Michael Batnick: Big Mistakes

Welcome to the new retirement podcast. Today we're going to be talking with Michael Batnik, who is the director of research at Ritholtz Wealth Management about his book Big Mistakes and also why investing is hard even for world class experts and finding your calling. Michael is a self taught market analyst who found who followed a pretty winding road to becoming a market researcher and analyst, author and key influencer with 55,000 Twitter followers. I've been following Michael on Twitter and also met him face to face at the Evidence Based Investing conference that his firm hosts in Dana Point a couple of months ago. So, Michael, welcome to our show. It's great to have you join us.

Thank you very much for having me and I am looking forward to this conversation.

Yeah, it should be interesting. So I just want to open with a quick question. I've heard you called the Oracle of Brooklyn and I was curious where that came from and if you think it's deserved.

Well, unfortunately there's a very boring story behind this because we. The Oracle of Brooklyn came about after a podcast episode that Ben and I did after, I guess Berkshire released or maybe it was after the Berkshire, the Berkshire conference, which I think was in May. And we just happened to name the podcast the Oracle of Brooklyn. That was all there was to it. So is it deserved? No, nobody has ever called me that and certainly it is not deserved.

Okay, got it. Well, it's made its way around. I don't know, I heard it somewhere. Yeah. All right, so I'd love to get a little bit on your backstory, just how you got started and kind of how you got here and what makes you unique.

I didn't take my education seriously and my career as a result, not surprisingly, suffered. I graduated during the great financial crisis and I thought I was really lucky to land a job at a financial planning company. Only it turns out that it was an insurance agency and the job was to sell products that people don't want from people that didn't want to talk to me. So it was a really not a great experience to say the least. And I was fortunate enough to meet somebody who started forwarding me Ed Yardeni's work and breakfast with Dave Rosenberg. And I got really interested in the stock market. And this is a long story, so to try and make it short, I studied my butt off for the CFA exam, got interested in the stock market, started trading, couldn't get a job, almost was ready to throw in the towel, go become like a cashier or whatever. I needed to get a real job. And I met Josh Brown at the train station. We grew up in the same town, saw that he was hiring, met him, and the rest is history.

Yeah, no, I think it's a great story, and I actually. I don't want you to rush it too much, because what I found really interesting and kind of compelling about you is. So I discovered you on Twitter. You're obviously very. I've read some of your stuff, and I've been listening to your podcast. It's clear you're a very smart person. Right. But, you know, coming out from talking to you the other day, it's like you kind of weren't very focused in high school. You got into Indiana University. You didn't really succeed the first time there. You left cranked, you know, did some hard work, got back in, you know, and then it still wasn't super successful, and then kind of came back to New York and made it happen. But, you know, it's. It shows a lot of perseverance to kind of work through that.

Well, the first time that I got dismissed, that sucked. But it was. It was fair and deserved. I was certainly not ready emotionally, mentally, whatever. I just. I wasn't there the second time. That hurt. That really, really hurt. Because that was. I mean, for obvious reasons, that was humiliating. I felt like I let my father down. And my. You know, just. Everybody knew that I got thrown out of college twice. And, um, whatever the story was, it was. It just. It sucked. And it left a. It left a lousy taste in my mouth, obviously, and I paid for it. And I. You know, I had a realization, oh, this is why people work so hard and try and, you know, advance their education and their career and stuff. And so, like I said, I got very lucky meeting Josh at the train station, because if I didn't, I might still be paying for my lack of education.

Yeah, but you also, before you met Josh, it sounds like you really put your nose to the grindstone and figured out kind of this passion of yours, right? The market, and got serious about not every 20 something says, hey, listen, I'm gonna go study for the CFA, work in the library, put the hours in, take the first exam, keep going. No job. But cranking away, that says something about your character.

Well, I appreciate that. And I feel like I'm still making up for lost time. I hadn't read a single book, probably for fun, until I was, like, 25 years old. And now I'm cramming, and it's what I love to do, Right.

How many books a month do you read?

I don't know, whatever. As many as I can get to.

Yeah. Nice. It looks like you read a lot. All right, cool. And so now and then you kind of met Josh and got pulled into Ritholtz, and the rest is history. You've been cranking. I'm curious, just. Can you quickly share how your. Your meeting with Josh went? Like, what happened that evening?

Huh? Yeah, sure. So. Well, Josh and I grew up in the same town. He's several years older than me, so we didn't know each other growing up, but he was like my North Star, because everything that he was writing about at the Reform Broker blog, I saw the exact same incentives drive behavior at the insurance agency. Maybe not as perverse, but although, in some ways, maybe. Maybe even worse, I guess, because this was dealing with family situations and he was. He was the guy that I looked up to. And so when I met him, I felt like I knew him because I had been reading him for several years at that point, and we really hit it off. It went great. I told my girlfriend at the time was now my wife. You know, it went great. If I don't get the job, it's not because anything I did or said, I'm just sure that there's a lot of, you know, more qualified applicants that he spoke to. And it turns out that I did get the job. And it's been. It's been life changing.

Right. And just for our audience who may not know Josh, you know, he writes the Reform Broker, which is really about his journey from being kind of like a boiler room, kind of like sales guy, pushing products, financial products on people that are less sophisticated to trying to do the right thing around providing good financial advice in a fiduciary way to his clients. And he's garnered a ton of followers from kind of exposing what's been going on there. And a lot of people who are, like, you know, tired of what used to happen on Wall street and happy to see it evolve. Yeah. Actually. So on that, do you know, since you're in New York and in this ecosystem, you know, is there still a lot of that kind of wolf of Wall street and boiler room kind of stuff going on?

I don't think so. I was never really in that world. I mean, obviously. So I don't know, but I don't think that that exists, like, nearly as much as it used to. I would say that it's probably 99% shrinkage. I'm sure there's still some guys slinging some bullshit, but for the most part, that's been Eliminated.

That's awesome. That's great to see.

Yeah.

You know, I mean, just as an aside, it's like someone who has done not financial product sales, but, you know, been in the sales industry. It's, it's funny, people always still quote like Glengarry Glen Ross, you know, always be closing. First prize, Cadillac. Second prize, steak knives. Third prize. Third place. Third prize. You're fired. I don't know if you ever.

Yeah, I am, I am not a natural salesman. I don't like to, I'm not really confrontational. I don't like to change people's minds or whatever. Like, there's a lot of different ways to do things. So I'm very happy to not be in that role. I'm not client facing. I'm talking to the advisors on a daily basis, but I am not the ones working face to face with the clients on a daily basis.

Yeah, well, it's great to hear that kind of the culture's changing because I think that was part of what was. Has always kind of tainted, you know, a certain part of the financial services industry. For sure.

Yeah.

Quick aside here. So I listened to this really good podcast with on Masters of Scale with Ev Williams, who started Twitter. And one, it was amazing to kind of hear him talk. You know, you got a real sense for him that he's kind of a nerdy guy. And I say that in a very positive way. But he has this vision about what he wanted, which is to connect the best ideas out there in as low friction way as possible. And also, you know, he's kind of had this single focus over the course of his career around really trying to carry that through. Like he did the work on Blogger, then he did the work on Twitter, and now he's doing the work on Medium. You know, it just gives you a real insight to how he thinks and what he's trying to do with services like Twitter and how it enables people like you, which is like, hey, you know, you know, you were kind of on this really pretty bumpy path and then like now you're an emerging, you know, key influencer out there based on meritocracy, which I think is great.

Well, yeah, yeah, it's just, it's such a great place to learn because the more I learn every day, the more the hungrier I get because I just real, you know, it's such an obvious realization of how little, you know, when you start reading about different, different parts of the world and things that are very foreign to you. It just, I feel like just My hunger has compounded every day, and Twitter is, like, the best place for that. It's where I do so much of my learning. And, of course, there's a lot of bullshit that you have to deal with in terms of, you know, trolls and some anonymity and nasty people, and that's just part of the deal. So that comes with the territory.

Yeah, no, I've. As we've started to get a little more exposure on Twitter, you start to see some of the crazy stuff that happens and how people are. Some people are just out there to say negative stuff and get a rise out of people. They're not really adding to the conversation. They're just, like, trying to get you pissed off, which is too bad. But I guess it comes with the territory. All right, that's awesome. So I really appreciate hearing your story, and we're gonna move on to your book. But just another quick thing, as I was listening to another podcast that had the UPS HR chief, and she talked about kind of the silver spoons. People that are kind of, like, perfectly packaged up, and they come out, they've got all the right credentials, they've had all the great experiences, and. And then versus kind of the strivers. People have had to. Had kind of bumpier backgrounds and had to work through a lot of stuff to be successful. And she's always like. She was like, you really need to take a look at the strivers and bring them in, because those folks have kind of persevered and worked through a lot of stuff.

Yeah. You know, it's funny about it. I still feel like I'm sort of the underdog, and people, like, rooting for people that had trials and tribulations, stuff like that. And eventually everybody turns on them, and it's like, all right, enough of this guy. And hopefully I could stay out of that space. But, yes, so far, so good.

Yeah. Okay. That's awesome. All right, well, let's move on to your book. So your book, Big Mistakes. I have not read all of it, but I have read 20, 25% of it, and it's definitely good. I don't want to say I love this Confucius quote at the beginning, by three methods, may we learn wisdom. First, by reflection, which is noblest. Second, by imitation, which is easiest, and third, by experience, which is the bitterest. And, you know, how do you think you've learned the most?

I. Probably in the third bucket. I. So when I was studying for the cfa, I was. I dropped my. My wife off at the train station on our way into Manhattan. And then I would go to the library and I would read the newspaper, I would read Twitter, I would read books and I would trade stocks. And that was a really, really amazing learning experience for me. I did it for about two years and I thought I was investing. My method was pretty much chaos if I had to describe it in one word. I was doing, I'm using air quotes, value investing, where there was nothing. Seth Klarman would punch me in the face if he heard me say that. But I was basically just doing, looking at PE ratios and price to sales ratios and determining if a company was cheap relative to its peers. And obviously that doesn't work. And then I was looking at some macro stuff, GDP numbers and CPI and that sort of stuff. And then I tried doing technical analysis and none of it seemed to work right. Obviously the market is supremely difficult and nobody is going to open up an E trade account and become a master of the universe. But I think one of the reasons why I had an aha moment so early was because I was keeping a journal, a trading journal. And this was just dumb luck that I just happened to be doing this and I would go back to what I wrote three months ago. And of course not only did it not pan out, but the logic, and again, I'm using air quotes, was utterly absurd. And it's really hard to be delusional when you are looking at your own handwriting, right? If you're not keeping yourself accountable, it's easy to keep lying to yourself. But I had the results and they weren't good. And so I said, you know, let me just keep going. Because I was pretty, I was pretty understanding of the fact that it wasn't going to happen overnight, but I wasn't willing to give it forever. So I learned through experience, I learned what didn't work and I tried to do a million different things. And then just watching people on Twitter, people that had an audience, it's like, wait a minute. But I, I know you're lying because you said something yesterday and now that you're changing your mind, but you're just, you're lying about a position that you put on. Like I'm seeing, I see you. So that was, that was really a good opening, eye opening experience for me just to know that, you know what, people are liars, people are full of crap. I read Jack Bogle and how hard it is to be at the market and. But nobody opens an E trade account and buys the total mark index, right? You have to try your hand at it first. And So I did try and I failed over and over and over and over again. I never took, I never made any big mistakes. I never took any big losses, but I didn't take very many big, big, big gains either. So I learned through experience.

Yeah, that's probably true for most people. Um, but it's, it's awesome to hear kind of like how quickly you learn. And it's awesome to get those, I think, mistakes out of the way. I mean, one thing that I, that I thought about, I did read, read that chapter on Jesse Livermore and being a speculator and kind of like bucket shops back in the day. And I was thinking of modern day day Traders, right. And I used to work at Schwab, and I remember being inside of Schwab on the tech side, and they had a division called Cyber Trader, which was really for day traders, right. And I went to see the president talk and they threw up on the thing. It's like, hey, Our average user's 50 years old, brings half a million dollars to the table and loses money. Like the vast majority of these guys are going to lose money. I was like, okay, but know Schwab's around helping people and trying to do the right thing. And I do believe the company's really good. But I was kind of shocked that they would. They knew that this was going to not work out for most of their customers, but they still kind of enabled it, you know, but, you know, you learn that lesson yourself trying to try and trade this.

Yeah. I don't think nobody could tell you that beating the market is a futile endeavor. You got to figure that out for yourself. And a lot of people never figure that out. And I was just fortunate enough to smell the roses at a very young age that a being a successful investor does not require beating the S&P 500. Nobody at their late stages of life wishes they had earned more alpha. And so that's where I am. And I'm very fortunate that I came to that place.

Yep. Actually, I'm going to wheel out one quote from your book. Bernard Baruch, you know, talked about how hard it is to beat the market. He said, if you are ready to give up everything else and study the whole history and background of the market and all principal companies whose stocks are on the board as carefully as a medical student studies anatomy. If you can do all that, and in addition, you have the cool nerves of a gambler, the sixth sense of a clairvoyant, and the courage of a lion, you have a ghost of a chance. I love that quote?

Yeah.

Page 160, I think.

Yeah. Just people, for whatever reason, severely, severely underestimate how ridiculously hard the market is. And I think Twitter can be sort of toxic in the sense that it gives you a distorted view of the world where you say, hey, wait a minute, there are so many idiots on my stream, and I'm trading with them. And it's like, well, no, you're not, because that idiot is trading a $3,000 account. You're really trading against the citadels and renaissance of the world, and they are taking your lunch every time that you go to put on a trade.

Yeah, yeah. Well, I mean, definitely, you know, our perspective is for retail investors, general, you know, be passive. You know, I mean, it's. It's so hard to be active. Just try to efficiently capture the returns of the market, you know, in general, and go in knowing just how risky. If you do try to be active, you know, either leave it to professionals or understand your risk, and, you know, you have a high degree of. High chance of losing. Losing money.

Well, I think. I think one of the reasons why we underestimate the difficulty of being in the market is because we don't. We don't physically see our opponents. So, in other words, when you buy a share of Apple, you don't see who's selling it to you. But Jason Zweig had a great analogy for the way that you should think about the stock market. When you are on a beach or on top of a mountain and you feel just how vast the universe is and you feel so microscopic, that's how you should approach the stock market. You are nothing. If you saw who you were exchanging stock certificates with, maybe you would think twice. But unfortunately, all it takes is a button, and you don't see that the other person.

Yeah, right. It's easy to underestimate what's going on out there. So, you know, where did the idea from the book come from?

Well, unfortunately, I wish I could take credit for it, but I told Josh that I was going to write a book about the best investors and their best investments. And he said, write about the best investors and their worst investments. And I said, oh, of course. That is so obvious. What a great idea. And that was. Didn't take much to change my mind. I KNEW he was 100% right. And I was given really good advice, which is write a book that you would want to read. And this certainly, certainly fit the bill for that.

Yeah, it's a good book. It's interesting to read. I think it's great because you're combining the personal stories of these people who are these world class investors, and you share what they did well, what they contributed to the body of knowledge around investing, but also how their own behavior and foibles led them astray. And we're all subject to this Jesse Livermore making and losing several fortunes. I mean, I think he hit being worth $1.4 billion or something equivalent in today's dollars.

He literally made $100 million shorting the market in the crash and he gave it all back. And the irony of Jesse Livermore is that he is the single most quotable stock market trader of all time. And every time he made a mistake, these beautiful words would fly out of his mouth in terms of lessons that he learned and why he wouldn't do why he made a mistake. And the reality is that, well, he ended up taking his own life because he lost all of it. But the common thread through this book is that we are all human beings and nobody is able to squash their biases. And it's hard for all of us. And so Jesse Livermore was just a really, really great example of that. And just being aware of your own biases doesn't do anything to combat them. It's not easy, right?

For sure. It's kind of the behavioral side is the strongest thing, like analysis and technology is getting better and better and changing very quickly. Jim Ashaughan talked about this. But the one thing that stays consistent is humans and their emotional reactions. That doesn't change very quickly. And you can count on humans to make the same kinds of mistakes over and over. And so if you can figure out how to take advantage of that, you can be successful.

Yeah, we all think we're above average and just doesn't work that way.

Right. You opened up with Benjamin Graham, so author of the Intelligent Investor and kind of the father of modern investing and talked about how he was using leverage early on, had big gains leading into the Great Depression, tries to time the bottom gets wiped out during an 89% peak to trough decline in the Dow. Any more color on kind of what you took from him?

Yeah. So he is the father of fundamental investing, of fundamental analysis and value investing. And he was positioned really well going to the crash. He had a lot of preferred stocks and bonds and I think that was 50 or more percent of his portfolio. And so he avoided the initial plunge. And because stocks were so attractively valued, he put some money to work. He was early and I think he lost 70%. He lost a big number. So the lesson there Is value investing. Everybody wants to be a value investor. And I think that intuitively it makes sense. Buy something for less than it's worth. But why do things get to the point that they're selling for less than they're worth? Because nobody wants them. And if nobody wants them, what makes you think that you're going to be the one to step in? These things are cheap for a reason. And that was back when there were so few people buying and selling stock. Now, to identify an undervalued stock, what do you know that the market doesn't like? Seriously ask yourself that question. And usually always the answer is, yeah, I just, I don't. So there are limits to value investing, obviously. And that was the point behind that chapter.

Yeah. One takeaway from me on this was it just reminds you that the Great Depression, the Great Recession, they leave these generational scars that affect entire generations. So, like the silent generation has been pretty good with debt, saving money, very frugal. They are much better positioned for retirement than the follow on generations. The boomers are less well positioned. But like the millennials coming out of the Great Recession. And you're in that bucket. Right. They took some lessons from the Great Recession. You kind of came out into like a really tough job market, maybe saw your parents struggling or whatever, and that affects how you think for your life, right?

Well, I think that the first three years of your career affect how you view the world for the rest of time. So if I came into my career in 1986, well, then I would still be picking stocks today. And if I came into my career in 1931, that I would never own a stock again. So a lot of this, I mean, obviously is out of our hands. And I am mostly a buy and hold investor. But do I know what the future holds? No, of course not. Do I know that I can't beat the market? Yes, I'm pretty, pretty well aware of that. But I have no control over whether the Dow will be 75,000 in 20 years or whether it'll be right where we are today. I just don't know. So we are. You know, it's an uncomfortable truth to admit, but we don't know what market returns will be in the future. It could be. Could be 3% a year, it could be 2% a year, could be 8. But nobody knows, right?

Yep, totally. So what, you know from your book, what was the most surprising mistake you saw?

The most surprising mistake? Well, I don't know if this is surprising. I'm not sure that's the Right word. But I thought the Mark Twain chapter was really one of the most interesting. He was so many lessons in that one. I think the obvious one is don't throw good money after bad. If you're down 20%, 30%, just stop digging. At some point you have to have an exit strategy. Don't get married to an investment. But another lesson is intelligence is not enough. And success in one field does not translate into success in the investing markets. And he was so deep in debt that he literally had to do a round the world stand up comedy tour to repay his debts because he just couldn't help himself. He was so emotional and he was so bitter towards the money that he lost. And he did something that, you know, revenge trading. Whereas you try to make it back the same way you lost it. And so that was, that was probably one of the most fun chapters I had researching.

That's interesting. I didn't know that you learn all these things about people and you see a different side of them. Right. You hear one thing about Mark Twain and his quotes and stuff like that in his books, but you know, you don't hear.

So, yeah, he has, he has some of the best investing quotes ever. And if he were alive today, he would be the best person on financial Twitter, bar none.

Maybe someone should open a fake, you know, fake Mark Twain account and just repost this stuff. Okay, that's awesome. All right. Anything else you want to cover from your book in terms of biggest lessons or biggest takeaways from writing it?

Well, so this book is. It is not a how not to book. The goal with writing this book, I just wanted people to get a sense of how freaking hard investing is, whether you're trading, whether you are buying and holding, whatever you're doing. And one person's mistake is another person's discipline. And there's many ways, different ways to do this, but just it's hard. It's really hard. And you're going to make mistakes and just have a little bit of empathy for yourself. Don't put yourself in a position where you're going to make a really big mistake. Don't take too much risk, more than you're comfortable with, and just put yourself in a position to fight it another day. And when you make a mistake, take it in stride and don't become paralyzed by what might happen next.

Yeah, I would say for most people, don't be active traders, be passive, or get a professional who shares your approach to the market. But it is so hard out there, not just with other smart people. But with the computers, you know, and how quickly they're trading and everything else and the positions you're up against, you know, it's like just.

Just one last thing. If you're. If you're new to investing and you want to learn about, well, I'm smart. Why? Why can't I beat the market? I would recommend reading Mike. Michael Maubousson has written a lot about the difference between luck and skill. And more importantly, the standard deviation in terms of the top performers has really collapsed over time. So there used to be a huge difference between the best trader and the second best trader and between the second best and the third best. But now, and I think he used an analogy. Why haven't we seen another.400 hitter in baseball? And that's just the perfect, perfect analogy for how the stock market has evolved over time.

Yeah, Yeah. I mean, one last personal story on this. It's like, you know, I used to trade more actively when I was younger. Like, you have done some stuff. Like, I've traded options, I've traded currencies, like for a small amount of money, like less than 5,000, it's crazy. You could take 100:1 leverage. And then I was like, this is stupid. I actually, I think I made money. I was like, but this is still stupid. So I got out of it, thankfully. But, you know, it's amazing what kind of leverage you can put on and what kind of risk you take. But, you know, the other day I was like, all right, Tesla. I like Tesla and I like what they're doing. I like what they stand for. But I was like, man, this stock is highly valued, right? And it seems like a total story stock. I was like, you know, maybe we should short, you know, Tesla or take some really out of the money, put options on this thing that might be interesting, right? And like, literally two days later, you know, Elon's like, you know, funding secured. We're going to take this thing private, right, for 420 a share or whatever. It's like, you know, if I had done something like that, I would have gotten crushed. So I don't do that stuff. But you never know. You never know what's going to happen.

One last point on that. Money earned from luck is indistinguishable from money earned from skill, right? People do get lucky in the stock market, and that's what keeps coming back for more. And I have no problem with people that trade. If you like trading stocks, if it's a passion, a hobby of yours, fine, and do it. But Be responsible, scratch that itch if it's there. But don't do it with the bulk of your money. Do it with say, 5% of your portfolio and it will probably, if nothing else, it will probably serve as a reminder of why you're not doing it with the other 95% of your money.

Yep, totally. All right, well, look, appreciate you covering the book. I wanted to move on a little bit and talk about, I mean about kind of the market and kind of financial services trends. Just since we got you and you're in New York and you see this closer than we do. But I know you probably don't make predictions, but any color commentary on kind of where we are with the yield curve and potential recessions or trade wars, anything like, like that. I don't know if you kind of prognosticate on that stuff at all, but.

Oh, I certainly do not prognosticate. I think that, I mean, I guess I have opinions, but I don't really believe them. You know what I mean? Like, I don't act on them. I think that nobody would say that the stock market is cheap. Nobody would say that we're in the early innings. What I would suggest is a rational way to approach the market is to expect and prepare for lower returns and more volatility and a harder path forward. And if that doesn't pan out and we continue to see double digit returns, well, fantastic. Of course we're not going to. And so I'm loosely expecting mid single digits and if we exceed those expectations, fantastic. But it's funny because people make the point that, you know, we're in the 11th inning and it's only going to get harder and therefore you should maybe make some more adjustments. But the market is much more forgiving in a bull market. Like you can underperform in a bull market and still do fine because the margin for error is much wider. But if we're going to earn only 2% returns and you think that you're going to be able to jump in and out and be tactical and opportune, come on, nobody can see the future. You're not that smart and just, just have a little dose of humility. But no, as far as the yield curve goes, I don't know what it's signaling, I don't know what inning we're in. I don't know what the future holds, but I would expect lower returns going forward, certainly.

Yeah, well, it's great. I mean, I think that that's what a lot of people are expecting. So we'll see. We'll see how it evolves. But it's good to have people set expectations kind of appropriately and I think counsel people to think about, like, hey, what are you going to do if it does this or does that? How are you going to react? Like, do you have those conversations with your clients? Like, you know.

Well, I don't personally, but our advisors do all the time. You know, what is directly in our control, how much we save. And for people that are fortunate enough to earn enough money to save, they'll do it. Contribute to your 401k, get the employer match. That's free money. And Even if we have 2, 3% returns going forward, well, at least you're saving money. It's money that you are saving for your future that you would otherwise be spending. So I don't see what the alternative is. If you're super bearish, well, then, then fine, then hoard gold. And what do you want me to tell you about.

Right, right. Totally. Yeah. No, I think you have to have the attitude of, like, save money, invest, kind of stick with it, be prepared for some volatility and lower returns. And that's kind of the best practice. I mean, I think from our perspective, we want to look at kind of, what does the evidence show? Right. What does history show? And just behave accordingly. Right. And take all the emotion out of it. I think that's you can only behave as optimally as you can, and that's it. There's no magic silver bullet here.

Well, history shows a few things. History shows that nobody knows what the future holds. History shows that every time is different. And history shows that the more you pay for something, the less you should expect to get. Valuations do matter in the long run, but in 2013, when we finally got above the.07 highs, the CAPE ratio was at whatever it was.25 was certainly not cheap. We're up almost 100% since then. So all of the valuation arguments made a lot of sense back then. They still make sense today. I'm not saying valuations don't matter. I'm just saying to the point that I wrote about Ben Graham, there are limits to valuations and things change. And just be humble, you just don't know. And I think that valuations are not a timing tool, they're an expectations tool, in my opinion. So higher valuations lower your expected returns.

Got it. One of the things that I saw at your EBI conference was, I think it was the head, the chief economist for Vanguard, got on and he had this statement that I Think one of the biggest trends facing the. He thought the biggest trend in risk facing the global economy is job automation. And they had some forecast that 50% of US jobs may be automated away in eight years, 77% of Chinese jobs. Do you look at things like that and say, okay, how is this going to affect what we're doing?

No, but I think that that is a legitimate concern and I think it's playing out today. And I wrote a piece called the Scapegoat yesterday where I looked at income inequality and all of the ills plaguing our society, I believe, stem from that. And I think that we will continue to see a division between the left and the right with, unfortunately, politicians going further out on the tribal spectrum. And that is something that really, really concerns me because pensions are underfunded, people are living longer, bankruptcies are up. It is really, really hard out there economically for the average American. And. And I don't know what the answer is. I don't know what the solution is. I wrote that blaming buybacks are probably the wrong boogeyman, but there are problems. Jeff Bezos, Bill Gates and Warren Buffett have as much money as the bottom 50% of the country. And that's an issue. That's a really big issue. And I don't know at what point the many start, come for the few and storm the castle. And I don't want to be hysterical and say there's going to be pitchforks in the street, but, yeah, that concerns me big time.

Yeah, I totally agree with you. I mean, that's some of the stuff that we look at with us too, with longevity, health care, some of these big trends that are happening. And definitely wealth inequality is huge. There's historical context for this, too. I don't know if anyone's done this, but if you get to a certain level of inequality, I think during the French Revolution, there was a certain level of inequality that got hit and then, boom, people revolting were like, screw this, or China, the Communist revolution. I mean, actually, that affects. Affected my family. So we, my family in China, my dad's side, you know, they were wealthier. The communists came, tossed, everyone fled to Taiwan, you know, lost everything. Right. And then the, you know, for a few generations, it's been like, you know, it was, you know, they had the Cultural Revolution and, you know, just putting all the educated people into work and, you know, out in farms was crazy and, you know, held the country back for, you know, decades. And now they're obviously storming back. But it's happened Tower Siegel.

Tara Siegel Bernard wrote that bankruptcies in people 65 and older has tripled since 1991, and pension benefits are getting cut. So what happens when two people who spent their entire life doing what they were told, preparing for this day, can no longer make ends meet because they. They got screwed? So I don't know, like, what is the answer and the reason? So, so I wrote that change is. Is a constant in capitalism, and it's a dynamic system, and that's why it works. But the difference between today and, say, 50 years ago or 100 years ago is that people are living to 90 to 100. And how do they pay the bill? I just. I don't know what the answer is. It's very, very scary.

Yeah, no, I've been looking at this pension issue myself, and, yeah, it's tough. I mean, you have all of these underfunded pensions, especially in the public and municipal sector, that are bankrupting towns. So, you know, Vallejo, around the corner, where I live and the Richmond, you know, they're basically going to declare bankruptcy because they cannot afford to make the promised pension obligations. But, you know, it'll be somewhere in the middle, right? So the obligations, you know, you'd have to crank up taxes to be, like, so high that it's unsustainable for people, and people would leave. So it'll be somewhere in the middle where probably promises, you know, promise payments will have to come down or get delayed a little bit and taxes will have to go up. But, yeah, and people will have to work longer. I mean, I think, fundamentally. And that's something we talk a lot about. It's like, you know, you need to be really thoughtful about things like Social Security and pensions. In fact, I was talking to a friend of mine the other day who was asking us about his situation. He's a doctor, and he's at retirement in his 60s. His wife is over a decade younger. And he was going to claim Social Security in his mid-60s. And we were like, you really should think about claiming Social Security at 70, because really, it's not your income. You don't really need the income in your mid-60s. But when, when you're 90 and pass away and your wife is in her 70s, she's going to get your full payment and it's going to be 8%. You know, it's going to be 30% bigger because you delayed it a few years. And plus inflation adjusted. It's just a huge thing. But people don't think about it that much. But you know what? In 25 years, it's going to be game changing.

So yeah, so I, so I think that there will be a continued divide between the left and the right, between old people and young people. So I don't know how we get through sort of the, the boomer generation and I guess the generation before that. But I'm actually pretty bullish on millennials long term. I think that, like, I think that we will be okay even though, even though things are tough right now for 30 year olds, I think that it won't be that way forever.

Well, the hope is productivity goes up, right? We, we continue to do better, making more stuff with, with less resources and it lifts. I mean, you know, on the good side, global poverty is down significantly. So worldwide everyone's doing better. It's just inside the US this inequality is getting stretched in a huge way that I think even some of the wealthy people, I mean, I know Bill Gates and Buffett, they're like, I don't need X billion, tens of billions. I don't need this. I'm actually trying to put this bunny back to work fixing malaria or the different causes they have. Some other people want to keep it all, but it doesn't help our society to create an oligarchy where they, there's a few people that get born into tons of wealth and they keep it for generations and they use it to influence the politics. That is not how this country got created. And it's not going to help us longer term. It's a short term strategy. I mean, it might help you for 10 years, but when you think about your family 30 years in the future, you may be really messing things up.

Yeah, well, I was talking to colleagues the other day and they said, well, things are so much better than they used to be. And it's true, absolute poverty is at a record low, but relative poverty is exploding. And we don't compare ourselves to our ancestors, we compare ourselves to our neighbors. And that's why, you know, lower income people that can afford a smartphone, that doesn't mean that life is hunky dory for them.

Yeah, right. Yeah. Well, it's a challenge. I mean, hopefully we navigate through it. I mean, there's definitely volatility in our society right now. That's a little scary. I do know that you guys, I see. Obviously you guys have a political, or at least certain people have political bias on the more probably liberal side in your organization. And does that affect your customer base at all? This is a question.

Yes, it does. Yes. 100%. 100%. Your clients tend to look like you, certainly politically, socioeconomically, for sure. I, I don't, I, I stay pretty far away from that. I think Josh and Barry do enough of that. So I would say it certainly alienated one side. And I think that, you know, it's too, it's too late to sort of, to sort of peel it back. It is what it is at this point, right?

Yeah, Well, I think it's, you know, it's, it's fair to like, you know, speak your mind and take your positions and you know, that's part of the dialogue. If people can keep it, if you can have respectful dialogue, that's good. I think that's one thing that's unfortunately seeming to be lost in this country where it's like, hey, I can disagree, I can disagree with you, but still have respect for you as a person and have an intelligent dialogue about it. That's something that is core to kind of moving things forward.

Yeah, it's easier said than done.

Yeah, we don't want to lose it. Well, I think one thing that happens is just things like Twitter and just the digital environment, just like trading. You can have your position, you can say whatever you want. You can say inflammatory things and you don't see that they side of it and you don't personalize it. And so you're like, oh, I'm right, everyone else is a jerk and you can be really inflammatory. But you know, you travel this country as you know, J.D. roth is a blogger I follow. He writes Get Rich Slowly and he's like, you know, I took this 15 month road trip and I, and I, and I've also been, you know, he travels, he drives around the country. He's like, when I drive around the country and I sit with people, you know what, we're all the same. We want the same things, right? We want to take care of our families. Families. We want to have enough, you know, income. We want to enjoy our lives. We want to help other people. People, people want to help each other. It's not like different parts of the country don't want to help other people, you know, and so it, we're not that different. But you know, you watch some of the new stuff and you know, I mean, you know, it's like CNN presents it one way, Fox presents in another way. And you know, you can see the bias. And I mean, I've said, you know, listen, I don't believe there's, I have a strong supporter of the media. Media, but it's pretty interesting to, you know, see that there is this division that doesn't necessarily, I don't think, need to be there if people were actually more present with each other.

Well, I think, yes. I think that if people sat down with one another, it would go much better. I think that digital, the digital world is a dangerous place because when you're not face to face with somebody, you'll say whatever, whatever you want that you would ordinarily never say to their face. And from the media's point of view, they're giving people what they want and people want to be riled up and. And that's what the advertisers. Advertisers are paying for. And I hate to be so cynical, but that's. But that's what it is. And it's not gonna go the other direction. It's probably only gonna get worse from here.

So, yeah, I'll have to post up. I saw this Heineken did this funny advertisement thing where they basically said, okay, we're gonna pick two people that are completely opposite and hate. Would normally hate each other's guts and not talk. And we're gonna bring them in, have them do some work, like to build something, and then they're gonna, like, they built a bar and they're sit down, have a beer, and then they're going to discover that they normally would not like each other. And then what they found was, look, all these people got along, you know, especially after they did something together. So anyway, all right, so, you know, I just want to cover a couple more things. I thought. One, this isn't directly related, but, you know, I thought your EBI conference really was pretty useful. I thought the most memorable thing was when Josh got up there and said, hey, listen, what we're doing is we've got this boy band analogy, and we were bringing together the best bloggers and key influencers together, and that's actually working. Was that, like, the strategy from the beginning or just kind of happened?

No, no, no, definitely not. I was very green when Josh hired me. I knew nothing. So it wasn't. We were never on the lookout for acquiring talented writers. It just evolved that way. And I think that we are definitely stronger together. I mean, a lot of my successes because I was riding the back of Josh and Barry and of course, you know, I built my own audience and stuff, but they. They gave me, you know, they certainly gave me a boost. I would not be where I. Where I am today without them. But no, it was not the vision. It just. It worked out really well. And I think one of the things that we figured out was leveraging our voice makes our advisors jobs a lot easier, for sure.

Another thing that was memorable, which I thought was kind of crazy, was I saw Ken Fisher got up there. He was talking about his business. He's built this $100 billion wealth management business, which generates probably a billion dollars in fees. So one thing is one, I thought I would not like this guy, but he was actually pretty likable. He's actually doing some good stuff, too. He, like, he went to Humboldt. He's got this Fisher lab there. They're trying to save the redwoods. We live in Northern California. So I totally appreciate that. He also, I think, did some interesting stuff around running his business efficiently, but the fact that he sees his business as unsuccessful, that, like, when you look at the total universe of wealth and how much is advised and how much they advise, which is like a tenth of a percent, and he's like, we're totally failing. Even though he's the biggest probably wealth, independent wealth group out there.

Yeah, that was an interesting take. All right. Seemed like a little bit of false modesty. Like, we're failing. We only have $100 billion. And I get the point that he's making in terms of nobody's market share, which is interesting, but I don't know. That sort of is weird.

Yeah. I mean, look, he. You know, I don't love everything they do, for sure. You know, I'm not trying to pump him up either, because I think we're. What we're doing is somewhat competitive with him. But, yeah, it was interesting here. I mean, and then he. He made this ridiculous Christmas tree joke, which I was like, wow.

He was. He was entertaining. Like, that guy. I would. I would. He could have spoke all day, and I would have. I would have watched.

Yeah, it was not what I expected. Like, I would not, you know, I would not expect, like, Chuck Schwab to get up there and, you know, to kind of give the take that he took. So, yeah, obviously, it's completely independent. He's like, I can do whatever I want here. So that was kind of interesting. All right, well, look, I think, you know, we've covered a lot of stuff here. You know, I appreciate you kind of talking about your book and kind of your views on things. Anything else you want to touch on when we're, you know, on this. On this.

No, I. I appreciate you having me on. This is a fun conversation.

Yeah, no, it's great to get your take, you know, and appreciate the kind of New York perspective and kind of hearing your story and you know, where you're going and what you're doing and, you know, I'm looking forward to kind of continue to watch what you're up to and, and I'll, I will finish the book and I'll give it to my. I was actually gonna give it to my 17 year old, say, hey, listen, give me a, give me a book report, but he was too sick last night. All right, awesome. Anything else, Dotto? No, we're good. Okay, so look, I'll just wrap it up real quick and then we'll close it up. So. All right. So thanks, Michael, for being on our show. Appreciate it. Thanks, Dato Robeson for being our sound engineer. Anyone listening? Thanks for listening. Hopefully you found this useful. Just a couple quick comments. We actually have a Facebook group that if you want to find us, look for us at new retirement on Facebook. Also ewretirement on Twitter. And you know, I heard this on Masters of Scale, which I'm going to ask for. If you like this podcast, feel free to write a review. We're starting to get some reviews on itunes and I saw we were starting to get ranked, so would love to kind of push this up and that's about it. So thanks everyone. Appreciate your time.