Introduction

Patrick: [00:01:19] My guests this week don't need to be introduced. In celebration of the one-year anniversary of Invest Like The Best, I asked Josh Brown, Mike Batnick, and Barry Ritholtz to join me for an hour, during which I spent more time laughing than asking questions. I chose this team because they are the pioneers of mold-breaking honesty and personality in our industry. They all figured out that just being themselves yields incredible results. This is a strategy that everyone should try but very few do. Honesty and transparency require vulnerability, which is hard for most of us. I still struggle with it. But the evidence is in. The Ritholtz team has grown as fast as almost any RIA in the country. Listen to this and tell me you wouldn't want to spend your career working with people this friendly, funny, and open. Hell, I want to give them some money just so I have an excuse to drop by more often.

Thank you to everyone who has listened in the past year. We're past one and a quarter million downloads and growing fast. You own this thing as much as I do because the size helps me penetrate deeper and get the best people, which begets more listeners. This podcast is one hell of a discovery machine, and the first year was just our warm-up. We have a ton of new angles, formats, and events coming in year two, so stay tuned. But first, time to laugh in celebration of year one. Please enjoy my conversation with Team Ritholtz.

One of the most popular questions the first time that I made up on the spot was asking Josh what stock he was, and he also came up with what stock I was.

Josh: [00:02:43] That's hilarious.

Patrick: [00:02:43] So, I thought I'd have Josh start-

Mike: [00:02:45] What did we say though?

Patrick: [00:02:46] You said I was Google because I'm indexing information and books, and you said you were Twitter or Yum! Brands.

Mike: [00:02:53] He has to be Twitter, and we really don't eat fast food.

Josh: [00:02:56] Did I say I was Yum! Brands?

Patrick: [00:02:57] Yes.

Josh: [00:02:58] Oh my god. That's very funny.

Patrick: [00:03:00] Josh's first task is to ... Ben's not here, but here in spirit.. to assign a stock. What stock is Barry, Mike, and Ben?

Josh: [00:03:07] Wow, that's tough.

Mike: [00:03:07] Barry is a four times levered TF.

Josh: [00:03:10] Well, that's a great question. I would say Barry is AT&T, he just does not stop communicating, and he's the old school. He's like the original, we're all spin-offs of Marvel. Mike is Lucent.

Mike: [00:03:33] Yeah, pre-bankruptcy.

Josh: [00:03:34] Mike is Bell Labs.

Mike: [00:03:35] Right. That's Lucent, became Bell Labs.

Josh: [00:03:37] No, so what stock is Mike? I don't know. What do you think?

Barry: [00:03:44] Has to be something recent IPO, something fresh and young.

Patrick: [00:03:47] That's Snapchat.

Josh: [00:03:49] Not Snapchat.

Barry: [00:03:50] Because he's like up and coming, it's got to be something that's came out and-

Josh: [00:03:54] Like Netflix is already too old.

Barry: [00:03:56] Yeah. Netflix. Right. I don't know. It's a good question. We'll come back to that one.

Patrick: [00:03:59] How about Ben?

Josh: [00:04:03] Something from the Heartland, something very reducing complexity and all-American.

Mike: [00:04:11] Yeah, I got this.

Josh: [00:04:11] 3M?

Mike: [00:04:11] 3M.

Barry: [00:04:11] There you go.

Josh: [00:04:14] All right. I'll tell you why he's 3M, and then you give me your answer, age before beauty. He's 3M because.. No, no, because 3M is the industrial stuff that's going on is mostly behind the scenes, because consumers don't understand how powerful that machinery is, what they do see is post-its and scotch tape.

Barry: [00:04:32] But if you understand how-

Josh: [00:04:34] Which is like the simplest to use-

Barry: [00:04:36] But how post-its came about is an amazing story-

Mike: [00:04:40] How much time do we have?

Barry: [00:04:43] ... down to the type of glue that they use, so you could remove it from a page and not leave a residue behind. The Post-it story is an amazing-

Josh: [00:04:52] I like the 3M-

Mike: [00:04:54] Well, also twin cities, Ben just had twins. Right?

The Ritholtz Team

Patrick: [00:05:02] I think of you guys as probably collectively like Netflix, someone that somehow has been able to bring some of the top people under one brand. What's cool about that is how independent each of the brands within Ritholtz are. How do you think about that? I guess maybe you just don't think about it, and you let each person kind of-

Barry: [00:05:22] We have a very strict style guide, everybody has to follow to the letter, more stricter than Bloomberg's. It's really write about this in this way.

Josh: [00:05:31] Listen, we're like the Wu Tang clan. Ritholtz just assembled all the best MCs in Staten Island and Brooklyn, but if you are listening to Ol' Dirty Bastard, you know the difference between ... then you put on Liquid Swords, you're listening to the genius, it's two different ... But however, when they all come together, they just form Vultron and ... No, no, so it's all-

Barry: [00:05:56] It's actually a perfect analogy.

Patrick: [00:05:57] I like that.

Josh: [00:05:58] But that's how it is, but we collaborate and do things together, meetings, blog posts, research reports-

Barry: [00:06:05] The whole conference thing was a giant collaboration.

Josh: [00:06:08] We're all very different. You would never read something Barry wrote and say, this might've been Josh writing it, or Ben. And Tony Isola, who's probably our version of the genius. But I think that's the whole point, is not every reader of Mike's blog is also interested in reading my blog, but then probably a lot are. We're just trying to say intelligent things that are helpful to people in our own unique way, and be ourselves.

Barry: [00:06:34] It really is true that all of the blogs began as a pushback against things that we saw that was either wrong or misleading, or ... You can't just dumb everything down, you have to respect the public a little bit and say, people can understand this. I'm not just going to make this so that a fourth grader can understand it. And if you look at what each of us has written over the years, very often, there's some pebble in our shoe that's bothering us, and we want to respond in a way that says, this is wrong. If you listen to this, you will lose money. Here's the data, here's what the facts say, understand this from how it really fits into your world view, what your models should look like.

Patrick: [00:07:18] Without any central planning, you guys have built the model for, I guess, marketing in this business, which is what I've found through the podcast, is that just total transparency, just being yourself and exploring what's interesting, just goes a long way. You don't have to think too hard about it. You just look for pebbles in your shoe.

Barry: [00:07:33] Could any of us have done it any differently? None of us here really have much of a poker face when it comes to talking about markets investing-

Mike: [00:07:44] Excuse me, you're talking to a Queens College graduate. Yeah, I think one of the huge advantages that we have is money can replace what we do. The familiarity that the audience has with us and that our clients have with us before they even become a client, how can you put a ... Money can't come in and replace what we do in terms of you can spend all the advertising dollars in the world and it can't replace what we do. So we've created a huge moat accidentally with, this wasn't like a grand plan that we came together five years ago to say, hey, this is the future for us. It just happened.

Josh: [00:08:17] The thing is what's interesting is how slow, and maybe they have no choice, but how slow the large asset management firms are, realizing why what they're doing online is not getting traction. I watched a few months ago, I watched a Facebook live from one of the biggest names in, let's say wealth management, I'm not going to get into who, but they have really good people, strategists and analysts. It's a great firm, they have a great brand and they have really good people. They did this thing on Facebook live, I swear to you, it was like an hour and a half, just straight video with their, I guess, thought leaders sitting behind a news desk. It was bizarre. It was the most boring thing I've ever ... It was like literally three of them behind a news desk speaking like newscasters, but they're markets people giving the firm's forecast or outlook or whatever, having this very stilted conversation. A lot of it looked like they were reading off a teleprompter. And then I looked at it, they got five likes on Facebook.

And this is a brand that probably spends tens of millions of dollars on marketing. So, it's like, how do you take the talent you have, the brand you have and make the worst possible content you can? And that's the industry standard right now.

Barry: [00:09:32] It's generational, there's no other way around it. I have a huge advantage in that when I'm grandpa on Twitter, I have these guys coming in and saying, dude, what the hell are you doing? You can't say that.

Mike: [00:09:42] Imagine if Barry's filtered.

Barry: [00:09:44] Right. I don't have filters. I mean, let me rephrase that. I see certain people and we've all talked about, there's nobody more transparent than Jim Cramer, whatever thought enters his head, it's there. He is the most transparent person in the world. I have slightly more of a filter than he does, and they come in and say, you're at three, take it up to seven.

Josh: [00:10:06] I think Twitter loves when you retweet yourself, that's probably their favorite.

Barry: [00:10:09] Wait, you're not supposed to do that?

Josh: [00:10:10] And then they ironically retweet your re-tweeting of yourself. And you're like, "Hey, I got a retweet." I'm like, "Dude, so this is hating on you."

Barry: [00:10:18] So, this is the sort of stuff ... Now, my defense to this is I write for myself, I tweet for myself, I favorite things from my side. I don't care about any of that stuff. I write for an audience of one, if other people want to read it, fantastic. But when you're out in the world and being social, there are certain rules you have to follow. I'm Dirty Old Bastard, I'm the old guy, I don't know these rules.

Mike: [00:10:40] He is Dirty Old Bastard.

Barry: [00:10:42] It's true. It's absolutely true. I know the rules because of these guys.

Josh: [00:10:45] You're more like Rick James, I think you pre-date the plan. All right.

Barry: [00:10:51] But I see other people on Twitter who are my age or older, and they're just completely lost because they don't have anybody 10, 15, 20 years-

Josh: [00:11:01] But you only listen to some of what we tell you.

Barry: [00:11:04] Well, I listen to some of-

Josh: [00:11:05] Because your Facebook page is currently importing your Tweets.

Barry: [00:11:09] What is Facebook? I don't even know what is.

Mike: [00:11:11] We've told you 14 times-

Josh: [00:11:13] That's deliberate.

Barry: [00:11:14] No, it's not.

Josh: [00:11:14] When did you shut it off?

Barry: [00:11:15] The last time you Slack me, two weeks ago.

Josh: [00:11:19] Chris goes crazy... because this is not your personal life personal Facebook.

Barry: [00:11:21] Oh, I can't even log in to the Facebook.

Josh: [00:11:23] You have a verified Facebook page, and you have your tweets being pulled in, who the hell would follow that?

Mike: [00:11:30] I told you five times to shut that off.

Barry: [00:11:32] I tried to shut it off and don't know how, that's the old man can't shut off Facebook. That's old man tactic. Right. Exactly.

Patrick: [00:11:37] You guys have experimented a ton with different channels, I'm curious what you think is working best now. I mean, certainly you all started-

Barry: [00:11:45] MySpace.

Patrick: [00:11:45] Myspace is the leader.

Barry: [00:11:47] That's the one.

Patrick: [00:11:48] What's second place behind Myspace?

Josh: [00:11:49] We're going old school, we're in the yellow pages now. It's artisanal. It's very Brooklyn.

Patrick: [00:11:54] What's the changing tides? We talked a little bit about video, maybe touch on that.

Josh: [00:11:58] Yeah. I just think big picture of what I speak to audiences of advisors all over the country, and the question is always which platform, and the point I always make is you need your own platform, and then you use the social channels to talk about what you're doing. So you need a blog. You need your own site to write things that is not constrained by, in what order will the network post it or how many character limit. You just have to say something that's meaningful where you're learning something at the same time the reader is, and it's a new point that no one's made before or a new way of looking at an old point. And then, do put it on LinkedIn, do you put it on Facebook? Should I tweet it? Yes, yes, yes. In other words, your audience will be found by virtue of you trying, but you need your own space to put this stuff. Because if you're just putting stuff on someone else's platform, you might end up investing a lot of time in something that's dying or already dead.

Patrick: [00:12:54] If there was a Ritholtz wide 10 stock portfolio stock picking contest, who would win?

Josh: [00:13:01] Me. Me. I swim in this stuff all day, I would crush everyone.

Mike: [00:13:04] That's why he would lose.

Josh: [00:13:06] That's why I would lose. I don't know. Is there trading or is it just a one-year holding period?

Patrick: [00:13:11] How about, you got to have a 10 stock portfolio over a five-year period, you can trade as much as you want. It's always got to be 10 stocks.

Josh: [00:13:16] 10 stocks for five years? We would all have negative returns.

Mike: [00:13:19] Yeah. I think I would lose interest after 40 days. But it's funny, I have to remind myself every day not to do something.

Josh: [00:13:28] Should be who would lose the least, should be the question, because when you get one year in, and Mike would start pulling hail Marys for sure.

Mike: [00:13:35] I think that I convinced myself that I'm not a good stock picker, but there's always maybe you're fooling yourself, you probably are a really good stock picker, probably try again. It's constant reminding myself, Snapchat might be bottoming here-

Barry: [00:13:48] The world's worst jiminy cricket, right?

Mike: [00:13:49] Yeah, exactly.

Barry: [00:13:49] You're a much better stock picker than you think.

Josh: [00:13:52] You should be a contrarian against your own-

Mike: [00:13:53] But every time I think something looks good, three weeks later, it looks like shit, I'm like, nailed it. Like here's why I stopped.

Patrick: [00:14:02] How much time do you spend digging through stocks?

Mike: [00:14:05] Individual stocks?

Patrick: [00:14:05] Yeah.

Mike: [00:14:06] Probably too much. I mean, I look at charts a ton and some financial stuff, but it's always times, I don't do anything.

Josh: [00:14:12] I don't think you can understand what's going on in the market broadly without looking at the top 50 market caps and understanding ... I think the charts are more important than the fundamentals for what I'm describing, not in general, but to try to understand what the trends are, what people are doing, where sentiment is, what the psychology is. I don't think you could look at SPY and form an opinion. I think you have to have just the series of things that you look at. It doesn't mean you have to labor over it. And then also, you can just decide you don't care. I don't think that's going to work in our industry, I think clients want to understand how the things happening with individual companies relates to their own portfolio. You could have that knowledge and then say to the client, listen, I'm poorly aware of all of it and I can promise you, it's not important. You could do that. That's fine. But you have to know.

What Clients Need

Patrick: [00:15:00] Have you guys sensed from clients, the one directional trade has been into Vanguard or into DFA, into really effective, great product, but frankly, very boring investment vehicles. And part of my thesis is-

Mike: [00:15:13] That's why we day trade the Vanguard ETFs. So we're past that-

Patrick: [00:15:18] You're that guy.

Mike: [00:15:18] We're the-

Barry: [00:15:19] ... long DFA, short Vanguard is a good trade also.

Patrick: [00:15:22] My sense is that people always want something to talk about. Maybe it's cryptocurrencies now, there's always something that people want to dive in on.

Barry: [00:15:29] You got to separate what's being said in the media, and at cocktail parties and chatter versus what people are actually doing with their money. And if you look at our philosophy and if you look at what we've been describing on the blog for 20 years on Twitter, for as long as Josh has been tweeting, et cetera, et cetera, that trade towards the DFA, towards Vanguard is something we've been towards low cost, towards a mostly passive-

Josh: [00:15:55] We were way at the forefront of that.

Barry: [00:15:58] I don't want to say Vanguard has us to thank for fortunately in Dallas, but we were very much at the leading edge of that. That's how we manage our clients.

Josh: [00:16:08] Patrick's asking a different question. Can you have a high net worth investor as a client and have that client ask you in a good market or a bad market for different reasons, what am I invested in and be like, don't worry about it. Vanguard indexed it .. my answer to that might be different than yours. My answer is it's almost disrespectful to say to that client, it's all fucking stupid, don't pay attention. It's noise. No, I think you have to say to people, well look, of the dollars that you have invested in the equity side of your portfolio, 45% is US large cap, 10% is US small cap, this amount. And then even a further breakdown, technology is 21% of the S&P, what are the big technology names? What is the multiple investors are paying? I think you have to have answers for that investor. Think about their real estate investments. What do I own? It's on Fifth Avenue, don't worry about it. I feel like you have.. you owe that person...

Now, we could debate what is the utility of the investor having that information or what conclusions about the future can come from it-

Barry: [00:17:11] Oh no, they definitely need that information because at a certain point-

Josh: [00:17:14] And we should be responsible for having it.

Barry: [00:17:17] For not only having it, but for putting it in context and communicating it to that investor. Because if you ignore the noise, I say, lose the news, ignore the noise. But if you just take that to its extreme... Right, right.

Josh: [00:17:31] But don't worry about it...

Barry: [00:17:34] But if you are completely oblivious to what's going on, you're not going to be prepared for when a client calls up and says, listen, Amazon is going through the roof, I want to move 10% to it. Or conversely, what the hell is going on with Sears? I've held the stock for 20 years, even though you guys have been making fun of the stock for a long time. What should I do? You have to be prepared to not only answer that question, but be sensitive to when lots of people start asking the same questions. Hey, what about this Bitcoin? What about this Amazon? If you're not plugged into what's happening with that, you're wholly blind, and the changes in the psychology-

Josh: [00:18:15] Right. And you're posturing, oh no. I'm just a behavioral counsel, the market is all noise, doesn't matter, just own the index. All right. That's great. But you're doing your client a disservice. If you give him or her three unsatisfactory answers in a row and they end up selling out from you and putting the money into the nephew's hedge fund, what behavioral counselor are you? Because look what you've just allowed to happen on your watch. So, I think satisfactory answers are important.

Mike: [00:18:44] Also, a lot of the people who come to us were self-directed, and just don't want to do it anymore, but it's also really hard to just remove your handle from the steering wheel entirely. So we say, keep 5% and trade your ass off. Have fun. Just don't ask us for any more money.

Josh: [00:19:00] Don't margin, don't screw up your financial plan.

Mike: [00:19:02] Right.

Barry: [00:19:03] If it goes to zero, imagine if that was your whole portfolio, and if it triples well, could you have withstood that? Mike and I did a project sometime ago, looking at, could you have hold Apple, Google, Netflix, since the beginning? How many massive draw downs were there in those names?

Mike: [00:19:17] All.

Josh: [00:19:18] Draw downs are the rule for like, the stock that goes up 38,000% fine, 50% draw downs are common.

Mike: [00:19:25] Yeah. If you invested in $1,000 in Amazon, you would have sold it when it was $300. And would it be worth 47 million? No, you would've sold it when it was $200 when it was down 99%.

Patrick: [00:19:35] I'm amazed, like even as a quant where obviously I'm running a model, I'm not picking Apple over Google or whatever-

Barry: [00:19:41] But you have individual stocks.

Patrick: [00:19:43] We do. And what you said really resonates, it's actually remarkably important that I know what's going on with these stocks. And I get asked all the time, you can buy very large institutional investors, pick a name in the portfolio, one that looks suspect, and tell me why you own that?

Josh: [00:19:56] Now, let me tell you a great story about O'Shaughnessy Asset Management and us. We hired you guys maybe six or seven years ago as a separate account manager. One of your strategies for specific accounts, where either there was room for individual stock selection versus an ETF, there was a purpose for it, and it went great. And then the largest position in this strategy was Hewlett Packard. Hewlett Packard was in the news every day because of the accounting fraud, and they made an acquisition in Europe that was a fraud, and they were going to do a spinoff and they were activists, and people getting fired. It was like this thing where you have clients, they have, let's say 4% of their portfolio in this stock, you see the individual holding. So it's not like owning the Dow 30, and knowing that you have Hewlett Packard, it's literally seeing it in your client accounts. And Barry and I just being like, all right, we said to your father, we said, "Jim, we love the strategy. We just want you to take Hewlett Packard out."

And he humored us, your dad is the best guy I've met. He goes, "Okay, why?" And so Barry and I were on a speaker phone just ranting, how could you own this? It's accounting fraud in your book, you talk about red flags and blah, blah, blah. He just very calmly said, "Is it at all possible that everything you guys are saying is right, but already priced into the stock?" Is that at all possible? I forget how we ended. Maybe that was-

Barry: [00:21:23] We just were like-

Mike: [00:21:24] Fine. Fine.

Barry: [00:21:25] It's like, what do you say to that? There's no response other than, if you sell it and it does nothing but go up, you've just done what everybody does.

Josh: [00:21:32] But I think the punchline is that Hewlett Packard was maybe 11 or 12 and went to 30. And probably everything that we were ranting about was in the stock, but we're professionals.

Patrick: [00:21:46] You're describing the value premium. This is why this works.

Mike: [00:21:48] Correct, but it doesn't feel that way at the time that we're earning a-

Barry: [00:21:52] And after the ninth client call, hey, why do I own this piece of shit? The answer is supposed to be because it's really cheap, and you're looking at an emotionally as opposed to, you're right, it's a piece of, let's sell it.

Mike: [00:22:04] But so how do you know? How do separate value from a value trap? You have to own retail, which is why you need a portfolio.

Patrick: [00:22:11] The way you do it, you do it probabilistically. So, there's five or six other things that if you just take the group of the 10% of cheapest stocks, let's say, that's a value portfolio, just pure statistical cheapness. Within that group, if you isolate all the losers or the companies ... and it's like 48% that lose to the market and 52% that beat. So, the magnitude or the skewness is really important in all this, but there are certain characteristics, a small handful that are more common in the batch that loses, quality stuff, balance sheet stuff, trend stuff, momentum stuff. So, you just screen out the absolute worst stocks by those measures and put the odds a little bit more in your favor, but it's not enormous. Maybe you take out, and now you're winning 55% of the time instead of 52.

Mike: [00:22:53] But not to give away your secret sauce though, you're also not doing black and white buy, sell, you're incrementally buying and selling, and trying to keep positions at a certain size so that you won't have a catastrophic event if Hewlett Packard turns out to be Worldcom.

Patrick: [00:23:08] I think the frustrating thing is that people want complexity and activity, and especially as you get up the net worth spectrum, it's very hard to look at someone that's got 50 or $100 million, and tell them that you're just going to buy the S&P 500. They just fundamentally-

Mike: [00:23:21] Just decided these are the stocks, don't worry about it.

Patrick: [00:23:23] Yeah. They just fundamentally believe no, no, no, no, no, at this level, there's something better. Tell me what it is.

Mike: [00:23:30] Give the good stuff now.

Barry: [00:23:31] So, there's a group that I won't name on the podcast, but they're pretty well known. They claim to represent the most high net worth individuals. I believe you spoke at a luncheon-

Josh: [00:23:44] I said no, after your experience.

Mike: [00:23:45] Blink if it's the Vanguard group.

Barry: [00:23:46] It is not the Vanguard group,

Josh: [00:23:47] No, this is like a high net worth association where people come and sing for their supper.

Barry: [00:23:54] And so, they don't want to pay speakers, even though they supposedly charged 30,000 a year per person to be a member of this group. The presentation essentially became the basis of romancing alpha, forsaking beta. And all people want to know was what appropriate balance should they have of private equity, venture capital and hedge funds? Should it be all of their portfolio or just like 90% of their portfolio? That was the balance. That was the debate they had. And when you're talking to these people, it's why do you want to pay 2 and20? Why do you want to have gated lockups? Why do you want to be in really illiquid things? And what makes you think that you could pick the guys who are going to pick the asset classes that are going to beat the market?

And by the way, you're picking the guys who already beat the market, the odds are except for a handful of them, it's not Warren Buffett's circa 1972, and you can't get into Jim Simons Medallion Fund, what makes you think that the people who beat the market for the past 20 ... it's like the most basic stuff, but it makes for terrible cocktail.

Josh: [00:25:01] But you're missing the point of the exercise. The audience there is family office, chief investment officers, their job is to keep the family amused to some extent.

Barry: [00:25:13] A lot of the people who were there were the family though. So, it's Meyer-

Josh: [00:25:18] That's a delusion of a delusion.

Barry: [00:25:20] Yeah, absolutely.

Josh: [00:25:21] It's like dinner theater.

Barry: [00:25:22] It totally is.

Josh: [00:25:22] But here's the counter to that, if you are a really rich family or a really rich guy or girl, and you've made it and you have enough money that none of the generations coming after you will ever have to worry, hopefully about paying their bills, why isn't anyone's business if you decide that part of the recreation in your life is going to be sitting at steakhouses with wealthy peers and picking hedge fund managers? Balmer paid $2 billion for the Clippers, the team's not worth 2 billion, but it is because he's the guy with the checkbook and wants it.

Barry: [00:26:04] But Balmer's worth 40 billion, and his 100 generations are covered. But the people at these events they're worth 50, 100, 500, a billion, and if they're not generating at least market based returns, there are three generations ... it's the classic-

Josh: [00:26:21] How do you know they won't.

Patrick: [00:26:25] Statistically.

Josh: [00:26:25] How do you know the other investments aren't going to offset the excess fees they're paying-

Barry:: [00:26:29] The problem is that-

Josh: [00:26:31] It's the pension fund, it's different. Well, end user is having these needs taken from them against their knowledge or their will or both. This is, hey, I earned the money, if I want to give it to somebody who's going to take on Target and JC Penny-

Barry: [00:26:46] Don't get me wrong, it's their money, they can waste it however they see fit. However, let's be honest, for the vast majority of these people, they don't have the skillset to pick managers, they don't have the skillset to manage the money themselves. They think they do, and that's why they're so dangerous-

Josh: [00:27:01] Not disagreeing.

Barry: [00:27:01] ... to their own wealth. So, if they want to, hey, it's their money to spend however they want.

Josh: [00:27:06] That's the point, it's theirs.

Barry: [00:27:09] But if they're asking for our advice or our opinion, the answer is you guys are just pissing away-

Josh: [00:27:14] That's correct.

Barry: [00:27:15] ...from shirtsleeves to shirtsleeves.

Josh: [00:27:16] This is America, do you want to go to Vegas? Do you want to trick yourself into thinking I have a system? You're entitled to do that.

Barry: [00:27:24] Sure.

Mike: [00:27:24] Well, how about this? There's a lot of hedge funds that do really well, and whether it's luck or skill on their part or the investor finding them, that money earned by luck is just as good as money earned by skill. They're indistinguishable.

Barry: [00:27:34] Absolutely. And you can always get lucky. But is that what people should be doing with their real wealth? Hey, I want to do this, because maybe I'll get lucky.

Mike: [00:27:42] That's why people pick stocks. I want the next Amazon, I want to get lucky, and fuck it, I'll put 5% my money in there.

Barry: [00:27:48] So, my role isn't to be the moral arbiter and say, you're wrong for doing this, my role is to say... No, my role is to say, if you do this, you will leave less money to your grandchildren to do that. That's my job.

Mike: [00:28:02] That's the dirty old bastard talking.

Barry: [00:28:03] Yeah, absolutely. 100%.

Josh: [00:28:05] Yeah. But we all know that and we snicker, but I'm saying outwardly, someone that's like, all right, I get it guys, 80% asset allocation, give it to you guys, do your funds and ETFs and keep my costs low and keep my taxes low. And then I have another 20%, I want to get invited to the fund the Palooza at Yankee Stadium, where all the managers come out. I want the heads up on the trip to Miami, the golf trip, and I want to be a part of that too, and I don't want somebody with a blog making me feel bad because this is enjoyable for me. And so that look, I've changed my whole shtick on this. I get it. So for some people-

Barry: [00:28:48] It's an expensive hobby.

Josh: [00:28:49] Listen, it's not for me.

Barry: [00:28:50] Go buy a jet. It's cheaper than-

Mike: [00:28:52] Let's bring this back. What stock am I?

Patrick: [00:28:59] Yeah, I think the impulse is just-

Josh: [00:29:01] Mike's an ETF.

Mike: [00:29:06] I'm JNUG.

Barry: [00:29:07] He's a pre IPO stock.

Josh: [00:29:08] Mike's three times gold miner ETF, just because it's hilarious to do that.

Patrick: [00:29:13] Yeah. I think that the bottom line is that scarcity will always work, and there's just always something at some frontier that people want to be a part of. I think it's Bitcoin right now. I love Josh's piece about his process of buying your first Bitcoin or whatever it was. I don't know if it was just Bitcoin or some of the other ones as well, but it was very honest. And when I asked around, who owns this stuff, it's virtually no one, but the people that do, it's like the heads of big family offices and they own it in size. And I'm just fascinated by that. It's actually a good story to tell, so what was your motivation behind starting to explore something like that? I've got a huge blockbuster audio documentary coming out about this in a couple of weeks or maybe a month.

Josh: [00:29:55] All right. I don't know. Let me preface what I'm about to say. I have no idea about anything to do with this. I can only speak to my own experience. If you looking to me as like a Bitcoin authority-

Patrick: [00:30:03] No, not at all.

Josh: [00:30:05] I'm friendly with some people that are Bitcoin authorities and they're fucking nuts.

Mike: [00:30:09] Josh knows the best Bitcoins.

Josh: [00:30:10] But I love having conversations with them because they're explaining these terms that you keep hearing to me, as they're explaining a mentally process, I'm saying, "Oh, well, that sounds reasonable. Oh no, no, that sounds completely insane." And I'm categorizing it in my head in real time. But the smart things that I've learned about Bitcoin is from listening to A16z and Andreessen. They've made some big investments, not in the price of Bitcoin going up, although they are bulls in the price, but in the infrastructure. And I think the most reasonable thing to say about Bitcoin at this stage in the game is that it's too early to have an extremely doctrinaire opinion about where it's going, but it's too late to not have some experimental project going on just in case. What I mean by that is maybe we're in the first inning, or maybe the whole thing fizzles, I'm leaving that possibility open. So it's too early to be sure. And you're going to look like a fool if you're one of these people pounding the table in either direction.

But the second part of that, it's too late. And I mentioned this in the post, anything that doesn't die when it should have died, dozens of times, you have to pay attention to it. Bitcoin should be dead. Silk road should have killed it. The plunge from, I don't know, where did it go? 1,300 to 300? That should have killed it, and that happened four or five times.

Patrick: [00:31:28] Mount Gox.

Josh: [00:31:30] Oh, Mount Gox, 100% should have killed it. These situations with $300 million worth of Bitcoin gets hacked and disappears, the split between Bitcoin and Bitcoin cash, the schism within the community, all of these things should have been the death knell. And yet it's still persistent, it's still around. And so I think that that forces you to say, all right, this won't go away. Let me try to learn something about it. And then the last thing I'd say to that is, if you're going to ... You can't read books, reading books about stock ownership, you have to be an investor to understand the feelings, even if you read a really good writer. I think you have to experience the process of buying a Bitcoin, owning, storing it, doing all these things, to know what people are talking about. That's all I'm trying to say. I don't know what's going to happen, but I feel like it's important to just understand how it works.

Patrick: [00:32:17] I know that Josh does a lot of this. I'm curious Barry and Mike, how you guys think about this thing. Not necessarily Bitcoin in particular, but I'll call it research in action, not just writing a paper about it, living the asset, living the ownership, living the research-

Barry: [00:32:32] I come from a very different place than these guys do, because I started-

Mike: [00:32:36] That's North shore.

Barry: [00:32:37] Right. North shore versus South shore, but I started on a trading desk and I kind of lived through that for five years. It was all you ate, drank, slept. So at a certain point, having to live it to really understand it, you build up a base of experiences and you feel alright, I'm not sure I really need to eat, breathe and drink this. When I look at Bitcoin, I'm much more fascinated by the underlying concept of blockchain as an underlying technology that can be used in financial transactions as a way to guarantee identity, guarantee a lack of theft, all these things. So, it's not so much Bitcoin as an expression of that technology, go back and look at all the original-

Josh: [00:33:22] But the two things are inseparable. All right-

Barry: [00:33:24] Well think about computers and all the different computer companies.

Josh: [00:33:27] But there's a joke why the bankers talk about blockchain because they missed out on Bitcoin and they feel stupid for talking-

Barry: [00:33:33] There's an element of that.

Josh: [00:33:35] But you can't have blockchain be adopted in a large-scale way without a reward for the people who are building the infrastructure of blockchain. The reward is the earning of the Bitcoin. They're inseparable-

Barry: [00:33:49] Maybe it's like an open source, who knows where it goes?

Josh: [00:33:51] What's your reason to build out Blockchain and all these ledger technologies if there's no financial reward? No one's doing this out of altruism, oh, I think this is the future, let me invest tens of millions of dollars in software and hardware.

Patrick: [00:34:06] Maybe the best simple explanation I've heard is that all other open protocols, TCP, IP, whatever, are ways of exchanging data, and this is now a protocol. That's a means of exchanging value. So there's this emerging field of like crypto economics, where basically all Satoshi did was drop an incentive structure into the world, and this whole thing has spun up around it because there's value in... but there's scarce value in-

Josh: [00:34:31] It's that there's counter party verification is the part to me that makes it sound the most like a fake thing, or the most like a real thing and not a fake thing, because if you're doing, let's say if you're selling 80 million dollars worth of bales of cotton, and you're paying a middleman in Chicago X dollars just because that's always the way it's been done, what if you can verify that your counterparty can make payment and it happens instantaneously and you do not require paperwork and people in between that transaction that are being compensated and having their participation skewed toward various incentives? What if all that can be removed? I think the banks saw that possibility and they like it.

Barry [00:35:11] Sure. Secure, verified.

Mike: [00:35:14] By the time this podcast airs, I doubt that Bitcoin will even still exist. But I went back and looked on Twitter, and the first time I mocked Bitcoin was 2013, which is nuts that it's been that it's been around that long. The Sacramento Kings tweeted that they were accepting Bitcoins, and I just like, what LOL, or something like that.

Josh: [00:35:32] What was the price of Bitcoin at that point?

Mike: [00:35:34] 4 cents. Patrick, how have you've been balls deep in this? How have you not, or why have you not bought Bitcoin?

Patrick: [00:35:43] The honest answer is that I... No, I haven't. The honest answer is that I wanted to not own any of this stuff as I went through this process, I don't want to be talking to book-

Josh: [00:35:53] Well, you're going to be late to the train.

Patrick: [00:35:55] I'm already very late, obviously. I was texting with a friend that owns a considerable amount of Bitcoin, and he told me the other day that my patience has proved very costly, which is definitely true. I'm not going to talk now about what my opinion is, I will, when this thing all comes out in a couple of weeks, but it's the most interesting rabbit hole I've been down in a long time. And that's not an opinion on it as an investment, I think it's a wildly speculative investment with a huge range of outcomes, and the discount rate should be enormous.

Josh: [00:36:22] So you think about the arguments against it, the number one argument is this is based on nothing.

Patrick: [00:36:28] I don't know if that's true. I think that's a terrible argument.

Josh: [00:36:32] Right. I agree.

Patrick: [00:36:34] Everything's built on a story.

Josh: [00:36:35] Of course The second argument is the IRS, the treasury department will render it less effective for what it's being used for. Once they get involved, the FDIC, et cetera, et cetera. That argument has some merit however, there've been a lot of new things that have come along that the government has decided wisely. So, let's see what happens before we, and look at e-commerce is a great example. Amazon is just this year doing state tax for every state, with applicable sales tax. They allowed this thing to go on for 20 years. So you could say, well, every time it's different. All right, I'll agree, but I just have a problem with this idea that, oh, wait until the government shows up, they'll shut it down, too big, too late.

Mike: [00:37:17] You know what's going to be funny. This would not surprise anybody sitting at this table or listening, that if we find that in five years this was a bubble, and we were just being so completely irrational and ridiculous. Simultaneously, there has to exist in the back of your mind, but this can't be a bubble for X, Y, and Z, because of whatever reasons. But then you're like, but that's exactly what you would say in a bubble.

Barry: [00:37:36] These tulips are fantastic.

Josh: [00:37:37] But the reason why people are willing to bet on the price going higher, rather than just betting this is going to become widespread, and Mark Andreessen explains this better than anyone, you can't have one or the other. The only way Bitcoin and blockchain as a technology truly become what the visionaries think it could is if the price goes up, because to do institutional scale transactions, it's got to be ... It's 70 billion now, it's the size of Netflix. It can't be a blockchain future if Bitcoin is only worth 70, and then you have the fact that the code is written so there'll only ever be 21 million coins. So the question is, if there's only going to be 21 million coins, then every coin has to be worth a lot more than it's worth. And that's bubble thinking, and I get it.

Barry: [00:38:25] And that's how we build a firm.

Mike: [00:38:26] Exactly.

Barry: [00:38:27] ... on Bitcoin, that was the underlying basis.

Patrick: [00:38:29] You guys are moving to blockchain, right?

Josh: [00:38:30] So that's exactly right.

Mike: [00:38:31] I was just going to say, we're veering a little bit outside of our-

Josh: [00:38:34] Right, that's a big pivot.

Patrick: [00:38:35] But I think this is such an important discussion to have as this is happening, because we always read history, we read the.com, everyone that's coming up and invest in reads the.com thing, but they haven't lived something like this. Who knows where it will go. All I can say is in real-time, I think all of those are actually weak arguments against it. The best argument against it is the actual underlying utility. So arguably-

Josh: [00:38:56] Do we even need this?

Patrick: [00:38:58] Is there any there, there? Is anyone actually using any of this stuff for anything real?

Josh: [00:39:01] Interchange fees from MasterCard and Visa and American Express, this could supplant those. I don't know.

Patrick: [00:39:07] Could supplant. I'm a value investor at heart, the situation you described earlier with Hewlett Packard, which is everyone despising an asset, that historically has proved to be a very good way of investing. This is literally the opposite. It's everything is based on potential and people overprice hope and potential.

Josh: [00:39:23] Always.

Patrick: [00:39:24] Recurringly. And that doesn't mean that this one is not really interesting, because-

Josh: [00:39:29] I'll tell when you know, here's when you know that it's real, the first company, and I'm sure there are 1,000 working on it right now, that your venture friends will probably be able to fill you in. The first company that figures out how to get my wife and her friends to transact in some ... it doesn't have to be called Bitcoin. My wife will never use the term blockchain, an app on her phone that she doesn't even know that it's blockchain, just a way ... I mean, you think about payments, Starbucks' payment system is more successful than Apple Pay. How could that possibly be? Because Starbucks figured out a way to make it seem like you're not exchanging money, you're just ordering and things are happening in the background. So, whoever figures it out first-

Barry: [00:40:13] But that's what you're doing, it's a credit card you're using-

Josh: [00:40:15] Correct, we know that. Correct, everyone understands that, but I'm saying, whoever makes Bitcoin accessible to people like my wife and her friends who are doing most of the spending in this economy, head of household with children who are doing all the shopping, whoever figures this out for them, forget about the nerds and people like us, that's how you'll know, holy cow, this thing is really happening. I don't know how far off that is.

Patrick: [00:40:41] Barry, this must intrigue you given your economics background, right? The problem with that is it's so incredibly volatile. So, until you could say like a coffee costs five Satoshis or whatever it is, there will be a reluctance to spend them if they're just appreciating in price like crazy.

Barry: [00:40:58] What economics background are you referring to?

Patrick: [00:41:03] You're deep and thoughtful.

Barry: [00:41:05] Oh, it's all self-taught, because everybody else was doing it wrong and being really annoying about it.

Josh: [00:41:10] You can't see my eyes rolling in the back of my head.

Barry: [00:41:12] I could see them. I could hear them rattling around. I don't have an economics background, but it's interesting because to me ... and I don't have a psychology background, but the psychology of the game theory behind what becomes a bubble and what isn't, what becomes a speculative technology and what isn't, what becomes a fascinating narrative, a story that people just can't ... Josh referenced how these people are really true believers.

Patrick: [00:41:41] The first block of transactions is literally called the Genesis block. There's so much rich mythology-

Barry: [00:41:46] How much more biblical can you get than that? Maybe this works out and we all look back and say, why didn't we just throw 10% of our net worth into it? Or maybe the thing crashes and burns, and people say how much money these idiots lose doing it? Obviously, the hindsight bias will-

Mike: [00:42:05] Let's say right now we don't know, I will admit, I have no idea whether this is a bubble or if it's real, how could you?

Josh: [00:42:13] None of us are saying this should be a sleeve of an asset allocation. We don't have gold in our portfolio, right? So we just don't believe in magical assets period. So, none of us are saying, oh, you should buy Bitcoin just in case it's the next thing. I don't think that's a responsible posture on the part of an investment manager.

Barry: [00:42:30] Because it doesn't work to anybody's plan. Now, let's step back and talk about what we feel.

Mike: [00:42:36] Well, if somebody says, "Hey, listen, I want to put 1% of my net worth, and if it goes away, I'm cool", then fine do it.

Barry: [00:42:40] But the problem is, let's say it goes up a 100X, is that worth it ... goes 100X and you talked someone out of it, what do you say to them? If they have their speculative portfolio to do whatever they want-

Josh: [00:42:54] You told them not to buy.

Barry: [00:42:55] ... but their real money, that's not. You don't speculate with your real money. That's what I said, if you want to have the mad account, the mad money account-

Josh: [00:43:01] I think that's a reasonable... but I think as the advisor, our job is to say, okay, you want to do this, we're not going to stand in your way, it's your money. However, we're going to point out this could go to zero, there were no cash flows. It's not really an asset, it's completely gambling on the price of a digital thing that could go away. Anyway you store it, there's the potential for it to be hacked. We have to run down that list. And then the second thing we have to say is, here's the best case scenario. This goes up 50X, 100X, you have X dollars and it's starting today. Here's the worst case scenario, and here's how both of those might affect the money that you're planning to spend 20 years from now. If we do that, I think as fiduciaries-

Mike: [00:43:46] We've done our job.

Patrick: [00:43:47] We've done our job.

Mike: [00:43:48] We show them a back test, and say, historically, it's negatively correlated.

Josh: [00:43:54] Oh, we're doing smart beta Bitcoin, by the way. We're another level.

Barry: [00:44:00] Every time someone comes to us with something ... I got an email from somebody about the Hindenburg omen a couple of weeks ago, which I've written about extensively, and ended up going down that rabbit hole again, reaching out to Jason Gilbert at Sentiment Trader. He sent me a whole long analysis of, well, it's not as bad as everybody says, and if you're only looking at short-term shallow correction, and blah, blah, blah. So, it's not something that totally dismissed, but you certainly, for a person who's got a 10, 20, 30 year time horizon, the Hindenburg omen is completely meaningless to them towards retirement. Let's go full circle, what Josh started with when people bring you questions and concerns, if you dismiss those questions three times in a row, you're pretty much fired. So, a big part of-

Josh: [00:44:49] Someone else is going to be answering those questions.

Barry: [00:44:50] Right. A big part of our job is coming up with the most intelligent way, not to say, hey, we're really fascinated by the underlying technology of blockchain, but rather, what does this mean ... You came to us, people come to us, help me manage my finances. What do I have to do to make sure I retire, and my kids are okay and et cetera, et cetera? Being able to answer all of these questions in a way that is intelligent, responsible, and satisfying to the clients-

Josh: [00:45:18] By the way, the smartest thing on my site about Bitcoin, just as an example is a blog post of a video of two NYU professors, Scott Galloway, and Aswath Damodaran, discussing cryptocurrency. These guys, I think, are more equipped to make solid points about it than I am, and that's what the essence of blogging is. Blogging is not, look how smart I am every day of the week. It's saying, you should watch this video of Damodaran, who's a valuation professor at NYU.

Barry: [00:45:53] The father of valuation.

Josh: [00:45:54] Thinking about how to value something like a Bitcoin. If we could provide that service on our blogs, I think we're delivering more value to a client as opposed to the guy who's working with someone who's like, listen, listen, I gave you your 8 ETFs, shut the fuck up, buy and hold, I'll talk to you on your birthday every year for 20 years, you'll be fine. I'm not saying that my results will be better because I'm watching Damodaran videos on Bitcoin, I just know the client experience. If you're just telling the client repeatedly, shut up, I got this, you're not going to be the client's advisor for a long period of time.

Patrick: [00:46:31] Can you talk how the relationship you guys have with clients, and just like a generic client has evolved.

Josh: [00:46:38] There are no generic clients, they're all special.

Patrick: [00:46:40] Good answer, but has that changed a lot? Because when we first talked on the podcast, Josh, I don't know, almost a year ago now. It almost felt like you gave me permission to okay, 90% of my portfolio should be buttoned up, purely systematic, do the right thing. But it's okay to do a little something extra. How much of that do you communicate to your clients? Do they do that? And has that relationship gotten better or evolved in a way that might be represented advice to other financial advisors?

Josh: [00:47:07] At a certain point in the future, there's a possibility that the financial advisor's role is going to be to help clients select venture capital investments. Why do I say that? Well, because companies don't go public anymore, or they go public at the point at which the insider's want out and you get a Snapchat or a Blue Apron, which is essentially a pump and dump exit. So far. Things could change.

Barry: [00:47:30] Just because the underwriters downgraded.

Josh: [00:47:32] So it might be true that the entirety of the small cap or the majority of the small cap premium no longer resides in the public market at some point five years from now, what is the advisor's job? The advisor's job is going to be to figure out in my view, well, I need to get my clients access to this asset class, is there a low cost, high humility way to do it where I'm saying to clients, this might not be the best performing way to have access to it, but we're not going to spend more money than everyone else, and we're not going to kid ourselves into thinking that we're able to predict the winners, we're going to get exposure to the asset class in an intelligent, thoughtful way. That might take us into things like private markets. I can't predict. So, I think to say today, nope, 8 ETFs. You're good. Maybe you're good, but maybe you're not.

Our job in a world that evolves at the speed at which this one does is to be very honest with people and say, this is what the job looks like now, it could change in the future, you have to be open-minded and skeptical at the same time.

Patrick: [00:48:37] Mike, what's the biggest rabbit hole other than, leaving cryptocurrency now, what's the biggest rabbit hole that you've been down lately? I feel like the evolution of-

Josh: [00:48:45] Please don't ask that question.

Patrick: [00:48:46] ... of what you're writing about is you go pretty deep down rabbit holes. What what's on your mind right now?

Mike: [00:48:51] My book.

Patrick: [00:48:53] Can you talk about what the book is?

Mike: [00:48:55] Every chapter, I feel like I'm starting over and this is really cool and exciting and it still is, but it's becoming a little bit less cool and a little bit less exciting a year into this project. The latest chapter that I just did was Benjamin Graham, which I've been sharing a lot of Twitter, information about him. I had to get 25 pages of notes into seven or eight pages that's readable and digestible for just the layman.

Patrick: [00:49:16] Can you describe the structure of book?

Mike: [00:49:19] Yes. Investing is really hard, whether you're a hedge fund manager-

Josh: [00:49:23] Speak for yourself.

Mike: [00:49:23] ... or a mutual fund manager, or you're managing your own brokerage account, and we're all going to make, not even mistakes, but just part of the process of finding yourself as an investor is falling down when you hit a hurdle. So what I wanted to do was take a look at the best investors of all time and look at their biggest mistakes and not to say that, hey, Buffet bought Dexter shoes. Don't do that. It's that Buffet did this, and guess what? You're going to do that. And Ben Graham did this, and guess what, you're going to do that. So just to show the other side of that, these great investors got the shit, kicked out of them too, and guess what, that's just part of the-

Josh: [00:49:55] And they recovered, I think is the-

Mike: [00:49:57] Right. That is the rabbit hole that I'm currently...

Josh: [00:50:00] Mike's book is going to be ridiculous because every investment book is about here's how to be a success, here's how to outperform. You never read a book about these are the best investors ever and look how badly they screwed things up. I think Mike is uniquely positioned to be the guy that writes it. His blog is the most humble, intelligent look at how to invest in how to think about investing. So, when it comes out, you can expect to hear us talking a lot about it. Of the work you've done so far, what was the most enjoyable to research? Which chapter?

Mike: [00:50:35] Mark Twain.

Patrick: [00:50:36] Is it silver?

Mike: [00:50:36] No, it was basically everything, but in particular, the typewriter that he just kept throwing, there was 180 pieces or whatever it was, 800 pieces and it just kept throwing good money after bad. He became basically the world's first stand-up comedian, and he literally traveled the world to make himself whole on these debts, so that was a lot of fun.

Patrick: [00:50:54] Can you describe what he did?

Mike: [00:50:55] He was a venture capital investor. He would just put money, he would just flunk shit against the wall, but there was this one project in particular, this type set, I think it was called. He put the equivalent of say 8 million bucks in it, of today's dollars or whatever it was, and he literally traveled around the world to Australia, to India, to England, to pay back his debts. As a matter of fact, a partner-

Josh: [00:51:17] He lost it, and he had to pay off people that he borrowed the money from?

Mike: [00:51:20] It was the panic. He published Ulysses Grant's book, and that was a huge windfall to him, but he gave such terrible terms that all the profits went to him and he got fleeced. So, when one of the panics hit, I don't know if it was the panic of 1873 or whatever it was, he went bust and had to travel the world. And a partner at Standard Oil came to him, one of his best friends had said, "Listen, I'll make you a whole." And his wife said, "Oh no, you won't. That's not the type of people we are. We're going to do this ourselves." And so, he traveled all around the world doing his spiel. He went to Hawaii, the islands at the time, and he made himself whole. That was a lot of fun.

The reason why I said it was exciting and fun, and now it's not so much just because I've read all of these books for pleasure, and now it's rereading them for notes and to synthesize it into another book. I will look back in this time fondly and be very proud, but right now, it's a bitch.

Sales v. Marketing

Patrick: I think a lot about, as I'm talking to venture investors more, I find myself doing that more and more. And maybe it's just because public markets seem so colonized. Even 10 years ago when I started ... the conversation we just had about Bitcoin would have been about some IPO. We would be as interested and passionate about whatever the business was that was coming out. And now it just seems everyone's made up their mind. They're either a Vanguard person, a DFA person, a smart beta person, just all the ETFs. It seems frankly boring. So, I've been talking to a lot of venture investors just because there's ... I don't know, there's less consensus there. And one of the most interesting things is the difference between sales and marketing, and what the balance should be in any business for those two functions for growth. Obviously, you're the people from whom I've learned marketing, so my guess is that your answer is going to be marketing wins over sales.

But without presuming that answer, as you're thinking about growing the Ritholtz business and brand, how do you think about the balance between marketing and sales as you grow the financial advisors-

Barry: [00:53:14] Marketing gets them in the door, sales gets them to open their wallet and give you the cash.

Mike: [00:53:20] Let me just take a second here, and this is not unfortunately unique to me. I heard this from someone, but I think that what we do and determining how did you hear about us and why are you a client and who are you here for, we are like when you eat a can of beans, it's impossible to identify which one made you fart. I think that we have built-

Josh: [00:53:38] This is the metaphor that you want-

Mike: [00:53:40] This is a metaphor.

Josh: [00:53:40] Are you sure?

Mike: [00:53:42] It's impossible to separate us as a unit, as a unit, we're way stronger than we would be individually.

Josh: [00:53:48] I have a very strong opinion on this subject. I know you're surprised by that, but I spent 10 years cold calling, which is hardcore sales. In most cases, I represented a firm that the person on the other end of the phone never heard of, they certainly never heard of me. And in a lot of cases, the particular investment I was pitching, they also never heard of, whether it was like a mid cap stock or a new closed-end fund coming out, or whatever we were selling that week. So, the process was a hundred percent sales, no marketing. In fact, anti-marketing because I never heard of your firm is not just a statement, it's actually something that detracts from the possibility of making the sale. You can't be like, you never heard of us because we're so good. So, maybe it was 150% sales and negative 50% marketing. I got pretty good at it, but I hated it because I just ... well, a million reasons, we won't go there.

But I think what we're doing now is almost all marketing, but it's the type of marketing that's almost unintentional, because if no one was reading our blogs, we would probably still be reading and writing about the same subjects just for each other. And as proof of that, there's actually a secret Slack channel, you know about it, most people don't know about it, we're having these conversations for no reason. Just, hey, what'd you think of this? What'd you think of that? I think it's incidental marketing, but it's the type of stuff that we're already interested in any way. And then at the end of the day, if you could have the client come to you, not because you call them or send them a postcard or invited them to a steak dinner or a golf outing. But if you could have somebody come and say, "Hey guys, I've been doing this as Mike mentioned, I've been self-directed for 15 years, I've always in the back of my mind said at some point I want to hire someone and not have to worry about it.

You are the guys I'm not interviewing anyone else. I've been reading everything that you guys say, I believe in you, you sound serious, you sound passionate. I think if you guys could show me how this works, is a good chance that you are the people to take me through the next 25 years so I can enjoy my retirement." That's an awesome email or phone call to get, we live for that. To Mike's point, I don't know which blog post put someone over the edge or which interview Barry did on Bloomberg radio or which TV appearance I did or which book of ours they came across in a waiting room somewhere, I don't know the answer, it doesn't matter. It's the point that we've built this reputation and built this aura of, hey, these guys are really serious about investing and they really care about doing a good job for people. And so if we can continue to do that, but do it even bigger, I can't imagine why that wouldn't be an enjoyable way for us to spend the next couple of decades of our lives in this career that we've chosen.

Patrick: [00:56:42] You guys are awesome at directing attention and the flow of traffic to the most interesting people and ideas, at any given time, you all do it in your own different way, whether it's podcasts or blog posts or your weekly ... I think about your weekly-

Josh: [00:56:56] Goods.

Patrick: [00:56:56] Yeah. These are The Goods, which is awesome with a picture of you and your daughter.

Josh: [00:57:00] Son, son.

Patrick: [00:57:01] Sorry. I always screw that up.

Josh: [00:57:04] He's hung with his father.

Patrick: [00:57:07] Instead of just asking us something great that you've discovered, we'll do it a fun, different way, a little more skin in the game, just a hypothetical game, and we'll close here. So, you each get one draft pick in the spirit of this marketing idea. If you could draft unilaterally anyone in the world, out there onto the Ritholtz team, they start tomorrow-

Josh: [00:57:26] Ezekiel Elliot.

Patrick: [00:57:28] Good draft pick.

Mike: [00:57:29] Yeah. I don't know. I've made this a cliche and out of this, but Morgan, for me.

Patrick: [00:57:33] Yeah. That's an obvious one.

Barry: [00:57:34] Oh, you love Morgan.

Josh: [00:57:37] I would also pick Morgan, but since you already did ... Do Barry first.

Barry: [00:57:41] Well, now that Bill McNabb is free, we're going to bring them onto our team. That's a really interesting question. I would have to give that a little thought. My process assembling the reads each day is to open 50 tabs in the morning and 40 tabs in the afternoon, and pretty much plow through them. And I end up seeing a lot of the people out there early, and that's how I found Josh, and that's calculated risk and Morgan, and there were some classic people, Jason Zweig, is a rock star at the Wall Street Journal for forever. We've definitely discovered 10 or15, people who are now for sure...

Mike: [00:58:24] I want to amend my answer. Morgan's out. We don't need any more firepower, we need an operations guy, so find me one of those, and we're good.

Josh: [00:58:34] You know what, I want to agree with Mike. I need a chief of staff/COO-

Mike: [00:58:43] Mr. Priebus.

Josh: [00:58:44] ... who can free up more of our time to do more of what we're doing on the front end, an do we could know that we've got a flawless, flawless engine behind us. I feel like we're doing a good job, but I think to really go to the next level, somebody with operational experience comes in, whips us into shape, almost like a general Kelly type of figure just keeps Barry from tweeting. We almost need something like that.

Mike: [00:59:14] Take the phone out of the old man's hands.

Josh: [00:59:17] We need General Kelly, that's my answer.

Barry: [00:59:21] We need Jim Orazio. Jim Orazio, at a firm I worked at that was running $7 billion, he was literally the guy that made the trains run on time. They were a much bigger firm, they had 1,000 employees, but we're now getting to the point where, Josh is right, we need a person-

Josh: [00:59:36] We're just under 1,000 employees at 14.

Barry: [00:59:38] ...for our team, we're just under 1,000, but we're coming up on 7 billion, so we're not that far away. We're almost 10% of 7 billion-

Josh: [00:59:47] Round up.

Barry: [00:59:49] Right, if you round up.

Patrick: [00:59:50] You're going to get 500 job applicants.

Josh: [00:59:53] I hope so. Well, if they're serious applicants, we're getting to the point where we need to systematize even more so the things that are nuts and bolts, so that we can do more of the stuff that we're passionate about.

Mike: [01:00:07] Why is it getting really dark out? Is there an eclipse coming?

Josh: [01:00:11] Right. It's happening. It's not an eclipse, it's a Golan.

Barry: [01:00:16] When we launched the firm, we really, from day one said, we could have done this on a skeletal staff, and we didn't need a head of research and we didn't need head of corporate retirement plans.

Josh: [01:00:30] Mike was superfluous.

Barry: [01:00:30] ... and we really didn't need a head of teacher plans and an ESG portfolio specialist, and go down the list. When we launched, to Josh's point about operations, we said, we're not doing this for a couple of million dollars, we're doing this because we want to scale up and move the needle in how the world of asset management operates. When we were doing the prep before we hit the eject button, we spent a year in change looking at other firms. The plan was, let's look at what people are doing right, and we ended up finding, oh, here's what people are doing wrong, let's not do that.

Josh: [01:01:06] We are a ton of Chinese food during that year.

Mike: [01:01:09] The kindest thing that Barry has ever done for me.

Barry: [01:01:13] So, the takeaway in terms of what we need most, I think you could say we have the marketing side down, and it's not because we're marketing geniuses, and we said, let's do this, it was pretty clear when we were launching the thing that everybody had a big problem with came very natural to all of us. But making sure the trains run on time is really ... in fact, we spent the first year setting up the firm, you have to do accounting and legal and compliance and website, and you go through these stuff and it's like, what about what we wanted?

Josh: [01:01:47] We bootstrapped. We don't have a private equity firm that controls 70% of our stock. We own the firm and we're trying to keep it. We're not looking for somebody to be like, oh, you guys are in RIA, you're like a bond, we're going to buy a controlling stake, and we're going to tell you what your budget is for this and for that.

Barry: [01:02:08] And we've had those offers pretty early on.

Mike: [01:02:11] Plus we'd get a junk rating.

Josh: [01:02:12] Right. We're nobody's bond, we're an equity and we're a partner's equity, and we want to bring on people who want to share in the growth of the firm, not turn us into a bond. By the way, when you read about these RIAs, it's like, oh, $4 billion, whatever, acquires nine firms this month. Honestly, I want to be the opposite of that because there's no culture there, it's a financially engineered roll-up that has the profits accruing to someone else as an interest payment. We want to build something that's owned by the employees and that the clients feel like stakeholders, not just clients. And that involves younger generations where a 45-year-old client could say, okay, Barry's older than me, but here are five guys or gals working there who are younger than me, and I could see how this is going to take me through my retirement.

Barry: [01:03:06] It's not a coincidence that we're 55, 45, Chris is 37, Mike is 32. You're 40, right?

Josh: [01:03:13] Don't worry about what I am.

Barry: [01:03:14] That is not a random accident, because-

Mike: [01:03:18] Fibonacci numbers.

Barry: [01:03:19] That's right. That was done on purpose. We only hire based on the Fibonacci progression.

Patrick: [01:03:25] This is actually something I'm going to start doing more because there's just so many talented people out there, is highlighting literal job opportunities. So, this will be like the first one, but it's a damn good one.

Josh: [01:03:33] Attention operations nerds. Come, talk to us.

Patrick: [01:03:38] Last question, I've already asked Josh, I'll just ask Mike and Barry, Mike already hinted at it, which is the kindest thing that anyone's ever done for you. We'll start with Mike.

Mike: [01:03:45] Probably when I first met Josh, it was 10:30 or 11:00 at night. I was coming home from ... The Knicks were getting blown out in the playoffs, and I had just found out that my last potential job opportunity fell through the floor. And so, I was just off, and as we had blown up by 30, thank God, thank you, LeBron. And so, I'd left early, and I would have never left out of the ordinarily-

Barry: [01:04:05] Left a LeBron game?

Mike: [01:04:06] I was just in a shitty mood, things were not going well for me, and I met Josh at the train station. I basically harassed him, and he spoke to me for like 10 to 15 minutes on the platform. That was probably the nicest thing. I think he was buzzed, which is why he was so nice, but it was-

Josh: [01:04:19] Well, what time train was it? 11 o'clock?

Mike: [01:04:20] It was late.

Josh: [01:04:21] What do you think, I was sober?

Mike: [01:04:22] Yeah. It was late. That was pretty nice.

Josh: [01:04:24] Well, would I be doing in the city so late? I'm going to pass that along. I'm going to say meeting Barry in 2010 and having Barry within five seconds, be like, "Listen, let's do something." He knew who I was prior to us meeting from my blogs. I don't think it was that spontaneous, but just having the person who I looked up to the most, and patterned my blogging after and said, man, I wish I was doing what he's doing, telling all these truths and still being taken seriously in the markets. And so, having Barry say, come on over, let's figure something out together, was probably the most life-changing thing for me, and probably the kindest thing I can think of.

Barry: [01:05:05] And that was a leap of faith on his part, because I was working in a firm that was a hybrid BDRIA. The partners there were running in circles, didn't really know what they were doing. When Josh said to me, "We're getting all these inquiries. Why should we turn these over for the firm? Let handle these ourselves." It was clear that my skill set and his skill set really overlapped in a very complimentary-

Mike: [01:05:32] So that's the kindest thing?

Barry: [01:05:32] No, no, no. I like to annotate what he says. Whenever Josh... I'm his hype man in the background.

Josh: [01:05:41] What's the kindest thing that anyone's ever done to you?

Mike: [01:05:44] Hold on, I got ... Barry, what's the kindest thing anyone's done for you?

Patrick: [01:05:48] Take two.

Barry: [01:05:49] I've had a couple of people just be tremendously generous with their time and their advice over the years. There's a lot of different people to name, so I won't name any one person instead of- No, no, there's people who basically ... I've had a really ass backwards career path. I didn't go to business school, I went to law school. I didn't start out in finance, I started out doing criminal appeals, hating it. One person, Marty Avaback and Bill Baker were running the New York office of the predecessor firm to E-Trade. They offered me a job. I'm still friendly with Marty, he's given me fantastic advice over the years.

Josh: [01:06:35] All right. You didn't win an Oscar. Wrap it up.

Barry: [01:06:38] There are other people-

Josh: [01:06:40] You need orchestra music to start slowly-

Barry: [01:06:43] Don't play me off yet.

Josh: [01:06:44] He will literally never stop, just so you know.

Barry: [01:06:47] It's a really fascinating question though, and-

Mike: [01:06:50] Let's take this offline.

Barry: [01:06:52] Listen, the difference is Mike has a decade of life experience to draw from. I have a century I have to sift through, it's a much bigger database.

Josh: [01:07:01] Join us for part two of this podcast, of this answer. Barry's had people do kind things for him, I think to summarize.

Barry: [01:07:08] Over the years.

Josh: [01:07:10] Over the years.

Barry: [01:07:10] And just really generous with their time and their ... when someone stops their busy day to be generous with their wisdom and their time, it's noticed, and it's appreciated.

Josh: [01:07:21] I hear your music playing through my head.

Patrick: [01:07:23] I really appreciate this guys. This is a hell of a way to celebrate one year of doing this. It really was learning from you guys, watching what you do, that I decided to start that, plus the publisher telling me that if I was going to write a book and they were going to pay me to do it, that I needed a platform, I didn't even know what a platform was when they said that. It was really watching you guys that inspired me to do this, as I think has been the case with a lot of guys and girls out there. So, thank you for that-

Josh: [01:07:48] By the way, you're killing it. Keep doing the podcasts, we listen to every episode.

Patrick: [01:07:51] Awesome.

Josh: [01:07:52] Thanks, Patrick.

Patrick: [01:07:52] Thank you.

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