The Compound and Friends

Ritholtz Wealth Management's Blair duQuesnay caught up with Brinker Capital's Daniel Crosby to talk about how central behavioral investing has become to the financial advice proposition. It sits at the center of the value-add that advisors are bringing to the table in the modern era.

Will every financial firm someday have a CBO - Chief Behavioral Officer?

Read Blair each week at her blog, The Belle Curve!

http://blairbellecurve.com/

Follow Daniel Crosby on Twitter:

https://twitter.com/danielcrosby

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Today at the Compound - an all new episode of Talk Your Book with Downtown Josh Brown and Barry Ritholtz talking to Andrew Thrasher, a technical analyst and portfolio manager at a large Midwestern RIA called the Financial Enhancement Group. 

Andrew's work look at the structural behavior of prices and volatility in the stock and bond market. In this discussion, Josh and Barry quiz him on the way his firm explains their investment philosophy to clients, the difficulty of marrying technical analysis with fundamental analysis and tons of other stuff. 

You can find more of Andrew's writing here:

http://www.athrasher.com/ 

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Rick Ferri is one of the most important figures in the indexing movement, having began blogging extensively on the topic of low cost investment and financial advice before the post-crisis revolution drove trillions of dollars into Vanguard and BlackRock.

Rick is back with a new business model and a forthcoming book, The Education of an Index Investor. Barry Ritholtz and Rick discuss what he's up to now.

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Josh Brown reminds the staff at Ritholtz Wealth Management to look up at the scoreboard in the sky every once in awhile, and to ask ourselves "How could life be better?"

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"As market participants we all want more data, but once you understand where some of the data comes from you have to take it with a big grain of salt."

Stock market data today is abundant and mostly free. However data purporting to go back decade, if not centuries, has a lot of issues with. Ben Carlson, institutional asset management chief at Ritholtz Wealth Management does as much research as anybody using historical data. So he has a unique perspective on what weight we should put on historical data hen making investment decisions today.

You can read more about Ben's take on using long term data at his blog, A Wealth Of Common Sense:

https://awealthofcommonsense.com/2019/03/real-estate-vs-the-stock-market/

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This week, one of the most well known permabears came out and took a victory lap despite the fact his commentary has been negative about stocks forever. 

But it's a trick... 

People can pick different indexes, use price versus total return data, cherry pick from among their own statements and do all sorts of other jiujitsu to hide their bad calls. Investors would do better to ignore all of it, but this is hard - so being armed with this knowledge is the next best thing. 

Read Michael Batnick's explanation here: 

https://theirrelevantinvestor.com/2019/04/02/how-to-be-wrong-and-think-youre-right/

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In a recent study, Vanguard took a look at the last 30 years worth of data for the Russell 3000 index, which represents the total stock market. They found something remarkable - over the last 30 years, 47% of stocks were unprofitable investments and almost 30% lost more than half their value. They also found, and this is the big one, that 7% of stocks had cumulative returns over 1,000%.

But imagine how hard it would have been to identify that winning 7% and concentrate only on those holdings in advance? In his recent post, Michael Batnick takes Vanguard's data and looks at the long-term risk of trying to only hold a small amount of stocks, even if you have the conviction that they are the right stocks. Diversification has a much better track record than randomized collections of larger positions. 

What are the ramifications of this for portfolio construction? How about investment advice? Michael and Downtown Josh Brown sort it all out in a brand new Live from the Compound.

Read Michael's post here and see the charts for yourself: 

https://theirrelevantinvestor.com/2019/03/25/how-concentration-affects-portfolio-performance/

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"Home ownership is often called both the American Dream and the biggest investment of your life. It’s debatable whether a house is truly an investment or not, especially when we’re talking about your primary residence."

Ben Carlson, institutional asset management chief at Ritholtz Wealth Management did a post about why comparing the price appreciation in housing with the stock market is not a great idea. Downtown Josh Brown gets him on the phone to explain exactly why investors and home owners should keep their feelings about their primary residence away from their asset allocation decisions.

You can read more about Ben's take on real estate vs the stock market at his blog, A Wealth Of Common Sense:

https://awealthofcommonsense.com/2019/03/real-estate-vs-the-stock-market/

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Josh's guest today is portfolio manager Drew Dickson, who manages a concentrated portfolio of favorite stocks for Albert Bridge Capital. In a recent blog post, Drew explains the four "tools" he uses to overcome the biases that can cloud an investor's judgement and threaten a portfolio manager's ability to look at holdings objectively.

Josh talks to Drew briefly about these ideas in today's The Compound mini podcast.

You can read Drew's post here:

https://www.albertbridgecapital.com/drew-views/2019/3/26/dampa-debiasing-and-alpha

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Josh here - I had so much fun hanging out with my friend Allison Schrager this week on the eve of her gigantic book launch for An Economist Walks Into a Brothel. Allison spent time with big wave surfers, Nevada prostitutes, Hollywood film producers, paparazzi cameramen, horse breeders, magicians and other real world practitioners to discover the way they handle risk.

It's one of the most fascinating books I've ever read and Allison has the perfect combination of writing chops and mental horsepower to pull the whole thing off. Learning about the difference between insurance and hedging, for example, in a really fun format, will definitely pay off. There are lessons about ecosystems with a delicate trust factor, the dangers of overconfidence, the limitation of data analysis and so much more.

Get Allison Schrager's new book, An Economist Walks Into a Brothel, right here:

https://amzn.to/2HXaQob

Follow her on Twitter and ask a question!

https://twitter.com/AllisonSchrager

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Bloomberg reporter Tara LaChapelle asks whether or not Warren Buffett will complete one last "elephant-sized" deal before calling it a career. He's 88 years old, so the clock is ticking.

Join Michael Batnick and Downtown Josh Brown as they discuss the possibilities and a recent history of Buffett's acquisitions. Please jump in with your comments too, we'd love to hear what you think!

You can read the full article here:

https://www.bloomberg.com/opinion/articles/2019-03-25/warren-buffett-s-next-berkshire-hathaway-deal-will-be-crucial

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Josh makes a big announcement to the staff of Ritholtz Wealth Management.

https://ritholtzwealth.com/

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There you are, sitting on a massive gain in a big winning stock. And now it's become a large portion of your portfolio and your net worth increasingly depends upon that stock staying up. Now what?

Diversification will rarely look as attractive in hindsight versus the huge gains that are possible from a big winning stock. And regret minimization is one of the most important strategies in finance given how our behavior affects our long term returns. 

In this episode of Live from the Compound, Certified Financial Planner Blair duQuesnay joins Michael Batnick and Josh Brown to discuss regret minimization techniques and how to rationalize selling a big winner. 

You can talk to Blair duQuesnay about your own portfolio and financial plan here:

https://ritholtzwealth.com/team/blair-duquesnay/

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