(Ep.30) The Acquirers Podcast: Joshua Brown – Reformed Broker, Backstage Wall Street With Ritholtz CEO

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Summary

In this episode of The Acquirer’s Podcast Tobias chats with Joshua Brown. Joshua is the CEO of Ritholtz Wealth Management. He’s a commentator on CNBC. He’s a blogger on The Reformed Broker. He’s the Chairman of the FinTwit Federal Reserve. He’s Downtown Josh Brown. During the interview Joshua provided some great insights into:

  • Buy And Hold Is Still A Successful Investing Strategy
  • How To Adopt The Peter Lynch Style Of Investing In 2019
  • Maybe It Really Is Different This Time! Part 1
  • Maybe It Really Is Different This Time! Part 2
  • Why Did Everyone On Long Island Want To Be A Stock Broker?
  • Why Did You Start Your Blog – The Reformed Broker?
  • The Biggest Abuses That Investors Need To be Wary Of Today
  • How To Be A Successful Investing Blogger
  • How To Get 1000’s Of Followers On Twitter
  • Six Of The Best Investing Podcasts – Josh Brown

You can find out more about Tobias’ podcast here – The Acquirers Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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Full Transcript

Joshua Brown: Alright, ready.

Tobias Carlisle: Let’s do it. Hi, I’m Tobias Carlisle. This is the Acquirers Podcast. My special guest today is the CEO of Ritholtz Wealth Management. He’s a commentator on CNBC. He’s a blogger on The Reformed Broker. He’s the chairman of the Fin Twit Federal Reserve. He’s Downtown Josh Brown. We’re going to talk to him-

Joshua Brown: I’m a member of the Avengers. You’re leaving some of this stuff out. I feel like the viewers should get all of it.

Tobias Carlisle: I’m going to read your Wikipedia entry right after this.

Speaker 3: Tobias Carlisle is the founder and principal of Acquirers Funds. For regulatory reasons, he will not discuss any of the Acquirers Funds on this podcast. All opinions expressed by podcast participants are solely their own and do not reflect the opinions of Acquirers Funds or affiliates. For more information, visit AcquirersFunds.com.

Joshua Brown: What’s up, Tobias? How are you? Are we good?

Tobias Carlisle: I mean, thanks so much for coming on and doing this.

Joshua Brown: My pleasure.

Tobias Carlisle: First question: your own personal investment strategy. I’ve read your great post, How I Invest My Own Money. And you’ve got a very sensible approach, of course, because you’re a financial planner. But when you’re thinking about… the most interesting thing for me in that list is the individual stocks, the individual names. When you’re thinking about choosing those names, how do you go about doing that? What’s your process?

Joshua Brown: So I started trading stocks when I was like 18 and I just love it. But I don’t trade really any more.

Tobias Carlisle: You said you buy and you don’t sell.

Joshua Brown: I try. I mean, sometimes. If I sell something it’s because I went into it with a stop-loss. I went into it saying all right, we’re going to take 10% downside to make 30% upside. For the most part, what I’m doing is buying and having the dividends be automatically reinvested. So it’s a lot of blue chips. A lot of large cap growth stocks. And I already have a lot of exposure to some of these stocks anyway because they’re big in the indices. And my real money is invested in my firm’s models. So I have exposure to all this stuff already. So these are just names I want to own individually. And I will only do it in tax-deferred accounts. So I’m not doing any individual stocks or bonds or anything in a brokerage account. It’s all rollover IRAs, SEP IRA, etc.

Joshua Brown: But what I’m basically trying to do is make sure that I’m staying on top of what’s going on with the individual names. And so the mechanism by which I do that is having some skin in the game. I’m not looking to change my life with individual stocks, like my real investment is in this firm and then my secondary real investment is in my retirement account, which again owns the same models that my clients own. So this is really just something on the side I’m doing to keep myself sharp and plugged in and engaged. So I have a bunch of stocks that I bought years and years ago, never sold them, with Apple and all this stuff. And they’ve just gone up and up and up. And I just, I follow the news because I have a little bit, you know, more invested in these companies. But I’m not like, measuring alpha versus a benchmar-, I don’t care about that stuff.

Joshua Brown: And then a lot of the stuff I own is like boring, and I like it that way. So, you know, I’m in Verizon, I’m in a bunch of weeds. Like these are things that are just paying dividends, accumulating more stocks, slow and steady and it makes me happy. I like to watch that process happen in my accounts.

Tobias Carlisle: In Verizon, to make the cable payments a little bit less painful.

Joshua Brown: Well that’s a good point. A lot of stocks I own, just not on purpose, by default of the companies I spend money with. Like I own Dunkin, I own Shake Shack, I’ve done really really well with those stocks. I spend money there, like I feel like I should be getting something back. And I actually think that that’s a really good tool-

Tobias Carlisle: That’s the Peter Lynch. [crosstalk 00:04:13]

Joshua Brown: Yeah, it’s a little bit, so. Ah. I feel like Peter Lynch got kind of mis… I mean I’m sure you’ve read the same books that I read. I feel like he said like, “That’s a good starting point.” And people took that to mean like, “Oh, just buy whatever I’m a customer of.” But I think there’s some element of that and it’s also like, it’s a good reminder, like, when you have the volatility that we had a week and a half ago. You see stocks go down 9% in four days or three days and you’re just like “Yeah, but I know the business didn’t decline in value by 9%.” These are just the pieces of paper that represent that business.

Joshua Brown: So it’s a helpful reminder, when you own stocks where you actually interact with those companies in the real world because you realize, “Oh, I’m still probably going to pay my Verizon bill next month. Like most likely I’m still going to get a cup of coffee this morning when I wake up.” I think that that’s an interesting psychological tool. Harder to do that with things that are a little bit more divorced from your life like semiconductor stocks or, you know, railroads or things that you’re not directly interacting with all the time.

Tobias Carlisle: I think Peter Lynch said, “Find the things that you use everyday and then the things that you like and then do a valuation and then buy them if the valuation is sensible.”

Joshua Brown: Right, people didn’t like the valuation part. They just skip to-

Tobias Carlisle: Well, that hasn’t worked-

Joshua Brown: They just skip to buy it. Right.

Tobias Carlisle: If you, if you-

Joshua Brown: I mean actually it might have worked. I use an iPhone everyday-

Tobias Carlisle: If you cut out the valuation step I think you’ve done better over the last five years.

Joshua Brown: [crosstalk 00:05:43][inaudible 00:05:43]

Tobias Carlisle: There’s an ETF ACSI Australia. Ah, Australia. American consumer, something. Basically what they look at the data that, point-of-sale data for people who’re buying these things and then they extrapolate that out and go and buy those underlying stocks. So they’re trying to ahead of the next earnings. And there’s a UK version, or a European version, and a US version. And the UK, or European version, they try to do a valuation before they buy it.

Joshua Brown: That’s the worst part.

Tobias Carlisle: Well it’s underperformed the American version that doesn’t worry about the valuation, just buys it on, sort of pure underlying earnings momentum. So-

Joshua Brown: I wrote a post about that phenomenon. I said, I’ve still got price to book. And I basically said like, there are no asset managers who put in their literature, or sit in front of a client, anything to the effect of, “Here’s what we do: we buy the biggest winning stocks and we add to them as they win even more. And we pay absolutely no attention to valuation.” There is nobody saying that that’s their process. I just spent the last 10 years doing that, you absolutely fucking destroyed everyone else who’s like “Oh, we’re looking for value and we’re looking for bargains.” The idiot who just buys the SPY they’re like “Well, what the fuck are you doing that for? Like, you’re not making any money doing that. So is this like a pride thing?”

Joshua Brown: So I’m not joking like this is going to go on forever but I just think its interesting that we been in that sort of moment, for more than a couple of years. It’s been going on for almost 10 years now.

Tobias Carlisle: Well it’s a-

Joshua Brown: And I don’t know when it stops.

Tobias Carlisle: It’s a momentum strategy, right. It’s a legitimate momentum strategy and we’ve both got friends, Alpha Architect, Wes Gray and AQR. They have explicit momentum strategies where they’re buying the things that have gone up the most and that’s a very good long-term, well-performed strategy, over a very long-term scope, better risk-adjusted characteristics than value does, particularly at the moment.

Joshua Brown: Well you know what’s different about this though? This is like, the same momentum stocks for 10 years. Do you understand what I mean by that? Like, this is. When most people think of momentum historically, they think of like ebbs and flows, acceptors, and one name is hot for a year and then it gets killed but there’s another hot name. This is like, a small collection of companies that, and it’s not just stock price momentum, they have fundamental momentum.

Tobias Carlisle: Right.

Joshua Brown: Like and I think earnings growth, that is justifying- maybe it doesn’t justify, like valuation, but at least justifies the on-going compounding year after year of these stock prices. It’s not like the fundamentals are shit or they’re low quality, they’re the highest quality companies in the country. They have, like, unbelievable earnings power, they have an endless array of levers they could pull. When one part of their business starts to slow down they pull another lever or they go into another vertical and the whole process starts all over again.

Joshua Brown: We just fucking watched Amazon invent the third largest advertising business in America, overnight. Like they just. People are like “Oh, you’ll see, web services, The Cloud, its going to start to slow.” And they’re like, “Alright, we’re an advertising company now.” It becomes the third largest advertising platform in 12 months. People are like, “Wait, what? Hold on. They’re growing earnings 25% again, how are they doing that?” And they do this over and over and over and over again.

Joshua Brown: And I’m not suggesting it goes on ad infinitum, but it’s like. This is what’s unique about this moment, is that it’s a small group of companies seemingly able to do this. Whereas momentum historically was like “Oh, that’s EPA Biotech, they got an FDA approval, it’s been hot for six months.” “Oh well that’s an oil company, they discovered a new well, stock’s been making new highs every week and you know, it’ll peter out eventually.”

Joshua Brown: When does this stop? So I think part of the answer to that is cheap money. I’ve tried to draw that parallel, but it can’t be just that. Like, I’m very wary of people that have a single explanation for something this big.

Tobias Carlisle: Well what about-

Joshua Brown: It’s got to be multiple factors.

Tobias Carlisle: There’s one suggestion that it’s, that there’s been less enforcement of anti-trust.

Joshua Brown: Yeah, I buy that. I buy that because if somebody stops Facebook from buying Instagram in 2012, which I think they did it like a month before they came public or something. If somebody stops that, in its tracks, arguably, Instagram, I don’t know that it ever gets as big as it is now because Facebook gave it access to its social graph which supercharged its growth. But could it be bigger than Twitter, 300 million users? Yeah. Could it be bigger than LinkedIn, 600 million users? Probably, it could. I’m not saying it would. Certainly it would be bigger than Snap. So if that standalone company, it’s worth $40 billion, and it’s pulling ad dollars away from Facebook the way other social networks are trying to or have failed, yeah. That’s arguably… And then what’s Facebook’s growth x Instagram?

Tobias Carlisle: Well it’s negative I would say.

Joshua Brown: There’s no way, yeah. There’s no way it looks like what it’s looked like over the last three years. So I think there’s probably something to that. But not only are we not enforcing anti-trusts, we’re doing like, after the horses leave the barn, we’re starting to get concerned about this stuff. Like after it’s too late, you know. And now I think maybe we’re at a place where it’s too late. Who could really stop these companies? I don’t know. They’re setting up shop in Washington, they’re hiring the highest priced lobbying and law firms you can, they’re making friends with all the right politicians, no ones going to be able to stop this stuff. So I mean, certainly not this administration. So people are like, “When is this going to end?” I don’t know.

Joshua Brown: So I don’t know if that’s actionable as an investor but, I just feel like it’s hard for me to understand why somebody would buy Macy’s stock right now, knowing what I know about what Amazon wants to do with apparel. Which they are not hiding, they’ve been very open about what their, what their ideas are about the apparel market.

Joshua Brown: So now you look at something like Macy’s, stock was $60 four years ago, it’s $19 as we’re recording. $6 billion market cap, $13 billion in enterprise value. So a lot of debt. It’s trading six times forward earnings. So if you’re running one of these screens and you’re like, “I want to own the cheapest stock, it’s trading four times last year’s earnings or whatever it is.” So that’s going to end up in your bucket unless you’re doing some kind of a debt screen like. Okay, so I understand, historically it’s cheap, you’re a contrarian, I’m so impressed. Blah, blah, okay. You fuckin’ buy it. You, go buy Macy’s! Tell me, tell me how this story ends. Maybe you’ll be right or maybe there’ll be a short squeeze and it’ll rally 12% and you’ll take that profit. I don’t know! But it’s just like, that is one example, there are like hundreds of those examples in the market right now. And yes I understand, things don’t go on forever, but it’s been a pretty long goddamn time. And on a secular basis, many of these companies are going away.

Joshua Brown: Looking at Bed Bath and Beyond the other day, how is this still around? Who are the investors with capital in this stock?

Tobias Carlisle: There’re still [inaudible 00:13:24] shopping there.

Joshua Brown: Well there are activist hedge funds trying to get board seats at fucking Bed Bath and Beyond! Get a, you don’t need a seat, you need a life raft! So like, I’m fascinated by this moment that we’re in and I’m not saying like I have the answers but I think I’ve come up with some pretty good ways of thinking and writing about it.

Tobias Carlisle: I agree with you, it’s an extremely difficult time. Like, I’m a value guy, I’m a deep value guy. So I’m a guy who’s just missed the entire rally so. I fully own up to that, you can look at it in my returns. But I, and the thing that makes it so hard is that the undervalued businesses are really terrible businesses. And the businesses that I really want to own are just-

Joshua Brown: Extremely expensive.

Tobias Carlisle: Nose-bleed, eye-popping valuations.

Joshua Brown: Yeah.

Tobias Carlisle: So there’s no entry point for any of these things, it makes it difficult.

Joshua Brown: Alright, let me ask you this. What is the mechanism by which all of a sudden that would shift? And the cheapest businesses start going up and the best businesses, that are expensive, start falling. Is it like a silver bullet type of thing that starts that? Is it one by one? Or does it never happen?

Tobias Carlisle: Well I can tell you that the problem… Like I can look at my portfolio and my portfolio’s public and you can see that, you can go to a site like Morningstar and look at the growth rate of the underlying stocks. Like the underlying stocks, the growth rate of the underlying stocks is higher than the rest of the market. They’re cheap and they’re growing faster than the rest of the market, which is not something I typically like, I prefer them to grow slower because those returns are better. That doesn’t make any sense but that’s the case. As it happens-

Joshua Brown: [crosstalk 00:14:52] the dirt cheap stocks are growing faster than the market?

Tobias Carlisle: Correct.

Joshua Brown: So, okay. Like you don’t have to say a ticker if you’re not allowed to but like give me an example. Like what sector do you find below-market valuations with higher than market growth rates?

Tobias Carlisle: I would need to look at that specifically, but I’ll put something into the notes of this one. But across the entire portfolio, that’s the case on a uh. The name, the individual names, the revenues, earnings, etc., are growing faster than the market and they’re below market valuations. But they still don’t get any love. I mean that’s the pain for a value investor.

Joshua Brown: So at the beginning of my career, like the first thing I saw was the dot com boom and crash. I wasn’t really managing money at the time, I was a kid. I was like cold-calling for brokers who were buying all these tech stocks and IPOs. It was an IPO every day, some days there were two or three. And none of the companies had… People are like, “Oh they were expensive.” No, no, no. They didn’t even have businesses.

Tobias Carlisle: Right.

Joshua Brown: It’s not like, “Oh, they were selling 40 times earnings, how egregious!” They had no earnings, they had no revenue. There was no multiple… You couldn’t put a multiple on a company-

Tobias Carlisle: They’re the per-

Joshua Brown: If they don’t have any revenue. They had a fucking domain name.

Tobias Carlisle: It’s the perfect business.

Joshua Brown: [crosstalk 00:16:12] But fine, but a lot of them made it into the NASDAQ. And not just the worthless dot coms but. I know I’m telling you things you already know but I’m setting something up here. Like Sun Microsystems and Lucent and Cisco and. These companies who were selling equipment to companies that were funded by equity, and equity that was outrageously overvalue but. At least all this cash that they raised, they were like buying equipment. So these were like real, fundamental businesses that made up the NASDAQ 100. It wasn’t like all these fake dot coms, they weren’t in that index. But then when the music stopped for all the equity financing and the IPOs went away, because the NASDAQ started to crash, all of these companies where people were like, “Oh well I’m investing in a real business, like Lucent. They actually earn money.” Well their shit went away too because their customers disappeared.

Tobias Carlisle: Right.

Joshua Brown: So but you have that moment, right? And who looks better, 18 months later? So that the NASDAQ peaks in March, 2000, and the people who looked better were the people who just, their mandate would never have let them own NASDAQ 100 stocks. But they own bowling alleys and you know, we make Winnebagos and oh, this stock I’m invested in makes house paint, and this is a carpeting company. Like those stocks look amazing, relative to the S&P 500, which had become dominated by tech stocks and or high multiple consumer staples like Coca Cola and all that. Alright, so who owned those stocks? Well Buffett, but also like David Einhorn, and like a lot of the people who became like famous value practitioners. Their entire career was made in an 18 month period of time.

Tobias Carlisle: Right.

Joshua Brown: And that like. So by 2002, if you had a positive track record, which like, Berkshire did, while the people who had been chasing the NASDAQ names were down 70%, 80%-

Tobias Carlisle: Right.

Joshua Brown: That track record in print, you could dine out on that for the next 15 years. Because there would just be no way for the market to catch up to you. So you would just like, I feel like that was what, what’s it called, the Cambrian Explosion? Where like, all the fossils of all this life were found in one place at one time? Like that is the origin story of nine out of 10 of the most famous value investors.

Tobias Carlisle: I agree, 100%.

Joshua Brown: Okay, okay. So now here’s the problem though. 15 years goes by, there was never a repeat of that. In fact, the cheapest stocks got hit the hardest in the next crisis.

Tobias Carlisle: Right.

Joshua Brown: The next crisis didn’t look like dot com. So you had home builders selling at seven times earnings, they end up going to seven times earnings, or three times earnings because those earnings never show up. And then of course we found out they’re losing money. Banks, mortgage lenders, they were all quote, unquote cheap on paper. So a lot of those value investors who looked like geniuses after dot com, there was a little bit of tarnish after the housing crisis, okay. That’s fine, it’s okay. Everyone has draw downs. But you never had another dot com moment with that much dispersion that would help the value track records-

Tobias Carlisle: 100%.

Joshua Brown: [crosstalk 00:19:29] real market. So are you going to have that? Like is that the thing that resurrects all of these funds and all of these strategies? And makes the research look better on buying cheap stocks? Like is that going to come along at some point, or, do we go into the next recession, have a market crash, and a lot of these quote, unquote cheap stocks, get just as badly killed as the Amazons and the Googles and the Netflixes. Because that scenario is also feasible. It’s highly feasible that some of the cheapest stocks…So I understand margin of safety, blah, blah, blah, I just, I’m not convinced that it really will matter. What do you think about that?

Tobias Carlisle: I think that the long-term track record for value is extremely good. Like if you pull down that FamaFrench data which is available on French’s website, it’s all free, you can pull it down, you can take a look at cash flow to price. I mean I put it on my blog, I put it in my Twitter all the time, I put it up on Friday. I’ll tweet it out again. The long-term track record to that most undervalue portfolio of stocks on a price to cash flow basis, equal weighted. Which is basically how a lot of value investors are constructing their portfolios. It has more than doubled the return to the more expensive stuff.

Joshua Brown: Over what period of time?

Tobias Carlisle: Since 1951, for the price to cash flow. Since 1928, for the-

Joshua Brown: What is the longest stretch-

Tobias Carlisle: The current one.

Joshua Brown: In the years? The current one is the longest stretch where-

Tobias Carlisle: Yes.

Joshua Brown: Underperformed market cap benchmark?

Tobias Carlisle: And the deepest under performance, yes.

Joshua Brown: So it is both the longest duration of under performance for value and the worst showing-

Tobias Carlisle: Correct.

Joshua Brown: Relative to-

Tobias Carlisle: Correct.

Joshua Brown: Okay.

Tobias Carlisle: For price to cash flow, on an equal weight basis.

Joshua Brown: Now so not to be a dick, but like what if something in the economy has so materially changed, relative to the 1950s, 60s, and 70s, that it no longer matters, and it will never revert? Doesn’t that, like does that bother you?

Tobias Carlisle: 100%.

Joshua Brown: If it was me, because we have funds where we’re tilting toward value. We are invested in that too like, not all of our money but-

Tobias Carlisle: My condolences.

Joshua Brown: Well I’m saying like is that something that you think about? I think about it all the time.

Tobias Carlisle: That’s the singular question, and if you can answer that question correctly then you’re probably a billionaire.

Joshua Brown: Well I took a stab at it. And my answer to that question is that it is conceivable that the microchip and the invention of software, like these things becoming household, in the early 80s, was a line of demarkation that people in the future will point back at and say, “That was the moment that everything changed. And it took a really long time though for it to take over the economy but once it did it never went back.” I feel like that’s… Look, dude. You and I, we could be like partners in an investment firm in 1930 and we could be making these really big bets on blacksmiths and fuckin’ work shoes. Like that could be us! And I don’t think they ever got a redemption moment, you know the people that were doing that. And the automobile fundamentally changed the economy. Why are we so inconceivable, that software is doing that now?

Tobias Carlisle: It’s not inconceivable, I agree with you 100% and I would say that the demarkation point is not just the computer, I think it’s the, and it’s not even the first dot, it’s the Internet or the web. And in those network effects finally being built up properly until you get to the point now where it becomes winner take all. The only thing that I would say to that though, this is the only saving grace for value. That the better risk adjuster-

Joshua Brown: You’ve said this before.

Tobias Carlisle: Well this is the only saving grace for value. The risk reward, if you’re wrong, value’s already dead. So you’re already dead. If you’re right-

Joshua Brown: I don’t know about that.

Tobias Carlisle: If you’re right the pay off is huge.

Joshua Brown: Stock that’s fallen from 60 to 20? Has lost two thirds of its value.

Tobias Carlisle: Right.

Joshua Brown: But from 20 to 10 it loses another half of its value.

Tobias Carlisle: Right.

Joshua Brown: Like I don’t know that your jump, I understand what you’re saying. You’re saying like, you’re jumping out a basement window at this point because valuations have already come down so much. I don’t know. You have had historically, like, entire industries where stocks have gone to zero. And I think there are people saying something similar to what you were saying about steel stocks in the 90s, and they just, they went to zero and there aren’t any left. It’s US steel.

Tobias Carlisle: Maybe a few.

Joshua Brown: I mean, that pre-date that time or they went through reorganization to get them back?

Tobias Carlisle: That’s fair, that’s fair.

Joshua Brown: You know what I’m saying? Like people, you forget Bethlehem Steel, how huge and important that company was in America. And somebody that grew up in the 50s and 60s and watched them build the interstate highway system, and then like in the 90s have that be a three dollar stock? It’s like inconceivable. And then you had activists come along, like “Guys, come file a 13D, here’s how we’re going to revitalize”… It didn’t work, they all went to zero. And the same with most publicly traded coal companies. And so it’s like, I don’t know, is retail, steel? Is retail, coal? Because when you do the screens evaluation, you find a lot of retailers in there. And I don’t really know what they’re going to do about it. And you know, like to me like that’s, I don’t have the answer but I think I know that that is the right question. Is what if everything is permanently changed, and you know, I think it’s people are worried about it.

Tobias Carlisle: I think that’s exactly the right question but I think that that is the question that I mean, all value investors are asking that question. And if they’re not then they’re not going to be in the game for very long. Buffett himself has said that retailers are a bad business because there’s always some new concept that comes along that just steals all the value from the, whatever the. So the department store killed whatever came before that and then you needed your department store to be near to like a, a tram. The tram, where people got off the tram, because if it wasn’t then people just weren’t going to walk past whatever was the local thing-

Joshua Brown: Right.

Tobias Carlisle: And Amazon’s the new version of that like it has to be accessible from your desktop because no one’s going to walk to the tram stop anymore.

Joshua Brown: So Buffett, really not a value investor.

Tobias Carlisle: Right.

Joshua Brown: I think he’s a growth at a reasonable price investor.

Tobias Carlisle: I agree.

Joshua Brown: And when you look at what Tad and Todd are buying, they’re not interested in any of these value stocks. They’re buying Visa, MasterCard-

Tobias Carlisle: Well those are value stocks, potentially.

Joshua Brown: Oh, well. But these are the top momentum stocks in America. Visa’s gone up like 1000% over the last five-

Tobias Carlisle: But-

Joshua Brown: They’re buying momentum stocks. I mean, they’re not buying it because they’re momentum stocks. I understand, they like the credit card companies, they like the MOAT. I understand that. I’m just saying like that’s what they’re… These guys are buying stocks that are, in no way shape or form are cheap. Like, by any statistical definition of cheap. You could say they’re cheap on, what their earnings might be two years from now or whatever-

Tobias Carlisle: Right.

Joshua Brown: But that would be stretching-

Tobias Carlisle: Right.

Joshua Brown: The definition of value.

Tobias Carlisle: But the way that they’re-

Joshua Brown: So-

Tobias Carlisle: They’re just looking at what they return on equity. They’re looking at that return in equity versus wherever else you can stick your money like, you’re basically getting virtually zero so that then makes the valuation extremely high and any discount to that is a sensible discount. That’s a value stock.

Joshua Brown: Right. Fair.

Tobias Carlisle: That’s a modern value stock like, that’s a compounded value stock. And anybody who’s done that as a value investor has done very well over the last five or 10 years.

Joshua Brown: We’ve seen, yeah. We’ve seen some of the value investors kind of move toward that approach and-

Tobias Carlisle: Right.

Joshua Brown: Those are the guys that are still in the game I guess.

Tobias Carlisle: Right.

Joshua Brown: Is it, I think the guy from like, from Oakmark, was buying Amazon or something-

Tobias Carlisle: Yeah.

Joshua Brown: Like some of these guys have changed their definition of value, so arguably like, that’s been good for their investors. But then like, if anything can be a value stock, what is a value stock? Then we end up getting into this whole debate over doctrinaire or definitions of these things that-

Tobias Carlisle: Right.

Joshua Brown: That maybe shouldn’t matter.

Tobias Carlisle: Right, nobody cares about those things.

Joshua Brown: Well, so I guess if you’re writing a rules-based strategy though you do care. Right? Like that’s, I guess that’s the difference between being discretionary versus quant screen.

Tobias Carlisle: Right.

Joshua Brown: Because if you’re a quant screen you get really mad when you hear people like, “Well I’m buying Netflix because actually if you value it based off blah, blah, blah.” And they’re like, “I can’t do that, I got the rules written already.” You know?

Tobias Carlisle: I mean I do care about it. I think it’s a central question and I think about it a lot. And the issue that I have, and this is one thing, this is a criticism of mine that I’ve had, that 10 years of value investors have been paid to become more growthy in the way that they invest. But historically that’s not been a great way to do it. So it’s either, you’ve got to make this decision and it’s an incredibly difficult decision to make. You either believe in the things that have worked in the past, and you bet that way. Or you recognize that the game has changed and you have to adapt with that game. And I don’t know what the correct answer is and so it remains to be seen.

Joshua Brown: Let me flip it on its head, let’s pretend you are the young investor. Let’s okay. So I’m a financial advisor, you’re a dentist. And I say, “Dr. Carlisle, great news. You’ve compounded at 13% over the last 10 years. So I’ve done really, really well for you.” Now you say to me, “Yeah, but did you buy cheap stocks? Or did we overpay?” “Well we overpaid.” “Well, Josh, you told me 10 years ago though that you had a discipline and that we were going to have a margin of safety because you weren’t going to chase the most expensive stocks.” And then I say, “Well, I did, but it worked out in your favor.” What do you say back to me?

Tobias Carlisle: I pre-suppose-

Joshua Brown: The money is real, you get to keep the money.

Tobias Carlisle: I pre-suppose, well-

Joshua Brown: I bullshitted, I bullshitted you but the money’s real. Now what do you tell me?

Tobias Carlisle: I am the end, I am the end consumer as well as being the manager so I’m intensely interested for a lot of different reasons in the way that these things work.

Joshua Brown: Mm-hmm (affirmative).

Tobias Carlisle: But the question is not what should I have done over the last 10 years, the question is what should I do for the next 10 years? And I-

Joshua Brown: Well, yeah but that’s going to inform. Like how you’ve spent the lat 10 years, and the lessons you’ve learned, that will color what people do over the next 10 years.

Tobias Carlisle: Absolutely.

Joshua Brown: Because of the recency bias and the availability heuristic-

Tobias Carlisle: Right.

Joshua Brown: And all of these things that screw with us. Like, you’re going to act however you act over the next 10 years, it’s going to be colored by something that you’ve just experienced. Me too. I feel like we’re human beings, it’s unavoidable.

Tobias Carlisle: Well, I try to resist it by looking at very long-term data, and I don’t know that that’s helpful. But that’s my process.

Joshua Brown: We use this example as a teaching tool, all the time. I’m sure you’ve heard it before. So there was this thing where if you were an investor from like 1917 or whatever, when they first started doing war bonds. Like if you were an investor from 1917 until 1957, so that’s like 40 something years, 40 years. If you were an investor you knew, that the best time to by stocks, was when the dividend yield of the stock market got over the yield of the 10 Year Treasury. So that was a signal that stocks are now too cheap, must be bought. And you used that and it worked like clockwork. And then you would sell stocks when that reversed. You’d say stocks are too expensive, the dividend yield is too low. And then in the late 1950s, for a variety of reasons, interest rates, you know, Eisenhower rebuilding the country and all these things, all of a sudden that just, that one day it stopped working. So one day, the dividend yield of the stock market fell below the 10 Year Treasury and it never went back. Like to this day it has never gone back.

Joshua Brown: Now if you’re one of these people though that’s like, “Well the data going back 40 years says that you sell stocks when the dividend falls below the 10 Year…” You’re still fucking waiting to buy back in. Now, nobody in 1957 or 1958 or 1959 or 1960, could have definitively said, “Things have changed permanently.” You only know that things had changed permanently with the benefit of time.

Joshua Brown: Okay, so now with all due respect to Fama, French, Markowitz, and all the theory. With all due respect, the only constant is change. And it is possible that some of these theories and formulas and frameworks and rules of thumb that we’ve constructed trillions of dollars of investing ability on top of, like it is possible that some of the underlying assumptions that we’ve just taken for granted are no longer valid. And it is also possible, I’m pointing at the microchip, the fuck do I know? It could be something that nobody’s even thinking of. It could be life expectancies, that have completely changed the idea of stock market valuation. It could be globalization, so we’ve been globalizing for centuries but like, it could be a certain tipping point in globalization where rules change. I don’t know what the answer is, I only know that we’ve got to keep it in the back of our minds.

Joshua Brown: And here’s where that’s scary for me, we’re doing a lot of modeling for clients on an individual basis. We’re doing financial plans for people. We’re showing them return assumptions for asset classes. We’re saying like, “The emerging markets, this our assumption.” S&P 500, US Small Cap, US municipal bonds. Like we’re giving people a framework for how to think about why we’re bucketing their money the way that we’re doing it and how it’s supposed to correspond with their future spending. We try to be very honest with people and say “Hey look, we’re making assumptions and the assumptions are based on history. And history will not look precisely how… The future will not look precisely how history…” And I just feel like that kind of humility, it doesn’t raise money. Like if you, if I run a TV commercial and I’m like, “Hi, I’m Josh Brown and I have no fucking idea what’s going to happen.” Like that’s not the way Wall Street operates. Wall Street operates with certainty in mind.

Joshua Brown: So there are some things that we feel pretty good about, which is that risk will ultimately be rewarded, if it’s an intelligent risk. So you say like, stocks have given you 7% real over the last 50 years, bonds have given you 2% or 3% real and that relationship should hold over the next 50 years. I think I can reasonably say that because you’re asking someone to take more risks, so they should be rewarded but A, I can’t say that over the next five years you’ll be rewarded. And so I think like, having that approach speaking with any clients and having that level of honesty, in this day and age, with this massive question that you and I are talking about hanging over our heads, like I just feel like there are certain things that we should emphasize and maybe not worry so much about. Is 2020 the year value comes back? Or is 2022 the breaking point for large cap growth? I just think that question, while it’s interesting, is so much less important, than the real question which is, “Will these asset classes do what they’re supposed to do going forward?” And maybe that’s like, the bigger, more agonizing thing to think about.

Tobias Carlisle: Do you adjust your forward projections for those different asset classes based on so, valuation? So do you think, you know, if the stock market’s expensive it’s likely that the forward return is lower?

Joshua Brown: We are more apt to use things like inflation to have like a return assumption change than something like that. We are not forecasting asset class returns based on valuation.

Tobias Carlisle: Okay.

Joshua Brown: I know that there are, I know that there are legitimate ideas about let’s take the CAPE and let’s use that, not to make a one-year forecast or a market timing call, but maybe to determine when an allocation should be higher or lower for a given asset. So like right now, if you’re like a very CAPE sensitive person, and by right now I mean like over the last eight years-

Tobias Carlisle: 20 years.

Joshua Brown: Yeah, exactly, right. So you’re saying like, “Well it’s reasonable to have less of a weight into US stocks because the 10 year outlook, when CAPE is at these levels, I don’t know if we have enough data to really do that. And that by the way, that feeds into one of the things we were talking about, like what if everything’s permanently changed?

Tobias Carlisle: What do you do in that scenario?

Joshua Brown: I think you don’t do anything, I think you stay disciplined about what you want your target weightings to be. You have volatility bands around those weightings so that you don’t get blown out of an asset flash just because there’s been near-term volatility. But you don’t screw around with your rebalancing and when the time comes to trim from something you do it, and when the time comes to add to something, you do it. And so much of that, it seems like easy and obvious, this is the stuff people will not do for themselves. They won’t do it, because you’re asking them to buy into something as it’s crashing, in the largest amount you’ve ever asked them to buy into it. And vice versa, you’re asking them to take money off the table from whatever fund or asset class makes them feel great right now. “Don’t sell my Amazon!” Right? Like this is human nature.

Joshua Brown: I think if you want a disciplined asset allocation strategy, you take your constitution seriously, meaning like what you’ve used to constitute this portfolio, you’ve done a lot of work on what you want to own, how you want to own it, why, etc. And then when it comes time to make trades for rebalancing, you do it thoughtfully but you force yourself to do it. You’re like ahead of 99% of the public, just doing that. Like literally 99% of the public cannot do that for themselves or can only do it some of the time and not reliably enough. So if you’re just willing to stick to that and say you’ll do that, you don’t have to get the CAPE ratio shit right, it becomes unnecessary over enough of a period of time.

Tobias Carlisle: According to your Wikipedia entry you got your Series 7 in 1997, which by my calculation puts you in college-

Joshua Brown: Yeah.

Tobias Carlisle: What were you thinking?

Joshua Brown: Well, my summer after 9th grade, like I grew up on Long Island and in the 90s, everyone on Long Island was trying to be a stock broker. That was just like, it was like the road to riches. So people were studying for their Series 7s and getting internships at brokerage firms every summer, you know, in preparation for when they graduated. Just everyone wanted to be involved with the market, it was the height of the 1990s below market, people were just getting absolutely filthy rich out of nowhere. Everyone was driving Porches around, and you’d be like, “How did you make all this money?” to like a 24 year old and invariably they would say, “I’m a broker.” So that’s like the culture that existed when I was a teenager and like, me and all my friends, we just were like, “Yeah, we’re going to be brokers.” It was like very, I know it sounds ridiculous now, it’s 20 years later but it was glamorous. That was like the thing that you wanted to aspire to. So I took my Series 7 and I think I failed it the first time and then I passed it. I mean it’s the dumbest test on Earth. Like it’s really, you know, it’s not like passing the Bar exam, believe me.

Tobias Carlisle: When I first discovered you it was like December 2008, which was when I started writing my blog and I just looked you up then. You started blogging in November 2008-

Joshua Brown: Yeah.

Tobias Carlisle: Did you have any idea where it could go?

Joshua Brown: No. So I started the blog, like really just like venting. My blog started in between Lehman Brothers going bankrupt and right before like the Bernie Madoff revelation coming out that December. So it was just like a very fertile period of time to be ranting and raving about Wall Street and I really didn’t like, there was no like, premeditated plan it was just like, I have things to say. And at that time I’d been a retail broker, I hated the business. I hated everything that was happening in the markets and I just, I had some things to get off my chest. And I found an audience really fast and if I hadn’t I probably would’ve stopped because blogging is like a very demanding thing. Like if you’re not putting up content every day, you’re gone basically. But people showed up so I kept going.

Tobias Carlisle: So you started it as a result of the experiences that you had as a retail broker. And I read Backstage Wall Street when it first came out in 2012-

Joshua Brown: Thank you.

Tobias Carlisle: And so my, I haven’t told you what I thought about it yet. No I thought it-

Joshua Brown: Okay.

Tobias Carlisle: It was excellent, it was very, very good. But my impression of it was that it was something like, it was like working in Boiler Room or more recently Wolf of Wall Street, so is that what it was like?

Joshua Brown: So, yeah. So The Wolf of Wall Street era is before my time. That’s really early 1990s. By the time that I arrived in the brokerage business, that was already like on its way out. And what was really left was just people trying to do retail business, legitimate retail business, buy and sell stocks and funds, but utilizing the techniques that The Wolf of Wall Street era people used.

Joshua Brown: But they did not invent that, cold calling was invented at Lehman Brothers. It was a guy by the name of Marty Shafiroff who wrote a book called Telephone Selling in the 90s. And he was either in the Madison Avenue office or the Water Street office of Lehman Brothers which became infamous because they invented having brokers make 500 phone calls a day, call executives all over the country and essentially sell stock to people that they had never met before in person. That was like an innovation at the time. But that’s like the 60s and 70s, so cold calling culture had already been around for, which I talk about it in the book, for 30 years prior to Jordan Belfort. He just, he was the first to take that concept and turn it toward nefarious purposes and like, just build this empire of penny stocks where they controlled the prices and they made markets in all the stocks that were being recommended.

Joshua Brown: Prior to Stratton Oakmont, cold calling was a perfectly legitimate way to do business development. So after the Stratton era, that’s where I came along. There were still some people who were trained, at Stratton, and they were running some of these brokerage firms. So the idea was like, let’s get people to open accounts using legitimate investments but let’s use those old school tactics to, you know, get as many people as possible. So it was a unique moment, it didn’t last long. Eventually people stopped picking up their phones.

Joshua Brown: But yeah, that was kind of the environment that I walked into. So we had research analysts and we were trying to pick good stocks and they were all blue chips and liquid. But yeah, the tactic was how do you do business development, use the phone. And I got really good at it, and that was not really my big issue. My big issue was just like, realizing by the time the crisis rolled around, you say to yourself like, “Alright, I got all these clients. I have all these people that believe in me, they like me. What the hell am I recommending to them? None of this is helping them.” And so that was kind of the epiphany that I had where it was like, okay the part I love about this business is helping people, the part I hate is the sales side. And so being able to divorce the sales side from helping people side, meant dropping my Series 7 and becoming an investment advisor. So that’s kind of like, the evolution from where I started to where I ended up.

Tobias Carlisle: And that was the focus, and still is the focus of The Reformed Broker blog, that you talk about some of the abusive practices that they used to engage in and better ways that the business can go. And that’s, I’m guessing that’s the reason that you linked up with Barry Ritholtz, to form Ritholtz, right?

Joshua Brown: Well, yeah. I mean the stuff that I describe in the book doesn’t really exist anymore. There’s probably 20 of those firms left, they’re just, they’re gone. The bigger abuses now that are interesting to me, you have a lot of people who are unregistered and they just every day have these extreme opinions and I guess there’s nothing you can do about it from a regulatory standpoint, but they have absolutely spent the last 10 years scaring people witless. And causing people to either not invest or to invest in really, really, poorly chosen asset allocations that virtually doom their proposition of retirement. Like if you missed most of the market over the last 10 years, you’re never going to see a period like this again. Like I don’t know, how do you get those years back?

Joshua Brown: Like I feel like that’s the current abuse that is significantly more damaging to the investor populace, than anything Jordan Belfort ever did. Like, Jordan Belfort preyed on people who were greedy, psychopaths to begin with for the most part. Like you would not have given him a million dollars to steal from you, if you didn’t think that you found a shortcut to investing because of what he was doing. That put that aside, compartmentalize that, what’s happening now I think is significantly more widespread and worse and we have the first amendment here. Like people are allowed to say whatever they want to say. But I do think that there’s this arbitrage where people are like, selling newsletters, rather than becoming registered as investment professionals, and they are giving advice and it’s shit advice and they’re out of their fucking minds and they’re scaring people out of investing for their retirement and these people are not going to get this time back. So to me that’s an interesting abuse and that’s the kind of thing that I’ve been writing about lately. To talk about like, the old boiler room brokerage days, those days are gone, there’s nobody left. So like I feel like the threat, to the investor populace is always shifting and I kind of, I try I think to help people with whatever the threat of the moment is.

Tobias Carlisle: Well let’s talk about that a little bit. So, what are you talking about, the Gold Bugs, the doomsday guys?

Joshua Brown: I just, yeah. I feel like there’re a lot of people who have no skin in the game, who are not… Look, if you’re an unregistered person screaming about what you think the stock market’s about to do or interest rates or gold, you have the right to do that. But if you manage no money, who gives a shit what you think? Like a lot of the loudest, most extreme voices are people that have no money at stake, have nothing at stake. They don’t have any professional licensing, they don’t have any… And so what I’m not saying is like, they shouldn’t be allowed to talk, everyone has the right to talk. I think giving those people a platform though, and then they lead thousands of unsuspecting, average investors down the wrong path, I think that’s like problematic.

Joshua Brown: So I don’t know what you can do about it other than to provide the counterbalance to that. Say, “Yes, we know that markets go down. Yes, we know that recessions happen. Yes, we know that very, very occasionally there are crashes. But here’s the context for all of that, and here’s a more rational way of looking at the potential risks that you’re taking.” As opposed to, “The dollar is going to disappear in 18 months.” Or, “The entire global financial system is about to become unglued and you’re going to need like, swords and spears to fight World War 3.” Like that is what’s being offered out there and there’s a huge audience for it. And that audience wants it but then there are concentric circles around that audience, there are normal people being sucked into that. I know, because we come across these people all the time and usually it’s because they’ve blown up an account or several accounts and they’re basically at this point like, “I don’t know what to do. I need to invest but I’m terrified.” So that’s the role that I think we play in the ecology of financial media. I think we offer that counterbalance and we try to do it with evidence.

Tobias Carlisle: That’s Ritholtz or that’s CNBC? Or both?

Joshua Brown: No, no, no, no, no. That’s my gang. But I think I bring that element to CNBC so I’m on a show called The Halftime Report. It’s a really interesting mix of, some people are options traders, some people are hedge funds, some people are asset management. I think I’m the only person in wealth management, that’s on my particular show. So that’s, the perspective I bring is, “Yes, I understand what’s happening in the headlines, here’s our take on it.” It’s really, it’s a privilege that, they really, they give me that opportunity to bring that perspective because most of what’s in financial TV is not people in wealth management. It’s people that are in other aspects of Wall Street.

Tobias Carlisle: So how did that come about? Because that was about five years after you started The Reformed Broker blog, I think in about 2013 you started appearing on CNBC. What was the process for-

Joshua Brown: No, I made my first appearance in 2010.

Tobias Carlisle: But in terms of being a regular commentator, like a daily-

Joshua Brown: I became a regular in 2011, when The Halftime Report first came about. And I’m not sure how that happened, I just got a call like, “Hey, we’re doing this new thing at 12:00 want to be in it?” And I said, “Yeah, I want to be in it.”

Tobias Carlisle: And you’ve managed to stay in ever since which is incredible.

Joshua Brown: Well, you know. It seems like I’m on a lot more than I am. I’m doing a couple days a week at this point. There were periods of time where I was doing more. I don’t know that I have that much to say to be doing five days a week. And a lot of the things that I’m interested in or that I talk about aren’t fit for TV, which is why I maintain the blog and there are things that just, television wise would not be interesting but that I find really interesting. So I try to write about that stuff. But then the markets are really my first love, like I’ve always been interested in stocks and interested in how economic trends relate to the markets. And I just, I love it so if they keep calling me I’ll keep appearing. I think it’s a lot of fun and it’s a great way to reach a lot of people who would not ordinarily find me or read a blog, you know. Most civilians are not reading financial blogs. So if you want to appear where people’s attention is, that’s where people’s attention is, it’s on financial television. So adapting my message to that audience is what I try to do and I think I’ve done a pretty good job at it.

Tobias Carlisle: The most amazing thing is that you’ve been able to sustain the output on The Reformed Broker for so long, how do you do that?

Joshua Brown: It’s not easy. I think you have to just be reading a lot at all times to be a blogger. Like I don’t know that there are, I don’t know that there are any good financial blogs written by people who aren’t constantly reading. And sometimes you’re reading other people’s blogs, just to get a sense of what they’re saying. But a lot of the time you’re reading the news of the day, or you’re reading research. And I think you have to be comfortable with the idea that you don’t know what you’re going to want to write about tomorrow, or the next day. Things are just going to have to occur to you in the course of your reading which is why you need to do a lot of reading.

Joshua Brown: So if you didn’t love the subject matter, it would be really hard to maintain a blog. So the thing I tell people is that, like, I don’t have a lot of hobbies. Like there’s a few things I do outside of finance, but I do spend a ton of time reading and that’s where a lot of the ideas of what I’m going to write about come from. And if you’re not somebody that’s just constantly curious and wanting to read, it’s going to be hard to do a blog because like you might have three or four good ideas up front, but then what? Like what are you going to say next week? What are you going to say the week after? I’m fairly confident that at this point, it’s 11 years, I’m fairly confident that I’m going to keep reading things and things are going to keep occurring to me. And that doesn’t mean like, my takes are so great all of the time, but every once in a while I will put a few things together from a wide variety of sources I’m reading, and I will write something that I’m like, really proud of. But that’s not every day. You have to be willing to go, almost every day and then understand that most of what you write will not be remembered. You just have to be willing to go through that process.

Tobias Carlisle: I mean, we hope that most of the things that we write aren’t remembered.

Joshua Brown: Yeah, it’s probably better off that way. But I think the best financial bloggers are the people that aren’t trying to specifically hold to a schedule. But they’re people that when something occurs to them, like they’re willing to drop other shit and sit down and write it. And that’s not always easy for everyone to do, right? Like if you have a nine to five job and you have like phones ringing and people that you’re supposed to be answering to, and you have this really great thought occur to you, like, it’s hard. Like I feel you like have to be like, in an advantageous place to even begin the process of blogging.

Joshua Brown: Now for me, I was effectively out of business. So it’s not like I was like, brave and courageous and I was like, “No, put all that work to the side I’m going to do my blog now.” Nobody fucking wanted to talk to me when I started. Like I was in retail, think about what it meant to be a retail broker a month after Lehman goes down. So even like your blue chip stocks are cut in half, right? Like even the best mutual funds that you had recommended to people, they’re down 30, 40% from the peak. The only people who want to talk to you want to yell at you. And as far as like, going out and finding new clients, like that is not a thing that is happening at that moment, in American history.

Joshua Brown: People, they either want their money in cash or they know exactly where it is and they will not move it. No one’s moving money to anyone else. So it was just this six month window in time, from let’s say the fall of ’08 through the summer of ’09, where the market is erased 20 years worth of gains, or 15 years worth of gains. I have nothing else going on in my life, like my career is, that’s it. Like I have my clients, they don’t want to talk to me, and I have no investment ideas. The market looks like it’s going to zero at that time. So it was like a very advantageous window. If I tried to start a blog now, from scratch, it would never happen. I just don’t, I don’t have time. And you know, I think that that’s something that I try to like be really honest about, is that a lot of things fell into place at the right time for me to begin. I think now it’s much harder, harder to get attention for something new that you’re starting, harder to build an audience. And if you’re in a position of success right now in the industry, like, when the hell would you have the time to do that? So I was very fortunate to have started when I did and I don’t think I would be able to do what I’ve done if I were starting today.

Tobias Carlisle: What about a forum like Twitter which is micro-blogging, is what they used to call it? I don’t know if anybody still says that anymore but its, you’re forced to condense your views down, you can get them out much faster. I sort of prefer that method to sitting down and writing very long-form blog posts. And you’ve got, probably the biggest following in Fin Twit by a mile, probably one of the biggest followings on Twitter. So it’s clearly something that you’re good at. Do you enjoy that as much as you enjoy blogging?

Joshua Brown: So, I think that Twitter prizes three things. The first is timeliness, which on a blog you don’t have to do, in fact you shouldn’t. It should go the other way. I’ll talk about that in a second. So timeliness is the number one thing that Twitter prizes, which is why journalists love it, especially financial journalists. The second thing that Twitter prizes is outrage. So if you can say something that upsets a lot of people, you will get a lot of attention. You might not like that attention, but that’s how it’s done. But the third thing is wit. So if you can say entertaining, intelligent, funny things, in short, sharp bursts, and remember, I started when it was 140 characters, so it was twice as hard. No, but if you can entertain, and you can say very clever, almost like… You know who would have fucked shit up on Twitter? Oscar Wilde.

Tobias Carlisle: Yeah.

Joshua Brown: Like you Google the one-liners of Oscar Wilde, there’s almost no… Maybe like, maybe Twain is up there but like the list is very short. If you think about like, somebody like that, with Twitter at their disposal, they would have gotten to millions of followers, right?

Tobias Carlisle: Well his books are written that way, right? His books are written, every single line is written set up, punchline, set up, punchline. I don’t know how he does it.

Joshua Brown: But, so that’s a skill. So people like, “Well how do you do Twitter well?” Well, I just gave you the three key things and then you decide in what mixture you want to incorporate them. So timeliness, are you saying something that people care about right this second? Outrage, can you say things to manipulate people’s feelings, in a positive or negative way? And wittiness, are you funny? If the answer to those three things is “Yeah, I can do that stuff,” well then the bigger picture is how much time do you want to devote to it? Because saying one witty thing every two weeks, you’re not going to build a following. Now you might not give a shit, there’s, believe it or not Tobias, there are people in this world that don’t care about their Twitter following. I don’t know who those people are but, my wife is one of them. Apparently those people exist.

Joshua Brown: But if you care, Twitter is like part of your job, like you’ve got to do it that way. Now it’s not necessary, but I’m saying if you really want to do it, it’s like, it’s every day. And one of the things I’ve done, one of the things I’ve done that people don’t understand, like, “How do you have so much time to tweet?” I’d say a third of my tweets, were scheduled that morning, throughout the day. And so it creates, it creates like this ubiquitous, like appearance. Like, “Oh my God this guy’s all over the pla…” Not really, not really. Like if you take advantage of scheduling tools, and I do this for LinkedIn and Facebook too, you can make sure that at all times you have content being put out there and you don’t have to be around. So I think I’ve done a pretty good job at that, staying disciplined at that. Not a lot of people take the time to do that, it would go a long way if they did.

Tobias Carlisle: You’ve also done a lot of podcasting, so you guys have The Compound, and you and Michael have a regular back-and-forth which is excellent. Which is sort a little bit like, CNBC style with the little sideboard that gives you the topics that are coming up. Do you find that that add an extra element? Does it add something different?

Joshua Brown: We stole that from ESPN, not CNBC. Yeah, yeah I think that, look. If somebody gave a show… Like I mean this with all respect to everyone. If somebody gave a show to peop, not me, but like people that are financial bloggers and just said, take the conversation that’s happening on Fin Twit and financial blogs and podcasts, and do a 30 minute show about highlights? Like that would be the highest rated show on any network. I mean no one’s going to do it, but if somebody did that, and maybe like the version that Michael and I do, but maybe the version Michael and Ben do is better, I don’t know. To me it’s so obvious but no one will do it, I don’t know why no one will do it.

Joshua Brown: But what we’re trying to do is say these are the conversations that investors are having, professional and amateur investors are having. And some of it’s based on research, some of it’s based on articles, some of it’s like somebody did a really great podcast interview. And that conversation spills out onto the blogs and onto Twitter and everyone has their say, and everyone has takes and there are great takes and bad takes. That’s what we’re trying to serialize. Like every week that’s happening, and then we’re kind of doing these recaps like, “Hey did you hear this, did you read that?” I think we do a pretty good job at it, there’s obviously an audience for it. I don’t know how mainstream that audience would be, like it’s probably mostly financial advisors and ETF industry people and traders but whatever, like we’re trying to do that and it’s a lot of fun. We have a lot of fun with it, there’s nothing like it that exists in the mainstream media. I feel like our content is purely a creature of social media, and that’s fine, you know? We have a lot of fun.

Tobias Carlisle: It’s a much more informal format than you see on television, I think for that reason it’s better because it’s a little bit more authentic back and forth.

Joshua Brown: Sometimes, we don’t have as good graphics, we don’t have those big flashing lights. You know, if we had a little bit more of a production budget maybe it’d be more exciting?

Tobias Carlisle: Do you think that would make it better?

Joshua Brown: I don’t know.

Tobias Carlisle: Do you think that would make it better?

Joshua Brown: I don’t know, maybe not. For the record, for the record. Of my 10 favorite podcasts, even if I didn’t work with these guys, I would honestly say this. And I listen to a ton of podcasts. Of my 10 favorite, two of them are people that I work with, or three of them are people that I work with. So Michael and Ben, Animal Spirits, I think is the best, like I think it’s number one, and I have nothing to do with it. Like literally, I’ve never been on it, I don’t write it, I give them an idea every once in a while but they have created this entire thing by themselves. Every single financial advisor under 40 is listening to this podcast. They are so influential, that I don’t even think the rest of the world knows it yet. But when it becomes apparent how influential these guys are, forget it. Like it’s just going to explode. Even if I had never met either of them, I would be obsessed with that show.

Joshua Brown: And then Barry’s podcast [Masters in Business], I mean Barry’s, not a part of it, full disclosure. Like I work with him and were friends but it doesn’t matter. You cannot deny that Barry’s interviews with the top investment people of all time, who are alive currently, and name somebody, he’s done it. Like he’s done it all. Cooperman, Dalio, I mean who hasn’t he had, right? Chanos two times and on and on and on and down. There’s no one doing that. There is nobody doing long-form hour and a half interviews with the top investment figures in the world, and not asking them a single question, a single question, about what they think is going on right now. Like not one time is he sitting across from an investor and being like, “What do you think interest rates are going to do next week?” There’s enough of that! That exists already. Barry’s like, “How did you get started? Like how did your career…” Like what you’re doing with me. That content is so unique it’s shocking, that no one else is trying to do it. So he has that all to himself. So if somebody is like, “Well what financial media do you think is good?” or “What do you pay attention to?” Well, a lot! But in terms of podcasts, even if you fucking hate me, you have to agree with me that what Barry is doing is incredible and what Michael and Ben are doing, it’s incredible.

Joshua Brown: Now there’s others I love, I love Meb’s show, I listen to your show, I listen to Corey Hoffstein when he puts out a season, I try to understand what’s going on there, maybe it’s a little bit over my head. I listen to like a lot of the… And I just think what’s going on in podcasts right now, in our space, is really, really exciting. And it’s more exciting than what’s being written, like what’s in print right now. I feel like the podcasts are where everything’s happening.

Tobias Carlisle: 100% agree and that’s full time. Thanks so much, Josh Brown, Reformed Broker.

Joshua Brown: Let’s do it one more time Tobias, I just want to make sure we get this whole thing.

Tobias Carlisle: Well this is take two right now.

Joshua Brown: Question one, begin.

Tobias Carlisle: Will value outperform the market over the next 10 years?

Joshua Brown: I hope it does, we’ll do a reunion podcast 10 years from now.

Tobias Carlisle: Sounds good.

Joshua Brown: Is that a deal? Alright.

Tobias Carlisle: Perfect.

Joshua Brown: Thanks man.

Tobias Carlisle: Josh Brown, thanks so much.

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