This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
Jeremy Owens: Hello and welcome to OnWatch by MarketWatch. I’m Jeremy Owens. It’s one of the busiest times of the year for financial news. We have a wave of big tech earnings, tons of crucial economic data, an upcoming Federal Reserve meeting, plus a pivotal presidential election. As we wait for the results of some of this news, we wanted to bring on an important voice, Downtown Josh Brown. Known for his Reformed Broker Blog and the Compound Podcast, he joins us today to talk about his new book, The Market, and what the Wu-Tang Clan taught him about running a business. Plus, we’ll tell you about the news we’re watching this week and how it will impact your wallet.
So let’s talk to Downtown Josh Brown. Downtown Josh Brown made his name as a blogger, but Brown is pretty much done with that part of his career. And to mark that change, he’s published a book called You Weren’t Supposed to See That: Secrets Every Investor Should Know. The book retraces some of Brown’s most famous market takes and extracts long-term lessons from those blog posts. So in the spirit of that book, I asked Brown to revisit some of the things he’s said to MarketWatch over the past decade.
Josh, when I met you a couple of years ago, we asked you what you thought you’d be reading on MarketWatch in the next five years, and you said, “I’ll be reading a lot about inflation and then eventually disinflation and then maybe deflation, hopefully not. But I do think probably a lot of what will be driving trends in the market will have to do with interest rates and macroeconomic concerns.” And reading that back, I have to say, ding, ding, ding, it’s been a lot of talk about interest rates and macroeconomic concerns on this podcast this year. So it does seem like you nailed that one.
Josh Brown: 100%, and that’s exactly how things played out. It’s not Nostradamus level vision, it was just very obvious that a lot of what people were being driven by in terms of selecting an asset allocation was as a result of 0% interest rates. And then of course, we had 5% interest rates, and you see people’s attitudes toward allocating to these different assets being very different. I think the two most important things in the markets are earnings growth and interest rates. So all of these other things that we discuss feed into those two major variables.
The two biggest things that are happening right now is that interest rates are falling and earnings are growing, which is why we’re sitting near record highs in the S&P, and the Nasdaq and the Dow Jones in so many sectors of the market. This is the best combination of conditions you could possibly ask for. So if I met a genie and the genie said, “I’ll grant one wish. I’ll tell you one thing about where things will be a year from now,” the only thing I want to know is are earnings going up or down, and is interest rates or inflation up or down? If I know those two things, I pretty much can get the main story and that’s the situation we’re in right now.
Jeremy Owens: The one thing I would wonder about there is the labor market, Josh, and that’s something else we talked about a lot back then. I think you actually banged your hand on the table at the time in late 2022 when people were predicting a recession and you said, “If people don’t get fired, then it’s not a recession.” And we’re in that situation again where people are predicting a recession for next year, but we’re not seeing people get fired yet.
Josh Brown: Such a waste of time. The only people predicting recessions are Canadian economists with newsletters. There’s nobody who’s managing money who’s yelling about recessions. What do you do for a living? You seriously think your job is to predict the economy? Think about the narcissism of saying, there are 7 billion people on Earth and I’m going to accurately predict what all of them are doing, so much so that I’m going to give you a macroeconomic forecast for the Earth. Have you taken leave of your mind, sir? So it bothers me that people think investing is this thing where you have to predict the future and then just invest in the right portfolio that’ll capitalize on that. We see time and time again, even if you had the news right, you still wouldn’t know what to do with your money. The chaos, the madness, the headlines, the clickbait, it’s endless. It’s not that we don’t think bad things can happen. I’m 47-years-old, I’ve seen the market get cut in half twice. It’s that we don’t think every rustle in the bushes is 1929.
Jeremy Owens: And that’s exactly why people have been reading the Reformed Broker for so long, Josh, is that honesty. The book seems to be kind of a look back, but I think what you do find in the book is the ability to say, “Look, I’m talking about a certain thing there, but this is a universal thing that continues to be important if you’re looking at the financial markets and here’s what you actually need to take from this.”
Josh Brown: Well, the idea of writing about the markets daily was never about trying to predict the future, or scare people, or write a headline that gets a lot of clicks because blogging is a lot more personal with the audience. You realize that what you’re writing is going to get emailed directly into their inbox and that they are forming a relationship with you. So that’s very different than doing every twist and turn in the market five days a week at a publication where it’s like, “The Fed is too late. Oh no, the Fed was right. Oh no, now they’re too late again.” If that’s what you’re doing, it’s impersonal and also, daily market commentary doesn’t really hold up that much.
And one interesting thing, we structured the firm around content creators and we have 10 people who are writing about investing on a regular or semi-regular basis. We don’t own any of their content. Every content creator that’s with Ritholtz owns their own content. And one of the reasons why that’s so important is people are going to do their best work when they feel invested in it, but the other reason is we don’t want it. My market commentary from three months ago doesn’t mean anything. It’s worthless.
Jeremy Owens: Yeah, and you’re talking about your firm there, Ritholtz Wealth Management, when you talk about how it’s structured and that everybody has control of their own individual output, it’s funny you talk about Wu-Tang a lot. You’re obviously a big Wu-Tang fan. It actually reminds me of what the Wu-Tang did with allowing all the individual members to go off and sign their own deals for their own individual music while keeping the Wu-Tang centered in one place.
Josh Brown: This is why it stayed together for 30 some odd years because the RZA realized that if he were to be a pig and try to keep everybody signed to him, ultimately that would lead to bad blood and the whole thing would break apart. That insight into human nature was so significant. I have insanely talented people that I get to work with and one of the most important reasons why we’ve kept it together for the 11 years we’ve been a firm is because we give creators the ownership of what they want to say. We let them say it. We provide them with a platform, great distribution. Most entrepreneurs in our space don’t understand these things. They think they have to have their grip around everything, but they don’t understand how much power there is when you empower other people versus when you subjugate people and push their head down to fit under your banner.
Jeremy Owens: We’re going to take a quick break. Stay with us.
Welcome back. Before the break, we discussed what Josh Brown said to us in 2022, but he’s been talking to MarketWatch a lot longer than that, so I wanted to get into some of the things he told MarketWatch over the years. The first big interview we did with him was in 2012 when he was still blogging and he was investing in master limited partnerships, or MLPs. Now, if your immediate reaction is what’s an MLP? That makes sense to me, I didn’t have any idea either. What you need to know is this, an MLP is a way of structuring a real estate or natural resources business, and it often comes with tax benefits and relatively high yields. Back in 2012, Brown was investing some of his clients in an ETF that included MLPs, and I wanted to know what’s changed since then.
Well, Josh, the first big MarketWatch interview I could find with you was by Jonathan Burton, and that one is called Five Money Moves a Reformed Broker is Making Now. So in April 2012, what you told us was lean on value in dividends, look at financial stocks in mid-caps, and then believe in bonds, which was an interesting case to make in 2012 that looks a lot better now. The one interesting outlier there is you were talking a lot about master limited partnership ETFs. What happened to those and what do you take from all that you told us in your first big interview with MarketWatch?
Josh Brown: So this is prior to the founding of our firm and we had left master limited partnerships behind when we created the new firm and really wanted to do our own thing. With master limited partnerships, you very quickly can ascertain yes, these have high yields, and the pitch is that they aren’t as volatile as oil stocks until oil stocks get extremely volatile and then you realize it’s like okay, I’m getting this high yield, but I’m also getting the volatility of the energy market. What if instead of prioritizing the yield, I prioritize diversification with an energy? And by the way, I’m not the only person to have had that realization. Most of the large cap MLPs have since converted to C corps, and the asset class has eaten itself.
So reducing things along the way has really been the secret, not adding new things all the time just because there’s a great sales pitch or story attached to them. A lot of people want to add new things to it and new bells and new whistles. I’ve always thought of investing as a reductive process when done correctly. It’s not that there should never be anything new, it’s that the hurdle should be much higher to add something, rather than subtract something.
Jeremy Owens: So fast forwarding to 2015, Josh, you talked to us about a robo-advisor service you were developing at Ritholtz called Liftoff. Is that still a part of what you’re doing?
Josh Brown: It’s not a thing anymore. We don’t call it a robo-advisor. Liftoff still exists. We’ve got about $45 million on the platform, couple of hundred households. Most of those households have only a few thousand dollars in their accounts. Some of them have gone on to become multi-million dollar relationships, and they just happen to have started with us on the Liftoff platform. But we don’t call it robo because we have human certified financial planners who are actually talking to these clients.
Jeremy Owens: Right. Instead of marketing as a robo-advisor, it’s your entry tier. It’s the way people get into your shop and then you try to move them up.
Josh Brown: I always thought of robo as pejorative, and I wrote a post recently. Rich people don’t talk to robots. There’s nothing wrong with automation, there’s nothing wrong with AI. All of these tools are going to be really useful and they’re going to help people like me scale our practices. So we now have a tier for every class of investor, if you will. Liftoff is $0 to $250,000. It’s our entry level asset allocation/financial planning program, and it’s perfect for people that are early in their accumulation. 250,000 to a million is called Good Advice. This is a different robo-advisor service that we actually acquired from BlackRock last year. This is where we’re effectively working with HENRYs. These are high earners, not rich yet.
Once those people are with us for long enough, they will ultimately become a million to $7 million, which is our Ritholtz Grand tier. Most of our clients are in this range. This is full service wealth management. 7 to 25 million is called The Preserve. These are now families where not only are we managing money for their own retirements, but we now have to think about the next generation and the generation after that because of that level of wealth. And then anything above 25 million is our newly formed Multifamily Office where we basically are doing everything from working directly with estate planning attorneys to handling taxes and even bill pay if that’s what a family’s looking for. So we have set up these tiers so that we don’t have to say no to anyone, and we could be really proud of the level of service that we’re delivering appropriately for each group. But to say to a client, “You’re not important enough to talk to us, talk to our software,” I don’t like the spirit of it, so we don’t do it.
Jeremy Owens: Well, that’s one of the ways y’all are different, and we did try to hone in on your differences. In 2020, you wrote a big long feature about what you were doing called Downtown Josh Brown’s Budding Media Empire Seeks to Upend Traditional Wealth Management, and I really jumped at one of the quotes from that feature. You said, “I love to have a conversation with a client if they want my opinion on Google’s latest quarter or whatever, but it’s not going to help them. It’s fun to talk about, but what’s really going to help them is establishing a plan and sticking to it.” And Josh, this is something I struggle with on a daily basis. As a financial journalist, I love talking about the latest earnings and all the latest news, but honestly, it probably shouldn’t affect what listeners are doing with their financial situation. You should be setting up your finances for the long term in a way that the latest news isn’t going to affect you, and that’s what you were saying about how you work with your clients.
Josh Brown: Yeah, that’s right. One of the things that we’ve done really effectively is jujitsu the conversation. A lot of people come to us, they hear Barry on Bloomberg Radio, they see me on TV. Then of course, the first thing they want to talk about is portfolio holdings, or should I buy Coke or Pepsi into the earnings, or what’s better, Microsoft or Apple? If we’re going to be effective, we have to change the conversation to tell us what’s going on with you because we already know none of that stuff really is going to help anybody. You might be able to put on a great trade or something, but what people really need and what people want to talk about at first are not always the same thing, what are the things that you want to spend money on today, tomorrow, and 10 years from now and 50 years from now? What are those important things to you? And they can change, but right now, what are they going to cost and what are contingencies?
Right now, you own a business. You might still own that business in 15 years, or somebody might call you in three years and say, “I’m buying it.” How dependent do you think your adult children are going to be on you when they’re 22? What about when they’re 32? Where do you want to live? What do you want to do for vacations? You got to have conversations about that so that you can reverse engineer the right portfolio. And then when you’re having the portfolio conversation, the repeated reminder has to be look, this is not about feeling smart when you flip on CNBC and the oil stock you own is outperforming the other oil stocks. If that’s what we’re doing here, you’re talking to the wrong people. This has to be about getting you financially to these goals that you said were important to you. And once that sinks in, finally, finally, you’re really helping people.
Jeremy Owens: Well, don’t convince them to just cut off all financial news, Josh, but I do appreciate… And we try to do the same thing of trying to convince people that a lot of what we talk about is fun to talk about and interesting to talk about, but don’t let it change.
Josh Brown: For market nerds, listen, there’s a subset of people who eat, sleep and breathe this stuff, and I’m part of that, but the thing is to compartmentalize and to say, “Wow, this is really interesting that the ETF market just hit 10 trillion, or that China is doing its first stimulus since pre-pandemic.” All of it is fascinating and everyone should be aware of it. The next step, though, do I need to react to it? Our job is to explain to people that no, they don’t.
Jeremy Owens: Well, Josh, it’s been fun revisiting all your discussions with MarketWatch and having yet another one. We look forward to what you can talk to us about in the future. Thanks so much for joining us.
Josh Brown: Shout out to MarketWatch. You know I love you guys. Keep doing what you do.
Jeremy Owens: Before we go, it’s time for What We Are Watching, a look at the news you need to know for the rest of the week and beyond. First, economic data. Gross domestic product or GDP, one of the most crucial gauges we have on the growth of our economy, increased 2.8% in the third quarter. Now, that’s a really strong reading, economists said. Even though a large trade deficit caused the number to misestimate slightly. Economist Claudia Sahm, who spoke with OnWatch recently, said the report really was good news. But that is far from the only report we’ll be watching this week.
The October jobs report is coming Friday, and it’s an important one. Check marketwatch.com for live coverage. And then there’s AI and tech earnings where results have been choppier. On the good side, there’s Google, which saw a big increase in cloud revenue as customers rent AI capable workloads. Chief Executive, Sundar Pichai, said that a quarter of all coding at Google is now being performed by AI, but the weight of big expectations is being felt by others, like AMD. The NVIDIA rival posted record revenue and forecast another record quarter, but it wasn’t enough for investors who were expecting a bigger guide for the fourth quarter. Shares were pounded Wednesday. In addition, Apple’s AI features, Apple Intelligence, debuted with some negative reviews around the internet this week. Apple will report earnings this afternoon, along with Amazon, and we’ll be back next week to discuss all we learned about big tech.
And a bit of news about the show, with a thanks to you, this podcast won a gold medal for Best New Podcast from the Signal Awards this week. We really appreciate all our listeners who voted for us and everyone who checks in with us every week. And that’s it for this episode. Thanks to Downtown Josh Brown for joining us and being willing to relive his previous prognostications. To keep following the latest on all the news happening right now, head to marketwatch.com. If you have questions about the news and the economy, we want to hear them. You can reach us at onwatch@marketwatch.com. You can subscribe to the show wherever you get your podcasts, and please do. If you like what you heard, please leave us a rating or review. It really helps others discover the show. The show is hosted by me, Jeremy Owens, and produced by Alexis Moore. Isaac Gaines mixed this episode. Melissa Haggerty is the Executive Producer. We’ll be back next week with a new episode and until then, we’ll be watching.
