Odd Lots - Lots More With Sam Ro on the Booming World of RIAs

Episode Date: September 20, 2024

The Future Proof Festival takes place right on the beach in Huntington Beach, California. Thousands of registered investment advisors from all over the country come to talk shop, take pitches from vendors, eat tacos, drink beer, and listen to a concert from Third Eye Blind. On this Lots More, we talk with Sam Ro, the author of the Tker.co newsletter about the RIA scene, financial media, behavioral finance, the Fed, and the business of musical artists playing at conferences. See omnystudio.com/listener for privacy information.

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So how about we plan for this? I'm going to ask you guys what your Fed forecast is. And then I'm going to ask you again and we can record two versions of it. And then in the actual episode, we'll use whichever one was correct. Is that, is that something like a good plan? I'm just going to hedge my bets and say, I think they're going to cut by 37.5 basis points. I mean, a Dovish, a Hawkish 25 or a Doffish 50. Yeah, you know, I think either after the announcement, I think either the high end or the low end of the Fed funds target is going to be five percent. I did a deadlift. One, two, three. Hedge.

Okay, go. What two. Gems. Gany. Barges. This is an after-school special, except... I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the U.S. Where's the best squid ink pasta?

These are the important questions. Is it robots taking over the world? No, I think that, like, in a couple of years, the AI will do a really good job of making the oddlots podcast. And people will say, I don't really need to listen to Joe and Tracy anymore. We do have... Cha-ching. The perfect guest. Welcome to lots more, where we catch up with friends.

about what's going on right now. Because even when odd lots is over, there's always lots more. And we really do have the perfect guest. Honestly, though, I think we're kind of splitting Harris. But don't you think we're kind of splitting Harris, 25, 50 basis points?

Well, I think go back and forth on this question. I don't know. I think the interesting thing is like, well, we're journalists or media people. So we all kind of think... Journalists. Yeah, okay.

We're journalists. And we all sort of think about things in terms of size and scope. So the interesting size and scope for this meeting is everyone expects them to cut, but there's never been this much uncertainty about 25 bibs versus 50 bibs. Like the market, the last time I checked, was pretty evenly split between the two of those. Right. But yeah, no, in terms of backdrop, I think that's actually an important thing, right? Like, sure, it's never been more split in terms

of what the consensus is. But, well, why don't we also consider the fact that, you know, we're not on the cusp of an economic crisis. Yeah. We're not at the, you know, in the throes of the inflation crisis. So I feel like, you know, monetary policy developments and rate cut announcements and the press conference probably has more risk of market volatility when we're, we have a market crisis as opposed to now where, you know, the stock market's at an all-time high unemployment rate is relatively low. Inflation is pretty calm. So I don't know.

I think we're splitting hers. All right. No more conversation that's going to be completely irrelevant by the time. everyone listening to this. We are speaking, of course, with Sam Rowe, who writes the fantastic ticker newsletter, one of the substacks that I actually open. And that's real. Thank you. That's real. I actually open it. I feel like Tracy, like newsletters, they're the new economist subscription where like, you know, you subscribe to the economist and then like eight pile up and then, you know, like people use. Oh, I thought you're going to say in terms of prestige, like the way people

always buy the economist when they're at an airport so they can just like be in the lounge with an economist. also it is kind of like that, but it's like you subscribe to the economist I used to, but like I didn't really read them, you know, or like I'd like, so I was actually on a content creator panel. Oh yeah. Earlier this week for the future proof conference. And that question actually came up, you know, how do you guys think about cadence and publishing schedule and all this kind of stuff? Everyone on the panel kind of had a different approach to this. Like some people say, you know, you got to do a daily thing. Yeah. Keep the volume high because you never know what's going to hit and one of those things are going to hit. Or remind people that you're there.

I hear that a lot. Right. You have to remind people and be top of mind all the time. Exactly. You know, give people, you know, value for their money or whatever. I don't know. I kind of taken a contrarian approach to that. Sometimes I joke that the less I said and the more valuable my product is or whatever my output is. I try to think of, you know, the reader's time as much as possible. Like kind of like, you know, the magazine's stacking up, right? There's a reason why that magazine stacks up is because you probably have other more important things to do. So I try to, you know, be really careful about, you know, sending stuff out that I think when people open it and read it that they're glad that they did it. And so the next time they open it, then they'll be

happy to read it. And if I'm not sending something out, it probably sends a signal that, you know, I don't have anything to say that day. Yeah. I always think that you should do what you're best at, right? There are some people who are actually very, well, Joe's one of them, who are very good at putting out thoughts on a daily basis. I open that news one every morning, too. Thank you. I scroll. There are other people, probably me, actually, who are better at kind of like selecting

topics and then going deep into them. Yeah. And you are very good. Oh, thank you. Thank you. There was a pause. No, there wasn't, that wasn't just like that sort of like de facto reciprocation as very real.

Thank you. So we're out here at the Future Proof Festival, both did things on the stage. But actually, what are you been writing about lately, Sam? You know, you write everyone so while because you're so mindful of everyone's time, unlike me who's always trying to be top of mind with everyone. You know, you store up. What do you've been talking about? Well, I mean, market volatility has been kind of fun.

Yeah, yeah. Kicking August off with that huge sell-off and then having the rebound and then kicking September off with that huge sell-off. Wait, actually, here's another media question. Yeah. We're correlated to the VIX. It's always good for a boost and subscribers or listeners or Twitter followers, whatever. Do you find the same? Yeah. Oh, absolutely. Like, you know, a bull market with low volatility

is terrible for business because no one has any questions when the market's going up. They just open their 401 plan and they see the numbers going up and they're not concerned about it. They go on with the rest of their lives. You know, they'll go shopping. They go to Disney World. You know, they watch Netflix. It's only, you know, when the numbers start going down, you know, they're wondering, you know, should I actually be more concerned about this? You know, how do I think about this? Why haven't I made a plan about this? And, you know, hopefully, I sent something out that helps explain that. But yeah, no, I've mostly been writing about,

and a lot of it is just repetition of the same old stats in that market volatility is a thing. When volatility is low and the stock market is near record high, like those are at times where you have to start reminding yourself that, you know, on average you see a 14% max drawdown in a given year. So when you do see that big 5%, you know, 10% drop in a week or two, you know, if you have that mindset knowing that, you know, I was prepared for a 14% sell-off, then this is completely normal. And, you know, you just make the best out of that situation,

as opposed to panic and try to make a plan in the throws of that mess. But August was so weird. We've spoken about this a number of times now. But like, it was so sharp the drawdown and so freaking short-lived, right? Like three days, basically, where it was the end of the world. Yeah. And the Fed's going to cut by 100 basis points and the central bank needs to be out there talking to people about what's going on. And then, you know, it's September and I can barely remember what happened. Yeah, it was strange. It was strange. And I still think people don't know what happened. Yeah, I was about to ask, what's your take on what caused the sell-off? Because this is the other thing

that I think was interesting. There was such a huge narrative around the carry trade unwind. And then it was like, well, we all kind of forgot about it a week later. Right. I mean, you have a lot. have to learn all that stuff in real time. I mean, I think that's why it's such great, you know, work to be in media and journalism and research and all that kind of stuff. When stuff like that happens and people start screaming about carry trade unwinds and, you know, movements and other markets that you should be worried about that might be somehow related to why the U.S. markets are down, when you hear stuff like that, that, to me, kind of echoes of financial crisis because, you know, there was so much stuff going on in the crisis that, you know, was completely inscrutable.

Like, you know, you hear a little bit about, oh, home price started down and this and that, but it wasn't until they start talking about mortgage-backed securities and asset-backed securities and CDOs and all this alphabet soup that you never heard of that you start to panic. And then afterwards, you realize that was a big deal. So when you do hear about these new, you know, exotic trades that might be unwinding, you know, you rush to do homework. Joe, I just realized we can give the people what they want and just, make this a conversation about financial media during 2008?

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And so these are people or small companies, typically a few people maybe, and they manage people's money. You're pretty plugged in. I feel like you're really plugged into that world. I feel like you're probably like a very must read among many of the people here. You're a celebrity here. Like tell us about RIA world. Does you see it? I mean, I don't know.

I couldn't speak too much about the business, but the culture, you know, actually very much reminds me of the whole independent, you know, newsletter, writer, media, kind of thing, where, you know, there are so many services and things that you can outsource now. And, you know, the regulation is very friendly that, you know, because a lot of these people here used to work at bigger firms. Yeah. You know, they come from places like UBS and Morgan Stanley and decided that, you know, they were sort of beholden to, you know, an organization or a culture. A way of doing business. A way of doing business that they thought they could do it differently or do it better. And, you know, this whole boom in RIAs basically said, hey, I can probably take a risk. I see all these other people doing it.

I'm going to give it a shot. And then, you know, conferences like this happen where you can just walk around and people will give you all the answers to all your questions. And so like a lot of the attendees are RIAs here. And then there are all these booths and they're all the companies selling services to RIAs. So it's like, we'll handle your tax things and we'll handle your back end infrastructure. or we'll handle your social media marketing or what like all of these services including like we'll handle your portfolio construction. So really the only thing that they need to do on their own is to read Sam's newsletter and then tell their clients about how stocks always go up. Or yeah, just sounds smart in front of clients. But that's like a big thing, right? Yeah, yeah. No, no. I mean, that really is it. Like even what I do

is, you know, there's not a whole lot of original stuff coming from me. I do a lot of curate. Well, a lot of my work is curation and just sort of amplifying the work of other people. And, you know, those are the kinds of conversations I do have with, you know, a lot of these professionals here is, you know, you help me save time, you know, doing the research and finding interesting stuff. Because instead of me having to, you know, read, you know, 15 pages of the Wall Street Journal every morning, you know, I'll read your Sunday newsletter and come out with like six different stats that I could talk about with clients next week. You know, as much as I'm here to, you know, enrich readers or help people become better investors, there's nothing stopping anybody from just ripping stuff off from my newsletter and

then sending out to their clients. That's kind of what media is there for. I feel like it's there to provide the talking points. And so Bloomberg famously has something called the market wrap. Yeah. Which sits on our top menu all the time. And it basically summarizes what's going on in the market. And I remember there used to be a discussion about like, well, Why do you need something that's just telling you if the S&P 500 went up or down that day? And the answer is because there are a lot of people out there who need to talk to their clients and basically summarize what's been going on in the market. And if they can do it by just reading this one thing, it's actually really useful.

Right, right. And, you know, there's a lot of ways to define a lot of people, right? Like if you're doing this at an organization where you actually have to have really big numbers to justify this kind of service, then, you know, you time it and you, you, you have to actually define what a lot of people is. But for me, a lot of people might be 20,000 people or 50,000 people. And those smaller audiences might be on a different kind of schedule or might be on a different kind of cadence. When I've done research into the newsletter business, the financial newsletter of business, I do know that the biggest audiences exist in the mornings,

Monday through Friday, daily before the market's open. I don't have the capacity to write every morning, but I do know I'm missing out on an audience that way. But I'll send something out every Sunday. And there's an audience that exists for that. It's not as big as the weekday audience, but they do exist. And it turns out they are actually being underserved by some of these other places that go for the high volume play. Joe, speaking of a lot of people, that's like one of two things that I've learned about RIAs while I'm here is that like, there's a lot of them. There are a lot of them. And like the number of RIAs that are at this particular event seems to basically be doubling every year, which, you know, a lot of

of that credit to Barry and Josh and what they've built here. And then the second thing I learned is that they all wear polo shirts. Yeah. Yeah, dry-fit polo and leisure, workwear. Yeah, and hookah sneakers or those Nike's that are really comfortable and stuff like that. I know I have a pair of those Nike's. I call them my old man early bird buffet shoes because I run because they're running shoes, but I don't run.

But they are really comfortable to stand in. So, like, if I'm standing in line at a buffet at six in the morning, I'm going to be in running shoes. Yeah. Actually, I just noticed, Joe, you're wearing, like, uh, I'm wearing slides with socks. I know. It's, I don't know why. I like having my feet warm, but I also like being able to slip in and out of slides. It's very gen Z of you.

Yeah, it is. Thank you. So I've, I've been told that's very hip. Um, you know, the other thing, too, that I think this crowd is really into, and it makes sense from the perch of the investment advisors. They love behavioral stuff. They love stories about how irrational people are. There seem to be a limitless appetite for various studies that show that the human brain responds more to fear

and that we sell at the exact wrong times and just all the ways we're irrational. But it makes sense because that's like the main thing they have to do to tell their clients to like just remind them not to sell at the bottom, right? Right, yeah. And to your point, it makes sense. You know, it's funny. There's so much about finance that's theoretical. That's very quantitative. that's based off of models with, you know,

different number, you know, quantitative inputs you've put and like something comes out the other end and that thing never happens because people are irrational, right? Yeah. But when you hear about that, you realize that the markets are much more intuitive than you think, right? Like, I'm one of many people who are trying to trade the stock market, but I'm also going to panic and freak out when the market sell off. Like, that's just sort of my nature. And now someone's explaining to me that actually there's a whole field of study based off of this

And every week, someone is coming out with a new paper telling you about behavioral finance, and this is how markets work. That's something that I always thought was really interesting when I first read the intelligent investor, which is, honestly, it's kind of a dense read and it's kind of boring. But there's a lot of it in there that talks about, you know, behavioral biases and how. So they've known about this forever. Forever. This is not groundbreaking stuff.

Like I think it's more popular now with the work of, you know, Thaler and, you know, Schiller and all these people who are doing a really nice job of telling that story. But, you know, behavioral finance has been around forever. You know what I don't get about this particular event? Joe, you described how there are all the booths there and they're providing services for RIAs. But what do the RIAs talk about when they talk to each other? Yeah, and they're all standing around holding their beers and tacos and stuff like that. They're all competing for the same clients. By the way, an RIA pitched himself to me and some of my fellow. Bloomberg journalist and it was actually it was a bit patronizing because he came up to us and he was like

oh I'm an RIA and we were like well what do you what do you do exactly and we meant that as like who do you work for what exactly do you do and he was like well I manage money one day when all of you are rich and famous you need to find someone like me to manage your money for you and we're all kind of like okay I we understand that part you don't need to pitch to us but I assume they're all competing against each other for client money. Yeah, I mean, you know, what did journalists talk about when they get together? Like, you know, there's a big CNBC presence out here. You know, what are the CNBC people say to the Bloomberg people? Like, there's obviously stories that I'm sure that they can exchange notes on and, you know, as much as you're competing with people, you're also exchanging

notes, right? Like, especially like in this independent game, you know, they're probably all talking about how terrible they're, you know, the last company that they work with. You know, you're also getting a tax deductible vacation to Orange County, California. That's something my accountant has been telling me. Yeah. Well, you run your own business now. That's right. Tax is actually something you have to pay attention to. Yeah, I'm the CFO. I approve the expenses. I'm HR and I'm, you know, I do all the infotech. But yeah, no, it's a big part of it. And, you know, I think something that's been kind of a positive experience about going independent is understanding and appreciating all that kind of stuff. But yeah, no, the tax code is designed to encourage businesses to go out and, you know, do business stuff.

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Obviously not everyone. But the thing that I think about a lot in America is that like you can have a house in Newport. Beach. You can have a boat on a marina in Newport Beach. You can go to a restaurant where clients, if you're rich enough, have their own wine locker in the restaurant so that they can just keep their wine there. And you can be a total nobody and have all that. Like, you really, like, that's the amazing thing about America is like, there are all these people that have like so much wealth. And like in many other countries, they would be like a prince or they would be the person that owns the regional Coca-Cola beverage distributor or whatever. Here you can basically be a total nobody and never have really done anything and still,

like, if you're lucky enough, have that life. Well, it's not even just Southern California. Yeah, it's everywhere, yeah. Because it's like, you know, we're surrounded by wealth advisor. And they come from all over the country. Yeah, yeah. And that's something I've also. I'm not calling them total nobody.

Oh, no, no, not. I just want to be clear about that. Yeah, no, they're flying under the radar and they're not on the Forbes 400. Yeah. Like, you can have $100 million and no one will ever hear. about you. Have you ever heard of your name? But these people exist, these families exist in every state of the country. And so, you know, when you do meet someone who, you know, has a team of 20, you know, analysts, but they're in Sioux City, Iowa, it might be jarring for people from

bigger cities that are dealing with just ungodly amounts of wealth, but there are actually massive amounts of wealth across the country in every city. And, you know, that's something that's kind of interesting about going to these events. where they all provide similar or very same services to all these people, but culturally they're a little bit different. I mean, did you see there's a booth that's got like guys with cowboy boots and cowboy hats? Is that Texas Capitol? Texas something.

Yeah, yeah, yeah, Texas Capitol. I think they also do like a barbecue. Oh, yeah. They had beers last night. So shout out to Texas Capitol for providing easily accessible beers at the event. Appreciate it that one. Wait, okay. So I have an important question.

Are you going to listen to Third Eye Blind later? Yeah. Oh, for sure. I mean, the only thing I'm really excited about it, the only thing I'm concerned about is I only know two of their songs. So that's one more than most people. Well, there are, I mean, only two of them became like a thing. So I don't think that's unusual.

Yes, I don't know how long their set is if it's like 30 or 45 minutes or an hour. But I'm sure it'll be great. Live music's always great, right? Tracy, I really want to do an episode. on the music industry tour event. Because a lot of these events have them. And they're always like someone who is really big like 20 years ago. And because everyone at the event is like kind of like our age, middle age, et cetera,

you know, they're like people that we liked, I was never in the third eye blind. People we quote liked when we were younger. And then it's like, oh, we're seeing third eye blind or it's like, oh, we're seeing, you know. Nelly. Nelly, or Sugar Ray or just like any of these bands. But like how that works and like their pricing and how like, okay, let's say we're throwing an odd lots event one day on the beach and we're like, yeah, we want to get someone like who do we talk to to to get the price list of the bands?

I want to do that episode. Yeah, there must be like a market or an agency out there. Yeah, there must be. Right. Yeah, for sure. It specializes in like one hit wonders from the 90s. Yeah. Or just like the whole like what happens one, a mega celebrity.

you know, is out of the spotlight. Yeah. You know, like when people, you know, quote unquote, retire in their 20s or 30 after they hit their peak, you know, they can still go out and have like, you know, lucrative career either doing exactly what they're doing or marketing their brand or just completely going into. The other one that's kind of like very closely related to this

is concerts and musicians at casinos, but not Vegas. But like if you go to like Atlantic City and go to, you know, they're like, oh, Earthwind and, fire is going to be performing or something like that and how that works because again they're not like they're long past their prime right but they're i guess they're not like fully retired and so how that market works for like those artists and stuff like that like i was actually just thinking about this because i remember that in high school i was a really big fan of 311 and so one day i decided to just google it and it turns out they're on tour yeah and like there's so many bands and they're always in

random towns they're always in random towns and smaller venues and all the this kind of stuff. But yeah, it's kind of funny. You just think about bands that you haven't really thought about for a while. And yeah, you just Google it. They're still grinding away. Half of them are like currently on tour and yeah, they're grinding away and you can go see them in like intimate venue. 311. I don't know what they're called. They have some concerts coming up. They're going to be an Ocean City, Maryland. Oh, on the September 27th, Agora Hills, which I don't know where that is on October 11th and Anchorage, Alaska on September 20th. So they're grinding away. Yeah. I mean, it's it's cool that they do that because, you know,

it brings attention to some of these smaller cities. Not that, you know, this is not a Taylor Swift tour, right? But like the hardcore fans will drive for two hours to go see a show. Well, I was going to say, you're talking about smaller cities, but where I am in Connecticut, there's a very famous county fair. And it's like exactly what you would think of as a county fair. There's cows. and pigs and chickens and things and prizes for the most beautiful tomato grown every year. But they do have a musical act. And I can't remember who it was this year,

but it's like it is people, well, mostly from the 1970s, like smaller bands. And they're all, they're touring county fairs across America. They're always very notable names. Yeah. Sugar Ray, I just looked up there. They're also playing Ocean City. So there must be some sort of festival.

There you go. And then September 28th, they're playing at the Seneca Casino in Niagara Falls, New York. So the tour lives on. I think it's funny that we're just talking about like touring music acts when we started out with the Fed. Yeah. But there we are. You know, you go from macro to micro and whatever.

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