Animal Spirits Podcast - The Magic Number (EP.21)

Episode Date: March 21, 2018

A possible foray into business TV for Amazon, the most well-connected man in hedge funds, how to lie with surveys, your magic retirement number & much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, the podcast that takes a completely different look at markets and investing. I hate the people who talk about it all the time, so I didn't want to be one of those people. From two guys who study the markets as a passion. Can I count on you to talk me off the ledge partner? Yes, and that's what this podcast is for. And trade for all the right reasons. That's my due diligence. I'm in. Dude, if you're in, I'm in.

A line of thinking is the higher the volatility on an asset, the higher the volatility on the opinions. so I feel like you have crazies on both sides. Here's your host of Animal Spirits, Michael Batnik. I can say that I was never driven by money. So you were trading three times leveraged ETFs for the love of the game. Exactly, man. I'm a purist. But anyway, and Ben Carlson.

This is true. I do not drink coffee. I've never been on Facebook. I've never done fantasy football. Oh, one last thing. Michael Batnik 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 Ritthold'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. Now, today's show. Welcome to Animal Spirits with Michael and Ben. Today's episode is brought to you by Cambridge Analytica. Please fill out a brief survey at the end of this episode and we'll try to get back to you. So the stocks are selling off today, being led lower by Facebook.

Facebook down almost 7%. Nasdaq is down 2.5%. Pretty much red across the board, although gold's positive. Yes, gold is a green and a sea of red. You nailed that one. You ready for your victory lap yet? Not just yet. So investors have not been shaken by the recent volatility, at least not according to fund flows. An article from CNBC said that U.S. stock focus funds took $43.3 billion in fresh cash over the past week. There's that cash on the sideline we've been telling you about. Let's see. The new money for stock funds amounted to nearly 0.6% of total assets, the best since September 2013. The interesting thing to me about these stock flow ones, which both of us follow this stuff

because it's interesting. But they also had in this story that it accounted for 0.6% of total assets. So it's interesting when you see like these huge numbers. Ben, I just said that where you're not listening. Okay. Sorry. I was just reiterating that point. You're saying it italicize.

for emphasis. Yes. Did I mention that? No problem. Anyway. I have a thought, though, on this sort of fun flow stuff. Sorry, when you start talking about data, I just immediately zone out. That's okay.

What if this came from, like, a handful of giant funds that were sitting on cash, which is obviously not likely, but it's the type of thing that can get lost in this fund flow data. Yeah, that's possible. I mean, especially when you think the fact that mutual funds hold on average what? I don't know, 2 to 4% in cash, something like that, if I had to guess, that's possible. So this was a CMPC article, and Professor Scott Galloway from NYU had a really interesting take on the business of financial media over the weekend.

Yeah, his, I think it's part of his blog. You can sign up on, it's called, what is it, no mercy, no malice or something in the business. That's the name of this one. But his company's called L2, and you can sign up. He has a weekly thing. And his weekly scrubs are really good because he's very honest. open and he gets into a lot of like his family stuff that's going on and it's kind of personal but he also talks a lot about his sort of inside baseball in the business world and his point is kind of

basically that he thinks business television is sort of slowly dying and he gives some numbers in here he said you know cnbc averages 200 000 total viewers and he says his winners and losers videos each week gets about three to three to five hundred thousand views which is kind of crazy he obviously has a has a huge following and he said most of them are sub 30 the crazy thing is for me is he said the average viewer of Fox business and CNBC is 68 and 67 respectively, which is bonkers to me. That is crazy, but do you know what's really crazy? Did you know that CNBC averages 200k total viewers? Did you say it again already? I did. Sorry. Yeah, good one. Did you also, did you know that too? Anyway, but the takeaway here from his, his biggest prediction, and he always has

a prediction in a lot of these things, which is something we're not very good at, but we'll let him following the sword for this one. But he says he thinks Amazon and or Netflix will launch their own business programming this year. And it won't be, you know, it won't have a certain time amount to use. It won't use advertising. And he thinks that basically they can maybe take some of this away and get newer, younger people to come in, which I think that's possible. I'm a little skeptical because. Yeah. No? Yeah, go ahead. Why are you skeptical? I'm with you. Well, first of all, I think one of the reasons, people are trying to come up with the reasons for the fact that no one's watching business television anymore. I think a lot of it, part of it, part of it,

maybe has to do with the fact that people are using more index products and not picking stocks anymore. The other thing I think is just that there's so much competition for your eyeballs and entertainment. So I don't think there's ever going to be this huge rush for people to watch and listen to business. I think there's a hardcore audience for it, but I don't think it's going to be something that grows over time. I think it's just, it's going to be more spread out. I also think that internet and podcasting has played a huge role in the decline in viewership because Remember there used to be like a 15-minute delay in quotes? Yeah.

And the fastest way to get a quote for GE was to look on CNBC and you would see the ticker scrolling along the bottom on the screen. Yeah, now everyone has real-time information any time they want it in their phone or whatever, yeah. Yeah, I don't think that younger people are necessarily, so going back to the thing about the 67-year-old average viewer, I don't think that younger people are necessarily thirsty for financial content. So I don't know that Amazon and Netflix could all of a sudden like spur interest. I don't think that's like a void missing. I just wonder if like what CNBC and Bloomberg and Fox are doing, I don't think there's like a revolution coming. I think that financial TV is going to look the same way it does today in 10 and 20 years from now. I just think that it might be a less lucrative part of the network. Which is far. Yeah. And if you want younger people to pay attention to this stuff, it's going to have to be in a different form. It's going to have to be short hits on YouTube or something, you know, like you said, podcast or some other way than just having them turn their TV on. So I think that's the,

that's my main takeaway is that maybe there is room for someone else to come in here and do it differently and try something new to get a different audience. So speaking of Amazon, there was two really good articles in the past week, one from Bloomberg and the other from the journal. And all of these things are out there, so it might be beating a dead horse. But it's just sort of crazy when you look at some of the numbers that comes from Amazon. I didn't realize they're doing $180 billion a year in revenue. Yeah, no clue. I mean, which is, which is, nothing compared to Walmart. Walmart's doing $500 billion. Yeah. But the growth rate of Amazon for a company the size is just nuts. So let's see. So a few data points. Amazon spends more

than $4.5 billion annually on series for Prime. Like on TV production. Which they, I mean, they have a handful of good ones. They're still not, I don't think they're probably in the HBO or Netflix quite yet, but I imagine he's going to spend as much as they can to get that. Yeah. They're going for it, though. Yeah, they're trying. Let's see. 53.8% of U.S. households with Internet are now Prime members. By the way, Prime is probably one of the greatest inventions of the last decade. Is that fair to say? If you had to give up, yeah, if you had to give up Prime or your iPhone, which would have been. It would be tough. Like every time my wife and I always say, like if we order something from somewhere else, it's such a hassle. We're like, God, it feels

like it's been four months, but it's been like seven days and Amazon is just there the next day or two days. It's crazy how easy it is. So every time we need something we look on Prime, regardless. So revenue grew 38% in its most recent quarter. That's insane. I think Walmart's doing like low single digits, two or three percent. You had a stat the other day about Netflix growing in the first 90-plus days of the year market cap-wise. What was that? Remind me, please.

No, it was Amazon. Yes, that's what I said. You said Netflix. Sorry. I'm off today. You know, I'm a little hungover from watching March Madness for four days in a row, I think. I think I have a basketball hangover, so please excuse my... Yeah, I get it.

I forget what the number was, but it added like $100-something billion in the first 90 days of the year. Right, which is more than it was worth for the first part of its life, basically. it is pretty insane. So it's funny how quickly we forget, like looking at the chart Amazon has been invincible. But do you remember in 2014 when the smartphone was a huge flop? It posted its steepest quarterly loss ever. And revenue growth in 2014 holiday season was the second worse since 2001. And the stock was in like close to a 25% drawdown. The great thing about being Bezos, too, with all the successes as he had, he can easily point to these failures and be like, see, look, I don't care. What? I failed. I don't care. It's amazing, yeah, which is great. And then, so in the Bloomberg piece, they said one of the scariest things is that Amazon still has a lot of room to grow. In the U.S., more than 90% of all retail sales still happen in a physical store, which was very surprising to me.

Wow. And then lastly, it's responsible for roughly 44 cents out of every dollar American spend online. And the Bloomberg piece did a really good job laying out the risk because it wasn't all roses. So we'll look to one in the show notes. Yeah, and I think the biggest risk for them in any of these technology companies has got to be government intervention. I don't see anything else that stops Amazon between now and that, right?

From being... Yeah, I would add to that that I think there's probably a lot more risk in the price of the stock than there is in the business. Right. Yes, from them just dominating. I mean, it's so hard to see anyone doing that to them, especially because they've made things easier for people and made it cheaper to buy stuff online. So maybe all of the optimism and good news and future growth is already in the price,

which is literally impossible to say because you could have said that. in 2017 and 2016 and 2015. Yeah, right. Well, when did you short Amazon? On was that again? I shorted Amazon in 2011. All right. Well, we'll revisit that. Well, you never, you never shorted Amazon. Look at me in the face. You never shorted Amazon. I sure thought about it when the P.E. was at 95. Anyway, um, a coward. Yeah. So, so there's a good article this week, an institutional investor. And this kind of brought me back to my days of due diligence meetings with money managers. And it talked about this guy at AQR, which is the hedge fund sort of liquid alt place started by Cliff Aznes and a few other his colleagues back in the day from JP Morgan Sachs. And the guy's name is Jeremy Getson. And

basically it said he's the most well-connected person in hedge funds. And it's kind of interesting. So this article goes through how things, how much things have changed in selling and marketing of funds and services in the asset management business. And it's kind of like in the old heyday, it used to be you take people golfing and you schmooze them and take them out for drinks or dinner and that's how you've got clients and it's not really like that anymore they're basically saying no now you actually have to know what you're talking about it's not only sales and marketing but it's about knowing how to solve problems for your clients but but it's also the sort of eye-opening thing in here for a lot of people who aren't familiar with this space of dealing with institutional investors

is the fact that they say basically his his biggest thing he's got going for him is he has the biggest rolodex of anyone in the hedge fund business because people trust him. And so it's kind of interesting that you're dealing, they mentioned in this piece all these five and $10 billion pensions that they work with. And a lot of it is still very old school in how they do things. So they want face-to-face meetings. And it's all about sort of relationships and who you know. And it's kind of interesting that with that much money, that it's still a very old school way of doing business. And that's how they do this. I love the line that they said, one of the AQR founder said, I wasn't going to add the person who loves to play golf and schmooze, I find it repugnant, that whole notion

of selling ice to an Eskimo. Yeah. And that, I mean, that really is big for me because that's kind of my line of thinking, too. I'm not that salesperson. So I think it's interesting. And they basically said, it's funny. The other line was from that same guy, he said, when we started at AQR, I felt there had to be a mutual respect in a real partnership between sales and research, because sometimes in money management, the researchers are the smart people, quote, unquote, and the salespeople go out to Shmoo's clients, and he said at AQR, everyone had to be smart. So it's interesting that they, that they, they've sort of made sure that it's not just the sales marketing people and are in a completely different division than their portfolio

management people, which is, frankly, a lot of the way that I, people that I've dealt with in the past in these roles, that's kind of how it's been. It's been very separate where you deal with these used car salesmen people that are just trying to sell you and get you anything to give them money. And then they have the portfolio managers who are brought in to explain the nuts and bolts instead of having the same person kind of do that for you. well so yeah this is totally they obviously take a different approach I'm sure this was a breath of fresh air for for people sitting across the table he said I like to come into initial meetings with 10 ideas for discussion none of them being a QR products and that's what the conversation is about yeah so I mean that's certainly we we've sort of learned a lot about that in our business the fact that you know it's not just selling people it's sort of getting people to trust you and and there's a lot that can go to that so I think I think things are slowly changing in the asset management business in that direction and then and then cliffassness shredded them on Twitter for this article. Probably.

He actually had some nice things to say, but yeah, this was an interesting one. So last week, I had some bones to pick with survey results, and I'd like to pick some bones again with another survey. So Bloomberg had a piece this week. A bunch of people were talking about it, and it talked about the number of Americans who owned cryptocurrencies. And there's this chart in there, and they show they said, they had to ask people a bunch of questions related to cryptocurrencies like Bitcoin and such.

And the numbers they had, it was like 12% of all males in the U.S. own cryptocurrencies. And the other one was like almost 3% of baby boomers and 9% of Gen Xers. And it sounds crazy. And then you read the results and it says this study was a survey commissioned of 2,000 American adults. But they say of number of American, I mean, it makes no sense. If you just like looked at the math, so there's 76 million boomers in the U.S. according to this survey of 0.000,000,000, 1% of them,

that would mean that 1.7 million boomers own Bitcoin. There's no way that's even close to accurate. The thing is, if you were in a big cryptocurrency holder, you'd want that many boomers to hold it. And if they did, the price would be way higher than it is because there's no way that it's that high. So I just have kind of a bonus. That's just a pet peeve of mine.

It actually found a survey that was going around this week. I think Noah Smith from Bloomberg posted this. And this was a political one in nature, but it was really interesting. And so all the studies these days show that the country has never been more polarized than it is right now between left and right. And people, it's- Well, surveys show. Yes, surveys do show.

And it's extremes. Many people are saying. And so they had these, there was a study done by these people at the University of Chicago, and they looked at a lot of these surveys. And they said, yes, the surveys do show the country has never been more polarized. But what they found was, it's not just that the country is becoming more polarized. it's that most people don't care enough to fill out these surveys, and the only people who do care to fill them out are the polarized people.

So it's the responses that I think people that are polarized are the ones who will take the time to do this, and everyone else just says, I don't care. So, I mean, maybe there's some truth to the fact that things are more polarized than ever. But I think it also could be a myth, and it's just the way that this data is collected. It's not very accurate in a lot of ways. So I think I know the answers to this, but I'm going to ask anyway.

Okay. Have you ever left a Yelp review? No. Have you? No. Neither have I. Because if I liked something, I would, I don't know, I guess I would go back. So that, getting back to my Sebastian Manuscalco guy that I went to see a few weeks ago, he said, who does this stuff? Who goes out to dinner and goes home and rates on Yelp? That was my impersonation. You know who does that? Chris. Okay. Yeah, I just can't see me caring. I tell my wife, I, tell my wife, I, loved this or I hated this and that's about as far as I go. And there is a great book about

this. It's, I think it's written in the 40s maybe. It's called How to Lie with Statistics by Darrell Huff. And I read this a couple years ago. I think I heard Jason Zweig recommended as one of his favorite books and it holds up really well. It just goes to show you like date it isn't everything and you have to just be really skeptical about how things are presented and how they're framed and how the results are taken in. So I highly recommend that book if you want to learn more about this. There's another more recent one, how to not be wrong by Jordan Ellenberg. And speaking of, like, presenting numbers and stuff, there was a tremendous chart crime today. I think, I forget who did it. We're going to one in the show notes showing the NASDAQ overlaid with Bitcoin.

Oh, I saw that. The NASDAQ was like sped up 15 times or something like that. Yeah, anytime you see one chart overlaid another chart, just assume that it's not right. And that it's not going to, what happened in other charge is not going to follow the other way it's yeah oh now you tell me yeah i know it's a little ridiculous yes is that why what got into gold in the first place um knock it off that's twice in one show that's true that's there goes my punch card i just i won't mention war and buffett anymore either okay so there was a some good data in the wall street journal from a census this week and i think it's got some investing implications it's kind of interesting basically they said and this is hard to predict i think but it's just kind of going on recent trends they said people over 65 by

by the year 2035, which will be the first time in U.S. history, are going to outnumber children, which is bonkers to me. So part of this is obviously the fact that people are living longer and health care is improving, but there's just going to be so many more old people in the country versus young people because of the way demographics are lining up and because didn't we talk about it on this show once about the fact that fertility rates are declining? And so the baby boomers are going to outnumber the young people by 2035, which is the first time it's ever happened in US history. So if you made a plot of fertility rate and population growth, which I think is 0.7% last year, and you overlaid that with Amazon's revenue growth quarter over quarter,

that should tell you all you need to know. All right, there's your trade of the day. I'll make sure to get some alerts on this. In this article, it said, the growing elderly population will also put pressure on lawmakers to shift funding toward programs such as Medicare and Social Security, particularly because elderly Americans vote at high rates, that is going to be a huge issue as we come into like our peak earning years. Yes, the young people. And that of our colleagues. Yes, and the young people are going to say, why are we spending all of our tax dollars,

you know, propping up the elderly with entitlements? I mean, the other thing here is just the fact that things like, you know, the labor force partition ratio, labor force participation ratio. What was that? Yeah. That was participation in ratio together. I'm making upwards today. What about it?

So, I mean, that's the kind of thing that that's going to continue to trend lower because there's going to be so many more people who could be working who aren't and probably just out of choice, which I think has happened a lot since the crisis as well. It's hard to say the market implications, but my favorite economics blogger, Bill McBride, he wrote a piece a few years ago who basically just said, you know, one of the biggest pieces of economic growth is demographics. And he said 2% growth is... So, like, people turning 35 and, like, starting to spend money in homes and...

Yeah, and population growth and the way things shake out. And so he basically said, 2% is the new 4% in terms of growth in terms of what we should expect. And which makes sense in a lot of ways in long term. So I think when you see politicians predict that they're going to make 4% or 5% growth, that's going to be tough to do with, you know, demographics the way they are. Sometimes there's things you just can't control. So, again, we've talked on this podcast before about what it means. means for the markets. I think that's much harder to predict in terms of will baby boomers

crash the market when they when they retire. Part of the reason is I think they're not going to is because if they're living longer, they're definitely going to need more stocks in their portfolio to make up for any retirement shortfalls. So I'm not sure everyone's going to cash out right away. But yeah, I agree with you that the political implications of this eventually are going to dwarf any other worries about the markets or the economy. There was an article on Bloomberg, I think it was, New York man with fictitious fund admits ripping off friends. It's sort of mind-boggling and really head-scratching when you see that these sort of schemes still exist. So, I mean, this guy was, he wasn't even trying or pretending. He was basically scamming from day one, according to the reports

of this investigation. And the scheme collapsed when a few investors tried to redeem one and a half million bucks. The whole thing folded. I think the funniest part of this article to me was the fact that he reported positive performance every single month, but I think they said the actual performance was negative every single month, which it's got to be kind of hard to do, right? What's the Mobeson thing trying to lose on purpose? Like, this guy's strategy was so terrible. He was done every single month doing some option strategy. It is amazing. I think the, I don't know, people are going to be ripped off no matter what happens, but I think the big lesson here is just that if it sounds too good to be true, it probably is. If your investments are going up

month after month after month with little to no volatility, that something's a miss. That just doesn't happen. Yeah, I don't really have much to add. I guess that's it in terms of how to protect yourself because there are definitely clever ways to trick people. I don't know if this is such an elaborate scheme. I think people were just maybe naive, but to your point, if it looks too good to be true, it definitely is. Well, it's also crazy that so many of these things are deal with friends and family money. In my organizational awful book, I wrote about that Andrew Kessperson guy. I don't remember that one from a few years ago. Never read the book. Okay. I'll give you the Cliff Notes version. But it was the same thing with him where he ripped off his family and friends. And it's like,

I think a lot of it comes down to trust. And that's how it is with most, you know, advisor or investor relationships where you, oh, this person, I can trust them. I don't need to worry about what they're doing. And then those are the easiest ways to rip people off, I suppose. So the DOL rule is dead. And for those of you unfamiliar, the DOL rule, what it did was it required advisors who make investment recommendations on clients, retirement assets to adhere to a fiduciary standard. And that no longer exists. Yeah, it got to the point where everyone thought it was going to go through and then we had a administration change and they didn't seem to like it for God knows what reason.

I don't know. How much do you think this really matters? Do you think people are more informed? I mean, this is just after we got done talking about a fraud case, I suppose. but this was just going to be for retirement assets. It wasn't going to be for all portfolio assets, which is kind of mind-boggling to me why they even tried to do it like that. I don't know why they couldn't lump all assets in there, but do you think people are becoming more informed and this doesn't matter anymore now the cat's out of the bag, people will be fine, or you think

this is a huge deal? I think it's nuanced because in general, customers are becoming more informed. But of the roughly 285,000 professionals, and we'll learn to this Walshirt Journal story, fewer than 2% are fee-only advisors. Did you know that? 98% are brokers or dual-registered broker-advisor firms. Wow. No, that number's shocking to me. I'd never seen that before. So there was one guy defending the DOL rule and one guy who basically takes aside that it is Obamacare for the financial world. He said the argument against it was, on average, fee-based accounts are more expensive because investors are purchasing more. That is ongoing services. Buy and hold investors, particularly smaller investors, trade and frequently, averaging six

times a year. So such an investor is better off paying a commission of $25 to establish a diversified portfolio of five ETS for the long run rather than paying an ongoing management fee. And in that particular instance, I would agree. However, that represents maybe one out of every 50,000 people in a brokerage account, right? No commission-based accounts has five ETFs that they're buying and holding. That's like the whole point. We're obviously a little biased here, but I think from our experience, the idea here that for people who don't know who aren't in the business, there's sort of two different ways to earn money. One of them is to sell commissions on the products that you're sold to your clients, and the other way is to charge a percentage

of assets on the assets that you're managing for clients. The brokerage, way of doing things has kind of been the way for a long time until the last, I don't know, 10, 15, 20 years, things have kind of shifted and they've changed a little bit and the brokers are sort of so holding on. But the problem is that model is incentivized to over trade and turn accounts because that's how people make money. So the way that the business is set up, you're not just buying and buying once and charging commission and holding forever for in the most part. It's constantly making product sales. to clients to get them to change and buy new things and earn other commissions.

So we see a lot of these accounts come over from brokers, and not once have I seen an account with five ETFs that has been held on to for five years, not once. It's always a mutual fund salad and or a ton of ETFs and individual stocks. It looks like a bomb went off inside of these people's portfolios. Yeah, and a lot of times it's kind of like an individual who has no plan where they want a little bit of this and a little bit of that, and it's easy to just sort of get away from yourself and completely fill your portfolio with nonsense. And so that's the idea. And obviously, these business models, the people who run those firms don't want that to go

away. And I think the market will eventually force them to, but it sounds like it's going to take a little longer for the regulators to do that. All right. Enough of us talking to the book. Let's move on to talking about the conference. So we are holding a conference in June 24th through 26 in Dana Point at a beautiful Monarch Beach Resort.

It's the second annual EBI West Conference that Riddholt's Walth Management puts on. And we have a lot of the usual suspects in finance, but we're trying to broaden out a little bit and bring some new names to the conversation. So we're very excited to see these people. One of them is Michael Lombardi. he has a new book coming out in the fall and Michael was the general manager for the Cleveland Browns

and he worked with the New England Patriots and Bill Belichick and the Oakland Raiders so yeah he's been around and he now works for the ringer which is Bill Simmons site that he made after leaving ESPN so I'm excited to hear that he's a very big process over outcomes guy

so interesting to see how the organizational side of things work in the NFL the other one is Ryan Holiday who was just on Barry's podcast, on Bloomberg, on a master's in business. And he's got a really interesting backstory in terms of sales and marketing. And now he's kind of an author and pushes stoicism. And there's kind of some overlap between Lombardian holidays. Well, I guess I think it was the Patriots actually read his book, Obstacle is the Way,

like the whole team read it. And so that's going to be an interesting one. Yeah, in terms of, yeah, he's got a lot of reach. So he's written about a lot of things about sales, marketing, but also, you know, very philosophical on some of the stuff he writes. Obstacle is the way is probably my favorite book of his. And we also have Russ Roberts. He has a podcast called Econ Talk, and he's from Stanford University's Hoover Institution.

So very excited to see those three people and other guests, and we will link to the conference in the show. We'd love to see you there. And the other big thing is we're going to be doing our first ever Animal Spirits Live podcast there, assuming we can figure out how to hook our mics up and do all the technical aspects. We're going to be back to back so we don't get thrown. off by looking at each other's face. Yeah, right. Yeah. We'll just Skype on stage. But so we're going to try to do that live and do a live show there. And it's probably one of the most beautiful settings I've ever been to for a conference. The hotel is gorgeous. It's in Dana Point,

which is right by Lake Laguna and Newport Beach. And it's just, it's, oh, gosh, it's so pretty there. So I highly recommend if you want to come out and see us and see these other speakers. It'll be fun. So let's move on to some listener questions. Yeah, we left some time. So we did, we had a few more listener questions coming in this week. So first question. So there's a recent Bloomberg article discussing BlackRock's lowest cost ETF is devouring inflows from overall and how you can build a blended portfolio now for about seven basis points.

What are your thoughts on building a portfolio allocated 50% to ETFs and 50% to other ETFs that are tilted more towards value and or more momentum or other risk factors? Endorse. Yeah. So basically this question is asking, what do we think about using index funds and then balancing them out with more active funds?

I think whatever works for you is usually my thing. But I think it is a little, the whole active versus passive debate we've talked about is kind of ridiculous in a lot of ways. And there's no need to be dogmatic about one of the other. So if you want to fill your portfolio up a little of each, whatever works for you. But for the rest of the week, are you more bullish on Minval or high dividend yield? I think I'm actually going to go a cyber security fund for Facebook. Okay. Next, how do you know when you have saved enough to retire by retirement? I mean be financially dependent to not have to work your regular job anymore. What is your magic number and how did you come up with it? A following question would be once you have hit that number

and are ready to take the plunge, what do you recommend for asset allocation or investing strategy post retirement? A lot of a lot going on in this one. This is a good question and unfortunately the best answer is it's complicated. I wrote a post about this last year, probably about a year ago, just how much money do you need to retire? And the rules of thumb are pretty simple for a lot of ways. So some people say you need like 20 or 25 percent, 20 or 25 times your annual income you need to spend in retirement. And that would be net of like social security or pension income or whatever else you have money coming in from. The way that you back out into that is because people say you can typically spend 4% of your assets without drawing down your

portfolio, you know, inflation adjusted over the life of your assets. There really is no magic number. And the biggest reason for that is because life always changes and how much you spend is not going to be static each year and life's not going to follow a spreadsheet. But the hardest part about the whole financial planning process is that you don't just do it once and then follow a plan. You have to constantly update it and make changes. But I mean, I think that's a pretty safe way to do it is first figure out how much money you need to spend and then back out from there to figure out how long your portfolio will last you, net of any other sources of income. Do you have a magic number? My magic number, my magic number is 4.9 million.

Okay, so $4.9 million and you're retiring from the podcast next week. So what I did for that magic number, and it's a joke, but it is a good hypothetical. So let's say that you spend $100,000 a year and that was what you spent in the last year before your retirement and you think that's going to inflate at 3% a year and you're going to be around for 30 years. So that's how you get to $4.9 million. And then from there you could work backwards. But I think to Ben's point, there is no magic number because things change and life

happens and a financial plan is not written in tablet. It's something that evolves and it's living and breathing and it gets updated every year and when situations change. And that is what our financial planners do with our clients pretty much every day. And part of the thing is that obviously you have to make some assumptions about, you know, expected market returns. And the way that you do that is then let's say five or ten years down the line, you figure out how much you spent and what market returns actually were and then you update your plan from there. I think there's a misconception that you have these expected returns and then you give somebody a 40-page document and then you send them off on their way. But I always say that the reason why you update this all the time is because,

again, life happens. But over the period of time, expected returns turn into realize returns. And so you're constantly monitoring if you need to make any allocation changes, any personal finance changes, saving more, spending less, things like that. Right. Have things gone better than expected? Have they gone worse than expected? And then you update either your actual spending or your expectations from there and make changes. And that's why, like we like to say, planning is a process, not an event. All right, recommendations. What do you got? So I'm not been reading very much because I've been watching basketball for the last 72 hours straight or so, but I did really like the startup way by Eric Rice. I think that's how he says

him, Rice, Reese. And basically, he wrote another startup book before this. And basically, it's the idea of, this is a Silicon Valley guy who's trying to have the startup ethos in much bigger and more established firms. And so it's kind of like a business management book. And he goes through a lot of the different like Six Sigma approaches that you learn in business school and all the stuff that's in the business tech book and kind of shows why they're not really applicable anymore. And so he actually goes into some bigger companies and he went to GE and as a consultant and showed them how to have a more entrepreneurial mindset in a huge established company like that and how it can work so you don't get bogged down in the bureaucracy of a big company. So that was kind

interesting. He turned a lot of the, you know, strongly held management principles on their head, kind of. And so I like that one called The Startup Way. Wife and I rewatched a movie called About Time this week. Have you ever seen this one? I've heard of it. So it's actually got the red-headed guy from X Machinae that we talked about last week and Rachel McAdams. And it's actually like a little more of a lighthearted view on time travel. And so this guy realizes that all the men and his family can time travel, but instead of being like all scientific and sci-fi about it, he just decides to like figure out how to make his life better. And I won't give it away, but the punchline at the end of the movie about how to think about how you allocate your time

and spend your time is, was actually a really cool way of thinking about it. So it's like a time travel movie that doesn't get into the usual stuff that you see in the sci-fi time travel. And then I had to mention my one, usually for TV watching, I leave myself one like sappy show that every other week is probably going to make my wife cry. And so this one for us right now is called This Is Us. I don't know if you watch that. The second season just got over. I really enjoy it.

I need one sappy show in my life. Do you cry? I don't cry, but my wife does probably every other episode. Maybe it gets a little dusty in there. I'm the opposite. It might get a little dusty in there every once in a while for me. But I feel like the fact that we had twins, and this is a show about like a family that has triplets.

So I've had these kind of shows in my life for the last decade or so. So first it was Friday night lights and then it was parenthood and now it's this is us. So I just need a little of that sap in my life every once in a while. So my wife watches that show. She's not a crier, but I have a small two bedroom apartment so I can't like not watch what he's, she's watching even though if I'm like watching with one ear. And so I was like almost crying at one scene and I don't even know what's going on. It's a very, they like know how to pull your.

There's very much. Yeah. My gosh. All right. So if you started watching Homeland and you jumped off the ship, it's time to get back on because this season is freaking awesome. I read Creativity Inc. this week, one of the best business books I've ever read, like ever. Probably the best business book I've read since Only the Paranoid survived by Andy Grove.

It was really, really, really good. A lot of business books tend to be like fluffy. This had like tangible, actionable advice. And I probably highlighted more in this than I have in any other book in a long time. Which is the backstory on Pixar. On Pixar. Yeah, I'm sorry. So Ed Catmull was the president.

His partner was CEO, Steve Jobs, and creative designer. I don't know if that was his official title. I think his name was like John Latimer or Lasseter or something. I'm sorry if I'm misremembering that. And then a lot of our listeners are financial advisors. So for you all out there, Michael Kitsis had a really good. video this week, handling the up and down stress of being a financial advisor. That was just really well done. And that is it for me. I'm good. All right. Thanks for listening. We'll see you next week.