The Breakdown - Josh Brown on Bitcoin’s ‘Respectability Rally’ and Why We’ll See Dow 100,000 in Our Lifetime

Episode Date: December 3, 2020

Josh Brown is the CEO of Ritholtz Wealth Management. He is also the host of “The Halftime Report” on CNBC, author of the “Reformed Broker” blog and host of “The Compound Show” podcast.  Most recently, he is the author of “How I Invest My Money: Finance Experts Reveal How They Save, Spend, and Invest.” In this fun and freewheeling conversation, Josh and NLW discuss: Why financial advisers give a lot of advice but don’t actually share their personal strategies  What’s driving bitcoin’s “respectability rally” (Read more here)  Why we should be excited about, rather than worried for, the new generation of Robinhood traders Why the Dow Jones Industrial Average is going to 100,000 in our lifetime  Find our guest online: Twitter: @reformedbroker 

This bonanza of, I don't want to say federal assistance, but maybe central bank assistance combined with federal assistance, pushing the middle class and the upper middle class back to whatever net worth they might have lost. And then you've got this whole underclass of people who aren't really being helped by any programs other than, let's call it welfare. Soup kitchen, like literally soup kitchens. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, nexo.io, and all nodes. And produced and distributed by CoinDesk. What's going on, guys? It is Wednesday, December 2nd, and today I am joined by someone that you might know.

He's the host of the halftime report on CNBC, author of the Reformed Broker blog, host of the Compound Show podcast and CEO of Ritt Holt's Wealth Management. I'm talking, of course, about Josh Brown. Josh is also the author of How I Invest My Money, a new collection of essays from financial managers that flip the switch, and instead of simply asking them for advice, ask them what they actually do, and even more importantly, why. In this episode, we talk about what inspired him to write that book, why we should be excited about the new generation of Robin Hood Trader Kids, why the stock market has rewarded permables, and of course, Bitcoin, which Josh labels as being right square in the middle of the, quote, respectability rally. Now, for those

who are used to these shows, usually we're pretty good about swearing, but Josh and I get a little fired up, so there may be a few more bombs than you're used to, but I know you're going to enjoy it anyway, so without any further ado, let's dive in. All right, Josh, welcome to the breakdown. I'm so excited to have you here. Great to be here, Nathaniel. Thank you very much. So Josh, I want to do a bunch of different things today. I want to talk about your recent Bitcoin piece, which I think is great. I want to talk about some of the things going on in the markets that have happened. But the specific reason that I reached out to you now, it's a conversation that I've been wanting to have is you just published a book, which I thought was a really fun, interesting, and kind of different book. So maybe we could

talk a little bit about that first. Sure. So the idea behind the book, was that whenever you see people like me in the media, we're usually giving investment advice and telling other people what they should do with their money. So the idea was to turn the tables on popular investment commentators and financial advisors and just say, okay, we understand what you think everyone else should do. What do you do? And it's not really the what that was most interesting, although that was, it's the why. Everyone that told us what their portfolio consisted of also explained the reasoning behind it. And you almost never see that anywhere in financial media, like people that literally are professional investors and manage money for a living

explaining their own holdings and why they own what they own. So it was a lot of fun to do. We did it during the pandemic. We had complete buy-in from, in my mind, some of the best writers and speakers in the industry. The only rule was there are no rules. We didn't tell anybody what we wanted specifically. And we came up with the list of people. We wanted people that actually manage money for a living. Like there's a lot of people that have opinions about the markets, and that's fine. It's America is the First Amendment. But we wanted people who are like registered and like do this professionally because we thought that's what would make the book unique is to have actual professionals weighing in on their own asset allocation. So that's the story and we're a

bestseller and we're number one in multiple categories. And I think we're the top selling business book in Belgium right now, which is really exciting for me. And I'm just, I'm so happy to end the year on a positive note and to have this be the caper. So that's, that's where I am. And that's what's going on with the book. I thought that the why was that is definitely the coolest part behind all of it. And I thought it was really cool, actually, even though the small convention that you guys have of having kind of a little line drawing at the beginning of each chapter that incancelates that. So yours is a big circle that is your life with a very small piece of investment. And I thought one of the most interesting connection points with that was the way that you treat your house. I thought it was actually really like nice and different, especially as there's so many folks who talk about like a house is an asset or a house is completely not. It's just this consumption expense. And you kind of blew those two dialectics out of the water a little bit. Well, at the stage in life that I'm at, like, I want to have house that I enjoy and we put a lot of money into it and we don't expect it to like pay off. But we're raising our kids there.

We're making like some of the most important memories of our lives and we're living some of the most important critical years of our lives there. So we're not thinking about it as an investment at all. And I know I can sell it now for more than I could have last summer because everyone all of a sudden wants to live in my town coming. out of Brooklyn and Manhattan, but I'm not selling it because then I have to go buy something. So we built the house the way we wanted it for us. Like we did all the renovation, I should say, the way we wanted it for us and we plan to stay. But I don't have like an insane attachment to it. Like if things in my life change and I can move somewhere else or whatever or I want to move somewhere else I can. So I think I'm like that with my portfolio too. I think I'm like that

with every asset that I have. I try to just be like to take as much of the emotional attachment away as possible while still acknowledging that some of these things that I'm invested in do have an emotional connection for me. And it's just, it's the reality that everyone grows up and comes to realize. Yeah, I think figuring out the right line to strike between recognizing that you're going to have emotional biases and attachments while also trying to kind of not always act upon them is a really tough one.

Were there any other common themes that you saw across the essays that made it to the book? I think one of the more interesting things that we learned when we started getting back these chapters from all the contributors is that the things that happened, the formative experiences that you have with money in your childhood and adolescence and young adulthood echo throughout the course of your life for like years and decades to come. and that was like one of the biggest common themes was like people talking about how they're invested today and then going very far back in time to, I don't want to say explain themselves, but give the reader the context for why that allocation makes sense for them.

So I think that that was really interesting. I had a lot of like children of divorce, myself included, and the way that we saw money get tangled up in, you know, the breakdown of our families and what that calls. caused us to become as investors or as savers. Like, that was a big thing. My friend Desarte Yarnmois' parents fled a 16-year civil war in Liberia and came over here with nothing. And, you know, I think he watched his father become very important in the community

of Liberian expats in America and somebody that they turned to for help and assistance. And so now he sees himself that way. and with his investments, when he sees a fellow entrepreneur in his community doing something, he wants to back them with his own money. So, like, there's a lot of that kind of thing going on, like what you saw as a kid, how it affected you and how it shaped the kind of investor you are today. And again, I don't really think you're going to read that anywhere. I think it makes the book so unique is that there are so many of those stories.

Love it. Yeah. And the last thing I guess that I'll note that I thought was really cool about this is that you turned it into a book drive as well. Yeah. Well, so look, I've been bitten by the philanthropy bug. And knowing me, everything I do always goes to like ridiculous extremes. So God knows what I'm going to be doing a year from now. But this summer, I just became very affected by seeing food lines and, you know, thinking about industries that like you wake up one day and you work.

in a specific industry, and you just lost this cosmic coin toss that you had nothing to do with. Like, you happen to be a manager at a restaurant chain. It's like, what did you do? Nothing. Did you offend the gods? No. Right? Did you bring this on yourself?

No. But that doesn't change the fact that you don't know where your family's next meal is coming from until the industry that you've devoted your career to comes back to normal. So there are like millions of people. in that fucking horrible situation right now. In the meanwhile, I'm on Wall Street and stocks go up every day. And when stocks aren't going up, gold does. And when gold doesn't go up, Bitcoin does. And it's just like, it's like this bonanza of, I don't want to say federal assistance, but maybe central bank assistance combined with federal assistance, pushing the middle class and the

upper middle class back to whatever net worth they might have lost. And then you've got this whole underclass of people who aren't really being helped by any programs other than let's call it welfare soup kitchen like literally fucking soup kitchen. So I looked at this and it just made me like, it just made me like radiate with empathy and just like be like I can't sit here and do nothing. So I've been doing stuff all year trying to move money, trying to raise money, trying to raise awareness. And then with the book signing, I was just like, look, I'm so lucky. I'm a published author in a pandemic and people are buying my book. And they're asking for signed copies. I'll tell you what, make a $50 donation to my food bank that I'm supporting. And I will sign

as many copies as you want. And we've raised, I thought we'd raise like five grand. We raised like 15,000 already. And I'm leaving it open. And people keep buying books and mailing them to me and making donations. And those donations are going right to L.I. Cares and the Harry Chapin Food Bank. And I've been told it's about eight. 89 cents a meal is the is the guideline. So we are literally serving like tens of thousands of meals. We're feeding hundreds of families every week with the money being raised. So I'm really excited about it. And I can't wait to think up the next thing I'm going to do to try to help as many people as I can. I love that. I think one of the things that we noticed or I noticed very quickly when the pandemic hit and especially when lockdowns hit is so why I live in a little town, you know, two hours north,

of New York City off the metro north. And this town is, you know, a couple hundred people. And the one restaurant that figured out how to stay open partially as a takeout restaurant, all of a sudden just started making meals available for the whole town, you know, and it was a no questions asked kind of thing. It wasn't like you had to fill out some paperwork to qualify. It was just a good stewardship and a good neighbor thing. And they started reaching out and they fit, I mean, they're still doing it this day. They're doing it a little less frequently now, but they're feeding, you know, hundreds of people a week. And I saw a resurgence of that type of activity at every level from kind of the smallest, most local level up through institutions that can help. And I think it's

an important reminder. You know, we are, you know, we just got off the best, you know, Dow, Dow month in 33 years or something like that. Bitcoin is soaring. There's so much optimism and excitement around these vaccines. But there's still this major question of what kind of cleaves in the economic structure of society are left behind, you know, as we enter the vaccine era, what comes back but weakened, what comes back stronger than ever and what never comes back? And I'm sure you've thought about that. I have. I think we're probably overstating the idea that certain things are never coming back.

Usually that's a bad bet. But you could have things be in secular decline for like 25 years. And movie theaters are probably an example of that. So it's not like you're never going to be in a movie. theater again. It's just like, that's just not a thing that, you know, future generations are going to do as much as our generation did. I'm saying our. I don't know how old you are, my generation. So, so I, you know, I think there's something to be said for like, things don't just disappear overnight. They, they just, they gradually fade away. There's going to be a lot of stuff that

gradually fades away. And I think the pandemic has accelerated some of those fades, right? And then it's also accelerated a lot of adoption for things like contactless payment, which we could talk about. But I think when you're an investor and you're trying to make these connections and you're trying to say like, well, ExxonMobil is down 70% and they are now going to get really disciplined about spending and they're going to protect their dividend and there's going to be this huge bounce in the stock and it's a great buy. that ended up being true over the last couple of weeks. But is ExxonMobil something that you want to be like a long-term investor in? Probably not because the thing that they do is fading away. We're not going to be driving around on dinosaur bones like for the rest of our lives. It's just not going to be the way things are.

So separating short-term opportunity from long-term secular change is not easy to do. But I think like a talented investor should try to be doing both of those two things, like identifying what's an opportunity now versus identifying like what's the bigger picture and what do we really want to focus on for the long term. Yeah, I mean, it kind of seemed like that was actually not to keep bringing it back to the book, but that was something that was pretty consistent across a lot of these pieces with some version of that, you know, figuring out which portion of your portfolio was going to be allocated to just your big long-term sense of how markets function and where it is going to grow your wealth while also creating space for.

for things that either you had more personal conviction around or, you know, you being any of the authors, or just had stronger kind of, you know, different timescales they thought than the market. Yeah, because we all live our lives on different timescales. And we're going to be using different portions of our money at different times in our life. So right now, like my wife and I, our next big project is we want to be part of the year in Florida. We've just, we've always wanted to. her parents are down there. My kids have friends down there. I don't like the cold. So like, I'm not ready to do it yet. I have kids in school here in New York. Like, I'm not, I'm not ready to move. But like, we're starting to look at like real estate. And the portion of our money that we have

invested for that project is different than the money that we have put away for things that we know we're going to have to pay for in the next year or two. So like, how, how do you invest the money that's five-year plus versus how do you invest the money that you're using within the next two or three years. So this applies to everybody because it doesn't have to be about a second home or a vacation. You have family members that you're going to help with college. So we all have to come up with what money is being used for what? What's a reasonable rate of return to expect on that money, what's a reasonable rate of risk that we can deal with on the way to get there, and are there mismatches between how much risk we're taking versus when we'll need the money?

And if there are, how do we fix that? So this is what financial advisors do for people. And I'm oversimplifying it because there's a lot of other stuff in there, like insurance, like taxes, like estate planning. But we're doing this for households that, you know, have half a million dollars and have $30 million and everyone in between. And, you know, each household requires different levels of complexity, obviously. But the big idea is like, if you focus on those things, you get those things right, all the other stuff takes care of itself. What ETF to buy is not going to be

the difference maker in someone's life. It's getting those big things right first and then coming up with the portfolio that satisfies those objectives. This episode is brought to you by Crypto.com, the Crypto super app that lets you buy, earn, and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the Crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the Crypto.com metal card, which pays you up to 8% cashback instantly on all purchases. Reserve yours in the Crypto.com app today.

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Go to all nodes.com, the number one enterprise grade hosting and staking platform. Type in promo code CoinDesk 3 and enjoy three months of free hosting for your validator nodes. The platform is easy to use, comes with instant node monitoring, and multi-level protection for your validator keys. Five minutes is all it takes to get started staking on all nodes. the platform preferred by people who make a difference. So visit all nodes.com and use the promo code CoinDesk 3 to get started for free today. There's obviously been kind of a rise of the sort of Davey Day trader types, right, during the pandemic as well. And a lot of the sort of the Robin Hood stock market type thing, the TikTok advisors and all this sort of stuff, how do you see that?

Is there a way to make that a positive force where people's excitement about the stock market and can be valid? but also we can kind of not just be day traders every day or something like that. You know? Listen, I like it. I mean, it's all stupid, but that doesn't matter. My generation got involved with the market in the late 1990s. It was just as stupid. We weren't like walking around like Warren Buffett.

We were doing the same stupid shit. There were TV commercials where Anna Kornikova was picking stocks and trading them on, you know, TV Waterhouse.com. Like it was the same. And Jackie Chan, he has like a laptop and he's being assailed by like, this is a real commercial. You could look at this up on Google. Like Jackie Chan, like having like a karate fight or Kung Fu fight with like assailants,

but he's in the middle of doing an online trade. So he like throws the laptop up in the air and like punches a bad guy in the face and then like does a roundhouse like a spin kick and they show his toe hit enter. so he can get the trade in. You know he was buying the stupidest shit you could think of, like AOL or whatever, or like Lycos, you know. But like that Shaq was doing online trading commercials. So it's not different.

This isn't better or worse than every generation is dopey when they come into the market en masse at all-time highs like that. So it's totally cool. And I like it. And I think a lot of today's, you know, day traders, Robin Hood kids, whatever you want to call them, like they're going to start reading stuff and become really good as investors.

Not all, but many will realize, oh, I get it. No, you don't make 30% a month in real life. This was just this very specific moment in time where all these cloud stocks exploded and the market was down 30%. And I just, this was once in a lifetime. Now I understand what I'm really shooting for

is like 7, 8, 9% a year after inflation, and that's how you win. Okay. And then they'll read Peter Bernstein and learn about risk. And then they'll read Nick Murray and learn about why stocks versus bonds. And then they'll read Ben Carlson about asset allocation. Like they'll have this awakening. They'll discover the real shit.

They'll start reading abnormal returns blog, start reading my stuff, listening to Michael and Ben. You know, like that'll happen for probably the smartest 10 or 20 percent. of this generation, and they'll be just fine. And if this was the moment that awakened their interest in investing, and they started off trading options or whatever, there's nothing wrong with that. I totally endorse it. Yeah, I agree. And I think it's a great point, too, that, you know, we're in such an interesting, flourishing moment for financial, economic business media where people can start podcasts and grow them. There's YouTube channels that are legitimate and interesting.

There's blogs. Everyone has. I mean, you have, I think, probably, You have to be up there on the greatest diversity of media assets around yourself at this point. I mean, you got blog, video, TV, you know, the full Monty. But like, yo, listen, I'm verified on TikTok. Did you know that? Really? I'm serious. I'm a verified TikTok account now.

There you go. My 43-year-old ass. How do you like that? How you like me now? Break down. Oh, my God. You know, it's so funny, too. I have clients that I advise that I'm watching the TikTok stuff and I'm like,

you know, it's mostly kind of like silly, the financial side of it, but it's still really small. You don't have like, like there's infiltration opportunity, you know. So I'm not dancing on there. I think the perspective that I bring, I'm owning my, my oldness. Yeah, yeah. Not like, not on there like, hey, fellow kids. I'm like, look, man, from the fucking old school, let me tell you all this shit you're hearing about blank. Here's what you really need to know.

Here's some perspective. somebody that's been around for a minute. And that's what I'm doing. And the response is kind of cool. Like thousands of people are following it. And I'm not on there every day. But like when something occurs to me and I know the kids are hearing a lot of misinformation on there, you know, like, I was joking around. Someone's like, what's finance TikTok like? I'm like, well, TikTok is where 16 year olds go to get financial advice from 19 year olds. But whatever, it's all good. Like, You can't fault people, as long as they're not like outright scams. You can't fault people for being on there expressing themselves and their newfound love of investing and trading.

Even if everything they say isn't right, so what? Like, who among us knew what the fuck they were talking about when they were 22 years old? Nobody really knows. So it's all good. Couldn't agree more. Okay, a couple more things for you before I let you get off into your busy life of advising and content creating. So we are in the midst of a big Bitcoin rally. And you actually had a name for you. You called it the respectability rally. Give me your kind of your short version of that piece.

Yeah. So I don't even really think that what I'm saying is like out of consensus or whatever. I feel like everyone kind of feels that way, which is that during the first Bitcoin rally, everyone was like embarrassing themselves. There were all these ICOs and like people using terminology, they heard that morning for the first time as though they were like experts, you know, for for 100 years on these topics. And there were a lot of people doing reckless shit and million dollar price targets. And it was all the way Ben Carlson on his podcast phrased it, it was like watching somebody drink for the first time in their life.

Right. But like everyone got really sober over the last couple of years, took a second look. And now Bitcoin guys are like sipping cognac. and it's like much, it's much. So I think Ben Carlson phrased this perfectly in animal spirits. It's like a much more respectable version. And people don't seem to be quite as drunk. At least not yet.

Talk to me at 25,000. We'll say. But look, I own some Bitcoins. I've made some private investments in companies that are building Bitcoin infrastructure. Like, I'm down. I'm cool with it. I'm not like a disruption hippie, like, you know, running around China screaming about censored money. But like I totally get it. I understand it.

And I'm in. So hope it for the best. Yeah. And I think it's interesting. I thought for anyone who hasn't read that yet, I'll link it. It's because you go through five, five different pieces, which are, I think to your point, you know, perhaps consensus narratives around it, but still it's valuable to see them all together. And I think, you know, one of the ones that's interesting is this idea of gold and silver not working or this kind of question. I mean, I feel like, One of the things that shifted a little bit is, as people are talking about digital gold now, they're like maybe that digital piece is actually really valuable and it adds something else more than just being a different representation of gold or something like that.

I don't really have a strong opinion on this. I don't think it's quite the same as gold, but I understand the use case being very similar to the way gold is used. And the portability, I think, is really that differentiator. So it's like gold, but you can move it really easy. easily. Like that, to me, I definitely buy into that argument, which is not the same though thing as saying like it's going to replace gold. And by the way, gold is like within a few dollars of all-time record highs. It's not like gold is like down big. It's in the neighborhood. I know it just broke its 200-day moving average this week. And so that's caused a lot of hand-wringing. But gold could make a new high in like three days. Like it really wouldn't take money.

So I don't think people should count either out. And I think both to some extent are reacting to the fall in the dollar. And people just saying they want something different to do with cash. That gets me to maybe my kind of final question, which is obviously we're seeing, you know, recent highs in the markets. You've talked about a kind of potential meltup going into December. I mean, what's your take on where markets are? Is it just a big sigh as vaccines seem to get closer? this transition looks like it's actually happening? I don't know. I can picture a scenario where the vaccine happens. We have a really amazing explosion in economic activity. And then, like, stocks start worrying about six months later and sell off. Like, I could picture anything happening.

But just for your audience, who maybe doesn't know me that well, should understand that I've been telling people to stay fully invested in the market, like, for 11 years and mocking, you know, people who have been trying to scare. them for attention or for money or whatever. Like, I'm a bull and I'm 43 and I'm pretty sure I'm going to see Dow 100,000 in my lifetime. And that might sound extreme. You should know that's really only compounding at like 7% for a few decades. Like it's extremely in line with the historical average annual return of stocks going back to the beginning of time. So that's what I'm thinking about. And now the thing that accompanies Dow 100,000 is $9 cups of coffee.

But that necessitates the need to invest. So if you're one of these assholes that's like, oh, I just read about Janet Yellen said this or Bernanke said that. And so I'm, I disagree with that government policy. So I'm going to cash. Like if that's what you're doing for the last 12 years, you have just had the biggest opportunity cost fail in the history of mankind because the gains that we've seen, you can't get them again. You can't have it back.

You're not going to see Dow 6,000, which was literally 2009, 11 years ago. You're not getting that back. So now it's a Dow 30,000. You still don't like government policies or whatever. Like, you know, keep your politics and your investing separate, I think, is like my big message to people and temper your views of the last article you read. Don't have that be the thing that guides what you're going to do in terms of investing your portfolio because it's almost always a disaster. So I've been spreading that message for 10 or 11 years now on the reform

broker.com. Like a lot of people have been listening. Thank God it's enabled me to build a big business and build a big following. And so like that's really my goal is to try to share this information with the world and help people make good decisions. Love it. Well, let me live you, I guess, just one question. What's your wackiest most off-kilter or just unexpected prediction for next year? Wow. I wish I had some time to think about that.

I would have come up with something clever. I didn't give it to you earlier because I didn't know that I was going to ask it, so I apologize. Fair enough. What's the wackiest thing that can happen? I think like, I think pay, so I own the stock, so full disclosure. I think like PayPal could end up, maybe not next year. I think PayPal could end up like being the most valuable financial company in America

and could end up in the Dow. So I mean, it's already $200 plus billion market cap. And JP Morgan is like $300 something billion. Like I wouldn't be surprised to see PayPal be bigger than every bank. And maybe most of the banks put together and possibly be like a Dow 30 stock someday. I know that sounds crazy, but the crazier things have happened. So that's something that I'm, and that I think ties into the Bitcoin story. Because if Bitcoin, if PayPal and Square are successful in turning Bitcoin into a consumer

consumption purchase technology and not just this thing that we all nerd out about in markets, but like people using Bitcoin on these apps to do routine transactions, if they really have the ability to do that with their apps, they're going to be much more valuable companies than they are today. And they're going to be way ahead of many, many financial institutions who aren't even thinking that way yet. So that would be my big, I guess, my big wacky prediction for the breakdown audience. Love it. All right. Well, we'll have to have you back to check in on that next year. Awesome. All right. Thanks for having me. The thing that I'd like to come back to reflecting on that conversation is this idea of building funnels for people to learn. And Josh and I were talking about

this in the context of the Robin Hood traders, but I think it applies to Bitcoin as well. There are going to be a huge number of people that come in the door during the next bull run strictly because of price, because of FOMO, because they've seen some friend make a bunch of money for it. It matters hugely what we do when they actually get here. Where do we channel them to learn how do we help them fall down the right rabbit holes? How do we help them go as far as they want to in terms of understanding the implications of these new systems that are being designed? I hope this show can be a part of that, but I'm also incredibly encouraged with just how much incredible density of content and thinking there is in this space and in the broader financial

space as well emerging to help people navigate and make their own decisions and really do their own research in a way that is so intrinsic to this space that we're all a part of. So I appreciate you being on this journey with me. If you like this show, please go rate and review it. It helps new people find the show, which I really, really appreciate, of course. So until tomorrow, be safe and take care of each other. Peace.