Bogleheads® on Investing Podcast 075: Jason Zweig talks about his life, career, books
00:00:00.000 | [MUSIC PLAYING]
00:00:10.280 | Welcome, everyone, to the 75th edition
00:00:12.640 | of Bogleheads on Investing.
00:00:15.120 | Today, our special guest is Jason Zweig.
00:00:17.920 | Jason has been a personal finance columnist at The Wall
00:00:20.320 | Street Journal since 2008.
00:00:21.960 | Prior to that, he was a senior writer for Money magazine
00:00:24.600 | and a guest columnist for Time magazine and CNN.
00:00:27.600 | And he was the mutual fund editor at Forbes.
00:00:30.280 | He's also the author of several books, of which
00:00:32.200 | we will be discussing today.
00:00:33.560 | Hi, everyone.
00:00:43.520 | My name is Rick Ferry, and I am the host
00:00:45.640 | of Bogleheads on Investing.
00:00:47.680 | This episode, as with all episodes,
00:00:50.240 | is brought to you by the John C. Bogle Center
00:00:52.760 | for Financial Literacy, a nonprofit organization that
00:00:56.360 | is building a world of well-informed, capable,
00:00:59.240 | and empowered investors.
00:01:00.920 | Visit the Bogle Center at boglecenter.net,
00:01:04.440 | where you will find a treasure trove of information,
00:01:07.240 | including transcripts of these podcasts.
00:01:10.040 | Today, our special guest is Jason Zweig.
00:01:12.440 | Jason became a personal finance columnist for The Wall Street
00:01:15.240 | Journal in 2008.
00:01:16.920 | Before joining the journal, Jason
00:01:18.680 | was a senior editor for Money magazine
00:01:20.400 | and a guest columnist for Time magazine and CNN.
00:01:23.320 | And in the late 1980s and early 1990s,
00:01:25.840 | Jason was a mutual fund editor at Forbes.
00:01:28.320 | He was also a researcher, reporter
00:01:30.040 | for the economy and business section of Time,
00:01:32.760 | and an editorial assistant at African Report,
00:01:35.480 | a bi-monthly journal.
00:01:37.480 | He's the author of several books--
00:01:39.200 | Your Money and Your Brain, The Devil's Financial Dictionary,
00:01:42.760 | The Little Book of Safe Money, and two editions
00:01:45.600 | of Benjamin Graham's classic, The Intelligent Investor,
00:01:49.040 | which we will be discussing on this podcast.
00:01:51.800 | I first approached Jason to be a guest in 2019,
00:01:56.040 | and it has taken five years for him
00:01:58.920 | to get approval from his employer.
00:02:01.560 | But here we are.
00:02:02.720 | So with no further ado, let me welcome Jason Zweig.
00:02:06.880 | Welcome to Bogle Heads on Investing, Jason.
00:02:09.880 | It's great to be with you, Rick.
00:02:11.320 | And thank you for your extreme patience.
00:02:13.880 | This took years.
00:02:15.080 | And I'm delighted to be on the air with you.
00:02:18.480 | I'm sure it will be worth the wait.
00:02:20.120 | Well, we'll find out, won't we?
00:02:22.720 | You've been a friend of the Bogle Heads for a long, long time.
00:02:25.320 | And we'll get to that in a few minutes.
00:02:27.680 | But first, I'm absolutely fascinated
00:02:30.800 | by the stories you tell about working with your parents who
00:02:36.840 | were antique and art dealers.
00:02:40.560 | My parents had been editors and publishers
00:02:44.160 | of weekly newspapers, first in Southern Ohio,
00:02:47.840 | along the Ohio River, and then in Connecticut,
00:02:51.360 | along the Connecticut River.
00:02:53.200 | And it got to be a grind.
00:02:56.520 | And they got a little tired of working seven days a week.
00:02:59.560 | And they had always been fascinated by history.
00:03:02.800 | And they decided they would become dealers primarily
00:03:08.200 | in 18th century American furniture, also pottery
00:03:12.400 | and porcelain, paintings, and really anything
00:03:16.560 | that might have been in a colonial or federal home
00:03:20.280 | in New England or the Middle Atlantic states
00:03:24.280 | at any time up until maybe Andrew Jackson was president.
00:03:29.880 | And my parents were very well-educated, cultured,
00:03:34.800 | sophisticated people.
00:03:36.480 | But my dad had grown up on a farm in northern New York
00:03:39.760 | state.
00:03:40.280 | And when they sold the newspaper in, I think it was 1965,
00:03:45.600 | they decided that they would go back to the land.
00:03:48.680 | And my parents bought a 120-acre farm
00:03:53.280 | in one of the most remote areas in the Northeast.
00:03:56.120 | I grew up 18 miles from the nearest stoplight.
00:04:00.280 | And they opened an art and antiques business.
00:04:04.200 | And I helped them.
00:04:05.840 | I worked in the business with them
00:04:08.160 | all the way through high school and on my college vacations.
00:04:12.240 | And that meant lots of expeditions
00:04:15.560 | all across the Northeast looking for antiques at auctions
00:04:20.280 | and shows and flea markets and people's backyards
00:04:23.720 | and knocking on doors.
00:04:26.160 | And it was a fascinating way to grow up.
00:04:30.040 | It sure was.
00:04:31.000 | We have something in common from our youth
00:04:33.000 | that you probably don't know about.
00:04:34.760 | Oddly enough, the way I put myself through college
00:04:38.120 | was doing as an antique dealer in New England.
00:04:40.920 | I had no idea, Rick.
00:04:42.400 | Yeah.
00:04:43.400 | I went to auctions and flea markets and yard sales.
00:04:47.120 | And not at the level, of course, that you and your parents.
00:04:49.800 | But I would pick up clocks and restore them and art class.
00:04:55.160 | Oh, my goodness.
00:04:56.160 | And I would resell it at an antiques flea
00:04:59.120 | market in Rhode Island.
00:05:00.640 | Wow, awesome.
00:05:02.000 | I did that for many years.
00:05:04.280 | Wow.
00:05:04.840 | And so when you started telling these stories,
00:05:07.440 | I just was fascinated.
00:05:09.400 | Like, wow, that was an interesting coincidence.
00:05:11.400 | But I want to hear some of your real big finds.
00:05:13.680 | Tell me about the church painting.
00:05:17.800 | Yeah, so when I was in high school,
00:05:20.160 | guessing it was in the summer, my parents and I
00:05:23.280 | went to an estate sale at an old house
00:05:27.440 | somewhere near Schoharie, New York,
00:05:30.000 | which is southwest of Albany.
00:05:33.080 | And it was a big house.
00:05:35.880 | And it was full of junk.
00:05:40.400 | I mean, in the entire house, there
00:05:42.200 | wasn't one thing worth buying.
00:05:45.040 | And my dad was a very smart guy.
00:05:48.840 | But he had one cognitive flaw, which
00:05:52.640 | is he really suffered from sunk cost bias.
00:05:55.960 | And he would not quit.
00:05:58.680 | Because his principle was, if we make a buying trip,
00:06:02.480 | we're going to find something to buy.
00:06:04.640 | Yeah, that's going to be dangerous in that business.
00:06:07.480 | Exactly.
00:06:08.200 | And my parents just kept going back and forth, up and down
00:06:12.400 | the stairs from room to room.
00:06:14.720 | And I was like, there is nothing in this house.
00:06:17.960 | And I'm not going to keep looking.
00:06:20.000 | And I sat down on a couch in the living room of this house
00:06:24.800 | and leaned against the fireplace with this big painting.
00:06:31.280 | And it was a nasty looking thing.
00:06:34.480 | The painting was so dirty that you couldn't even
00:06:38.800 | tell what it was a painting of.
00:06:41.920 | And I was bored.
00:06:43.320 | And I knew my parents weren't going to finish any time soon.
00:06:46.280 | So I had nothing to do but sort of stare at the painting.
00:06:51.120 | Then as I was looking at it, something
00:06:52.880 | occurred to me, which is it was in a big, fancy, gilded frame.
00:06:59.560 | Gilded, meaning gold.
00:07:00.800 | They were very expensive back then.
00:07:02.960 | Exactly.
00:07:03.680 | And this had obviously come down from the attic,
00:07:06.760 | obviously been in the attic of this house
00:07:09.600 | for the better part of a century, which
00:07:12.040 | is why it was so dirty.
00:07:13.240 | There were wasps' nests in the frame.
00:07:16.320 | And the whole thing was just a disgusting mess.
00:07:19.480 | But as I sat there, I said, who would put a bad painting
00:07:24.320 | in a gilded frame?
00:07:25.840 | And I got up off the couch.
00:07:27.640 | And I went over.
00:07:28.520 | And I looked at it.
00:07:30.080 | And it was a cloudy day.
00:07:31.680 | And the shades were drawn.
00:07:34.640 | And then I noticed the sun had come out.
00:07:36.520 | So I went back to the window.
00:07:38.400 | I pulled the shades back.
00:07:40.720 | And the clouds sort of parted, coincidentally,
00:07:44.680 | at that exact moment.
00:07:46.440 | And a shaft of sunlight hit the canvas.
00:07:49.480 | And I was like, wait a minute.
00:07:51.840 | This is not a bad painting.
00:07:53.720 | This is a good painting.
00:07:55.840 | And I licked my thumb.
00:07:58.400 | And I went where experience told me a good artist might
00:08:03.320 | sign a painting, ran my wet thumb across.
00:08:07.120 | And there I saw F.E. Church, 1848.
00:08:12.960 | And I jumped up.
00:08:15.400 | And I ran up the steps.
00:08:18.040 | And I grabbed my parents.
00:08:19.760 | And I whispered to them, there's a church downstairs.
00:08:23.280 | And they said, what?
00:08:25.440 | And I said, there's a church downstairs.
00:08:29.200 | And suddenly, their eyes opened.
00:08:31.760 | And I dragged them down the stairs.
00:08:35.080 | And we took it to the window and looked at it.
00:08:38.840 | And suddenly, you could really see the detail.
00:08:41.440 | And we just put it right back where it was.
00:08:43.680 | The auction was the next day.
00:08:45.240 | And we bought it.
00:08:46.160 | And we were very excited to get it.
00:08:48.640 | I think we paid.
00:08:49.720 | It was a couple thousand, because there
00:08:51.240 | was a guy who would follow my parents around to these auctions
00:08:55.040 | and bid them up.
00:08:56.400 | And we took it home.
00:08:58.000 | We cleaned it up.
00:09:00.080 | A dealer from Washington DC came, saw it, and bought it
00:09:05.360 | from us on the spot.
00:09:06.640 | And he turned around.
00:09:07.680 | And he sold it to the White House.
00:09:09.720 | And it ended up in the Oval Office.
00:09:12.280 | It's an amazing story.
00:09:14.040 | Yeah.
00:09:14.680 | I want to do one more of these.
00:09:16.200 | You also became a expert on old books and manuscripts
00:09:23.440 | from that period.
00:09:24.400 | And you had created an indexing system for authors
00:09:29.160 | in first edition so that you could
00:09:30.720 | rummage through hundreds of books
00:09:32.920 | and find the one book in a pile of books
00:09:35.600 | that was worth something.
00:09:36.760 | And you had the fortunate experience
00:09:39.640 | of finding a first edition of a Mark Twain book.
00:09:43.080 | Yeah.
00:09:44.040 | Yeah, so I want to tell this story, Rick,
00:09:47.000 | in a way that doesn't make it sound as if I'm bragging.
00:09:50.240 | Because believe me, I wish I could do this.
00:09:52.080 | No, you could go ahead and brag.
00:09:53.440 | OK.
00:09:54.680 | Back then, I truly did have a photographic memory.
00:09:59.120 | I could open a book.
00:10:00.080 | And weeks later, I could tell you
00:10:02.280 | whether I read something on a left-hand or a right-hand page
00:10:05.640 | and almost recapitulate what it was word for word.
00:10:10.600 | And what I did is I took the Columbia Encyclopedia, which
00:10:14.480 | we had at home, and I made index cards
00:10:18.120 | of every major American author, I guess, up until the 1920s,
00:10:23.880 | probably stopped with Hemingway and Faulkner,
00:10:26.920 | and the dates when their books were first published.
00:10:30.560 | And I put them all on index cards.
00:10:32.680 | And from time to time, I would flip through them
00:10:35.320 | to refresh my memory.
00:10:37.080 | And one day, we were at an auction
00:10:40.160 | in Glens Falls, New York.
00:10:42.520 | And there was a big box of old books, again, super dusty.
00:10:47.840 | And most of them were nothing.
00:10:50.240 | But one of them, I could immediately tell from the date,
00:10:54.120 | was a first edition of Mark Twain's Connecticut Yankee
00:10:57.720 | and King Arthur's Court.
00:10:59.280 | And it wasn't just a first edition,
00:11:02.440 | but it was a presentation copy.
00:11:05.120 | It was the copy that the illustrator, Dan Beard,
00:11:09.400 | had given to a handful of his friends
00:11:13.080 | that Christmas of the year the book came out.
00:11:16.280 | And it had a Christmas card in it from Dan Beard.
00:11:20.440 | And Beard was not only a great illustrator,
00:11:23.320 | but he was also the founder of the American Boy Scouts.
00:11:26.760 | And the book was spectacular.
00:11:28.640 | It was bound in what's called Morocco leather.
00:11:32.360 | It had these Florentine marbled end pages.
00:11:37.520 | If you know how beautiful marbled paper can
00:11:40.120 | be, red and blue and brown and green.
00:11:44.040 | And it had gilded edges to the pages.
00:11:47.720 | I think we paid $20 for the entire box of books.
00:11:51.200 | And we gave all the rest of the books away.
00:11:55.280 | But that one was well worth keeping.
00:11:57.760 | Fascinating.
00:11:58.600 | I never had anything like that.
00:12:00.320 | I had a lot of little wins of picking up
00:12:02.360 | original Bristol glass and cranberry glass
00:12:05.280 | from the 1800s, where people didn't know what it was
00:12:07.960 | and they'd be selling it for $1.
00:12:09.560 | Awesome.
00:12:10.440 | There is something that I want to talk about
00:12:12.440 | that ties this into investing.
00:12:14.280 | I noticed something in the antique business
00:12:16.080 | is that there are trends.
00:12:17.360 | There's momentum on certain things that can just end.
00:12:22.080 | Exactly.
00:12:23.040 | Take, for example, piano stools.
00:12:26.240 | They were just so hot back in the 1970s
00:12:30.120 | that if you could get your hands on a piano
00:12:31.960 | stool that had the swivel kind and brass cloth feet,
00:12:38.920 | it was like gold.
00:12:40.360 | And people were just buying them just
00:12:42.720 | because it was a piano stool.
00:12:45.360 | Back then, if you could buy one for $20,
00:12:47.440 | you could sell it for $70, $80, or $100.
00:12:49.680 | Well, it turns out, here we are 50 years later,
00:12:52.640 | they're selling for $60, $70.
00:12:56.440 | I mean, it just stopped.
00:12:58.520 | Yep, another one like that, lightning rod balls.
00:13:02.480 | Do you remember this?
00:13:03.600 | Yep, I do.
00:13:05.640 | For our listeners, old barns throughout the Northeast
00:13:10.320 | had a glass ball through which the lightning rods ran.
00:13:17.680 | So at the top of the roof of a barn, you would look up,
00:13:21.400 | and you would typically see, I want
00:13:23.520 | to say, like three lightning rods.
00:13:26.080 | Yeah, I think it was like small, medium, large, or something.
00:13:29.280 | Yes, exactly.
00:13:30.480 | And each lightning rod would have a glass ball on it
00:13:35.680 | that was typically sort of blue-green.
00:13:38.280 | And they were all made in the 19th century,
00:13:41.080 | and they were somewhat rare.
00:13:44.040 | And these things were selling for hundreds of dollars
00:13:47.200 | a piece.
00:13:48.400 | And today, I don't know what they're worth, a nickel maybe?
00:13:52.280 | Right.
00:13:53.760 | Yeah, and then insulators for the early electricity
00:13:57.240 | and telegraph cables.
00:13:58.360 | Yes, exactly.
00:13:59.720 | People had to have these whenever they saw them,
00:14:01.640 | even though they didn't really know much about antiques.
00:14:03.520 | And it was like, they knew that they needed to buy this.
00:14:06.400 | Exactly.
00:14:06.920 | And I remember Carnival Glass had its day as well.
00:14:09.600 | Yeah, yeah.
00:14:10.160 | They just bid these things up.
00:14:11.480 | And you're looking at them going, this is ridiculous.
00:14:13.080 | I don't know why these people are paying this kind of money.
00:14:15.720 | I don't think they really know what they're doing.
00:14:17.640 | Right.
00:14:18.120 | But it happened to be the trend of the day.
00:14:19.920 | And I see that a lot in the financial markets as well.
00:14:22.680 | Totally, totally.
00:14:24.600 | You know, when meme stocks came along in 2020 and 2021,
00:14:30.040 | I was like, wow, these are like lightning rod balls.
00:14:34.240 | That's right.
00:14:35.520 | You remember the coin frenzy that occurred?
00:14:37.720 | I think it was when the price of silver
00:14:39.880 | went up in the late 1970s.
00:14:42.120 | And everybody was buying silver coins.
00:14:44.560 | And the price of coins were going skyrocketing.
00:14:48.480 | And then it died.
00:14:50.200 | And that was it.
00:14:50.840 | Exactly.
00:14:51.600 | And I don't think it's ever come back.
00:14:53.400 | Exactly.
00:14:54.120 | Well, thank you for talking about that period.
00:14:56.560 | Because to me, and trying to figure out who Jason Zweig is
00:15:01.120 | and why he writes the way he writes today
00:15:04.160 | and the things you talk about today,
00:15:05.880 | I always believe that your background, doing what you did,
00:15:11.160 | and the idea of value versus price,
00:15:14.720 | something you wrote in the book, you know,
00:15:17.000 | what most people think is treasure is, in fact, trash.
00:15:19.800 | And what a lot of people think is trash is, in fact, treasure.
00:15:23.920 | That influenced you to become the person and the journalist
00:15:28.800 | that you are today.
00:15:31.320 | Yeah, and I think that is true, Rick.
00:15:34.320 | I know I was blessed in having a very unusual childhood.
00:15:39.040 | One of my dad's principles was that often what people think
00:15:44.080 | is treasure is just trash.
00:15:46.120 | And what they think is trash is treasure.
00:15:49.480 | And I couldn't put it better.
00:15:51.800 | It's really been kind of a guiding principle of mine
00:15:55.520 | throughout my writing career.
00:15:57.760 | Because you see it in the financial markets
00:16:01.160 | as well as in something like art and antiques.
00:16:05.560 | It's all around us.
00:16:08.240 | You currently work at The Wall Street Journal,
00:16:10.280 | but you didn't start there.
00:16:12.040 | Tell us about the journey you took to get there.
00:16:15.280 | Even though I loved working in my parents' business,
00:16:19.040 | what I always wanted to be was a writer.
00:16:21.600 | I was a farm boy in a cultured house.
00:16:25.520 | And I was a close observer of nature around me.
00:16:30.440 | And I always wanted to be a writer.
00:16:33.440 | And when I got out of college, my novels weren't selling.
00:16:37.880 | They weren't even writing themselves.
00:16:41.080 | So I gave up on fiction.
00:16:43.040 | Oh, I didn't know you had fiction books.
00:16:44.920 | Yeah, I tried.
00:16:45.880 | How many did you write?
00:16:47.240 | Well, I didn't finish any.
00:16:49.080 | Oh, I see, I see.
00:16:50.000 | But I tried.
00:16:51.640 | I perpetrated a bunch of short stories
00:16:54.840 | and got probably a half dozen unfinished novels
00:16:58.800 | from my misspent youth.
00:17:00.640 | Oh, interesting.
00:17:02.360 | I didn't realize it at the time.
00:17:04.440 | But I was a very avid writer.
00:17:08.120 | But I had no life experience.
00:17:10.880 | So I couldn't really write anything
00:17:13.520 | that was any good because I didn't know anything.
00:17:17.120 | And if you haven't lived enough, you certainly
00:17:19.840 | can't write anything, any meaningful fiction, anyway.
00:17:23.800 | So I just kind of stumbled into journalism.
00:17:27.120 | I knew I wanted to write.
00:17:29.760 | I didn't really want to be a journalist because my parents
00:17:33.000 | had done that.
00:17:34.600 | And I wanted to try and be something different.
00:17:38.120 | But it just kind of happened.
00:17:40.480 | I sort of fell into it.
00:17:42.000 | And I spent a couple of years doing
00:17:44.920 | different kinds of writing for a couple of different magazines.
00:17:49.160 | And then I got picked up at Forbes, which then was
00:17:53.880 | certainly one of the three or four best business
00:17:56.960 | publications in the country.
00:17:58.880 | They hired me to be a fact checker.
00:18:00.720 | And even though fact checking sounds very mechanical and not
00:18:06.200 | very creative, you also, in your spare time,
00:18:09.640 | were expected to generate story ideas of your own.
00:18:13.840 | And I really quickly found the business world fascinating.
00:18:20.480 | There were just a million stories then
00:18:23.800 | because this was the late '80s.
00:18:25.760 | And the financial markets were booming.
00:18:27.800 | And there was all kinds of crazy stuff
00:18:30.200 | going on and great characters.
00:18:32.960 | I found out that there were a bunch of IPOs for companies
00:18:37.200 | in the rabbit meat industry.
00:18:39.480 | And the selling line that the brokers would use
00:18:43.520 | was it's the new chicken.
00:18:45.280 | I remember that.
00:18:47.640 | I do.
00:18:48.720 | Yeah.
00:18:49.200 | It's better for you.
00:18:50.000 | It's more healthy.
00:18:50.720 | Yeah, exactly.
00:18:51.880 | And it tastes better.
00:18:53.600 | And it's better for the environment.
00:18:55.920 | And there were at least a half dozen rabbit meat companies
00:18:59.480 | that just, I guess I could say, hopped up out of nowhere.
00:19:04.280 | And the next thing I knew, I was on a plane to Arkansas.
00:19:08.120 | And then I spent a day in a rabbit meat packing plant
00:19:13.320 | watching these people, you know--
00:19:15.960 | Slaughter rabbits.
00:19:16.800 | I mean, you could say it.
00:19:18.920 | Yeah, exactly.
00:19:19.880 | And at the risk of offending many of our listeners,
00:19:23.800 | I will say, yes, I did witness that.
00:19:26.880 | And I just had so much fun.
00:19:28.920 | I was like, this is what I want to do the rest of my life.
00:19:31.440 | Not slaughter rabbits, but write.
00:19:33.680 | But write about the crazy world of business and finance.
00:19:38.000 | And then you ended up moving to Money magazine after that,
00:19:41.920 | where one of the articles that you wrote back in 2001
00:19:47.680 | was "Here Come the Bogleheads."
00:19:50.080 | So tell us how you got associated
00:19:51.960 | with the Bogleheads.
00:19:53.520 | The internet was young then, as you and I, Rick,
00:19:56.520 | are old enough to remember.
00:19:58.280 | You know, I don't think most people even got online
00:20:02.160 | until the late '90s.
00:20:03.960 | And at the time I found the Bogleheads,
00:20:07.360 | the forum was called Vanguard Diehards.
00:20:10.560 | And it was hosted on Morningstar.com.
00:20:14.400 | And it quickly became the most active chat forum
00:20:19.240 | on Morningstar, which, of course,
00:20:22.200 | itself was a very popular destination for people looking
00:20:27.000 | to learn about investing online.
00:20:29.200 | And I was quickly struck by, I guess I would say,
00:20:33.160 | the altruistic nature of the leading personalities
00:20:37.920 | on the forum.
00:20:39.760 | Not just people whose names are very familiar
00:20:42.920 | to any Boglehead, like, you know,
00:20:45.160 | Mel Lindauer and Taylor Larimore,
00:20:47.760 | but dozens of other people, incredibly knowledgeable
00:20:52.520 | and almost selfless in the way they would devote time
00:20:57.440 | and effort and energy to answering
00:21:00.000 | other people's questions.
00:21:01.920 | And it occurred to me that this was kind of a new kind
00:21:05.880 | of social phenomenon, that people were finding the kind
00:21:10.440 | of advice you used to get from a wise, older relative.
00:21:15.440 | - Hmm, yeah, true.
00:21:17.320 | It's a good analogy.
00:21:18.640 | - Yeah, and so I went to the Bogleheads meeting,
00:21:23.000 | which I think was the second one.
00:21:25.360 | - It was.
00:21:26.200 | - Yeah.
00:21:27.040 | - Right outside of Melbourne and Pennsylvania.
00:21:30.200 | - Yeah, exactly.
00:21:31.120 | And I think it was the second one they ever held.
00:21:33.400 | The first one, I think, was in Taylor Larimore's apartment.
00:21:37.280 | And I was just blown away by how nice these people were,
00:21:42.280 | how well-informed they were,
00:21:46.920 | and how much they cared about each other.
00:21:49.760 | And it was the first time I'd ever seen
00:21:52.640 | what we've all witnessed many times since,
00:21:56.920 | which was people who had never met each other
00:22:00.000 | in the real world, but who felt they knew each other
00:22:04.560 | from being online together, meeting in person
00:22:08.920 | for the first time, and hugging each other,
00:22:12.960 | crying, laughing.
00:22:15.080 | It was, I'll always remember that, that meeting,
00:22:20.240 | because it was really extraordinary.
00:22:22.080 | It was kind of a combination
00:22:23.520 | of an old-time church revival meeting,
00:22:28.080 | and maybe almost like a substance abuse meeting,
00:22:33.080 | because people stood up and said,
00:22:37.360 | my name is so-and-so, and I'm from this town,
00:22:41.760 | and I used to invest all wrong.
00:22:44.920 | And then I discovered the Bogleheads,
00:22:47.600 | and now I've got it straight, and thank you so much.
00:22:50.880 | And then they would start crying.
00:22:52.640 | - Yeah.
00:22:53.480 | - And I realized this is an incredibly special
00:22:58.480 | group of people who are doing something that's important.
00:23:03.640 | And even though I think very few people
00:23:08.160 | outside the Bogleheads had ever heard of them
00:23:10.760 | at that point, I felt it was a story
00:23:14.880 | that really deserved to be in the spotlight,
00:23:18.120 | because it showed that the internet
00:23:21.120 | had not just technological potential, but human potential.
00:23:26.120 | - Yeah.
00:23:27.280 | - It had the ability to bring people together
00:23:30.840 | for their mutual betterment.
00:23:33.680 | - Yeah, true.
00:23:34.960 | I was reading a statistic that said
00:23:37.400 | that 70% of marriages now, people first met online.
00:23:42.320 | - Yes.
00:23:43.160 | - When you and I were in our 20s,
00:23:44.920 | of course, that was unheard of,
00:23:46.080 | where you basically met through friends,
00:23:47.920 | or affiliation school, or maybe at a bar or something.
00:23:52.240 | - Yes.
00:23:53.080 | - But there is a lady at the dog park
00:23:55.960 | who I speak with when she brings her dog there.
00:23:58.480 | Her husband passed away, but she has a new boyfriend now,
00:24:01.240 | and they met online, and she's 72.
00:24:04.480 | - Yeah.
00:24:05.320 | - Getting online has certainly changed lives,
00:24:07.360 | not always for the better, but changed things.
00:24:09.840 | - Not for politics.
00:24:11.560 | - Okay, so let's move on.
00:24:13.840 | Well, you moved to the Wall Street Journal in 2008,
00:24:16.880 | and you continue to publish great articles
00:24:20.280 | on kind of exposing a lot of things
00:24:23.520 | that are going on on Wall Street.
00:24:24.920 | That became your niche in many ways.
00:24:26.720 | I don't wanna say the bad things,
00:24:29.200 | but things that to you didn't seem quite right.
00:24:33.000 | And you continue to do that today.
00:24:34.440 | You continue to bring those out.
00:24:36.040 | So how did that all come about?
00:24:37.640 | I mean, why did you feel that was your calling?
00:24:40.040 | - Well, being an individual investor,
00:24:44.960 | it's a hard, lonely job, right?
00:24:48.720 | It's somewhat different today,
00:24:50.160 | but certainly when I started,
00:24:52.640 | and even back in 2008, when you're thinking of,
00:24:56.200 | what was it like to make an investment?
00:24:59.520 | Either you had something shoved down your throat
00:25:02.400 | by a commissioned stockbroker or insurance agent
00:25:06.800 | who, in the best scenario, cared about you as a person,
00:25:12.840 | but certainly was always partially motivated
00:25:16.600 | by a commission, and in the worst case,
00:25:20.640 | cared much more about the commission than about you.
00:25:23.760 | That's if you had advice.
00:25:25.440 | And if you didn't have advice,
00:25:27.440 | you had to do your research all by yourself.
00:25:30.680 | Decades ago, you would have to go to a public library.
00:25:33.800 | Then once the internet came along,
00:25:35.680 | you drowned in information and misinformation
00:25:39.600 | and Wall Street propaganda.
00:25:42.400 | - Mm-hmm.
00:25:43.240 | - Being an individual investor is a constant challenge,
00:25:47.920 | and one of the things I thought a lot about
00:25:51.080 | when working on my latest book,
00:25:53.320 | the new edition of "Benjamin Graham's
00:25:55.560 | "The Intelligent Investor,"
00:25:57.360 | is it's probably harder than ever
00:26:00.840 | to be a disciplined, independent-minded investor
00:26:05.680 | because the propaganda and the pressure to trade
00:26:11.640 | those things are more inescapable than ever.
00:26:15.080 | - Mm-hmm.
00:26:15.920 | - Your stockbroker maybe used to be out to pick your pocket.
00:26:20.160 | Now your stockbroker is in your pocket.
00:26:22.280 | - Your phone, yeah.
00:26:23.640 | - You can't escape.
00:26:25.880 | You know, your phone is buzzing.
00:26:27.640 | It's alerts.
00:26:29.040 | It's trade this, buy that, sell this, trade options.
00:26:33.920 | And I just feel that individual investors,
00:26:39.800 | they need somebody looking out for them
00:26:43.200 | who doesn't have the kinds of flagrant conflicts
00:26:48.200 | that are so common in the financial industry.
00:26:51.480 | And I would never say
00:26:53.000 | that I'm free of conflicts of interest.
00:26:55.440 | I want every reader to subscribe to "The Wall Street Journal"
00:26:59.800 | and to read my column.
00:27:02.040 | But I'm not getting commissions and fees and kickbacks
00:27:06.280 | and fancy trips from the people I write about.
00:27:10.120 | You know, my only real agenda
00:27:12.160 | is to try to separate sense from nonsense.
00:27:17.160 | - Yeah, I mean, you've always been that way
00:27:19.960 | in every way that I can remember.
00:27:22.040 | I want to move on a little bit here
00:27:23.280 | because we got a lot of books to cover.
00:27:25.320 | The second edition of "The Intelligent Investor,"
00:27:30.320 | Ben Graham's book, you published in 2003,
00:27:35.840 | but before we talk about that,
00:27:37.440 | I want to go through your other books first
00:27:39.360 | and then we'll get back to that one.
00:27:41.240 | - Okay.
00:27:42.080 | - The book that I thought was a fantastic read,
00:27:44.880 | it was just so unique that you wrote in 2007,
00:27:49.720 | was "Your Money and Your Brain,"
00:27:52.040 | how the new science of neuroeconomics
00:27:54.080 | can help make you rich.
00:27:56.720 | And here, you actually got under an FMRI machine
00:28:00.600 | and had your brain scanned
00:28:02.480 | while you were thinking about buying and selling stocks.
00:28:05.880 | Talk about this.
00:28:07.600 | - Yeah, so I did that quite a few times, Rick.
00:28:10.600 | What neuroscientists have done,
00:28:13.840 | or many of these folks call themselves neuroeconomists
00:28:18.840 | because the science is kind of a blend
00:28:22.560 | of economics, psychology, and neuroscience.
00:28:28.000 | And some of these people have PhDs in economics,
00:28:32.560 | some have them in psychology,
00:28:34.080 | some have them in neuroscience,
00:28:36.200 | and some have them in two or more of those fields.
00:28:40.240 | It's an amazing group of researchers.
00:28:42.640 | And what they do is they take
00:28:45.560 | the kinds of behavioral experiments
00:28:48.000 | that psychologists and economics,
00:28:51.120 | economists for that matter, have long done,
00:28:54.480 | and they conduct them using the tools of neuroscience.
00:28:58.880 | So that might mean an EEG, like an electroencephalogram,
00:29:03.880 | where you have a helmet of electrodes
00:29:07.360 | on the outside of your head
00:29:08.680 | that's monitoring the electrochemical activity in your brain.
00:29:13.320 | They will also do what's called an FMRI,
00:29:16.840 | or Functional Magnetic Resonance Imaging Test,
00:29:20.720 | which monitors the levels of oxygen
00:29:25.200 | in the blood within your brain.
00:29:28.080 | And those are two of many methods that can be used
00:29:32.360 | to monitor which parts of the human brain
00:29:36.760 | are activated by which sorts of tasks.
00:29:41.560 | And it enables these researchers
00:29:45.440 | to pinpoint the brain circuitry
00:29:50.000 | that's involved in various kinds of decision-making.
00:29:53.800 | So I participated as a subject in well over half a dozen,
00:29:58.800 | may have been 10 different experiments,
00:30:02.440 | in labs throughout the US and also one in the UK.
00:30:07.440 | And I learned a lot about my own brain in doing all this,
00:30:12.480 | mainly about its limitations.
00:30:16.800 | - That's always a danger of doing these kind of tests.
00:30:19.320 | - Yes, although I can't say I was totally surprised
00:30:22.760 | to learn that my brain had severe limitations,
00:30:25.960 | but it was fascinating because several of these experiments
00:30:30.960 | can demonstrate things that you might not otherwise
00:30:36.480 | be consciously aware of. - Interesting.
00:30:38.520 | - You know, I spent a couple of years doing that research
00:30:42.000 | and I read hundreds of scientific articles
00:30:45.640 | and dozens of books
00:30:47.560 | and participated in all these experiments.
00:30:50.640 | And really the idea was to take the data
00:30:55.640 | that economists and psychologists
00:30:58.760 | have been gathering for decades,
00:31:00.760 | really going back to the 1970s at least,
00:31:03.840 | about the suboptimal way that people make decisions
00:31:08.840 | about risk and reward over time.
00:31:13.040 | And what neuroeconomics does
00:31:16.120 | is it takes it down to the biological level
00:31:21.120 | and says we can observe these behaviors
00:31:24.440 | in how people make decisions about their money,
00:31:28.040 | but let's now observe which circuits and structures
00:31:32.320 | in the brain are driving those decisions.
00:31:35.680 | And that's particularly interesting
00:31:38.600 | because it enables us to connect these decisions
00:31:43.280 | with the fundamental emotions
00:31:46.920 | that those brain circuits generate in other contexts.
00:31:51.520 | For example, we can learn that one of the reasons
00:31:55.200 | people are less effective at selling stocks
00:31:59.400 | than buying them is because these experiments have shown
00:32:02.840 | that if you sell at a loss,
00:32:04.680 | that transaction will be processed
00:32:06.920 | in the same part of the brain
00:32:08.720 | that's involved when you smell vomit or step in dog manure.
00:32:13.720 | It's the disgust circuitry in the brain.
00:32:17.920 | - And a short-term gain, what does that do to your brain?
00:32:21.880 | - If it's part of a sequence
00:32:24.360 | so that it becomes like a predictable pattern,
00:32:28.680 | let's just say you bought a stock
00:32:31.240 | and you're watching it on your phone,
00:32:33.520 | maybe you have a Robin Hood account,
00:32:36.000 | and it's green because it's going up.
00:32:40.800 | And those slot machine wheels
00:32:43.680 | that represent the stock price on the app keep spinning
00:32:48.120 | and they keep spinning green and the price keeps going up.
00:32:52.960 | Very quickly, the same circuits in your brain will fire
00:32:57.360 | in the brain of a cocaine addict
00:33:03.640 | who's about to get the next hit.
00:33:05.520 | - Wow.
00:33:06.640 | - It's literally physiologically addictive.
00:33:09.840 | - Wow.
00:33:10.680 | That's a great book, I love that book.
00:33:12.040 | - Thank you.
00:33:12.880 | - And then you came out with another book
00:33:14.560 | a couple of years later called "A Little Book of Safe Money."
00:33:18.800 | And this came right after the financial crisis, ironically.
00:33:22.100 | Little marketing there, perhaps?
00:33:24.960 | - Perhaps.
00:33:26.280 | - I mean, little books, if you remember,
00:33:27.680 | were kind of a trend back then.
00:33:29.560 | There was a little book on this, little book on that.
00:33:32.360 | So you came out with your little book.
00:33:35.080 | You talk about your cash, selecting stocks and bonds,
00:33:38.440 | choosing the right financial advisors.
00:33:40.280 | You want to talk about that little book?
00:33:42.080 | - I will talk a little bit about that little book.
00:33:44.640 | First of all, the best little book, of course,
00:33:47.920 | is Jack Vogel's little book, which is wonderful.
00:33:51.320 | The publisher, John Wiley, approached me and asked,
00:33:54.840 | could I write something that was, I guess,
00:33:57.680 | attuned to the financial crisis?
00:34:00.200 | And I just wanted to write a very basic book
00:34:04.040 | that would be a guide for people
00:34:07.120 | who didn't have the patience to read anything long
00:34:10.360 | or particularly challenging.
00:34:12.960 | I think it's very digestible.
00:34:15.560 | It was sort of a suggestion of what to do and what not to do,
00:34:20.560 | particularly during a financial crisis.
00:34:24.240 | - Okay, very good.
00:34:25.080 | And then we'll go to the next one,
00:34:26.400 | which is "The Devil's Financial Dictionary."
00:34:29.100 | It is a dictionary, but not really a dictionary name.
00:34:31.640 | It's more of a satire of financial humor.
00:34:35.000 | Funny to read and true, by the way,
00:34:39.840 | most of the definitions you have in there.
00:34:41.760 | Talk about that.
00:34:42.600 | I mean, was it just something that was kind of irking you
00:34:44.600 | or were you collecting these things over the years?
00:34:48.680 | - Yes, so I'm a huge fan of someone I regard
00:34:53.200 | as a very unjustly neglected great American writer
00:34:57.720 | named Ambrose Bierce,
00:34:59.540 | who was roughly a contemporary of Mark Twain's,
00:35:02.360 | who died in, I think, 1914, 1917, around then.
00:35:06.720 | And he was one of the most cynical people who ever lived.
00:35:11.080 | He was much more cynical than I am.
00:35:13.880 | I think I would say I overall have a very positive view
00:35:17.200 | of human nature.
00:35:18.620 | You would not say that about Ambrose Bierce.
00:35:21.280 | He was called Bitter Bierce because he was so negative,
00:35:25.280 | but he was also incredibly funny.
00:35:28.880 | And he wrote a book that was published in 1911
00:35:32.360 | called "The Devil's Dictionary,"
00:35:34.700 | which is just this collection
00:35:36.400 | of brutally sarcastic short definitions of words.
00:35:41.400 | And I'd always loved it.
00:35:44.280 | I own at least two copies of the book.
00:35:46.320 | I may have three.
00:35:47.700 | I've read it probably dozens of times
00:35:50.960 | over the course of my life and it never gets old.
00:35:54.880 | It's funnier every time you read it, actually.
00:35:57.840 | And I just had always wanted to write something like that
00:36:01.680 | for investors.
00:36:03.880 | And I started writing it as entries
00:36:08.880 | with no notion that it would ever become a book.
00:36:12.120 | And what I did is I would write one definition
00:36:16.000 | and I would just post it to my website.
00:36:18.780 | And people started tweeting them and emailing them around
00:36:24.760 | and asking me, "How many more of these do you have?"
00:36:28.560 | And then one day a book publisher said,
00:36:30.860 | "I could make a book out of that."
00:36:33.560 | And I said to my book agent,
00:36:35.400 | "I wanna turn this into a book."
00:36:37.320 | And he said, "Nah, that's not a good idea."
00:36:41.520 | And I just kept doing it.
00:36:44.360 | And the next thing I knew, I had hundreds of them.
00:36:47.800 | And at home in the evenings,
00:36:51.200 | my wife made me move out of the kitchen
00:36:54.680 | where I would sit with my laptop
00:36:56.480 | because I would be giggling to myself
00:36:59.400 | and distracting her from what she wanted to do.
00:37:02.480 | And it finally dawned on me that if I find this stuff funny,
00:37:07.280 | maybe other people would.
00:37:09.720 | And so it didn't begin as a book.
00:37:11.960 | It just began as kind of a hobby.
00:37:13.640 | - Yeah, that's what it seems like.
00:37:14.720 | Could you give us just an example
00:37:16.360 | of one of your more favorite definitions?
00:37:19.640 | - Yeah, I should have prepped for this, Rick.
00:37:21.280 | But bearing in mind that this is organized
00:37:25.040 | like a true dictionary where you have the word,
00:37:29.160 | the part of speech, and then the definition,
00:37:32.320 | I think the shortest two definitions in the book
00:37:37.080 | are day trader, noun, see, idiot.
00:37:41.780 | And then the definition for idiot
00:37:44.920 | says noun, see, day trader.
00:37:48.760 | - It's a funny book.
00:37:49.720 | I've been reading your little definitions for years
00:37:53.960 | and enjoy reading about that,
00:37:57.200 | particularly in the financial advisor community,
00:37:59.680 | which is where I come from.
00:38:01.320 | Which you have a few of those in there.
00:38:03.080 | - Yes, I do.
00:38:04.240 | - All right, we're gonna go now to
00:38:06.040 | The Intelligent Investor.
00:38:08.880 | This is the third edition.
00:38:10.680 | You did a second edition in 2003,
00:38:12.920 | and you also edited a book on Benjamin Graham
00:38:15.320 | back in 2009.
00:38:17.360 | Benjamin Graham has been a huge influence on your life.
00:38:21.280 | So what was the original thought back in 2003,
00:38:26.280 | or before then when you started working on the book?
00:38:29.360 | What was it about Benjamin Graham?
00:38:31.120 | Why did you take up this cause?
00:38:33.760 | - Well, I took up this cause
00:38:34.880 | because the publisher asked me.
00:38:36.480 | Let me say that when the project editor called me
00:38:42.760 | and said, "We're thinking of publishing an update
00:38:46.840 | to Benjamin Graham's The Intelligent Investor.
00:38:50.120 | Would you be interested in talking to us about that?"
00:38:53.480 | I said, "Yes!"
00:38:55.320 | (both laughing)
00:38:57.080 | With, I think, several audible exclamation points.
00:39:02.080 | It was the thrill of a lifetime
00:39:03.800 | to be asked to participate in this project.
00:39:07.680 | I mean, Graham was one of the most brilliant investors
00:39:11.600 | of all time, and I think there's a strong case to be made
00:39:15.680 | that he was one of the most brilliant people
00:39:17.560 | of the 20th century, no matter how you define brilliance.
00:39:22.440 | And it's just been a joy from start to finish
00:39:26.480 | to be involved in this project, an incredible honor.
00:39:30.440 | The last person Graham asked to collaborate with him
00:39:34.240 | on The Intelligent Investor
00:39:35.760 | was the great financial writer, Adam Smith.
00:39:39.800 | That was his pen name.
00:39:40.880 | His real name was Jerry Goodman.
00:39:43.400 | And Graham asked Adam Smith
00:39:46.520 | only because his first choice turned him down,
00:39:49.160 | and that was Warren Buffett.
00:39:51.200 | To be in the company of those people
00:39:53.320 | is just an unbelievable honor.
00:39:55.880 | My only objective in editing the book
00:39:59.360 | is to help Graham speak for himself
00:40:03.240 | 48 years after he died,
00:40:05.840 | to keep the memory of his ideas alive
00:40:10.840 | and to keep that flame burning.
00:40:13.280 | In a time when I think his message
00:40:15.360 | is much more important than it ever was.
00:40:18.720 | - Speaking of Warren Buffett earlier,
00:40:20.440 | even though Buffett did not participate in the book,
00:40:22.720 | he called it the best book on investing ever written
00:40:26.800 | and still does.
00:40:28.320 | - Yeah, and he still advises people to read the book.
00:40:33.000 | People criticize Graham all the time
00:40:37.400 | for being old-fashioned,
00:40:40.480 | for having these formulaic techniques for valuing stocks,
00:40:45.480 | a price earnings ratio of this
00:40:49.640 | and a price to book value ratio of that.
00:40:52.720 | And you should multiply net working capital by X.
00:40:57.720 | And then people say, "These things are all outmoded.
00:41:01.760 | "Nobody invests like that anymore.
00:41:03.840 | "Nobody should."
00:41:05.280 | And that completely misses the mark for two reasons.
00:41:09.320 | First, during his lifetime,
00:41:11.440 | Graham revised the book several times.
00:41:14.120 | And every time he revised it,
00:41:15.800 | he changed all those formulas.
00:41:17.920 | He updated them to reflect the new market realities
00:41:22.920 | at the time the new edition of the book was coming out.
00:41:26.360 | And if he were still around today,
00:41:28.800 | of course he'd be 130 years old,
00:41:30.640 | but if he were still around today,
00:41:32.880 | he would update all those formulas all over again
00:41:36.560 | and they would look nothing like what's in the book.
00:41:40.040 | So that's the first objection.
00:41:42.520 | But the second objection is much more basic,
00:41:45.400 | which is that's not Graham's message.
00:41:48.560 | Graham's message is that if you're an individual investor,
00:41:53.560 | you have to identify what is the game I am playing?
00:41:59.800 | What playing field am I on?
00:42:03.680 | Am I playing against Fidelity and Goldman Sachs
00:42:08.680 | and Citadel Hedge Fund and Renaissance Technologies
00:42:14.160 | and all these other big firms?
00:42:17.480 | Or am I playing some other game
00:42:20.640 | on some other playing field?
00:42:23.080 | And Graham's message is that if you try to play
00:42:27.880 | the same game as Wall Street itself,
00:42:33.040 | you will lose.
00:42:36.200 | Why?
00:42:37.320 | Because most professional investors lose that game.
00:42:41.720 | Why would you even wanna try playing that game
00:42:44.800 | when people with millions of dollars of resources
00:42:49.720 | and trillions of dollars of assets can't win that game?
00:42:54.680 | Roughly 80% of all professionally managed funds
00:42:58.760 | underperform the S&P 500.
00:43:01.520 | Why would you try to chase other people?
00:43:05.600 | What Graham teaches is you win as an individual investor
00:43:10.280 | when you set clear objectives for your own needs
00:43:15.280 | and you then build a portfolio
00:43:19.560 | that's organized around one principle.
00:43:22.320 | How can I put in place policies and procedures
00:43:26.920 | that will maximize my probability
00:43:29.880 | of reaching my unique financial goals?
00:43:34.400 | And if you think the only way you can do that
00:43:38.680 | is by beating the S&P 500, that makes no sense.
00:43:42.760 | - I'm gonna go back to the first part of your answer,
00:43:47.200 | which talked about when the original book was published
00:43:50.240 | in 1949, they had different formulas
00:43:53.040 | that were appropriate back then,
00:43:54.840 | maybe high dividend yield and some sort of ratios
00:43:58.800 | based upon dividends, which prior to the 1950s,
00:44:01.720 | stocks paid more dividends than...
00:44:03.680 | - Oh, yes.
00:44:04.520 | - More yield than bonds paid.
00:44:05.960 | - Yep.
00:44:06.800 | - And so there was this idea that, well,
00:44:07.640 | you buy the stocks that have higher dividend yields
00:44:09.760 | than bonds, and when they go below it, you sell them,
00:44:12.000 | and just different things like that.
00:44:13.440 | But there's something that in the first edition, 1949,
00:44:17.600 | first edition of the book that Graham wrote,
00:44:20.640 | which he took out in later editions,
00:44:23.000 | but I wanna read that to you
00:44:24.000 | because it really gets back to what you said
00:44:26.240 | about these changing formulas.
00:44:28.200 | Here's what he wrote.
00:44:29.640 | "Though business conditions may change,
00:44:31.480 | "corporations and securities may change,
00:44:33.560 | "and financial institutions and regulations may change,
00:44:37.040 | "human nature remains the same.
00:44:39.920 | "Thus the important and difficult part of sound investing,
00:44:42.880 | "which hinges upon the investor's own temperament
00:44:45.800 | "and attitude, is not much affected by passing years."
00:44:50.520 | And I think it's really appropriate to what you were saying.
00:44:53.800 | Things change within the markets,
00:44:56.000 | and different companies change,
00:44:57.520 | and we have this rotation at the top,
00:44:59.320 | and different industries, and laws, and taxes,
00:45:02.920 | and all of that, but what really is important
00:45:05.280 | is your own temperament and how you approach it.
00:45:08.640 | - Exactly, and Rick, Graham does a beautiful thing
00:45:12.560 | in the first edition in "The Intelligent Investor,"
00:45:14.960 | which he kind of scrunched and made shorter over the years,
00:45:19.960 | which is he sort of expounds on what he means
00:45:23.040 | by an intelligent investor.
00:45:25.320 | I mean, it's an interesting term,
00:45:27.320 | and he says, and I'm paraphrasing him,
00:45:30.000 | "I don't mean that you have high intelligence
00:45:34.080 | "as it's conventionally measured.
00:45:36.160 | "It's not that you have an IQ of 180 or something like that,
00:45:40.520 | "or that you have a PhD in economics or finance,
00:45:44.840 | "or that you even have formal training
00:45:48.160 | "in economics or finance.
00:45:50.480 | "It doesn't mean that you have a CFA or an MBA
00:45:55.040 | "or any other degree or designation
00:45:57.920 | "that confers professionally recognized expertise.
00:46:02.760 | "What I mean," says Graham,
00:46:05.920 | "is that you have good judgment,
00:46:08.680 | "that you think independently, that you're skeptical,
00:46:12.720 | "that you're patient, you're analytical,
00:46:16.320 | "and that you cultivate the ability
00:46:20.640 | "to separate information from noise."
00:46:25.440 | And he makes all this very clear.
00:46:28.600 | And I think over the years,
00:46:31.120 | the financial services industry has invested massively
00:46:36.120 | in complexity that is designed to bewilder
00:46:42.920 | the average investor and to make us feel
00:46:46.440 | that we're unqualified to manage our own money.
00:46:50.840 | And the beauty of Jack Bogle
00:46:54.400 | and the original Vanguard experiment
00:46:58.000 | was what Jack often called the power of simplicity.
00:47:02.000 | Just let's make investing as simple as it possibly can be
00:47:07.000 | and see what happens.
00:47:09.800 | And as the Bogle heads have shown,
00:47:13.240 | what happens is you empower people.
00:47:15.800 | You let them know it's okay to have the confidence
00:47:20.160 | to invest your own money in strategies that make sense,
00:47:24.920 | that you can understand.
00:47:26.800 | And Graham was all about clearing the way for that.
00:47:31.800 | I'm all about this one phrase.
00:47:35.120 | I think I coined it.
00:47:36.560 | Complexity is job security in the investment industry.
00:47:40.240 | - Oh, yes.
00:47:43.480 | I'm not sure I've ever written it down,
00:47:45.240 | but somewhere I'm sure I've said the real product
00:47:48.560 | of the financial services industry is complexity
00:47:52.440 | because complexity is where fees come from.
00:47:56.840 | The simpler you make something,
00:47:58.680 | the less willing people are to pay high fees to buy it
00:48:02.400 | and the less justification there is
00:48:04.960 | for the fees in the first place.
00:48:07.280 | - Let's move on to one topic that Graham talks about
00:48:10.200 | and you also opined on,
00:48:11.920 | and that is the difference
00:48:13.040 | between investing and speculating.
00:48:16.400 | - Yeah, so this is something Graham
00:48:17.960 | was really passionate about,
00:48:19.600 | and it's a topic I care a lot about too.
00:48:23.000 | His book, "Security Analysis,"
00:48:24.760 | which he published with David Dodd in 1934,
00:48:28.080 | Graham says, and I think I remember this verbatim.
00:48:32.520 | We'll find out in a second.
00:48:34.200 | He says, "An investment operation is one which,
00:48:37.960 | upon thorough analysis, promises safety of principle
00:48:42.360 | and an adequate return."
00:48:44.920 | Yeah, I think I did do that right.
00:48:47.000 | And then he adds,
00:48:49.160 | "Operations not meeting this definition are speculative."
00:48:54.160 | And so Graham has a very clear, simple definition,
00:48:59.800 | which is if you are buying a stock
00:49:04.800 | without understanding that it represents a company
00:49:11.680 | and without knowing anything about the underlying business,
00:49:16.800 | you're not investing, you're speculating.
00:49:21.840 | Now, he hastens to add that speculation isn't all bad.
00:49:26.400 | Everybody likes to go to Las Vegas or Monte Carlo
00:49:30.960 | or wherever your favorite gambling place might be.
00:49:34.400 | Maybe it's a riverboat casino somewhere.
00:49:37.040 | And there's nothing wrong with that.
00:49:39.800 | If you find it fun, if you limit your losses,
00:49:44.800 | and if you can afford to lose everything you stake
00:49:51.000 | and you don't care because you're there for the music,
00:49:55.040 | the show, the fun of the drive, back and forth,
00:49:58.600 | whatever, the flight, whatever it might be.
00:50:00.680 | But if you go to a casino thinking
00:50:03.760 | that you're gonna make money doing it
00:50:06.520 | and you lose everything you put up
00:50:10.280 | because you don't have a system you just think you do,
00:50:13.880 | then you're speculating and it's really harmful.
00:50:18.280 | And so that's the analogy he uses.
00:50:20.800 | And in my opinion, many people who call themselves investors
00:50:25.800 | are really just speculators and we should call them that.
00:50:30.800 | We should stop calling people investors
00:50:34.680 | when what they're doing is guessing.
00:50:37.160 | - Some people would go further than that
00:50:38.560 | as to what's an investment.
00:50:39.880 | You highlighted this, Seth Klarman,
00:50:42.600 | quote your commentary on chapter five.
00:50:45.200 | And I feel like personally, I fall into this camp.
00:50:48.320 | This is what Seth says the difference is
00:50:51.120 | between speculation and an investment.
00:50:54.960 | The line I draw in the sand is that
00:50:57.600 | if an investment has cashflow
00:51:00.000 | or the likelihood of cashflow in the near term,
00:51:03.280 | and it is not purely dependent upon
00:51:05.400 | what a future buyer may pay, then that's an investment.
00:51:10.280 | If an asset's value is totally dependent
00:51:13.840 | on the amount a future buyer might pay,
00:51:17.080 | then its purchase is speculation.
00:51:20.120 | How do you feel about that definition?
00:51:21.640 | Obviously, you have some feelings about it
00:51:23.080 | because you put it in the book.
00:51:24.760 | - Yeah, well, I think it's pretty darn good.
00:51:28.280 | I think there might be the occasional exception.
00:51:33.280 | I think if you buy a Rembrandt painting
00:51:37.800 | and you hold it for the rest of your life
00:51:40.120 | and then you either donate it to a museum
00:51:42.160 | or your heirs inherit it,
00:51:45.520 | I'm not sure that's a speculation.
00:51:49.320 | It certainly doesn't have positive cashflow.
00:51:52.000 | Your insurance bills alone would cost you
00:51:54.800 | tens of thousands of dollars a year.
00:51:57.320 | Another example might be if you know your town very well
00:52:02.320 | and there's a big piece of land
00:52:06.680 | at a key intersection of two roads
00:52:10.680 | and you say someday there's gonna be a Walmart
00:52:15.680 | or a Costco or whatever it might be
00:52:20.040 | on that piece of property and you buy it,
00:52:22.720 | you might hold it for 20 years,
00:52:26.200 | but eventually some developer comes to you and says,
00:52:29.440 | "Rick, we'd really like to build an office park
00:52:33.000 | "or a data center for AI or a nuclear power plant."
00:52:38.840 | I'm gonna push back a little bit on that
00:52:41.000 | because to me, I think a Christmas tree seller
00:52:44.280 | and the firework seller.
00:52:46.080 | I might buy that piece of land on the corner,
00:52:48.320 | but while I'm waiting for Walmart to come along
00:52:50.360 | and buy it from me or a data center,
00:52:52.240 | I can rent it out to a Christmas tree seller.
00:52:55.320 | I can rent it out to the guy selling fireworks
00:52:58.120 | on the 4th of July so I can get revenue from that land
00:53:01.740 | or I can just rent it out to a farmer
00:53:04.240 | and lease it and get revenue from it.
00:53:07.240 | So that's my pushback on that.
00:53:10.040 | - Yeah, that's true.
00:53:11.080 | I guess some people might leave it as undeveloped land,
00:53:14.560 | but there's always the potential to use it
00:53:18.540 | to generate cash flow.
00:53:19.920 | So yeah, I mean, if there are exceptions
00:53:22.900 | to Seth Klarman's definition, I think they're rare.
00:53:27.200 | - Yeah, I think so too.
00:53:28.820 | We've only scratched the surface on this book
00:53:31.160 | and our time is coming to an end.
00:53:34.520 | I did want to talk about investment advisors a little bit,
00:53:38.960 | and you do write about investment advisors.
00:53:41.520 | And the area I wanna go to is something
00:53:45.960 | that you wrote about that was a story
00:53:48.720 | that Alan Roth tells.
00:53:50.480 | I always found this to be a humorous story, a true story.
00:53:54.480 | And it had to do with obtaining a certain recognition
00:53:59.220 | as a top financial planner.
00:54:01.000 | So, I mean, you told the story in the book.
00:54:02.720 | Alan has told it many times.
00:54:04.000 | Could you just, let's just end with this
00:54:06.080 | because I think it's so hilarious.
00:54:08.080 | - Alan was approached by some organization,
00:54:12.320 | I forget the exact name of it,
00:54:13.880 | but that gives out these so-called awards
00:54:18.880 | to top financial planners.
00:54:22.560 | And I think the award is actually called
00:54:25.440 | one of America's top financial planners
00:54:27.920 | or something like that.
00:54:29.640 | And Alan sort of scrunched up his face
00:54:33.080 | as I think you and I can both picture him doing
00:54:36.080 | and said, what is this thing?
00:54:37.920 | And why am I being honored by people I've never heard of?
00:54:41.120 | So he submitted an application for somebody else he knew
00:54:45.440 | to see whether that person could also be eligible.
00:54:48.960 | And right away, he was told that all he would have to do
00:54:53.080 | is send in a check for whatever it was.
00:54:55.200 | I think it was like $150.
00:54:57.840 | And this friend of his, Max,
00:55:00.480 | could easily also become one of America's
00:55:03.520 | top financial planners.
00:55:05.120 | So Alan did and the plaque came in the mail
00:55:09.000 | and Alan gave it to Max,
00:55:11.520 | who was very proud of becoming
00:55:13.760 | one of America's top financial planners.
00:55:16.560 | Alan said, would you like to put it on your desk
00:55:19.680 | in your office?
00:55:21.080 | And Max didn't really answer because Max was Alan's dog.
00:55:26.080 | - Max Tailwagger.
00:55:30.040 | - That's right.
00:55:30.960 | And so Alan's little dachshund puppy
00:55:34.840 | became one of America's top financial planners
00:55:37.560 | because Alan just basically bought honor for his dog.
00:55:42.560 | Some people call these things trust badges.
00:55:45.920 | Investors should always be wary in a crowded,
00:55:50.920 | actually overcrowded financial marketplace
00:55:54.680 | where it is very difficult for investment advisors
00:55:59.040 | and financial planners to distinguish themselves.
00:56:02.720 | And where so many people just charge the same price
00:56:06.720 | of 1% of assets per year,
00:56:10.000 | how is a consumer supposed to distinguish
00:56:12.600 | good advice from bad?
00:56:14.600 | Well, these third-party organizations say,
00:56:18.000 | oh, well, Max is one of America's top financial planners.
00:56:23.000 | So he must be good.
00:56:26.360 | And Alan's point is, well, he is a good dog.
00:56:29.400 | I say good dog to him all the time,
00:56:33.200 | but he's not a good financial planner.
00:56:36.080 | And it's just a very useful reminder
00:56:39.320 | that to get high quality, reliable financial advice,
00:56:44.120 | you have to do a little bit of homework.
00:56:46.480 | And there's really no way around that.
00:56:48.960 | You need to dig into a person's background and credentials
00:56:53.080 | and what they do with money when they manage it
00:56:57.680 | and how they charge fees on it
00:57:00.360 | to make sure you're comfortable with that
00:57:02.160 | rather than just going with your gut and saying,
00:57:05.400 | oh, he's a top financial planner.
00:57:07.320 | He has a plaque on his wall.
00:57:09.360 | - Or he's a vice president.
00:57:11.240 | - Yes, a vice president, yeah.
00:57:13.480 | - When I first got into the financial services industry
00:57:15.440 | back in the 1980s and I got a job at a brokerage firm
00:57:18.960 | and they made me a junior vice president.
00:57:21.960 | And I mean, I didn't know anything,
00:57:24.040 | but you know, vice president.
00:57:26.880 | We could go on for hours here talking about the book.
00:57:31.400 | - We could go on for a week.
00:57:32.720 | - But I want to thank you so much for being on the podcast.
00:57:37.320 | Love to have you on again sometime.
00:57:39.360 | - Yes, I think now that I've been on,
00:57:41.200 | I think that some of the institutional barriers
00:57:44.760 | may have fallen away.
00:57:46.680 | - Well, that's great to hear.
00:57:47.800 | - I hope so.
00:57:48.920 | - Good luck with the book.
00:57:49.920 | Thank you again for participating on this podcast.
00:57:52.320 | - Well, it was an absolute pleasure, Rick, a total joy.
00:57:56.200 | And thanks for the great questions.
00:57:57.960 | And I really appreciate the opportunity.
00:58:00.960 | - This concludes this episode of "Bogleheads on Investing."
00:58:05.080 | Join us each month as we interview a new guest
00:58:07.800 | on a new topic.
00:58:08.840 | In the meantime, visit boglecenter.net, bogleheads.org,
00:58:13.120 | the Bogleheads Wiki, Bogleheads Twitter,
00:58:15.560 | the Bogleheads YouTube channel, Bogleheads Facebook,
00:58:18.400 | Bogleheads Reddit.
00:58:20.040 | Join one of your local Bogleheads chapters
00:58:22.920 | and get others to join.
00:58:24.280 | Thanks for listening.
00:58:25.360 | (upbeat music)
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