, and quality. If we can get into these a little bit, that would be great. So value is targeting things, traditional things like book yield, earnings yield, dividend yield, and cash flow yield. So that's pretty understood. One of the things that stood out to me that was interesting was with the momentum. So you're using returns over a 12-month period, but you're dividing it over a vowel. And I was just curious, why do you do that? not just take the best performers? It's essentially a more efficient way to capture what we're trying to get, which is pure trend. So you're trying to eliminate the noise within your trend altogether.

A gap up 15%. Yeah, you won't want small ups and downs. You want to find a broader trend that you're trying to take advantage of. Really, the benefit is around turnover and transaction costs. Now, I'll say our heritage as a factor investment platform actually began before our ETF business altogether. We've been in the factor investing space for 10 years. And we actually began in long, short factor investing where things like turnover and transaction costs are very top of mind. So that fundamental focus on those elements is what's informed how we've constructed our long-only exposures like JPS. And so for us, that risk-adjusted measure is really about the idea of the most efficient way to capture what we're looking to get. So we were kind of digging into the fund and we were curious. So you said you

equal weight the kind of the stocks and the sectors. How about the actual factors? Is it the case where you have three different buckets or are you trying to find the stocks that have each of these characteristics, how do you think about factors in that way? Yeah, there's two components, I think, to think about when you're looking at factor construction. The first is, I'll use some technical terms and everyone's got their own favorite. Integrated versus modular. Another way of saying that is, in the modular format, are you looking for the standalone best value stocks, the standalone best quality, standalone best momentum, and then putting them together? Or the integrated where you're saying, the top stock in my portfolio looks the best across all three. We use an integrated

approach. There's some very technical reasons behind it, but the summary of it is that when you're using factors to narrow the universe and you're investing in factors that have negative correlation dynamics to each other, you get a higher factor content by doing so. And it sort of intuitively makes sense, right? Because in the modular world I described, where you're doing things on a standalone basis, it's very likely that your best value stocks have poor momentum and vice versa. Your best momentum stocks have poor value. And so you're actually getting negative factor and exposure in that methodology format. So for us in the world of core, where we're using it to narrow the universe, an integrated one makes sense. The other thing is, well, then what weight do you

give across these three factors? For us, we take a very simple, equal-weighted approach. It goes to our belief of having simple quantitative models, because one of the worries that people have in this space is data mining, right? I can certainly look at a set of data and come up with a really interesting way to to toggle between factors, but you have to put the real world layer on top of it of transaction costs. And also, is there a real reason why one should be outperforming versus another in that period of time? So often we see fantastic back tests and then out of sample it just falls right on its face. Absolutely. So for us, we take the approach of simple and robust. And so as we think about, for example, the four value metrics that we use, we simply

equal weight them because we don't have a strong economic rationale or intuition. as to why one would be outperforming versus another any point in time. So this might be deep in the weeds, but in terms of any data normalization, are you doing, are you scrubbing the data at all? Or is it just taking what you get from, say, fax set, for example? We work through our index provider, Futsi Russell. And so we're implementing our index in their data ecosystem. And so that's one of the benefits of partnering with a firm like that. Now, in terms of quality, so quality is in the eye of the balder, right? So what do you all use to measure quality? And then the second question is, why do we think that quality stocks deserve a premium? Like, if the market is somewhat

efficient, shouldn't that be reflected in the price? So we have a robust definition for quality. We use profitability, financials risk, and earnings quality. It's a 10-part definition when you get to the sub-factor level. First of all, having a diversified exposure helps you avoiding having a lot of signal to noids ratio with one particular segment. So the diversification, we believe, is very helpful. Secondly, the rationale for compensation. That's the technical words to use. Why are you getting paid to hold quality stocks? The rationale for compensation for quality stocks can get sourced to a couple of reasons. One is actually behavioral in nature, which is at the lottery ticket effect. People look for the high flying. I'm going to

outperform stocks. The quality ones seem kind of boring. They get systematically underinvested in and it creates a compensation on a behavioral basis for that factor. And that's what I walk through, I think, is important for investors to hear. That's the type of thinking. that goes into what is a compensated factor, what an investment team like hours actually spends their time on. So a little bit of pushback as we wrap up. If you are creating a multi-factor product, at the end of the day, and I'm sure you got this often, do you just end up with market beta? I think that's a really excellent point. Not all factor products are created equal. And I think it's really up to every investor to understand what they're trying to achieve by

investing in a factor product. I will say our starting point from a process perspective, is the universe of market cap, but the actual steps do not require us to tie back to market cap. What really makes us unique, I would say, in the world of factor investing is the fact that we have two steps. One are factors using value, quality, momentum to own stocks. But secondly, and also equally important, is this diversification step? And that can make us look different than market cap, particularly in the moments when market cap's very concentrated. So for our process, I do believe that we do look different than market cap, and particularly in moments of extreme stress, like you think of the tech crisis or the financial crisis where concentration

was very prevalent, very different than market cap. So you guys, for instance, are heavily underweight tech. I think the last reporting was 11% versus 22. Yes. And the goal of that, I think the words in the language are really important. The overweights and underweights in any of our sectors is not because there's an active view by our investment team of what looks good and what looks bad. It's the very premise of, in the world of indexation, absent and active view, you want to be diversified. And if you look at sectors over time, and I think this is a really profound point, it's not just point in time concentration that all of us hear quite a lot on the news right now. It's if you look at sectors over time, they're highly cyclical. So not only are we

trying to diversify, but we're just trying to create more stability. If I were to graph our sectors over long periods of time, you'd find a lot more stability to them. So from our overweights and undervates, it's really a reflection of what's become big in market cap and what's become small and what may re-correct to the mean. Do you have a chart of that available? That'd be great to see a chart of that versus the index. Absolutely. Yeah. So one more before we go. In your research, how much do you actually care what other quantitative shops are doing with all the data that's out there or how much do you just stick to your own knitting and go from there? Well, I'd say a couple of things on that. First and foremost, we very much take pride on our research engine itself. We have over 30

portfolio managers and researchers within our investment engine. So when we're creating products like JPMUS, it's absolutely driven off of the research of JPMorgan. With that said, our clients are being educated by our peers within the space. So we do take focus on what else is being created out there. And I think what's important for clients as well is I think there is a perception of it being a fad what they're hearing about now. Two things I would say on that for end investors. first, every investor is a factor investor, whether they know that or not. Now there's a lot more transparency with the different types of tools out there to understand your factor biases in a portfolio, but they exist and those will drive

returns. So I think number one is knowing what you own and knowing your factor exposure, but then number two is that this is not a new thing. This has been around for decades. People have been using factor processes within their overall investment process for a very long time. So this is just bringing to light through the ETF form. I think, which is very interesting and new, a way to access something that's existed elsewhere.

Okay. I think it's a good place to leave it. Thank you so much for coming in, Yasmin. We really appreciate you and JPMorgan. Thanks for having me. Thank you to JPMorgan for coming on the show today. If you have any ideas for people or products that you would like to reach us to reach out to, please share them with us. Ben, let's go back to something that you're fond of hating on, morning routines. Let me ask you a question. Do you not wake up? Well, what time? It depends. I wake up at 2.30. a.m. and then I start drinking my wheatgrass. No, because there was an article in the New York Times, and apparently the choices we make

during the first hour or so of our morning often determine what the rest of the day will look like. So, again, what's the problem? Do you have a morning routine? It's not so formal, but I do have a morning routine. Would you like to hear it? Sure. Okay, I wake up. No, I don't know. I would rather hear about your fantasy football team than your morning routine. I'm kidding. Are you really, are you really going to tell me your morning routine? Well, I was, I mean, the routine is I wake up and then I, go to work. Right. Yeah. Here's the thing. I'm very snarky about these things on Twitter quite a bit because I feel like people try to reverse engineer someone's success when they

start talking about this stuff. And it's kind of like do people become rich because they meditate in the morning or do they meditate in the morning because they became rich? Right. And they have stressed out live. So I think trying to work through that stuff is just so there was no, it's a whole life coach thing. Like, at one point, Tim Ferriss asked Howard Marks, what his morning routine was. And he was like, what does that matter? So there was an anecdote in a Seth Godin book I read a few years ago. And he said that at a conference, someone asked Stephen King, it was like a writer's

conference. And people were trying to glean some insight into how to become a better writer. And he asked Stephen King, what type of pencils do you use? And Stephen King's like, I don't know, what does it matter? Like, if you get down to that much, that little minutia in terms of trying to figure out what someone else is doing, you're never going to be. successful in the first place because it doesn't matter. Yeah, and some of these routines are just impossible to stick with.

Like, I know this is a huge outlier, but Mark Wahlberg, like, I don't think he even sleeps. He wakes up at 2.30 a.m. Yeah, his was my favorite, I think. So, uh, this article showed that the average wake-up time is 627. Okay. And hold on. I have another question. How do you average wake-up times?

Like, what is the math behind that? That's interesting because I wake up at, I have my alarm set for 624 a.m. So, that was mean. You're ahead of the game. I'm 628. I'm a slacker. Okay. So the Atlantic had a story about retirement savings, and as with most of these, it doesn't look good. But they had this interesting survey for the week. So 59% of the roughly 1,60 to 79-year-old American survey did a new paper published by Enber, which is the National Bureau of Economic Research. I've never heard of that before. Hold on. Enber. What? Never heard it called it that before? I've called it N-B-E-R.

Okay. Maybe that's just me. Enber? I don't know. Really really helped the tongue. Yeah, it works. It works. Okay, sorry, go ahead. So these people, roughly 60% of people that were 60 and older said if they were given a chance to live their lives over again, starting in their 40s, they'd have saved differently. So basically, I think this is pretty, this is not a newsflash by any means, but older people wish that they would have started saving earlier and saved more money. Wow. What a revelation. All right.

Hey, this is actually one survey. I think we can get, we can get behind, right? Yes. Okay. Similar piece. Rolling Stone had this really long. profile, and it was called, Why Can't Allison Get Ahead? And it was a profile of the American middle class. And it's saying, you know, the U.S. economy is growing, but for a lot of workers,

it's just not trickling down to them. And they did this profile of this woman who had a child when she was young and she had some savings and she had a decent job. And things just sort of started falling apart for her because having a kid is more expensive than it sounds like. And her wages weren't growing. And so there were some interesting stats in here. And they were kind of looking at this from the perspective of how expensive child care is. And the Pew Research Center said that the proportion of stay-at-home mothers rose from 23% 99 to 29% in 2012. And a huge percentage actually said that it was not voluntary, but they just couldn't find a job that would cover child care. So they said 34% of stay-at-home mothers are actually living in poverty, more than double

the number that were living in poverty in 1970. And so we've talked about this a little bit before, but it is just mind-boggling how expensive this can be, and a lot of people just can't afford it. So it's kind of the question of, do I work for a job that subsidizes child care, or do I not work and not bring as much money in? So here's another one. In 1960, the average annual health care costs in America were just $146 per person. In 2016, that figure had risen to over $10,000. Okay. Can you explain that, please?

I don't know. It's from the story. What do we need to explain? What happened? What happened? Yeah. Boy, that's a, that's a deep, that's way deeper than a podcast anecdote. Are there, are there any simple books on, I mean, I'm sure there must be.

I would like to hear some recommendations on what happened to our health care system, because I really, I'm totally ignorant on this. Okay, that's a good request. If anyone has, maybe we can ask Morgan Howsel to do one since he just wrote a whole, oh, 5,000 word premise on World War II. Now that, Morgan, please. we would really appreciate that. Help us out.

So, a friend of the show, Ted Citees, tweeted, and listen, we are, not only we anti-survey, but we're anti-lists on Twitter, unless it's good. Yes. Am I speaking for both of us? No, I think that's fair to say. Okay.

Three greatest brand labels in asset management history. One, life insurance, it's death insurance. Two, smart beta. Who doesn't want something smarter than beta? three cannabis. Last I heard it was pot, weed, or marijuana. Very valid points. And I thought some of the responses were pretty good. So Morgan Housel wrote subprime, so much better than junk. Phil Huber wrote growth stocks. Ben Johnson had my favorite. Alpha is better than, sorry we tried, but, you know, the Fed. Not bad. And R.I. Christie wrote, Cove Light sounds sweeter than good luck and

may the odds of payback be ever in your favor. Apparently you missed the response from your co-host. I said, the worst branding in history is global warming because it actually sounds good and not bad, right? Nothing? I'm thinking. I missed that one. All right. My wife and I are considering selling our house to be close to a family. My question concerns how to invest this is the proceeds from the sale of our house, which we own debt-free.

I was thinking that we should invest in the money from the house in REITs to maintain our real estate exposure and possibly help mitigate future rent increases. I was even thinking it should be specifically invested in apartment residential REeds, which may better track future rent increases. Ben, what do you say? I don't know if that's the way I'd technically. think about this because I don't know if I consider my house part of my investment portfolio. So I think trying to maintain a specific real estate exposure in this manner, I think, I don't know, maybe that is overthinking things a little bit. And it's possible if you try to match that exposure. It really depends what you're going to do with the money and when do you

need it, I think, instead of trying to match it in terms of the overall markets exposure to real estate. Yes, I totally agree with you there. Yeah, I think, I just think, that's a tough way to play it. And maybe you're almost overexposing yourself because if you're already paying rent and then you're trying to invest in reads, I don't know. I guess you're hoping that your little piece of rent flows through to your bottom line. But I think that you've got to think about that in terms of when you're going to need the money and not the type of exposure you're getting. Okay. Do you want to read the next one or should I do it? Because I know last week got a little touchy about that. You know what? How about this? I'm going to stick with it.

Okay. Let's say I needed to draw down some money from my investments from a taxable account. because I'm not in the retirement. Do I sell investments that I've done really well, even though I'd have to pay the capital gains taxes, or do I sell a lag or like international emerging markets at a loss from modest gain, even though the potential for future returns might be greater? I'd say I would never make a specific investment just because of tax reasons. What about opportunity zones? Those are all the rage right now. That's true. Those are the hottest things in the streets. I would say people kind of worry about paying taxes because of a gain in their account. Like if you need to spend that money and you're paying taxes, that's actually a good thing.

done well with your investments. So it's not necessarily a bad thing. I guess from a tax standpoint, if you're trying to offset gains and losses, maybe that can change the details a little bit. But I think it's never a bad thing if you're paying taxes on gains if you need that money. Like, that means you've done something well. So you would be inclined to sell the winners instead of selling the losers? I think so. I mean, unless you really are trying to get take advantage of the losses for tax reasons. Well, I guess it also depends. Like, all right, put it this way. Let's say that we're talking about a stock that's done really, really well versus a stock that's done really, really poorly. I mean, if it's an individual stock, you probably

shouldn't hold on to lose this in the first place, generally speaking. True. But if we're talking about asset classes or different funds, then in a way, selling your winners is rebalancing and correct. So it's getting back in line. What will the financial advisory business be like in 25 years? What will we have? We wish we would have known to implement today, or is there anything that hasn't been invented yet? So what do you think, how things will change? I have a terrible vision with stuff like this. So I really don't know. I'm going to say that things will probably be more similar in 25 years than people will imagine. I'm sure the tech will be better and there will be some efficiencies and a lot more stuff will be automated. Damn, I wish I said that. That's a good

answer. I mean, it's one of those industries where people are constantly searching for change and things getting different, but I'm guessing most of it is going to be exactly the same. It's still a people business and relationship business and trust business and I don't think that's going to change. All right. Let's move on through recommendations. But before we do, there was a chart that I pulled out last week that we'll link to in the show notes. I forget where this came from. But it tried to quantify whether or not people finished books. And this was somewhat controversial. I think some people pushed back on this, specifically with the nonfiction that, say the last 20% of a nonfiction tends to be notes and links and stuff like that. And also there's only, I guess, there was not really a lot of data provided. So I guess this looked at like people reading Kindle. But by and large, I do think that the conclusion was pretty accurate, that generally speaking, people tend to not finish books. I'd say so. And I'm sure it's way higher in nonfiction, too, wouldn't you think? I mean, because a lot of nonfiction can get boring really quick. Well, Patrick O'Shaughnessy says that he puts down a ton of books. And I actually don't do that

at all. There are books that I have put down certainly. But I think maybe I just do a decent job, like, screening them. So we get questions from people all the time saying, how do you guys have so much time to read and get through this stuff. And here's one of my tricks I think that I've picked up. I used to finish every book word for word. And I'd get through and I'd realize like that was a waste of time for so much of it. I've become so much better at skimming and even reading just certain chapters. And if I get like one good idea out of a book and I get that idea right away and I know like reading the next 10 chapters isn't going to really add to that idea, I'll kind of skim or I'll stop. And I think that's a good way to get some central ideas out of a

book without having to read every single word out of the 500 words that are in it. Okay. I don't really do that. I have like a weird sort of guilt that I feel about not like reading a book. Of course I don't read every single word, but I don't really, I'm not really a skimmer. Okay. That's, that's my trick of the trade for the last couple years. Also, if you wake up at 2.30, there's plenty of time. Yes. All right. So I was reading when I traveled to see you last week in New York. And I read, I think on the plane there and back, I finished who is Michael Ovitz, which is the story of the guy who created. created CAA, which is like the biggest talent agency in Hollywood.

Is this another detective book? No, this is a true, this is an actual, this is a biography. Michael Ovitz is like, is the agent to the detective? Yeah, he's like the biggest name in Hollywood, apparently, in terms of being people's agents. And they built, and they built this thing up into this massive thing. And he ended up getting, he eventually left, but it's a great book. He's got all kinds of great.

They basically represented every big name actor or director of the last four decades. And he's got some great stories about. like Sean Connery and Bill Murray. My favorite one, he talked about how Bill Murray disappeared for two weeks before a movie set and they were waiting for him. And then he called him collect from the Taj Mahal and said. That was a good one. My other detective one I did read was called Holy Ghost by John Sanford. It's a Virgil Flowers one, just probably a 10th book in that series that I've read. It's about a backwoods, Minnesota detective. And they all sound like kind of plausible ones. I really like it. Answer me this. How do you find time for so many

detective series. I do not skim them. That's my rule. My rule is no nonfiction books on the weekend. So I only read fiction on the weekends, nonfiction in the week. That's my rule. That's my rule. All right. I watched Christopher Robin with my daughter yesterday. Not a bad one for kids. Probably not enough music for her taste, but it was a good one. It was kind of like Christopher Robin when he grew up and then having to find his roots again for his imagination with Winnie the Pooh and friends. Is it animated? No, it's actually a real life. It's funny. My daughter actually likes the real life ones of these real-life versions better than the animated ones. Who played Christopher Robin?

Was it Leonardo DiCaprio? No, it was U. McGregor. He was good. I mean, I wouldn't watch it on my own about my daughter, but I liked it for her if you have kids, so. I was kidding with it, DeCaprio, obviously, but not so far off. I thought it was a good child. It was a pretty big name, yeah.

It's him when he grew up. Okay. So I finished the invention book that I spoke about last week, but I just wanted to read one interesting tidbit. In 2006, MySpace surpassed Google as the most visited website in the United States today it doesn't make the top thousand smokes by the way you would have you would have missed that yeah big time if you were skimming i finished bodyguard it took me a long time to get through i'm not quite sure why it's not a reflection on the show because you were a hundred

percent right it was terrific awesome right kudos to you i think that your recommendations are have surpassed mine thank you i'm willing to concede it's about time okay what else oh real vision did an interview with stanley drunken miller and it was very good somebody kept their two people that said, uh, watch it on two times speed. I wish that you could have, but maybe there was a podcast available to it because he does talk very slowly. Wait, do you subscribe to this? Is it a subscription service? They, uh, release this one for free. Okay. Um, and a few things that he kept talking about. First of all, 30 years at 30% compounded seems hard to believe, but I guess that's what it is. So that would have turned $10,000 into 26 million, which is like

laughably ridiculous. I'm not, I'm not calling drunk out here by any means, but do we have audited numbers on this? Because I feel like that number gets thrown out all the time. But is it just, I don't know. Is it true? I literally find it hard to believe. However, let's just assume that he's close. What if it's 35% for 30 years? I mean, still absurd. Yes. Okay. So let's just go with the fact that he made a shit ton of money. Yes. For himself and for his investors. So a few themes that he kept talking about. Obviously, he's bearish. He's been bearish for quite a while. And he said that he has bearitis. And it makes sense because he made most of his money in bare markets. I don't know about most, but his best returns were in bare markets. So it's not surprising

that he's always looking for the turn. So he kept speaking about malinvestment as a symptom or maybe when you have rates near zero, there's going to be a lot of zombie company. So he kept talking about that. But he also kept saying that he's open-minded. And I think that probably his genius as a money manager is just knowing where he is in the cycle. So he made an analogy that is so true. When I'm playing blackjack and I start losing, I start betting big. And I think that's probably a common theme amongst betters is that when you're down, you start to bet big, you start to press and you want to win it back. And I did this when I was trading. I would revenge trade all the time. And when you're winning, you tend to be cautious, right? Yes. And he was the exact opposite.

So he was able to lose a lot in very small quantities and just throw out feelers. And then when he would start winning, he would bet big. So he was very in tune with whether he was hot or whether he was cold. And I think that that is probably one of like the most important qualities a money manager can have and probably one of the hardest ones to possess. So let your winners run and cut your losers short. And then you could become a billionaire. Pretty much. It's just that easy. All right. Thank you very much for listening. Feel free to reach out with any questions, comments, hate mail, animal spirits pot at gmail.com. And we'll see you next week. Thank you.