The 2022 Markets Wrap-Up
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Speaker 1: Hello and welcome to the markets edition of Slate Money. We don’t talk about markets nearly enough on the Slate money. This is Slate Money. I’m Felix Salmon of Axios. I’m here with Emily Peck and Vyxeos.
Speaker 2: Hello. Hello.
Speaker 1: I’m here with Elizabeth Spiers. Hi. And we have Long Island finest on the show this week. Josh Brown. Welcome to the show.
Speaker 3: You can’t say I’m Long Island’s finest. Ray Dalio is also from Long Island. So is Scaramucci.
Speaker 1: You, Keith? We’ve never. We’ve never had the mood.
Speaker 3: You can’t call me the finest.
Speaker 1: But yes. So, Long Island Fourth Finance. Josh Josh.
Speaker 3: Brown. I’ll take it.
Speaker 1: Who are you? Introduce yourself.
Speaker 3: I’m a financial advisor based in New York, and I write a popular blog.
Speaker 1: You have 556 followers on Mastodon. So follow. Follow Josh Brown on Mastodon to get his fellow follower count up there. Yeah. Josh and I go way back. Josh is is an o.G finance blogger and also a financial advisor. And so we are going to take this opportunity at the end of a very down year in both the stock market and the bond market to take stock of where we’re at. What just happened, what it means interest rates, recessions, how to invest, how financial advisors think about investing, and much, much more. It’s all coming up on Slate. Money.
Speaker 1: Okay. Josh, welcome. I have so many things I want to ask you, but mainly this is my excuse to talk about markets once a year because this is a money show and we go out of our way for reasons I don’t entirely understand. Not to talk about markets because I always think that, you know, on a week to week basis, what happens in the markets doesn’t really matter very much. And since we record weekly, we wind up never talking about them, but they are important. So now we get you on as the markets person. And it has been a really quite astonishing year. We had a genuine, honest to goodness bear market.
Speaker 3: Yeah, I would say markets have never been more important because we made a decision sometime in the eighties or nineties that we were going to have American retirement revolve around a41k and the pension system went into decline and it took decades. But at this point, most of the wealth that’s not in houses or real estate for everyone in America revolves around what the stock market does from one week to the next. And it shouldn’t matter. But it does matter because I think it affects the way people make decisions about spending and how wealthy they feel or how poor they feel. Just think that people like the stock market is not the economy. I think that used to be true. I don’t think that’s true anymore. I think the stock market is the economy on steroids.
Speaker 1: So every so often and indeed, on the very day that we are recording this, I have been seeing the kind of headlines that I really, really hate, which is, you know, stocks fell on worries about a recession, on recession fears or something like that. If you say that the stock market is the economy on steroids, you basically saying that, you know, given that the stock market went down in early. 2022, there was some kind of a recession or it was predicting a recession, or that it was like, what is the connection there?
Speaker 3: So there was a guy who used to manage money. He’s retired now, Ralph Wanger, and he came up with what I consider to be the absolute best explanation for the connection between stocks, the economy and the way that he explained it. And this was 20 years ago. He said, Imagine a woman walking the dog across Central Park and you would see the dog run up to a tree, chase a squirrel barking back and forth. Just the the the amount of activity of this dog on the leash would be would be notable. But then you take a look at the woman walking the dog and the woman is just walking her straight path, not really deviating all that much. Every once in a while, walking around a tree or stepping over a puddle. The dog is the stock market. The woman is the economy. They both end up in the same place, but the path they take to get there looks very different. And I haven’t heard a better metaphor for for that connection.
Speaker 3: So the way to think about the way to answer your question would be in on January 3rd, 2022, the first trading day of the year was the peak for stocks. We never we never traded higher. And it was really almost a waterfall straight down with a handful of of corrective rallies along the way. But every rally led to lower lows and the economy. What you would keep hearing is while the consumer is strong, the consumer is strong, the consumer’s strong, the consumer is on fumes, and the economy now is starting to deteriorate and match what the stock market had been indicating it would do since the start of the year. So it took a while. But now the economic data is starting to reflect what stocks had already been presaging.
Speaker 1: And before I forget, I just want to ask you about this concept that you brought up about 41k plans and how the stock market is incredibly important to the come trip to the country because it’s where people keep their retirement wealth. So clearly, if I am a retired person and I need to sell a bunch of stocks to pay my rent, then I want stocks to be expensive so that I get the maximum amount of money and I need to sell the fewest number of stocks in order to pay my rent. Conversely, if I’m a working person and I’m contributing to my 41k, what do I want the stock market to do? I want it to go down so that the stocks are cheaper and I can load up while I’m working so that I have more stocks when I’m retired.
Speaker 3: Yeah, so that’s a great question. In the fourth quarter of 2021, the total amount of money in retirement accounts was about $40 trillion. And most of that is stocks. And if you are at the upper end. So the average American has $121,000 in a41k, That’s so that’s average. So there are a lot of million dollars for one K accounts out there. But those belong to people who are already in their sixties and are facing or are facing A retirement. And B, you can’t just leave the money in there. You actually have to take it out.
Speaker 3: So that’s what’s so interesting about what I do. I’m on CNBC and I’m talking to mostly retired people or people close to retirement. That’s a lot of the audience. The wealthier you are, the more likely it is you’re an older person. But then when I’m talking about the markets on YouTube or on Instagram, that audience is in his twenties and thirties. They don’t both want the same thing. They just don’t know it.
Speaker 3: So when you see a breathless report that the Dow Jones is down 800 points on the day and X amount of trillions of dollars have been wiped out and prices are down, that’s that’s bad news if you’re living on that money currently, it’s great news if you’re a forced saver for the next 30 or 40 years. And so if you’re 25 years old, I don’t know why you would be rooting for all time highs in the market. Makes absolutely no sense. What? How is that good? You’re buying your parents portfolio from them every two weeks when you get a paycheck.
Speaker 3: So that distinction, I think, is lost in the media. Most of the mainstream media was created and grew up with the boomers, including television, including newspapers. So for them, down markets are terrible. But the millennials are 73 million people. They’re all forced savers. They have no choice but to buy stocks. There is no other retirement plan. So when you see markets down big, one of the things I think to keep in mind is this is actually great news for tens and tens and tens of millions of people. They just don’t know it yet.
Speaker 2: I think. There’s probably just psychology to feeling like you have this money in a41k account and you see the number go down and it’s upsetting. Like, no one’s thinking, Ooh, a sale horse. I feel like Felix is out there saying, like, I can’t believe people are upset about this. And it’s like. Felix Yes, people of course people are upset about this. Number Go up, number go back down, upset.
Speaker 3: Emily, you’re so right. I had a client in 2007 when I was a much younger, more handsome version of myself. And he was a sous chef for Jean George. And he was working, like, 80 hour weeks. And he was just like, you know, this is my portfolio. It’s I think it was $500,000 or whatever, which is a lot for for someone in that industry. And he basically said, look, I’m giving this to you. We’re going to buy mutual funds, whatever I’m going to do. But I just want to remind you, look, look me in my eyes. And this guy was at the time in his late thirties, he said, I just want to remind you, I earned every one of these dollars on my feet at 2:00 in the morning scrubbing a kitchen or at 5 a.m. on a loading dock, meeting the vegetable guy. I cut my fingers, I burned my hands, I singed my eyebrows. I just want you to understand before you put this money at risk, that’s the way that I earned it. Not sitting behind a desk, not talking on the phone. And it really.
Speaker 3: And now, of course, it was 27. So no matter what I bought him a year later, he was like, I told you how I earned that money. So long story short, not a client anymore. So my comment was, okay, but you’re not finished earning money and the new money that you’re going to put into the market now in oh eight, in oh nine and 2010 with prices depressed like this, is going to be some of the best investments you’ve ever made. It’s just going to take a while for you to feel that way.
Speaker 3: And of course, that argument is lost on somebody because you’ve traded your hours for that money and you’ve given up freedom and you’ve sacrificed and you’ve you’ve now seen those hours vanish on a spreadsheet or on a computer screen. And no matter what, even though it’s good because you’re young and you want to keep investing, it still feels like shit. And there’s no way around that.
Speaker 4: Don’t you think some of this is just loss aversion bias where people believe losses have, you know, more of an outsized effect than identical gains?
Speaker 3: Yeah, that’s. KAHNEMAN And it is absolutely true, both in the academic work that is out there, but it’s very true in real life. People feel the effect of a loss at a at a multiple to which they feel the effect of a gain. The other thing that’s interesting, and I’m a financial intermediary, so I have to answer for things that are outside of my control, which is fine. I get paid to do it. But people, when the market goes up and clients make money, they don’t call their hedge fund manager or their financial advisor and say, Wow, you did it. They say what they say of of of course I made money. I should have made money. I invested.
Speaker 3: But when the market goes down, a lot of what people really want out of the person who’s taking care of their money is just somebody to vent at or not to blame, but to feel like they’re not alone in that loss and to to hear soothing things about why this is not the end of the road. It’s just a bump along the road. So there’s a lot of psychology that goes into how we deal with what stocks are going to do. And of course, stocks can, can and will do anything that they want.
Speaker 1: So I really wanted to talk to you about this as a as a financial advisor, basically. What’s your attitude to down markets and and what does a good financial advisor do in a down market versus I guess, what would a bad financial advisor do? Is your job really to sort of babysit people and say you’re in this for long, for the long term, stick to the strategy, stay put and and be like that calming influence or or is there a case to be made that a good financial advisor will be like, wait, no, stocks are going to go down. We should position ourselves defensively and make sure that we lose as little money as possible.
Speaker 3: Yeah, so there’s a whole spectrum of belief systems ranging from I will get you out of the way before there is a crash to I will do absolutely nothing except put your money in a vanguard index and if you ever touch it, you are wrong. And I’m right there and, and you know, you see and you see those schools of thought do ideological battle on Twitter on on fintech all day because that’s those are the two ends of the spectrum. I think most financial advisors fall somewhere in between, but they are closer to the end of the spectrum of doing less, not more.
Speaker 3: There’s a few reasons for that. The first, as fiduciaries, we actually are not only responsible for the risk and returns, but for the tax consequences. So our clients cannot eat pre-tax returns. So when we’re out there buying and selling, the fastest way to add insult to injury is to have a client in a down market who also has a tax bill because of all the trading that you’ve done. And so you’ll you’ll infrequently see financial advisers position themselves as I’m going to be out there, you know. Making moves for you. That being said, most financial advisors are not completely passive or are not completely stoic, and they will employ certain strategies. We call them tactical strategies that are designed to be tactical strategy.
Speaker 1: That’s glorious. That’s like it’s like it’s like you get both at once. It’s all about strategy and it’s a tactic.
Speaker 3: Well, it’s like having cargo pants with a suit jacket. You put on your tactical pants with pockets from the ankle to the hip. And so here’s here’s a version of tactical. This is what we’re doing internally. We have a we have a sleeve of of a client’s portfolio. Often it’s between ten and 20% of the total portfolio. So it’s not most of what we’re doing, but it is a behavioral hedge. We’re using long term moving averages. We’re looking at monthly closing, not daily. We’re trying not to be whipsawed. And the idea is that when the market goes into a statistical downtrend, which the Nasdaq did at the end of February and the S&P 500 did at the end of April, we are using ETFs to. Limit the exposure to stocks and raise the exposure to cash or to short term fixed income and.
Speaker 1: You short those or what do you do with them.
Speaker 3: Now? No, short. The idea is you’re long when the market is in an uptrend or in no trend and you are trying to be out. And in a short term bond ETF when you’re in a downtrend.
Speaker 1: So you just you just sell them. You felt you sell the S&P 500 ETF and you buy like a bond ETF, which is considered safer. And then you discover that you long bonds in what turns out to have been literally what we should we talk about this the worst market for bonds ever.
Speaker 3: That’s exactly right this is what made 2022 maybe one of the worst years of all time for a financial advisor. The idea behind owning bonds in a long term portfolio is not that you’re going to make a lot of money in the bonds. That’s not the point. The point is that they are going to provide stability so that when the stock portion of the portfolio is getting whipped around or crashing, as we saw in the first quarter of this year, the bonds are meant to be stable relative to stocks. They’re thereby offsetting some of that volatility and providing some income.
Speaker 3: In January of this year, bonds provided no income and were as volatile as stocks. In fact, it is the worst first six months for a ten year Treasury since 1788, and that is before we were even calling them Treasury bonds. So it really was a gut punch for people who were building portfolios that were mostly stocks. Some bonds balance out. The volatility there was like literally nowhere to hide this year.
Speaker 1: But the good news is that for anyone who lived through 1788, they’re like, Oh, I’ve seen this already. I’m cool with this.
Speaker 3: That’s right. You know, what’s what’s really what’s what’s really the right way to think if you’re if you’re listening to this right now and you have a41k and you have stock market exposure and bond market exposure, you’ve got funds that own both asset classes. Here’s how I want you to think about this. This time last year, December 2021, the U.S. stock market was trading at 23 times earnings, which is historically a very high valuation, and the bond market had effectively zero yield. So you were you were you were not being paid for any reason. The only reason you owned bonds was for their perceived perceived stability.
Speaker 3: Fast forward one year to today. The US stock market is now selling at a 15 or 16 multiple, meaning you’re buying stocks 30% cheaper than you were a year ago and taking almost no risk. You can own short term Treasury bonds that are paying you four and a half percent. That is a much better starting point for the next hundred dollars that you’re putting into that retirement account than we had a year ago.
Speaker 3: How did we get there? We took a lot of pain on the way, but ostensibly, you’re not going to stop investing any time soon. You’re going to be putting money in from your paycheck every two weeks. Maybe you’re funding an IRA. At this moment, you are getting a way better deal than you were getting last year because the only thing that matters is not what already happened, but prospective returns. The new money you’re putting in will be treated better because valuations are lower and yields are higher.
Speaker 2: So should we just briefly mention why stocks did what they did and why bonds did what they did this year? I mean, I think the one word answer is.
Speaker 3: I blame Elon.
Speaker 2: Musk.
Speaker 1: So nobody out there. This is this is something we have talked a little bit about on the show, but it’s definitely worth reiterating is that. Everything is. Interest rates and bonds have a very simple mathematical relationship to interest rates. But stocks also are basically, on some level, the present value of future cash flows, future dividends, future income streams, and you discount those future cash flows using some interest rate. And in general, when interest rates go up, the present value of anything goes down. That’s like that’s just simple bond math, which is also stock math.
Speaker 1: And we had basically. 15 years. 14 years. Zero interest rates. They got cut to zero at the end of quite early in the financial crisis in 2008 and then stayed there ever since. And we had the Fed not only keeping interest rates at zero, but also doing this thing called forward guidance where they were like, we promise to keep interest rates at zero for years and years to come. So please just get used to this idea of zero interest rates in perpetuity.
Speaker 4: And then people did, and.
Speaker 1: Then people did. And so all of those discount rates came out, came down, all of those bond prices went up. And now we have reverted to something more Historically, normal interest rates look like they normally do and not and not like they did during the weird zero interest rate era of 28 to 2022. And and like, is this the point, Joshua, which you sort of breathed a sigh of relief and say, thank Christ, things are back to normal. And I understand the markets again because there was that 14 year period where they made no sense.
Speaker 3: Okay, let’s get something straight. I never breathed a sigh of relief. I this this year I stopped putting Splenda in my coffee. I switched out for Xanax. I I this is look, I know financial advisor is supposed to put on a tie and pretend that you know, all is all is well, everything. I, I think by going the other way and by explaining to clients that without a doubt, if you’re going to be with me for the next 30, 40 years, you’re going to see a bear market every five years, and one out of three of those is going to be 30% or more. I think just just having that sense of realism is more important and it might turn some investors off. They’re looking for somebody who says, we’re only going to make money. We’re never going to lose money. But I’m I’m at a place where I just refuse to do that.
Speaker 3: So we bake these things in Felix to our expectations when we build financial plans before we will ever invest money. And this is most financial advisors before a financial advisor will invest the client’s money. There has to be a financial planning process where we figure out what is the money even for? When are you going to use it? Why are you going to use it? What kind of what’s your tax situation? What do we think inflation will be? What what are the variables that might change between now and when you are using the money you have, the kid you think is going to print, then wait a minute, maybe they’re not. You have a business you think you’re going to be owning. Wait a minute, you just got a bid for it. So there are so many things that could happen that you really can’t predict, but you can just build assumptions that there will be change. That’s the first thing.
Speaker 3: I want to go back to what you said about everything. As interest rates. You have no idea how right you are. And it’s a lesson that a lot of us we learned because we all know this. But this year we we got a really great refresher course. Interest rates affect the stock market in three ways. The first way and the most obvious way is they affect underlying businesses. If a company can borrow at 0%, they’re going to do a lot of stupid shit with the money. They’re going to make huge acquisitions, pay sky high prices. They’re going to do a lot of R&D. That’s a dead end. They’re going to have they’re going to have the inclination to change the whole name of a company to Metta.
Speaker 3: And the companies are going to do outrageous things if the cost of money is zero and if the cost of money is zero for 12 years, it’s going to become almost a cartoon. And that’s exactly what we’ve seen. Investors are going to behave the same way. They’re going to invest in things where there’s absolutely no chance of profits anytime soon and be perfectly okay with that. They’re going to buy coins. They’re going to speculate in digital art. So we went through all of that. So when that changes, the behavior changes.
Speaker 1: When that changes in the dumb behavior ends, that’s good, right?
Speaker 3: It’s not fun to live through. But yes.
Speaker 4: There’s also, you know, there are people in the tech sector who would argue that all the doing stupid shit with cheap money is conducive to innovation. Do you think that that’s false?
Speaker 1: Well, I mean, Dan GROSS famously wrote the book Pop write about how bubbles are good, but like, it’s really hard right now to see what the long term productive investment, you know, from all of those hundreds of billions of dollars of venture capital money wound up with, like if you just light a bunch of money on fire and call it we work, like how how does that help anyone in the long term?
Speaker 2: I think at the beginning of the low right time, back in like 2010, 2011, when a lot of these companies that we now think of household names were just getting started, like Uber, Airbnb, etc. there was a lot of innovation back then when it was sort of still a downturn, but rates were low and then things just lasted. It lasted too long. The low rates. A lot of people thought they were geniuses, but the genius was just 0%. That was it.
Speaker 3: I think that’s very close to the truth. Emily, The one caveat. I would throw in there is like when you look back and you say, well, wasn’t there something good that came out of these bubbles? Yeah, of course. We probably we probably advanced in things like cloud computing faster than we would have because of inflated valuations for tech stocks, which enabled them to pay a lot of people a lot of money to stand this stuff up relatively quickly. And I would argue that’s like a that’s a good, great thing. We are recording this show right now thanks to the benefit of the cloud being as useful as it is, it’s probably the thing that saved us from civil war during the pandemic, quite frankly. Have having like two thirds of workers be able to do their jobs as opposed to one third and probably made a big difference for for for society. And maybe that’s why we didn’t all kill each other.
Speaker 3: So I would argue that you do get good things out of bubbles, but you get good things also when people are going through hardship and they need to innovate their way out of it. And that is the uber, uber example Airbnb. These things were created during the great financial crisis and subsequent recession, and I agree with what you’re saying, where it’s been a while since there was an innovation that didn’t look completely ridiculous.
Speaker 2: Yeah.
Speaker 3: But I want to go back to the interest rate thing and just button it up. The second way that interest rates affect stock prices is valuation. Every allocator, myself included, every pension, every insurance company, they have a pile of cash. They have cash flows coming in. They have to put it somewhere. It can’t sit in cash forever, especially if inflation is seven and a half percent. So. So it’s not Should I invest? The only question is what do I invest in when rates go up? All of a sudden, high yielding short term bonds, Treasury bonds that are risk free become a viable alternative to stocks. That’s why the valuations of stocks decline. So now all of a sudden, my next investment dollar, if I can buy a two year treasury at four and a half percent and I’m good with that return, it makes it harder to convince me why I have to pay 30 times earnings for a semiconductor stock that could have double the volatility of of the stock market.
Speaker 3: And then the third way is sentiment. And this is maybe the most important way. There are companies that can, for the next ten years, grow earnings by ten or 15% a year. That’s a great company that’s able to do that. The variability is what investors will be willing to pay for that stock. So higher rates typically will bring about a willingness to pay a lower multiple for stocks. We know that. And so we went into this storm at a relatively high valuation. So in those three ways, we’ve seen interest rates assert themselves on the stock market and it has been so rapid and so profound, the speed with which sentiment changed, valuation changed. It’s just unbelievable how quickly we all got to we learn how important interest rates are.
Speaker 1: I want to move on to a question which is very near and dear to my heart as a financial journalist, which is what is the point of financial journalism, at least from your point of view? I see a lot of investors, and I’m going to say probably more investors on the like end user sort of individual investor side than on the institutional side. You don’t see this so much in big pension funds or endowments. But I see a lot of individual investors thinking to themselves that it’s quite important to read the newspaper to care about the news, to care about the market, to be aware of what’s going on and to, you know, to read the business section, basically. Is there any truth in that?
Speaker 3: Are you asking, should anyone read the news?
Speaker 2: Are you are you asking just to tell us we’re useless? Like, what is this Felix?
Speaker 4: Should Felix have a job?
Speaker 1: What is it? Is it useful for an investor to be informed about what’s going on in the world?
Speaker 3: So because this is. This is a podcast I’m going to start with. There’s a lot to unpack, but the first is the first is if you work in the industry, the news is indispensable because when you sit down at the steak house, which I often do, or you’re meeting with colleagues or you’re in an elevator with somebody you sort of know, but they work at the bank with you or you sit with a client. That’s the opening ten or 15 minutes of, Hey, did you see this? Did you hear that? So you have to you can’t be somebody that says, I have no idea what’s going on like that. So that’s industry.
Speaker 1: You know, you have you have to answer questions. And I remember I had lunch once with a legendary money manager by the name of Ken Fisher, who I’m sure you know, And and he explained to me that like one of like basically he’s in the sales and marketing business. You know, he just needs to persuade people to give him their money. And one of the marketing things that he does is he does, you know, meetings with one or 20 or 200 people who come along to to a meeting with various grandees from his shop and they ask questions and then the grandees answer the questions. And he was like, it doesn’t matter what is going on in the world or what is going on in the markets. 90% of those questions are always going to be something of the form of I just read this in the paper, What does that mean for my portfolio?
Speaker 3: Yeah, so now but take it a step further. There’s a difference between reading the news, being aware of it, and thinking that it’s something that you need to act on. And so, like our shtick, we’re doing ten blogs a day, we’re doing podcasts, we’re communicating with the investment public constantly. But the main thing that we try to get across is you should have context so that when you come into contact with an article in The Wall Street Journal, you have the bigger picture of, okay, such and such event is taking place. The Fed is meeting. The CPI report is out. The jobless claims went up. The jobless claims went down. Blah, blah, blah.
Speaker 3: Okay. Historically, here’s what that has done for a stock portfolio against the stock portfolio. Here’s what that has meant for the economy, etc.. So that is the way we think about the news. We are voracious consumers of Barron’s, Wall Street Journal, New York Times, all of the blogs we I think are very on top of what’s going on. But I think we do a really good job of explaining to clients most of this stuff is not actionable. And if you’re reading about it in the paper, the price has already moved.
Speaker 1: You use the word there, which is one of my words that I love to hate more than anything else, which is actionable. But I want to us like, you know, there’s definitely a corner of the financial media which advertises itself as providing actionable information. Have you ever seen this rare and special animal in the wild? Have you ever seen like a bit of financial media that purported to be actionable? And then you thought to yourself, that’s actionable and then you took action and made money as a result?
Speaker 3: Well, not necessarily, But I think I think when something is considered to be actionable, what you’re saying is that this news that’s coming out is going to have an impact in the stock price that I can take advantage of in one way or the other. So I’ll give you an example. An analyst report every morning on Wall Street, there are there is there are thousands of analysts covering thousands of stocks, and they have various comments to be made about the stocks they cover. Sometimes they have a piece of information that makes them feel more bullish on a stock. So they’ll raise their price target or they’ll raise their rating. They’ll say this was a buy. Now it’s a super strong buy and that is actionable if you are somebody that takes advantage. Of shorter term stock price moves in the market if you are a hedge fund, pure day trader. If you are a swing trader, that is the definition of actionable.
Speaker 3: Now, the action you take may not be in the direction of the news. So meaning you might have an analyst come out and say, I hate Tesla and cut their price target and the stock declines. And its actionable to you because you disagree. And so you will take advantage of that decline in the stock and buy it. So actionable can meet a lot of things. But I think the more you hear actionable, the more that is being geared toward people with a shorter term time horizon and what they’re doing.
Speaker 4: So when your clients ask you what they should be looking at in terms of financial news, what do you tell them?
Speaker 3: I don’t think that it’s our place to tell them specifically what to read, but I think we do a lot of curation. And I think we end up being sort of a filter through which they are getting their news. And so we’re linking to a lot of stories that we’re reading.
Speaker 2: So for you, having all this content, these blogs, everything you guys do, it’s sort of a way, like you said, to earn trust, to market your firm. Is that how you’re thinking about financial journalism’s utility from a business perspective?
Speaker 3: Yeah. So we started blogging before they called them blogs. And, you know, we the idea wasn’t let’s write a blog and build a financial advisory firm. That’s just what happened. So as opposed to playing golf or pretending to be involved with charities or going to regattas or helping people evade taxes in Switzerland, we have chosen to build a firm that is populated by clients who started out as fans. And it’s a very powerful way to build a business from my perspective, because I spent ten years doing the opposite cold calling as a retail broker. And I will tell you that this is more fun than that.
Speaker 3: So how do you build the fan base? Well, you tell them. You tell them the truth. You I think over time, you earn trust by not varnishing things and just saying the economy’s bad and here’s why. I think the other thing that you do is you will you be yourself. And the authenticity may not appeal to everyone. They’ll be people who want the illusion. They want the three piece suit, etc.. But I think for our fans, they’ve they’re past that. They’ve already had a relationship with what I call a PGA, a professional golfing advisor. And so they they appreciate the honesty and the authenticity. So that’s what we’ve done. And I think you’re seeing a lot of financial firms trying to do that to varying degrees of success. But that’s where things are going. Look, all things being equal, people do business with people they like.
Speaker 1: Okay. I think we’ll just end this by giving you since since, you know, apparently Josh Brown appearing on podcasts. It’s all just part of the marketing function of health wealth management.
Speaker 3: Wait, I’m not I’m not a paid spokesman for Slate.
Speaker 1: The the the big question. I think that many of the Slate money listeners would have, which is just the existential one of like, give me one. What is the number one main reason why it makes sense for me to pay you money to look after my money rather than me just putting it all in a Vanguard target date fund.
Speaker 3: I think for a lot of people, the Vanguard Target Date fund makes sense and we we work with clients across the entire spectrum. Most of what we’re doing on the wealth management side is people that have $1,000,000 in an account or greater people with less than that or are getting less from us because they need less. And as a result, paying less.
Speaker 3: So we we’ve got people in their twenties who are fans of ours. They can open an automated account with us online. They’re getting a portfolio of Vanguard funds. They’re getting rebalancing, some tax loss harvesting. They’re getting reporting and they’re paying a relatively low cost because we’re not on the phone with them every day. We’ve also got clients with hundreds of millions of dollars. And in those situations, we are on the phone with them almost every day. And if not them, we’re on the phone with their accountants, their lawyers, their estate people. Oftentimes other members of their families. And that becomes a lot more work. And as a result, that’s a higher service model. And of course, they’re paying more money for that, but they’re happy, too.
Speaker 3: One of the things you learn about wealthy people you spend enough time around them is that they are very happy to trade their money for time. And very happy to trade their money for peace of mind. And I think having financial professionals who understand the intersection of their taxes, the film tropic work that they’re doing, the effect of business issues when they own businesses, etc., that’s worth a lot of money to people in that cohort. And they’re happy to pay it. So long as they’re being taken care of. So there’s a whole spectrum of who needs what. And not every firm is addressing every part of that spectrum. And I think that the job of the investor is to find someone who offers the level of service and and advice they’re looking for and somebody that they trust and somebody that’s not going to disappear. When you run into a year like 20, 22, someone that’s going to be there when they’re really needed.
Speaker 1: We should have a numbers round. To top this thing off. Elizabeth doing a number.
Speaker 4: Yes. So my number has to do with a toxic social media platform that Ellen does not own.
Speaker 3: We call it the brother site. On on Mastodon. They don’t say Twitter. They say the bird site.
Speaker 4: The site that shall not be named. But this is actually about tick tock. And my number is 30. And there was a report that came out today in The Times. It says a 13 year olds in the platform are exposed to content about eating disorders and self-harm within 30 minutes of joining on average. And then they get recommended something like 39 related, you know, Tacs.
Speaker 3: That’s orientation. Terrifying.
Speaker 4: Yeah, that’s algorithms are going to kill us. That’s that’s my conclusion.
Speaker 1: Emily.
Speaker 2: Continuing a theme of the year for me on Slate Money, my number is 2.5 million. That is the starting price for a submersible that you can buy from Triton submarines, which is a submarine company now co-owned by none other than James Cameron, who has a big movie coming out or has a movie big movie out. When you hear this podcast and Ray Dalio, who’s a billionaire hedge fund founder. Blah, blah, blah. The submarines you can buy from this company go as high as $40 million.
Speaker 2: And apparently, rich people are now not just buying yachts, as we’ve discussed a lot on the podcast this year. They are also buying these submarines. According to the Financial Times article I read, they’re also buying these submarines because there’s been a seismic shift in yachting. According to the piece I read and yachts, you know, it’s not all about opulence now. It’s about having a submarine. So you cannot you can sip your cocktail and then you can go down into the deep and explore as well.
Speaker 3: That’s like a it’s like a sensory deprivation thing, right?
Speaker 1: Something like that.
Speaker 2: Yes. It sounds awful to me, just being all the way under what.
Speaker 3: I’m.
Speaker 2: Supposed to have. No, I didn’t even like the yacht idea to begin with. The submersible is just making it worse.
Speaker 1: Um, I thought I would bring a market’s number for our markets episode, So my number is. 11.5, which is the. P e ratio of meter, a.k.a. Facebook. This is a stock that back on I’m looking at August 2020 was trading at 37 times earnings and then it fell like last month in November it was down to as low as eight and a half times earnings.
Speaker 1: Like we know that, you know, metal stock is down, but it’s absolutely astonishing to me how cheap it is, given how much money it’s making. And it’s just like because the yeah, the the markets are just convinced the Mark Zuckerberg is going to light it all on fire and his weird quest to conquer this, you know, avatar, legless social thing that is never going to happen.
Speaker 3: There’s a lot there’s a lot to unpack there. But I think what that demonstrates is that people are less willing to endure the volatility of matter. So the multiple on those earnings comes down even if the earnings don’t come down themselves. But the earnings are coming down and the expected earnings more importantly are coming down. People have less faith that the platform will be as monetizable as it’s been. Part of that is because of a change in terms of service on Apple’s iOS. It’s limiting the amount of data that Facebook can suck out of the users. Part of that is political. In Europe, they are done playing games with American tech platforms and allowing them to extract data the way they have.
Speaker 3: And then part of that is this experiment with the legless metaverse where he wants to light $10 Billion on fire for ten years before there is any return on investment. And that’s $100 billion investment that no one is convinced is going to yield anything even close in the way of profits at any point anytime soon. So that’s how you get a stock lose lose 70% of its valuation in a year.
Speaker 2: I don’t know. I think virtual reality has legs. I think I think it could be something of.
Speaker 3: A look at that. Look what you did.
Speaker 1: Well, well done, Emily. Yes, You can be a techno. You can be a techno optimist next year in 2015.
Speaker 2: Well, I’m just saying that all the kids I know, the teens, they are into VR and VR headsets and VR gaming, so I don’t know.
Speaker 1: Josh, do you have a favorite number? You can.
Speaker 3: I have a great number and I’m going to take this pod, this podcast out on a positive note because that’s thank you. That’s what I do. Okay, here’s the number. 91% or 91 is my number. So, so I think this is what people are wondering right now. We’ve just been through a horrific year for investors. And if the S&P were to close where it is right now, they could be down about 12% on the year, which doesn’t sound terrible. But I promise you, the average stock is not down 12%. The median stock is probably down like 40%. It’s been that bad. But here’s the good news historically. How likely is it for stocks to go down two years in a row? It turns out it’s possible, but it is historically a very low probability. The higher probability bet is that stocks have a positive year of and I’m not even saying the magnitude of how positive, but just a positive year after a year like this.
Speaker 1: So there’s a 91% chance, historically speaking, that stocks are going to go up in 2023.
Speaker 3: Felix since Emily since 1928, the S&P 500 is up roughly 55% of the time following a year that preceded it with a gain. So that makes sense when you consider the market is up three out of every four years on average. The stock market has been down following it up year 18% of the time. It was also up 18% of the time following a down year. So that leaves just 9% of the time when stocks were down one year and then down the next year for back to back consecutive losses, meaning 91% of the time. That’s not what happens. To think that because this year was bad, 2023 has to be bad. Also, that kind of recency bias, I think, is what gets you in trouble as an investor. You should have an open mind about the fact that as bad as things are now, sure they could get worse, but historically they don’t.
Speaker 1: Okay, so let me just finish off with with the obvious follow up question. Going back to what we said at the beginning about the stock market, it’s not the economy. If there is a recession in 2023, which a lot of people think there will be.
Speaker 3: I think there will be.
Speaker 1: Does that change anything? Does that make it more likely that stocks will go down?
Speaker 3: No, because stocks often trade the way they have this year in anticipation of a recession. And the thing about recessions is we don’t find out that we’re officially in one until we’re more than halfway through. So the official recession call, if and when it comes, it will have already been obvious to all of us that it started a long time ago. And in the midst of the recession, when you’re getting that notification, the seeds are already being planted for the recovery. So I would not use is there going to be a recession in 2023 as a reason to invest or not invest?
Speaker 1: Josh Brown Thanks for coming on the show. It’s been awesome having you.
Speaker 3: I really I really appreciate it. You guys are great. Thank you so much for having me.
Speaker 1: And yeah, and so Will. We’ll be back next week with a slightly less Long Island version of Late Money. But thanks to Thanks everyone for listening and Phillips for producing. And we’ll be back next week.
