Investments found in the personal portfolios of pro investors are often there after “a conflict between the head and the heart,” with the heart victorious, argues Josh Brown, CEO and co-founder of Ritholtz Wealth Management, in an interview with ThinkAdvisor.
What makes him such an authority on how other finance experts invest their money? The industry veteran has co-edited a new book of essays written by 25 investment professionals — including him — revealing the what and why of their personal investments.
“How I Invest My Money” (Harriman House-Nov. 17, 2020), co-edited by Brian Portnoy, founder of Shaping Wealth, explores the investment choices of prominent folks in finance, among them Christine Benz, Lazetta Rainey Braxton, Blair duQuesnay, Morgan Housel, Shirl Penney, Bob Seawright and Perth Tolle.
Perhaps the biggest takeaway — and the most surprising one — is that many who advise other people how to invest often make their personal finance decisions based not on logic but on emotion.
The book was written amid the coronavirus pandemic, and the portfolio-content information is current, says Brown, creator of the provocative blog, The Reformed Broker, launched in 2008. The column is a widely read, wildly popular social media hit in the financial services industry and beyond.
In the interview, Brown, 43, discusses his riskiest types of bets and the plethora of mistakes he’s made during his 23 years investing in the stock market.
In the book, which stemmed from a blog post Brown published in July 2019, he reveals his holdings, which are a mix of active and passive investments and include some two dozen individual stocks — such as Apple and Uber — mutual funds, ETFs, and equity in startups like Instacart, Riskalyze and Stocktwits.
But his “real money,” he stresses, is the “30-something percent” he owns in New York City-based RWM — which has $1.3 billion in assets under management — along with his all-equity 401(k) account.
Brown, on BrightScope’s Board of Advisors, hosts a daily CNBC show, “The Halftime Report”; and his podcast, “The Compound Show,” features chats with notable figures in finance.
He has presented or participated in panels at Columbia University, Harvard University, Morningstar Investment Conference and the Tiburon CEO Summit, among many other speaking engagements.
ThinkAdvisor recently interviewed Brown, on the phone from Merrick, New York, the Long Island town where he was born and raised. At one point in the conversation, he talked about his assurance to clients and employees, in early spring, that RWM would make no layoffs because of the coronavirus pandemic. “I think that was what was called for in that moment,” he says, “and I was willing to back it up.”
Here are highlights of our interview:
THINKADVISOR: What’s the biggest investing mistake you’ve ever made?
JOSH BROWN: I’ve made them all: concentrated positions that have blown up; using margin debt and leverage; trading too frequently; neglecting to look at certain investments that weren’t going well and having them get worse as a result. I hope I’ve made every mistake by now — I’ve certainly made the big ones.
You were bad at day trading, you write in your book.
I’ve never seen anyone that’s good at it. One of the reasons I write and blog is that memorializing and autopsying [my mistakes] helps me, maybe, to not repeat the same ones. I feel the writing process helps me improve.
What goes through your mind as you reveal those mistakes?
I try to write about them comically and self-effacingly. I try to be honest with myself and say, “OK, this is where I should have picked up what I was doing wrong” or “This is what I’ve learned in the aftermath and how I plan to apply it going forward.”
What are your riskiest investments?
Startups. Friends start companies they ask me to buy equity in — but I say no to most things. The failure rate of startups is obviously going to be higher than the rate of failure for, say, owning mutual funds.
I note that several people who contributed to your book also said they invest in friends’ funds or projects. So how common is that among finance experts?
Everyone has to balance the amount of risk they’re willing to take with things they’re personally passionate about. A lot of people in the book feel that way: If a friend is launching stuff, they want to support them even though they know that, based on a spreadsheet calculation, it’s probably not a great idea. But this is where the conflict between the head and the heart comes in.
In their essays, many people said they were doing things [with their money] that you wouldn’t do if you were governed purely by logic. They were doing them because they made sense emotionally. They understand why it doesn’t make sense logically or rationally; but, they said, here’s why I do it anyway.
What’s an example?
Based on the data and what we all know to be true, Brian Portnoy [founder of Shaping Wealth and co-editor of the book] knows that he keeps too much cash. He explains why he’s willing to go against what the rational, logical investor would do: [The cash] is for his own emotional well-being. That juxtaposition is the point and theme of the book.
A similar example is CIO of Madison Avenue Securities’ Bob Seawright’s stating that his vacation home is “a lousy investment” but “the most important financial investment we’ll ever make.” Please explain that contradiction.