Josh Brown – When Witchcraft Failed (Capital Allocators, EP.06)
May 9, 2017
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Josh Brown, CEO of Ritholz Wealth Management, shares his journey from a start in the wrong lessons of a brokerage to the reformed broker. He discusses the three worst lessons learned in the investment industry and the power of compounding. They also touch on investment committee decision-making and the importance of staying true to the investment model. Reflecting on past regrets, they discuss the significance of reading social cues and impactful words.
Building a financial plan aligned with clients' goals is crucial for effective wealth management.
Managing clients' behaviors and emotions through ongoing education is key during market volatility.
Combining strategic and tactical decision-making in asset management helps to tailor strategies to individual client needs.
Deep dives
Importance of Financial Planning for Wealth Management
The podcast episode discusses the importance of financial planning in the context of wealth management. The guest, Josh Brown, CEO of Ritholtz Wealth Management, highlights the significance of building a financial plan that aligns with clients' goals and helps them achieve their desired investment outcomes. Brown emphasizes that asset management is only effective when it is in service to a financial plan. By mapping out future liabilities and timing, clients can make informed decisions about their investments, ensuring their portfolios are tailored to their specific needs and circumstances.
The Role of Behavioral Finance in Investment Strategies
Another key point discussed in the podcast episode is the role of behavioral finance in investment strategies. Josh Brown underscores the importance of managing clients' behaviors and emotions during periods of market volatility or flatness. He describes how his firm focuses on ongoing investor education to help clients understand the evidence-based approach they follow and the benefits of long-term investing. Brown highlights that clients who are familiar with their firm's investment philosophy and have access to ongoing education are more likely to stay the course and avoid making hasty investment decisions based on short-term market trends or emotions.
Combining Strategic and Tactical Decision-Making in Asset Management
The podcast also explores the firm's approach to asset management, which involves combining strategic and tactical decision-making. Josh Brown explains that the majority of client funds are strategically managed, with a focus on low-cost investments and owning the best versions of each asset class. The firm aims to minimize counterparty risk, manager risk, and obsolescence risk. However, they also allocate a portion of the portfolio for tactical decision-making, recognizing the need to adapt to changing market conditions. Brown emphasizes the importance of marrying strategic and behavioral aspects of portfolio management and tailoring strategies to individual client needs and circumstances.
Implementing Rules-Based Investing
The podcast discusses the implementation of rules-based investing strategies in the equity market. The speaker emphasizes the importance of removing personal biases and gut decision-making when managing investments. Rules-based strategies, which can include market cap weighted indexes or fundamental weighting, are seen as cost-effective alternatives to actively managed strategies. By using rules-based strategies, investors can incorporate historical data and back-testing to make informed investment decisions.
Considerations for Portfolio Construction
The podcast explores key considerations in portfolio construction, such as cost management and quality screening. The speaker highlights the importance of driving down portfolio costs and discusses the trade-offs associated with choosing low-cost index funds or alternative exposure options for specific asset classes. Additionally, the speaker suggests the use of quality screens, such as dividend payers, to enhance the overall quality of portfolios, especially in emerging markets where additional risk factors may be present.
Josh Brown is the CEO of Ritholz Wealth Management, a NYC based financial advisor that helps people align their investments with their financial goals. He is well known in social media financial circles for his decade-long, insightful blog, The Reformed Broker, his Twitter handle, Downtown Josh Brown, and his regular appearances on CNBC’s Halftime Report. Josh has written two books on personal finance and has been published in every major financial newspaper and periodical. Josh’s personal story is one for the ages, rising from a start learning all the wrong lessons in a boiler room-style brokerage to embodying the moniker of the reformed broker. We spend some time hearing his story and then turn to how he applies the lessons he has learned to managing portfolios for individuals. The principles Josh employs at Ritholz are simple to say and hard to deliver. Don’t be fooled by Josh’s casual speaking style and occasional, entertaining slip of the tongue; he has one of the sharpest minds in the business and is chock full of deep insights. Please enjoy my conversation with Josh Brown.
