Brutally honest guide to not losing money in the market

if you could tell me something in the next fifteen minutes that would make me a better investor what's the first point you would just hammer into my head oh my god put the phone down stop trading i feel like i rude world i know i could be what i want to from at all in it like a days off on a road less travel never back i think the interesting place to start is we've had a few different people from the school of investing wisdom come on sort of the value investing gene and me and sam although we are not investors we're definitely like entrepreneurs first and then you know investing as a sort of hobby sport type of thing we're so attracted to it we love the sort of investment wisdom especially especially the your version which is the the awe shu common sense version of investing which is less about how to be super smart and do advanced things and just how to be less stupid than you already are and don't worry you'll be fine and so i'm excited to talk to you have a cool story you you started off really in the content game in the media game blogging back in geo cities early on with podcasting and built a large investment advisory shop called it named after yourself i think you guys got to what that was a placeholder by the way that was not supposed to be permanent like let's just call it for now someone else said and we'll find a better name and then we never found a better name the background is go to law school do really well hate being a lawyer a client is running a trading desk that was a predecessor shop to e trade and so i started on a trading desk and found it was just mayhem it was just random and and volatile and i was more fascinated by why the people around me some days were killing it some days were getting killed like what's going on with their process and that sent me down the rabbit hole of behavioral finance it just was the only explanation i found as to why the same person could be doing really well one week and applying the same process get locked the next week it's decision making its emotions it's cognitive biases can you explain your christmas tree analogy for for constructing a portfolio sure that's really easy so we know that historically very few people beat the index on a regular basis in any given year less than half of active managers beat their index you take that to five year it's something like twenty one percent you take it to ten years it's it's less than ten percent one out of ten people so that includes like huge firms includes everybody and any active mutual fund etf hedge fund whatever and then go to twenty years and it's a handful of names you know peter lynch warren buffett etcetera so if the core of your portfolio is a broad index you know you can't get alpha meaning outperform if you're not at least starting with beta and when we say people don't beat their index it means not only are they not getting with the market gives them they're getting less than that so forget beating with the market gets they're not even getting with the market gets so pick a number fifty sixty seventy percent of your portfolio is that core and by core index i mean us broad based market indexes vanguard v last week became the first etf over a trillion dollars and that's just a super low cost broad index you wanna own some overseas stocks that overseas indexes that's fine now the tree is the the garland the decoration the lights the tin soul that's whatever stink of your own you wanna put on your portfolio so if you like momentum great ed you want a little more tech however you wanna decorate it you know we've we've looked at these assortment of different portfolios they all more or less end up in a similar place some are a little better some are little worse they all end up trailing the index if two thirds of your money is in a broad index well at least you know you're starting with that basis point and hey i think japan is great i'm gonna own ew or i think india is the next big con country after korea so i'm gonna own that etf if if if you wanna have a little bit of decoration on the tree that's fine just recognize you're aiming to outperform and the odds are very much that you're gonna under perform so is this a little bit like when you do a diet and they're like yeah we're gonna do a cheat meal on sunday and it's not that the cheat meal is good for you it's just that it's probably the only thing it's gonna keep you on on the guard rails of of the other six days of the week so being on track is that why you even have the decorations or would it just be better to be a hundred percent in the passive index let's call it a day so my cheat meal is the cowboy account i we have clients listen what's more fun what's sex than talking about investing in startups investing in the hot new publicly traded technology you you look at all the things that we talk about the media television print web it's it's never about own a broadly diversified portfolio of low cost indexes rebalance every few years seen a few decades now what do you do with the other twenty three hours and and fifty nine minutes a day if you have to fill it with content so all this sexy news all this exciting stuff that's that's ninety percent of the fireworks be the best finance channel they just say that at the top of every hour and then they just play like home alone reruns for for the next fifty nine minutes and and actually those investors would do way better than anybody watching i see i tell the metaphor of this little gardening channel and they have a tree cam they plant a tree and it just very p buchanan and relaxing and it's just there and everybody is happy with it and then the channel gets bought by private equity and now they gotta sex it out so everything becomes a fake conflict it's that's the wrong tree for this area too much water you planted it too deep and no it's not deep enough it's not getting an and meanwhile the tree could not care less about what they're saying it just quietly grows and that is how i think of the media and and the broad index say what you want vanguard and black rock have between the two of them have twenty five trillion dollars in assets because they've dominated low cost indexing and i think the financial crisis was very much the last straw for mom and pop investors now you have whole new generation of people on draft kings and robinhood speculating but everybody who's over forty kinda lived through this and said you know what i'm gonna take my ball and go home and by bowl i mean capital and by home i mean black rock and vanguard and you know before zero eight zero nine vanguard was under a trillion dollars they're like eleven or twelve trillion dollars black rock is thirteen or fourteen trillion like these are giant giant firms and so that's kinda what happened that's the base core and you know the tree just keeps growing what's the biggest return one your clients has had via their cowboy account so we've we've had people that have had some bitcoin when it skyrocketed we've had clients that had a lot of tesla that blew up you know in twenty and twenty one it it exploded heading into the pandemic though people that in their account had like tel doc and zoom and pal and they just exploded but what always happens it's so hard to sell something because most of our sells like i owned apple when the ipod not iphone ipod came out it was fifteen dollars a share thirteen cash there's no downside and it tripled it went up to forty five and i thought i was a genius selling it and then it proceeds to gain another nine thousand percent but we've seen that you know one of my favorite stories in the book is the ceo of pal wasn't getting especially great advice at one point on on paper he was worth i know two or three billion dollars and just leveraged himself to the hilt bought a whole bunch of stuff then of course as the pandemic starts to as the vaccine starts going around and we start to see the light at the end of the tunnel pellet crashes he must have taken a whole bunch of stock loans against that capital had a sixty million dollar place and he's hampton how to sell that was just liquid dating everything and just you know you it's always a shame when you see that i mean how many disasters do we have to live through before you realize any stock can go to zero so anytime you're trading an individual name the odds henri hen be binder at you arizona state business school did a couple of studies and he basically found out that the entire value in the market comes from between one and two percent of stocks so what are the odds fifty to one a hundred to one that the company that you love so much that's run up so much this year is gonna do it for another ten or twenty years you wanna hear something funny sean i we we did a podcast with lloyd blank the other day you know the he's got a book out yeah he's it was it's a great book and he's you know for listen he's the former ceo of goldman he's big shot he's a great guy he told me go i was like you're retired what do you do now he's like i love to day trade he was like he goes in fact i knew i was gonna do this podcast for two hours and it kind of made me anxious because i'm always grabbing my phone to look at like my stocks so i had to put all my orders in in advance in preparation because i'm not gonna be available i he's like right now i wanna look at my phone right now and then after the podcast i was like well what are gonna do now he's like well mark closed so have anything else to do i guess i'll walk home and i don't know how his portfolio how he said seventy percent of his net worth i i think he said that i don't quote me but something like that is in his picking and so he said he's doing good but it was just so funny and what's interesting is that i'm sure he's doing great if anyone's have to do great it's probably someone like him that said it's like even if you're a titan of industry you're on top of the world do you know everyone you're who's who there's probably a world where he's gonna make every single mistake the same mistake that an eighteen year old to degenerate robinhood traders is going to make and i find that's interesting that we all still do these things lloyd listen to me put the phone down stop trading seventy percent of your net worth should be in mu bonds paying you a huge tax free yield you wanna dick around with a few million dollars knock yourself out but if you're actively trading seventy percent of your net worth which is a couple of billion dollars i am disappointed to tell you that you are making the biggest risk adjusted mistake of your career and the sc that used to run goldman sachs should know better stop day trading looks like i'm not invited to i've not invited the s about dinner anymore so thanks barry oh my god i i hope your memory your numbers are wrong so so here's the fascinating behavioral side of that on the show we have spent hours talking to some of the best investors alive well lucky for you the team at hubspot they have pulled out the principles that matter most and turned it into a very simple easy to read wealth guide it's thirty five principles from the top investors we're talking guys who have been on the pod like howard marx man par bra morgan h cathy wood and a ton others so these are all their frameworks their mental models their rules basically how to play the long game and how to avoid ruin you can get it in the link below we see this all the time i mentioned the clients hey do i buy a ferrari or not the folks who are and i mean this in all seriousness to to lloyd people who a guy like him works really hard his whole career constantly driving and saving and investing and putting money away and accumulating stock options and going through all this it is really difficult even for people who are you know masters of the universe billionaires to recognize and just stop and say i won hey i won i don't have to put this much capital at risk because over the decades i have just seen that story play out and end badly hey i'm sure lloyd will be fine he doesn't have to take financial advice from little o me but anybody who walks into the office with a giant portfolio the the challenge is how do we convince you that you've won and how do we make you create a portfolio that is highest probability of reaching whatever your goals are and ps if your goal is just more well then you're gonna be disappointed both in your portfolio in your life you you you mentioned something about selling and i thought there was two interesting things in your book about selling one was about panic selling and the data around what happens for panic selling the other was that hedge fund there was some study about hedge fund managers where their buys were actually good but their cells were terrible and i wanted can you can you explain those ideas around selling so so again a lot of behavioral finance research behind this it turns out that people panic sell into a market crash something like a third of them never return to equities so let's just use either the twenty twenty thirty four percent pandemic sell off will more likely the o eight zero nine fifty seven percent market crash imagine selling down fifty seven percent not getting back into equities and watching fifteen percent a year compound over that entire period it it it it's shocking you so you take a a million dollar portfolio you're out at like four hundred and fifty thousand net worth if you never would have sold it it would be worth ten today it would be four point five billion and to be fair you are getting a percent or two up until twenty twenty two now you started to get four percent in a money market three point seven percent today but that doesn't compare to a ten x and it doesn't keep up with inflation so that's the first data point that's shocking panic sell into a portfolio one and three people never get back into equities the hedge fund the buys are good but the sales are worse than just if they sold at random so i i love this study it's by alex emi who is a university of chicago professor but they did this study where they looked at all these buys and my explanation is the buys is a rational spreadsheet database the sells are always emotional but the clever thing that professor did was hey how can we tell how good these cells were i know instead of selling the company that the manager wanted to sell let's randomly pick anything else this that's in this manager's portfolio wouldn't sell that instead and it turned out that the random cells outperformed the manager selected sells by something like a hundred and fifty to two hundred basis points maybe it was even more it with some crazy amount and it's like it makes sense that the buys are thoughtful and logical but the cells very often are emotional impatient you know sometimes the stock doesn't work out right away people sell it even though the underlying thesis was correct sometimes something else bright and shiny comes along and you gotta sell something so you have money to buy that it's an amazing data point and it just goes to show you most of our decision making is bad and so one solution make fewer decisions hey can i i'm gonna i'm gonna pick a friendly fight with you sure so you say by low cost index funds mh i'm onboard with you anyone who's listen to this pot knows you're you're speaking my language but why would i pay you a fee then to do that you don't have to the our whole business model from day one has been so we've been writing in public myself and my partners hey you could do this yourself you don't need anybody just need put together a broad portfolio of low cost indexes manage your own behavior stay out your own way and you know check on it once twice a year that's it and there are a bunch of people who said well i like the advice but i have a little more complexity in my portfolio i have tax issues i have state issues i have whatever i need some help with this we don't have minimums we set up different levels of we have two digital platforms one for under a quarter million dollars and one for a quarter million to a million but our whole our whole you know line of bullshit has always been do it yourself you don't need our help and it turned out something like point o one percent of our readers said i don't have the time i don't have the discipline i'm not interested in this crap i i pay someone to do my taxes i pay someone a mow my yard i'm gonna pay you guys to manage our our money i did a post a couple of weeks ago about organizational alpha and if you beat the market by fifty basis points or or below the market by fifty basis points clients could not really care less about that however if you manage to quarterback their finances in a way that our tax team has done a great job minimizing capital gains taxes we use a couple of complex products and i always think simple as better than complex unless it really solves a sticky problem so direct indexing really helps with that same do you direct index or do you know what that is yeah i know what it is i don't do it sean's peep people make fun of me barry on the show because i am a very strict like at this point it's a little bit like ninety ten equities and bonds but i don't think you need the ten you got thirty years before you need the money why i drag the portfolio on with bonds just which is the way it's somewhat controversial it it just helps it's a it's a mostly emotional decision but yeah direct indexing summarized as instead of buying an index fund you have a program that basically buys the stocks of the components right the components of the index in the same proportion it seems like over the course of like for example the way that my personal finances are set up i don't intend i live off my income i don't ever intend to sell my direct or my index portfolio in case i guess i would sell emergency but why would i do direct indexing if i don't intend to sell it i i love that question so you guys have both sold startups and ended up with substantial capital gains and so in any given year even when the markets are up there's some twenty thirty forty percent of stocks that are down and of that group that's down there are some that are down substantially so if you have voodoo i think is seven hundred or eight hundred positions the s and p five hundred is five hundred you look at the bottom d the bottom ten percent of stocks and alright this this small cap biotech is down forty percent i'm gonna sell it and replace it with something that looks very similar another small cap biotech that's down in the same space i harvest that loss the portfolio value doesn't change the way the portfolio trades doesn't change but if you do that every year you could pick up seventy five eighty five basis points in q one of twenty twenty when the market was down thirty four percent o's did research study on direct indexing their study said that it was four hundred plus basis points of losses harvested and replace with very similar companies and when the recovery happened it it matched the performance of the index because effectively it's the same thing so founder stock ipo stock sale of a business inheritance high concentration positions every now and then someone comes in and says hey i have a ten million dollar portfolio when i've owned fill in the blank apple for fifteen years and now it's ninety percent of my portfolio how do you get them out of that position without paying a giant cap gains tax and so this has been like a very effective way to to do that it's not for everybody it adds complexity it adds a little bit of cost not much but some but it's definitely useful for that for most people i don't think it's necessary hey let's take a quick break you know that feeling when strategy is done the brief is written everyone's aligned and you realize someone still has to sit down and actually create all the content that someone is usually you and it's due tomorrow well the breeze assistant from hubspot can help it works right inside hubspot you can draft campaign copy blog posts emails all in your brand voice all using your actual customer data so you don't create just content you create content that converts check out hubspot dot com the agent customer platform for growing businesses can i see a bunch of stories sure i wanna i i to do a story time thing because the cool thing about you is you've been doing the content game for so long and so i know you've met some incredibly interest people i wanna do a little rapid fire bitch sure of all the people you've had in the podcast or interviewed at conferences or or through work who's the person who you think our listener should research and some like someone you admire assisting so you mentioned ray dal and howard it marks those are obvious i'll give you i'll give you a couple of really interesting names richard barton is this former microsoft employee who who founded wikipedia and zillow and just one crazy company after another he's got this crazy framework i think sean and i have talked about it his whole i think i'm summarizing this correctly sean i think he said his whole career is taking messy data and organizing it or i think even said i i free the data yeah give he his here he calls to give the power to the people it's basically take data that exists that is just not transparent easily structured and available and make it transparent he's structured and available and so if you look at what he did with how housing you know the housing data that's the ml data he made it more easy to access through zillow they did it with ex xp did it with glass door and it's the same thesis he's just played out in like four you know plus different companies at this point i'll give you a couple other names that are a little below the radar even though they're they're all kinda known to the industry i i think david rubin of the carly group could be the best human being i've ever met in my life that guy's is awesome have you seen a show sean yeah of course i'm just saying this i didn't know he was such a ledger i just thought he's an interviewer because i just only ever seen him i'm doing interviews i didn't realize he was the founder of carl just is john and he's like a he's a hit knew him as like a historian he has these amazing books i'm reading one of his books on washington and lincoln and the rest of the president's i i don't even think of him as a money guy so he started out in the dc area when carly started and he would put together these off the record conversations with experts and spaces that were being debated by congress and then he would invite a whole bunch of congressman and senators and staffers from both sides and the idea was this is in partisan and this is political isn't political this is just a way for you guys to hear from an expert who you may not come across and and why did he do that was he was in politics no he just wanted the congress of the country he lived in to be better informed and make better more knowledgeable was he a big shot when he did that no he was carly i was a tiny little company that was specializing in a telecom and that's why they were based in dc and eventually expanded to everything else so later on his career he super becomes wealthy and the washington monument starts falling apart the cement starts cracking it's a couple hundred years old and congress being paralyzed and incompetent he's an idiot and a congressman but i repeat myself is the mark twain quote quote they couldn't get their shit together so he steps in and says to congress hey i'm gonna fix this see if you idiots can get around to passing legislation i'm just gonna patch it up see if you can do a permanent fix and i'd appreciate if you pay me back one of these days days and he basically gil them into fixing all the national monuments this was in like the eighties and nineties and then he's a kid who grows up in baltimore and baltimore a city that's having a hard time he buys the baltimore or promises the city that it will not move over the next twenty years and i think he said and i'm gonna keep the beer and hot cost the same for the next ten years not what you think of when you think of as private equity what personality attributes do you think made him great as a business person because he sounds like a a warm and lovely guy but he's in pe which is not particularly a warm and and lovely industry he is really really good at finding a a a space that is being ignored by the rest of the market and not just ignored but undervalued so telecom wasn't sexy in the eighties there was some post reagan der and it kinda got ignored for a while so and not just like the the big names but the you know the block and tackling or all of the fundamental pieces just the ability to it's not even see around corners it's identify a spot that the markets have missed was he prolific in his extracurricular activities in the in the ups wing of the business or this like a post wealthy thing i think it i think they were on parallel tracks i don't want do that so i just said carl by the way carl has five hundred billion dollars au how do does you know what they keep in away they'll they'll get there someday how how does one do that how like did you know when he was younger how on earth do you amazing i met him i met someone who worked for him and i said hey tell your boss he's stealing my gig at at bloomberg what the hell i've been doing this podcast since twenty thirteen you know so he comes in and big puts in and takes the video version of it and it i i was joking it got back to him and i got an email and i said once you come on the show let's talk about your career so he did but what about the other end of the spectrum you know finance and money attracts a lot of other people who will say things that are either you know inaccurate or bad advice the you know maybe self self interested advice you know who do you think has done some damage to the space put a lot of bad advice out there or a bad philosophy that is not one that something should follow even if it is popular or visible so those people don't get the invites to show up on the podcast i've been having an ongoing fight with zero hedge zero hedge is is that a blog or is that a community i'm it it's a it's a it's sort of a across between reddit and a blog it's it's got a lot of contributors eventually they tapped into bitcoin into gold and you know that that was their their argument listen the the there's a ted sturgeon quote in the book sturgeon was a science fiction writer in the fifties and he used to get the this question how come so much of science fiction is not good and his answer was ninety percent of everything is crap and so that's become sturgeon law and so most of the stuff you see in print on television on social media on subs most of the stuff isn't worth the time or effort to get it you know people send me subscriptions to stuff all the sign hey i sign you up for my subs stack you unsubscribe me block me i didn't ask you to do that stop sending me your digital shit and the reason for that is simply this you know my mom taught me never take candy from strangers and that includes research writing commentary opinion before i read something from somebody who i'm not familiar with it's a research lift to decide is this person worth the time effort energy what's their track record what's their process did they just get lucky once and that's it or do they have a def defend approach to this have they lived through a few cycles have they seen ups and downs do they have a good temperament or every day like friday where nasdaq is down four percent they run around with the hair fire this is the big one it's all over like if they have that sort of attitude i don't have room for them i i think i think you would probably jesse you have an opinion either positive or negative on the the what's the name the rich dad poor dead guy forgot his name is oh my god kawasaki he's he's been he's a chapter in the book and i i never read the book i didn't know anything about him and my colleague ben carlson does a post about some of this is like ten years ago about some of his tweets and they're terrible sell sell equity sell this sell that like he is just super bearish the whole twenty tens and then my favorite tweet of his which i referenced in a chapter in the book on him was twenty eighteen get out of us housing us single family home market the financial crisis was the warning shot sell housing and ironically there has never been a better time in recent history to buy single family homes in the us and when i i someone asked me the question they said well how could he he have known the pandemic was gonna happen and all these things happening in housing and that's the point that's right he couldn't have known what are you telling me you're defending his shitty forecast by saying he couldn't know the future that's why you don't make forecasts you don't know the future and the takeaway from this is all of wall street all of finance has a humility problem and i say this i have a lot of my biggest mistakes in the book i famously passed on or infamous passed on robinhood in twenty fourteen at an eighty million dollar evaluation valuation i an app that lets millennials trade for free that is the dumbest idea i've ever heard in my life aside from the fact that it's totally off brand with the indexing thing millennials don't even have money what is if this is you know payment for order flow the dumbest idea i've ever heard my buddy howard lin made a hundred million dollars on on that investment and i'm an investor in in other things howard is done and i was just like so stupid so i'm not just saying everybody is dumb and i'm smart i'm as dumb as everybody else but at least i'm kind of aware of it and starting to from the place of we all need a little humility because we don't know what's gonna happen we barely know what's happening today our recollection of what happened yesterday is always ting with a a little glow of ro nostalgia the our our expectations for the future is mostly hopes and wish thinking like the whole human condition requires a little more humble in admitting how little we know about what's going on help me a little bit here i love like you have this post that i love it's called nobody knows anything and you basically like say this is one's about spacex but you the the the premise of a lot of your posts is like goldman whatever the big the big shots they make these predictions and the truth is is it's just so hard to forecast and you said that ninety percent of information out there is garbage right what's your ten percent who can i read right now and get my information from whether it be news or evergreen stuff that is the ten percent in your opinion sure so i'll give you my list but the caveat is the process of you figuring out who should be on your list is very helpful going through the process thinking about it what do i need what do i need help for so let me throw out a bunch of names we want the whole information diet yeah and and by the way obviously my whole team is a big part of this josh brown michael bat nick julie ben carlson blair du kathleen go go through a whole list there's a lot of us writing so i don't wanna just talk about my group it's a little too self promotional let me talk about others so let me start with just broad economic analysis it's it's hard to do better than than ed he is very thoughtful very data driven he's been very constructive and bullish during this market he very constructively said hey you know the us has had a great run we're starting to see signs of overseas doing better he's just been a solid solid guy he's been doing it for forty years he started at deutsche bank really solid it looks like ed paid right that's not a free one yeah ed is paid if i wanna look at market dynamics and structure that sam roe sam roe you could do the free version you could do the full version and is a little more expensive on the behavioral finance side it's tough to beat morgan h he just is a great storyteller really gives a lot of insight with that real estate is jonathan miller i've been tracking jonathan for forever i'm friends with him personally like here's a guy that really understands what's happening with with both residential real estate and and the state of of prices in the industry you know as you go further and further into the weeds so jim chan for all things short selling michael lewis for all things wall street culture and and psychology he a new book coming out in the fall on do i'm really looking forward to it by the way michael lewis is one of these guys that you think you have an idea of who he is from his books and then you hear him speak and he is just hilarious dick taylor is the other one richard taylor of of chicago on on the real hardcore research on behavioral finance there's so many people i'm leaving so many so many people autism capital the twitter handle hasn't made the list so far you know there's actually some academic research that has found neuro atypical do better at market timing because they are not subject to the same social pressure and emotional trading speaking of spacex have you read the story in in his biography of elon quick foray into finance his internship what happens this a great story so he goes i mean i'll try to call it off top of my head here but he he's in school in canada he starts cold calling like to get an internship or to get a job he he calls like you know the ceo of some some investment bank or some bank out there and he goes and he gets a job and he's supposed to be doing whatever he's doing but he he starts going really deep on like some south american oil companies or something like that something where there like a political issue and he saw almost like a buffet style thing where he's like look they've completely mis priced these assets are mis price they're trading at the wrong levels because even in the worst case scenario you're safe and then there's all the upside of if if it actually gets opened up or whatever he pitches the guy and the guy guy's like okay go find out what we can do so he calls he's like hey i'm elon musk and i would like to place an order a trade like how much volume can i do and they were like you could do whatever you want he's like so i could buy five million dollars of this right now they're like son you could buy fifty million dollars of this if you want so he goes back and he tells the ceo hey i think we should make this huge trade and then basically it gets shot down for just like because there just risk ave reverse and he sees that it it would've have played out well and he just decides like this whole thing is stupid like hey i'm never gonna work for other people because i presented a completely logical argument and it got shot down for illogical reasons and so i just never wanna be in that position again and also i should just go build things instead of just this financial engineering stuff i should go do actual engineering and he leaves and he never never come back he was a failed retail stock brokers is that what you told me there's no fundamental financial engineering there he had no track record he was a rookie why would anyone listen to him that that's that's the amazing thing you look back at warren buffett in nineteen sixty seven i think half the people who who hurt his pitch would like it why do i wanna listen to this guy i started out as a math in science student at stone brook undergraduate the outgoing department chair mathematics department chair was this guy named jim simon leaves to form renaissance technologies the most successful hedge fun in all of history if you would met this guy in nineteen seventy nine you you would say what this guy looks homeless yeah i saw him he looked like he was he looked like a smoke studio and he was smoking sig all the time he trying to looked like a filthy animal you you would think this guy i'm like i'm not giving this guy my money is gonna smoke it sean what do you what do you pulling up here break out the textbook i got i got the story alright this it's about latin american debt banks had made billions of loans to countries such as brazil in mexico it could not be repaid secretary nicholas brady had packaged those debt obligations and saving down that's brady bonds yes exactly they were backed by the us government must believe they would always be worth at least fifty cents on the dollar but some were selling as low as twenty cents he figured that scotia bank could make billions if they bought these at a cheap price so he called the trading desk and he asked you know if the stuff i said he thought to himself jackpot this is a no lose proposition i run and tell peter the ceo about it the bank ends up rejecting the idea they said they already had too much latin american debt said wow this is insane this is how big banks think he goes it was a good it gave me a healthy disrespect for the financial industry and that gave me the audacity to eventually start what became paypal he didn't really start paypal he started a competitive product and eventually it was merged to paypal but let let's not let that get in the way of the story alright so he had a good you do you have a lot of enemies a few i yeah i i have no choice i i i can't help it you just came here spit fire man like it something that's bullshit i can help but i know discretion is the better part of valor but when people are out there saying stuff that is nonsense that ultimately leads people to lose money you think you ever have to get security no listen if someone wants to me dead i would've been dead a long time ago that's that's not a and who wants to live their life that way he say that makes you think he need security from who guy kawasaki so man no i got that nerd but i'm just saying that like when you deal with big numbers and you have a big audience and you're dealing with people's money and stuff i'd sometimes i think of like the risk reward of just like having someone on you know around you when you go to the city i never i i got bad news for you nobody cares that much about me i'm not i'm not that important and look he here's the reality yeah i eight billion i mean that is impressive but it i mean do you have a you have a microphone you have an audience yeah so in in the modern world it's a c cocoon of voices no one voice is dominant and and you know elon musk put twitter and so his voice is amplified when you look at the value he's created over the years alright so whatever the paypal merger ended that up being and then tesla and now spacex he doesn't have to exaggerate this guy has changed the world right tesla completely changed the automobile industry spacex completely changed a number of industries aerospace the the concept of getting anything into earth orbit satellite i mean he's had such a giant impact you don't need to polish the he geography your accomplishment speak for themselves so i have to burn my crappy undergraduate and graduate career i i i don't have that much to brag about from men when i see a guy like that like he didn't found tesla he joined tesla later his genius was recognizing oh no what you need to do is sell a car that's just miles away from everybody else and don't think like a traditional car company this is a technology appliance not an internal combustion engine like i give him credit for the stuff he's done that's move the needle i i'm not a fan of the spacex ipo but i sure hell don't wanna bed against him he's just proven himself time and a time again you know he's a tough guy to be on the opposite side of the trade front thanks podcast has brought to you by my friends at mercury they make the world's best banking product i think you know this already i used mercury for all my businesses i think i have like maybe seven or eight businesses we use mercury as our business banking across all of them and now they actually just launched a personal banking account so i have my personal account there i moved off of wells fargo and chase i'm just all in on mercury why i like products that are easy to use i like products that get me and the problems that i have so like very easy to make a joint account with my wife very easy to spin up virtual cards one click and i get savings yield it just has all the stuff that i need in one place so if you're looking for the best banking product on the market definitely mercury i will fist fight way who me on that go to mercury dot com slash personal and learn more mercury is a fintech not an fdic insured bank banking services are provided through choice financial group and call them an a members fdic i wanna go back to the bracket question sure i wanna because i know you've been doing this forever i've listened to your podcast and read your blog but i still wanna know as an entrepreneur the business so can you give like a short answer to like just some of the numbers about how big the firm is so the last ad v update we did with the sec was december thirty first that was seven point six billion dollars but when we launched in twenty thirteen that was the start of the third best fifteen year run in history does that mean like it's a fifty million dollar year company we don't because we're private we don't disclose our revenue and stuff but you know we averaged somewhere around seventy basis points in terms of our our fees when we were a billion dollars we had like thirty five people the typical billion dollar group at a big bracket firm is two salespeople a sales assistant and someone helping on portfolio so that that would be four people we were almost ten x that so we've always been building as if our growth rate is gonna continue and we've been growing about thirty percent a year since we launched so you you said you famously called the housing crisis and from what i understand there's interesting story there so so first and this is so dumb my mom was a real estate agent and so in o three zero four zero five we were having all these conversations about how weird the real estate market was and the normal cycle is come out of a recession the economy begins expand and when i'm looking at all that data pre financial crisis nothing lined up with what you typically see it was very much a backwards real estate driven economy in other words instead of real estate being the beneficiary of an expanding economy more hires better income it was the opposite and so anytime you bought a house you could refinance a few years later at a lower price and some people were doing home equity lines of credit and taking cash to subsidize their lifestyle because in the mid two thousands middle class workers hadn't really seen raises above inflation for decades and so people were spending the equity in their homes and so i started hunting for some data and for some academic research and in two thousand and six ryan and rogue off did a white paper that eventually became the book this time is different eight hundred years of financial follow fo and the white paper said when you have a bubble driven by credit on average we see real estate dropping thirty two percent and i use that as a leap off point to say alright i'm too lazy to do all five hundred s and p stocks but let's look at the thirty dow stocks and what is a thirty two percent drop in real estate mean to their business to their revenue and long story short i kinda spit bowl a price of sixty eight hundred how contra of a belief was that all the stuff i had been writing about housing and and subprime derivatives it was all up on the blog it was all very public so you know and i spent about a year being the dumbest man on wall street which was kind of fun all of o seven it's like you're obviously an idiot and even the piece that talked about sixty eight hundred said look the market is in an up trend we continue to see multiple expansion you don't put on a short you don't get out of stocks if you're an institutional trader until that trend line breaks and that trend line didn't break for for a solid year in change so i spent a year being pretty much the the dumbest person on wall street starting in january february march of eight cut started having me on every week and then twice a week and then it just got to be mayhem because you know nobody sort i should say very few people sort coming i i recall being on cnbc with peter b and they literally when we talked about you know the potential downside and i wanna say this was late o seven they literally literally laughed at us and i remember walking our offices were not that far and i'm like either we're really right or we're really wrong but there's nowhere in between do you guys remember the book snowball about warren buffett sure absolutely i i just started reading it and the very first scene is basically warren buffett at the allan c conference which is the who's who so it's always like the hottest new kids plus like the old guard in the in the room together and at this time it was all the best dot com companies and they're all there thinking they're the hot shit sort of like how ai companies are now they think they're the best and warren has this famous line i think he says only criticize a category never criticize like a particular name and i'll complement particular name so he tries to be the point is he tries to be really polite about it but he basically says the dot com thing it's gonna be bad and if you look at like car companies in the nineteen twenties you would have thought that you knowing how cars are gonna end the place to be is in cars right now we gotta start a car company but of the two thousand car companies who launched right when the boom was happening basically like three still exist and most went out of business and he basically said this is what's gonna happen with dot com and he tried to do it very respectfully but it was still very insulting to the audience because they were there and i think he even made like a bunch of jokes he was like you guys i think he had said something like you guys all even have missed mister s probably right now you think you're you think you're the best but it's gonna come it's gonna come and it's sort of interesting to figure out inside of someone's head when they see this one bit of data and they're and they make this very contra bet and how even warren buffett was like quite nervous about that he goes i know i'm gonna be right but if i'm not right soon then i'm really gonna look stupid here and i think that's like that behavior of like making that call is actually quite fascinating there's a famous technical trader from you know the nineteen twenties and and nineteen teens called richard wei off and he wrote a book how i trade and invest in stocks and bonds and if you would go back and read that book everything he talks about just substitute ai for intern for for a telegram and dot com's for railroads and it could have been written last year it's over a hundred years old and it's as fresh as nothing ever changes there's nothing new over the sun yeah the technology is is different but what's the takeaway which is that like new stuff can get over hyped not can get over hyped always will get over hyped which isn't by the way a bad thing that's a feature not a bug there's a great book called pop why bubbles are great for the economy and think about the dot com or think about all of the fiber that was laid global crossing and metro media fiber and hundreds and hundreds of millions of dollars billions of dollars in fiber laid at one point in time i wanna say it was like over a thousand dollars a mile the dot com collapse comes all these companies go belly up and then the the legacy cable companies and the legacy phone companies buy it up for pennies per mile and because it was so cheap to own at that point all the things that came afterwards youtube facebook instagram all of the bandwidth intensive technology well they wouldn't have been viable if it was a thousand dollars a mile to lay fat pipes but for pennies a mile out of bankruptcy and so i'm not predicting this is gonna happen with ai but it happened with railroads it happened with televisions it happened with radio internet electronics companies semiconductors internet mobile cars go down the list every new technology that comes along seems to go through this process every new technology is innovative things that are not stuck with all the sunk costs and all the legacy platforms and so they get to move forward faster cheaper better so i don't know what who are the winners in ai are gonna be but when we look back at it twenty years from now look at the computer industry hp gateway go down the list of companies that had billion dollar valuations and effectively went down to zero could do the same thing with mobile phones how's that eric phone do you have or you can replace it with the new nokia oh wait nobody buys that shit anymore even motorola they're gone because between the iphone and android everything else has been replaced it's nice to talk to someone barry who doesn't hold back i think you're you're we we thoroughly enjoy that and you know sean in i have been senior stuff pop up for years we're happy we're were able to talk shit you coming on shout out the book sure how not to invest right over there hard cover paper back you know the last book was bailout nation was fifteen years ago and i just it was a s it was tough to write this book was just a joy it was so much fun to go back over all these conversations i've had and all this research i've done over the years and published one no knew who the hell i was you're gem of a guy man we appreciate you so much well thanks so much for having me i i i really enjoy the sort of stuff it's what keeps me going every day alright that's it that's a pod i feel like i could rule the world and know i could be what i want to put at all in it like a days off on a less travel never look bag alright let's take a quick break to talk about a podcast because if you're listening to this you like podcast and what's better than one podcast another podcast and let me tell you another podcast you should check out it's called success story if you like hearing about different success stories and hearing q and a sessions with successful business leaders or hearing keynote presentations or just checking out conversations about sales and business and marketing tactics this is a great podcast for you so check it out wherever you get the podcast