How Should I Invest if I Have a Low Risk Tolerance?

00:00:00.000 | Welcome back to Portfolio Rescue, our show dictated by you, the viewers, where you send

00:00:22.600 | us in questions. We answer them. Our inbox is full all the time. Remember, if you have

00:00:26.320 | a question, email us, askthecompoundshow@gmail.com. Duncan, I think this week I actually pulled

00:00:30.720 | a question directly from the comments on YouTube.

00:00:32.800 | Oh, nice. I was wondering where that one came from.

00:00:35.720 | I'm a psycho, so I read all the comments, but I will say, our viewers and listeners

00:00:40.180 | are usually pretty nice. We've got a lot to get to today, so let's do the first one.

00:00:45.240 | Okay. So, first up, we have a question from Tony, who writes, "Will demographics lead

00:00:51.840 | to reduced asset buying as boomers spend down their retirement and transfer wealth to kids

00:00:55.640 | upon death?" So, starting off with an upbeat one.

00:00:58.960 | Yeah. This is a common one, and I think we answered something similar a couple months

00:01:02.360 | ago, but that was dealing more with the stock market. So, the idea there was, wealth is

00:01:07.120 | concentrated in the hands of the few. The top 10% own something like 89% of the stocks

00:01:10.840 | in the U.S. So, my take there is, like, there's not going to be many forced sellers. A lot

00:01:14.560 | of it will just end up getting transferred because it's all rich people who won't need

00:01:17.480 | to sell.

00:01:18.480 | And even as the boomers do begin selling their assets, the millennials are going to come

00:01:21.560 | into their prime earnings years. So, John, let's do the chart out of this most common

00:01:24.440 | ages in the United States. So, the Census Bureau publishes this, the most common ages,

00:01:27.960 | and they rank them. And you can see it starts in 2010, and in 2020, then they predict out

00:01:32.600 | to 2025, 2030, 2035. You can see in 2010, the young people are just starting to come

00:01:37.560 | up. Now, almost all of the most common ages are 20s, 30s, 40s. It's going up to that because

00:01:42.480 | the millennials are getting older, right?

00:01:45.000 | So, I actually think that, and the millennials are now the biggest demographic in the country.

00:01:49.120 | I think that the millennials actually are going to have a bigger impact going forward

00:01:51.880 | than the boomers. And I want to look at this beyond the stock market. So, let's show this

00:01:56.160 | ownership of financial assets. This is kind of what I was getting into. And this just

00:01:59.400 | shows stocks versus housing. You can see that the top 1%, the majority of their assets are

00:02:03.560 | in financial assets, stocks and bonds and real estate and that sort of stuff. But their

00:02:07.400 | primary residence isn't that big of a deal.

00:02:10.160 | But for the bottom 50%, especially, and even the 50 to 90%, primary residence is a huge

00:02:17.160 | driver of their financial net worth. So, I want to talk about how this demographic stuff

00:02:21.860 | is going to impact the real estate market. So, I never really bought into this idea following

00:02:25.800 | 2008 after the housing crisis that millennials were never going to buy homes and they were

00:02:29.000 | never going to drive cars and they were never going to move to the suburbs because that's

00:02:32.640 | what people do when they get older.

00:02:33.760 | I think millennials just kind of pushed it out a little bit because they went to school

00:02:36.200 | a little longer in a lot of cases. This is the most highly educated demographic ever

00:02:40.600 | in terms of going to college. And they just pushed it back a little bit because of the

00:02:44.360 | crisis. And so, as people get older, they take on more responsibilities and they damn

00:02:48.800 | sure are going to buy a house in most cases, right?

00:02:50.840 | And millennials are buying houses in force right now. Show this chart from the Wall Street

00:02:53.880 | Journal here, John. Millennials are buying, this is home purchase applications from the

00:02:59.180 | Wall Street Journal. You can see millennials in 2015 were about 35%. Now it's well over

00:03:02.900 | 50%. And at 40 years old, I technically am the oldest living millennial in the country,

00:03:09.380 | I think. Either that or the youngest Gen X. I think I'm the oldest millennial.

00:03:12.900 | Yeah, I think you are.

00:03:13.900 | And I'm thinking about this, the demographic wave from my experience. So, we purchased

00:03:18.500 | our first home, I think I was 25, 26, had been married for maybe a year at that point.

00:03:22.780 | And we kind of said, "Oh, this is going to be our forever home." Then our family got

00:03:25.780 | bigger and so we moved on. I think we were in that house for nine or ten years and life

00:03:30.220 | got in the way. My wife and I had twins and we realized we're not going to fit in this

00:03:33.460 | house anymore. It's not going to work. We had to move. And I think so many people in

00:03:37.700 | finance look at this stuff from an investing perspective instead of life events, especially

00:03:41.500 | when it comes to housing, right?

00:03:43.020 | So people, like life events don't care about investments and mortgage rates and prices

00:03:47.580 | and ROI and all these things. And so right now with all these millennials buying, and

00:03:51.180 | many of them in household formation years and buying their first home, it's impossible

00:03:54.860 | to find a starter home right now, right? And that's why those prices are rising so fast.

00:04:00.140 | I think in five to seven years, it's going to be impossible to find that next level home.

00:04:03.740 | So we did this five years ago. We kind of traded up, went into a little bit of a bigger,

00:04:08.940 | nicer home. I think that's going to happen at the end of this decade. So you have all

00:04:12.700 | the millennials buying now, these starter homes, but in five to seven years, they're

00:04:16.660 | going to be ready to trade up. And I think maybe that's when some boomer selling will

00:04:20.300 | happen. So we have 10,000 baby boomers returning every day from now until 2030. I would guess

00:04:25.780 | the next shortage of housing, millennials are just going to go through this housing

00:04:29.700 | market like a snake, like a snake eating a rabbit, right? Going through.

00:04:33.060 | So in five to seven years, that next trade up level, which could be some of the boomers

00:04:36.420 | selling their houses, I think that is going to be the most crowded. And unfortunately,

00:04:40.980 | I think for millennials, like probably every huge purchase you're gonna have to make in

00:04:44.020 | your life is just going to be way more expensive than prior generations. Think about college,

00:04:48.260 | the stock market, housing, cars, daycare, all this stuff. I think millennials have to

00:04:52.540 | get used to this. So I know this question was asking about boomers, but I actually think

00:04:56.060 | the millennial demographic is going to have a much greater impact on financial markets

00:04:59.300 | going forward. And boomers have plenty of time through retirement. You know, they could

00:05:02.860 | have two, three, four decades to spend things down. It's going to happen on a slower basis.

00:05:06.900 | Millennials I think are going to have a way bigger impact. And if boomers do start selling

00:05:09.740 | their stocks, guess what? Millennials are now moving into their prime earnings years

00:05:12.740 | and they're going to be the buyers.

00:05:14.220 | - Yeah, I mean, well, the thing I was going to say is where you hit the nail on the head.

00:05:19.020 | It turns out everyone does want a house, right? That's what we're seeing.

00:05:22.660 | - It seemed like, yeah, okay. Housing market crashed and I saw my parents lose their house.

00:05:25.660 | I'm never going to buy one. That lasted only so long until you grow up and you realize

00:05:29.060 | this is what happens. Like you become an adult, right? If 20-year-old me could see 40-year-old

00:05:33.980 | me sitting at home on a Friday night, reading a book instead of going out and having fun,

00:05:37.860 | he'd put a gun to my head. But this is what happens when you get older, right? You stop

00:05:42.020 | going out and you become boring. It happens to everyone.

00:05:44.820 | - Yeah, I guess.

00:05:45.820 | - All right, let's do the next one.

00:05:49.100 | - Okay. So up next we have, "You guys have been absolutely wonderful at teaching us some

00:05:53.420 | valuable lessons. Hate to admit this, but I'm terrible at investing. My ability to withstand

00:05:58.340 | a drawdown is just awful. Don't want to save cash my entire life, but I also have such

00:06:04.100 | little risk tolerance. I'm 31 and my goals include getting married, buying a house."

00:06:08.900 | There we go. Et cetera. Any thoughts on my predicament?

00:06:12.960 | - The good news is this person knows who they are as an investor. There's that old saying

00:06:16.620 | that the stock market is an expensive place to figure out who you are as an investor.

00:06:19.860 | This person already knows. And I always say a good strategy is vastly superior to a perfect

00:06:24.580 | strategy you can't stick with, right? The good one you can stick with makes a lot more

00:06:27.780 | sense. So there's three main factors I've talked about before in terms of setting your

00:06:31.460 | risk profile as an investor. Your willingness, need, and ability to take risk.

00:06:34.940 | As a young person, your ability to take risk is nearly infinite because you have your human

00:06:38.340 | capital, which is your future earnings that you can use to save, and you have time on

00:06:41.520 | your hand. You have many decades ahead of you. But if you're not willing to take risk,

00:06:45.280 | it doesn't matter what your ability is because you're bound to make a stake in your portfolio

00:06:48.420 | at the worst possible time. So the fact that this person knows this, that's good. I think

00:06:51.900 | the simplest answer is to fix your need to take risk. That means cranking up your savings

00:06:55.480 | rate, right? If you're not willing to take a lot of risk, crank up your savings rate.

00:06:58.900 | That'll hopefully decrease your stress in other areas of your financial life as well,

00:07:01.540 | and I think offset some things. The next easy piece is thinking about asset allocation.

00:07:05.980 | So this is your other risk dial. So John, let's do a chart on of the drawdowns. This

00:07:08.820 | is some various asset allocations I created going from 90/10 down to 40/60. And the S&P

00:07:14.580 | 500, this is in March of 2020, was down around 35%. You can see a portfolio that was 40%

00:07:19.940 | stocks and 60% bonds only lost 15%. A 50/50 portfolio lost 18 and a 60/40 was down like

00:07:26.660 | 21%. So placing more conservative holdings in your portfolio like high quality bonds

00:07:31.140 | or cash is a great way to dampen volatility during a drawdown. Now let's look at the other

00:07:35.220 | side of this. Let's do the chart since the bottom in March of 2020. You can see the S&P

00:07:41.500 | 500 is up almost 100%. A 40/60 portfolio has risen 33%. 50/50 is up 42. So that's the tradeoff.

00:07:48.140 | Investing is all about tradeoffs. Bonds or cash, I guess cash for that matter if you're

00:07:54.260 | looking at this kind of thing for conservative investments, might not give you great returns

00:07:57.980 | going forward, but it can provide something of an emotional volatility and help you not

00:08:02.460 | make poor decisions at the wrong time. And since you're already saving for things like

00:08:06.540 | a house and wedding and more conservative, then that makes sense to keep money there.

00:08:10.340 | And I think the other thing you could do is potentially try to separate these by location

00:08:14.700 | and just keep all of your risk assets in a 401(k) that you're not gonna be able to touch

00:08:17.740 | for decades anyway because of tax penalties and all this kind of thing. And I do think

00:08:22.460 | this is more of a behavioral question than anything. So let's bring in a guy who's been

00:08:26.940 | writing about and talking about behavioral finance probably since I was in college and

00:08:30.580 | I was 20 going out all the time. Our firm's namesake, Barry Rittholz, who's been talking

00:08:36.100 | about this stuff forever.

00:08:37.100 | Hey, Barry.

00:08:38.100 | Hey, guys. How's it going? So I liked your answer to that question, Ben. And the behavioral

00:08:44.260 | side is really fascinating because stop and think about it for a second. When we look

00:08:48.660 | at professionals, when we look at mutual fund investors and how well they do when the question,

00:08:55.940 | the person who wrote the question said, "I'm terrible at investing." Well, so are most

00:08:59.940 | of the pros. Over a decade-long period, 85% of professional mutual fund managers are underperforming

00:09:08.060 | their index. That's before we work in fees. And so all the bold-faced names that everybody

00:09:14.220 | knows—Warren Buffett and Peter Lynch and go down the list—they're the exceptions.

00:09:20.860 | We know who they are because, you know, they're the Hank Aarons. They're the home run—they're

00:09:25.300 | the Michael Jordans. My frame of reference is a little older than you guys, so I go back

00:09:29.660 | to different sports figures. But essentially, you're terrible at investing, questioner,

00:09:36.860 | because we're all terrible at investing, most of us really bad. And if you're concerned

00:09:41.420 | about drawdowns and you're concerned about risk assets, put it in a broad index fund.

00:09:46.820 | Go to Vanguard. Get a very simple fund. Check it once a year. And in 40 years, you'll thank

00:09:52.860 | us. You don't have to be—you know, the business of stocks, the day-to-day buying,

00:09:59.380 | selling, squaring up positions, syndicates, IPO loans, that's professional trading. You

00:10:05.220 | don't need to be involved in that. What you need to say is, "I want to invest in America.

00:10:10.500 | I want to invest in the ingenuity and creativity of the entrepreneur class, and I'll check

00:10:16.260 | back in 20, 30, 40 years, and it's fine." I know it's easier said than done, but the

00:10:21.760 | day-to-day noise is what distracts us from thinking about the long term. And, you know,

00:10:28.260 | shut your TV off. Don't read the—if you don't have to for work, why would you want

00:10:33.940 | to read the business section? Who cares what this fund manager or that CEO or that new

00:10:39.500 | IPO is doing if you're not in the business? Own the entire market, put it away for a few

00:10:44.940 | decades, and retire comfortably.

00:10:47.460 | >> Right. I've heard Josh talk about this. Like, you could be like us and pay attention

00:10:50.820 | to stuff all the time, so you become essentially immunized to it, right? Or you can be someone

00:10:55.340 | else who just, like, completely ignores it, but getting stuck in the middle where you

00:10:58.780 | kind of pay attention and kind of don't, that's the hard part. I think you need some sort

00:11:01.840 | of barriers, and that could be, "Okay, I'm not going to have a Robinhood account. I'm

00:11:05.220 | only going to invest my long-term risk assets in tax-deferred accounts, and it's going to

00:11:08.940 | be a target date fund or index funds or whatever like that, in a 401(k) or an IRA, and I'm

00:11:12.900 | just never going to look at it. And the other stuff, I'm not going to even tempt myself

00:11:16.360 | with because I know that I'm going to make mistakes."

00:11:17.980 | >> You know--

00:11:18.980 | >> That's why I was going to say it's hard to not pay attention these days with Robinhood

00:11:21.700 | sending you, like, push notifications, "Oh, this holding's down 5% today," you know?

00:11:25.980 | >> You shouldn't have a Robinhood account if you're a long-term investor. And one last

00:11:29.660 | thing about, you know, the questioner saying, "I'm terrible about this," you know, evolution

00:11:35.340 | has trained us to, when we are threatened with actual danger, what happens is your stomach

00:11:43.200 | tightens up, your heart rate speeds up, your breathing becomes more deep, and you are prepared

00:11:47.900 | to either fight or flight. The people who did not have that sort of reaction, well,

00:11:53.820 | you know, Darwin is really, you know, undefeated, and the people who were kind of chill, they

00:12:00.100 | didn't hang around to have progeny. So all of us who are around today are around because

00:12:06.220 | a couple hundred thousand years ago, our ancestors responded to threats very emotionally, very

00:12:13.240 | actively, and very aggressively. And so the residue of that is, "Oh, no, the market's

00:12:18.580 | down 15%, you know, I have to fight or flight." And that's what leads to people in a panic

00:12:24.200 | dumping stocks at the exact worst time. Once you recognize that, once you figure out that

00:12:30.300 | this is my lizard brain trying to keep me alive to procreate and pass genes on to future

00:12:35.740 | generations, you have to put yourself in a circumstance where you're unable to do damage.

00:12:42.340 | And whether that's all your investments in a 401(k) or just indexing and not looking

00:12:46.980 | at it, that's your best solution. Don't let your lizard brain affect your retirement.

00:12:52.200 | I think what Barry's trying to say is that I can blame my great, great, great grandfather

00:12:55.720 | for me buying Zillow last year and getting smoked, right? I blame them.

00:13:01.120 | And if he didn't do that, you wouldn't be here. If he was kind of chill about it, if

00:13:05.720 | he had no reaction, you know, walking down, I love all the pattern recognition errors.

00:13:11.840 | If you're walking along a path and you jump because you see a stick rustling that you

00:13:16.200 | see is a snake, well, that's good. You know, it scares you, but you're still around. The

00:13:20.880 | person who's blasé about that, eventually a snake bites them and they don't have kids.

00:13:26.280 | All right. Duncan, let's do both of these next questions since they're both about writing

00:13:29.600 | and blogging, and that's why I wanted to bring Barry on today. So just read both of them

00:13:32.920 | so we can just give a general discussion on writing and what we think about that.

00:13:36.760 | >> Okay. Cool. So this one's a long one, but we do this show as a podcast now, too, so

00:13:42.640 | I'm reading the whole thing for those of you watching. Sorry. I've considered starting

00:13:46.900 | my own blog over the years mostly for a place to put my thoughts rather than for any type

00:13:50.780 | of revenue stream. Each time I'm ready to start, I seem to fall into a paralysis by

00:13:55.120 | analysis on the form and style. I'm torn between doing pseudonymous writing to protect myself

00:14:01.280 | and to be able to speak more freely, read naively on topics, or a more formal connection

00:14:06.320 | to my professional life and getting my thoughts out there as a resume/career builder. On certain

00:14:11.680 | topics, I can speak from a place of expertise, but others, I'm just hoping to get thoughts

00:14:15.360 | out there and potentially prompt a conversation with readers and maybe have them help educate

00:14:19.680 | me. I'm curious if you've faced these concerns earlier in your career and if you have any

00:14:23.600 | recommendations for someone like me.

00:14:25.640 | >> That's a lot.

00:14:26.640 | >> That is a lot.

00:14:27.640 | >> All right. Do the next one real quick so we can just do both of these.

00:14:29.840 | >> Okay. So the next one is, "I work for a small family-run investment firm. We send

00:14:33.280 | our clients monthly market emails and quarterly emails regarding portfolios. My issue is that

00:14:37.680 | while I'm the primary author of these emails, I don't really feel qualified to write them.

00:14:41.840 | I feel disconnected from my audience because I'm 36 years old and have plenty of time to

00:14:45.600 | invest while the audience members are mostly retired boomers or retired boomers. I feel

00:14:50.760 | that my time horizon is hindering my ability to connect with my audience. Do you have any

00:14:54.680 | advice regarding what I should write about? I'm hoping to find a sweet spot that would

00:14:58.660 | allow me to explore other concepts in finance without totally losing the audience."

00:15:02.440 | >> So these are pretty similar questions. I'm sure, Barry, you've gotten these a lot

00:15:06.040 | over the years. You've been doing this a lot longer than me. But it's kind of like, should

00:15:08.880 | I take this leap and just do this and start writing? And then what happens if people give

00:15:12.520 | me negative feedback? And what happens if I'm not any good and I say some wrong things?

00:15:16.200 | And the other thing is, okay, what do I write about? Right? So these are the two main questions.

00:15:21.480 | You've been doing this since probably when I was in college, I guess.

00:15:24.680 | >> Late '90s, yeah.

00:15:25.680 | >> So what was the impetus for you for starting a blog?

00:15:28.560 | >> So, you know, we forget how the world has changed. I had three main motivations to write

00:15:36.620 | the blog. The first was I wanted to always be able to access the things I was working

00:15:42.080 | on. Now, this is before Google Docs and G-Drive and Sheets and all that stuff, or even Dropbox.

00:15:50.600 | So if I wanted access to something on the Internet, I had to post it somewhere so I

00:15:54.680 | could circle back. If I'm at home, if I'm in the office, if I'm out at the beach on

00:15:59.080 | the weekend, you know, you just take it for granted that all that stuff is accessible

00:16:03.160 | today. It wasn't. If you didn't print a copy and take it with you, or publish it on GeoCities,

00:16:08.880 | you didn't have access to it. I guess you could theoretically email stuff back and forth

00:16:12.680 | all the time, but that just became tedious. So that was one thing. The other thing was,

00:16:17.440 | at the time I was working first as a trader and then as a strategist, and we had a couple

00:16:23.200 | hundred brokers and I got tired of answering the same questions. In the morning meeting

00:16:27.640 | you mentioned a company. What was the name of that? So I started putting the whole morning

00:16:31.520 | meetings on GeoCities. And hey, you know where the site is. Go get it. You know, don't ask

00:16:36.680 | me what the stock symbol is for EMC. It used to be, like, make me crazy or get questions

00:16:42.540 | like that. So that was one, two. And the third thing was, you just write to understand what

00:16:48.400 | your thoughts are when you're, you know, a little removed from it. We have terrible hindsight

00:16:53.840 | bias and narrative fallacy allows us to fool ourselves, sort of like a trading journal.

00:16:59.980 | Here's why I want to own this. Here's what I'm thinking. Here's what I think the upside

00:17:03.920 | and the downside is. After the fact, we just are too good at rationalizing and lying to

00:17:08.720 | ourselves. So, gee, why did I write? I thought that this company, you know, I remember Apple

00:17:15.400 | had 15 with $13 cash and the, had an argument with the compliance people that 45 was my

00:17:24.040 | upside target. This is like 15 splits ago. So it's the equivalent of like 4,000. So when

00:17:30.760 | you see it and go back and look at it, it's like, oh, I thought the stock could triple.

00:17:35.280 | What the hell did I know? It was selling it as a triple, worst trade ever. So that's the

00:17:39.960 | other reason to actually write stuff down. And last, if you want to become a better writer,

00:17:45.720 | there's only two things that you have to do. Write a lot every day, preferably, and read

00:17:51.000 | good writing. And so putting stuff down on paper in public will make you a better writer.

00:17:56.920 | It forces you to recognize your audience and it forces you to accept feedback whether you

00:18:02.680 | want it or not. Now, you have to develop a little bit of a thick skin and ignore, you

00:18:07.760 | know, the trolls and the haters, but you get a lot of great feedback from people who are

00:18:12.560 | genuinely interested in what you're talking about.

00:18:14.280 | - And I also think that, like, if you're first and foremost writing to build an audience,

00:18:18.240 | if that's your goal, that's not a great goal. And I never did that. I don't know. I started

00:18:22.240 | at the same thing as you. I wanted to answer questions where people were constantly giving

00:18:25.600 | me and start some sort of library and almost a journal for myself. But sometimes I even

00:18:30.360 | forget that there are people on the other end reading the stuff that I write, right?

00:18:33.600 | - Yeah.

00:18:34.600 | - And so I think you have to write about stuff that interests you personally, not like trying

00:18:38.640 | to put something out there that you think other people are gonna figure out. And like

00:18:42.080 | you said, this, becoming a writer, I never realized it. It forced me to become like a

00:18:45.720 | better learner, a better reader, become more curious, and become a better communicator.

00:18:51.680 | Like, 'cause you're right, it's, I was never one who liked writing before, like in high

00:18:55.360 | school and college. I hated writing papers. But then you find a subject you like writing

00:18:58.200 | about and you wanna write about it more, and I feel like it is a muscle that you can get

00:19:01.200 | better at. You can make it stronger, right?

00:19:03.200 | - Yeah, it's not homework when it's something you wanna do. And the old joke is if you wanna

00:19:08.160 | learn how to, really learn how to do something, teach it. So, you know, I used to use the

00:19:13.860 | blog because I kinda did a deep dive about 20 years ago into jazz. I was always a classic

00:19:21.160 | rock sort of guy. But I found about 30 years ago the American Songbook and toured singers

00:19:27.660 | like Sinatra and Fitzgerald and Julie London and working with Sarah Vaughan, et cetera,

00:19:31.600 | et cetera, et cetera. So I started doing these Friday posts, Friday night posts, weekend

00:19:36.560 | jazz or Friday night jazz. And it's, you learn so much when you have the ability to briefly

00:19:43.440 | explain it to someone and just say, "Hey, if you're interested in X, look at this and

00:19:47.800 | here's why this is important." Now, lately, I've been doing that with cars. I've been

00:19:51.680 | trying to learn more about the classic car market. So every Friday, I throw up, "Here's

00:19:56.080 | an interesting car. Here's what makes it unique. Here's what's crazy about the pricing. This

00:20:00.480 | is either really cheap or this is really expensive." And it's revealing about a niche little market

00:20:06.640 | that you can leap off from. But it could be anything. You know, JC was doing this with

00:20:11.720 | wines for a while, talking about rinds. Ed Giardini writes about movies and has been

00:20:17.840 | doing a movie review in his weekly market update for like 30 years. It's incredible.

00:20:24.980 | So you really develop an expertise by being able to explain it to third parties.

00:20:29.400 | And other people will give you feedback if you're wrong. Like the internet is full of

00:20:33.640 | people who are more knowledgeable than you in a lot of areas and they give you feedback.

00:20:37.160 | I think your other point that was really good is about, I was sick of answering questions

00:20:40.980 | for people. So this very last question where the guy says, "What do I write about if I

00:20:44.280 | feel like I'm not connecting to my audience?" Like even if you, so this is a younger advisor

00:20:48.200 | and he's got older clients. I think even if you have some sort of age gap, you know the

00:20:52.840 | general questions your clients are going to ask or have asked in the past. So build a

00:20:57.360 | library of questions that they're going to ask in the future about rising interest rates

00:21:01.360 | or higher inflation or lower inflation or bear markets or whatever. And then when they

00:21:05.280 | ask it in the future, inevitably you go, "Oh, I wrote about that two years ago. Here's this

00:21:09.080 | piece." And then guess what? You're an expert. You've already thought about this and people

00:21:12.600 | say, "Oh, this person knows what they're doing." That's the whole thing. Build a library and

00:21:16.360 | just go straight to your clients and the stuff that they're going to ask you.

00:21:19.560 | You know, writing, especially publicly, teaches you to develop better listening skills. I'll

00:21:26.000 | be the first to admit I have horrible listening skills. But when you're out in public saying

00:21:29.880 | something you really have to be aware when several people start saying, "Hey, you're

00:21:35.360 | talking about X, Y, Z and I work in that space and here's why you're not quite right and

00:21:40.240 | here's what you're missing." You have to learn how to A, recognize when you're making an

00:21:45.600 | error or a mistake and owning it and getting better from it, but B, respecting your audience

00:21:50.880 | and being empathetic. You don't have to write for a specific audience, but if you're 30

00:21:55.880 | and your clients are 66, well, you have to stop and say, "Hey, they don't have 40 years

00:22:01.620 | of work ahead of them and they don't have the ability to bounce back from a 30% drawdown.

00:22:07.120 | That's going to be really problematic, so I have to put myself in their shoes." So developing

00:22:11.920 | some listening skills and some empathy goes a long way. Even if you're not custom writing

00:22:18.480 | to that audience, at least they need to know you understand who they are, you respect them

00:22:23.920 | and you're aware of their circumstances. I think that really makes a big difference.

00:22:27.000 | >> Yeah. Knowing your audience is huge. And so I, when I first started writing, my audience

00:22:30.920 | to me, the only people who were reading were my friends and family. So I tried to simplify

00:22:34.400 | and dumb it down as much as I could and then I started getting people following me who

00:22:38.080 | were financial advisors saying, "Hey, this is perfect for my clients because they don't

00:22:40.840 | follow this stuff." I think people in finance take that for granted. We follow this stuff

00:22:44.340 | all the time. We could use all this jargon and really complex terminology and stuff and

00:22:48.880 | it would be useful for 2% of our audience. But what's the point if you don't know your

00:22:52.680 | audience enough to be able to simplify it and explain it and use analogies?

00:22:55.400 | >> It's showing off at a certain point, right?

00:22:56.400 | >> Yeah. So what's the point? And I always found that off-putting to the people I'd work

00:22:59.760 | with in finance when I first started out because I didn't understand a lot of it. And so I

00:23:02.480 | think being able to simplify the message too and make it useful to a broader audience is

00:23:06.120 | a huge skill that you can use in a lot of different areas in life.

00:23:09.360 | >> And Ben, I'm going to give you a compliment. You talk about financial advisors. I just

00:23:14.080 | had a meeting with a very senior person at Vanguard and they were discussing an internal

00:23:21.040 | debate where they talked about tax loss harvesting and they talked about home prices and they

00:23:26.160 | talked about bonds. And some of your posts are getting circulated within Vanguard for

00:23:33.440 | them to send to their clients who are advisors because you do such a good job explaining

00:23:40.000 | what can be pretty complex issues in a way that's understandable without talking down

00:23:46.040 | to people. Plus, you use numbers, data, charts in a way that most other financial writers

00:23:52.800 | you're clear of. And it's the perfect balance. And hey, Vanguard is what? $8 trillion? It's

00:23:58.080 | nice to see your work getting circulated there.

00:24:00.920 | >> I think they just like it because it fits their price. It's free to pass around.

00:24:04.560 | >> Well, it's not just Vanguard. I've heard that at other shops also. I've heard stuff.

00:24:10.160 | >> The first Barry Ritholtz stuff I ever read was at the street. What was it? Trading Diary?

00:24:14.120 | What was it where you were explaining that?

00:24:15.440 | >> The Apprentice Investor where it was, these are the lessons that you learn on a trading

00:24:20.240 | desk that when you move to becoming a long-term investor, you have to really bring over these

00:24:26.120 | skills and one of them was, hey, you got to expect to be wrong. That was like one of the...

00:24:31.440 | And I got a ton of pushback. Well, who bats a thousand as an investor or a trader? The

00:24:36.560 | sooner you recognize... And then the math is even more interesting. If you talk to some

00:24:42.200 | of the professional investors who are on Twitter, they'll tell you, you don't even need to be

00:24:46.880 | 50/50. As long as your losses are small and your winners are much bigger, you could have

00:24:52.800 | a 300 batting average and still outperform the market if you're a professional trader

00:24:57.880 | and doing all these things. For the average punter, for the average person who's just

00:25:02.880 | a dabbler, it's very, very hard. It's just so counterintuitive.

00:25:06.600 | >> Did the street keep that for you? Is it still alive somewhere?

00:25:09.000 | >> I ended up moving all the posts over to the blog, over the big picture. And if you

00:25:15.800 | pick the category Apprentice Investor, you'll see that whole run. I think almost all of

00:25:21.760 | them are up there.

00:25:22.760 | >> Okay. We'll find a link and put it in the comments, right, Duncan?

00:25:26.640 | >> Yeah. Well, I already have a link to that and here's what it looks like, the big picture.

00:25:32.000 | I was just going to say from an audience perspective, I'm a non-blogger, the only non-blogger on

00:25:35.880 | here. The pseudonymous thing, I was just going to say quickly, to me, I like so much more

00:25:41.120 | reading you guys' stuff and reading people who you can kind of relate to and you know

00:25:44.920 | who's behind it. So the pseudonymous thing, I think, takes on a different kind of relationship

00:25:51.240 | with the reader when they have no idea who's behind it.

00:25:53.440 | >> And Barry talking about posting on Jazz and Cars, if you don't show a little bit of

00:25:56.800 | a personality, I think it's going to be hard for the reader to connect with you. The stuff

00:26:00.960 | that Michael and I talk about on the podcast is that we get the most feedback about is

00:26:04.080 | our TV and movie recommendations. Either they're great or awful, right?

00:26:06.920 | >> Well, because you hate it on Wes Anderson. >> I specifically added that as my first question

00:26:13.640 | during the lockdown on the podcast. That and the book question, you know, what are you

00:26:18.920 | streaming during lockdown? What are your favorite books? What are you reading right now? People

00:26:23.200 | love those sorts of things because, hey, if I like this person and I trust their judgment

00:26:27.880 | and I'm simpatico with their kind of view of culture and entertainment or whatever,

00:26:32.600 | and they say, "Ah, I just finished Trillions to interview Robin Wigglesworth, and I was

00:26:36.360 | surprised how much I liked it," people will take that recommendation more seriously than

00:26:41.280 | just somebody out hawking whatever their latest book is.

00:26:44.200 | >> All right. If you have a used car to sell, Barry is always in the market. Leave a link

00:26:49.280 | in the comments. Remember, if you have a question for us, askthecompoundshow@gmail.com. We finally

00:26:55.120 | hit our big round number this week. Duncan, everyone was very excited, 100,000 subscribers

00:26:58.480 | on the YouTube channel. >> Congratulations. That's amazing.

00:27:00.040 | >> Which is very cool. Duncan is a huge part of that, so we appreciate that. Thanks to

00:27:04.640 | Barry for coming on again. You'll definitely be on again in the future.

00:27:07.020 | >> My pleasure. Duncan, next time you come out here, we'll take you over to McLaren.

00:27:10.960 | There's a dealership 10 minutes from me. >> Awesome. Let's do it.

00:27:15.600 | >> See you all next week. >> Sounds good. See you, everyone.

00:27:17.760 | >> Bye. [MUSIC]

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