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How Josh Brown and Other Financial Pros Invest Their Own Money

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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.

Please elaborate.

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.

I think that if you were to strip all the enjoyment out of [having that summer cottage] and [analyze] if it was smart to buy it for “X” price and what it will be worth in a year or 10 or 20 years, in hindsight, Bob wouldn’t see that financial transaction as having made sense.

So what’s his main point?

It’s: Who cares about that! I have only one life to live, and it’s not being spent in a spreadsheet. It’s being spent with my family. So this is a really good example of something that might not be a great financial decision but is a great life decision.

Blair duQuesnay, investment advisor at RWM, wrote: “I fell in love with the markets and investing during college.” Do you identify with that?

I fell in love with stocks, and I’m still in love with them — but not necessarily a particular company. I love the idea of the stock market and what it can do.

On the other hand, Christine Benz, Morningstar’s director of personal finance, wrote that she’ll “never be passionate about investments.” Nor is she “in touch with [other people’s] feelings of being rattled” during market volatility, she says, despite being “pretty equity-heavy.” So Ms. Benz seems pretty detached.

My takeaway is that for her, analyzing investment products is a job. So she looks at [the market] dispassionately and analytically and doesn’t fall in love with any particular stock or fund.

Morgan Housel, partner in the Collaborative Fund, wrote that “owning a house without a mortgage was the worst financial decision we’ve ever made but the best money decision we’ve ever made.” What differentiates the two?

I think what he meant — though I’m not 100% sure — is that when you make a financial decision, it’s something based [mainly] on math, but making a money decision is more about a decision you could live with and are happy with. [In the book, Housel elaborates about his home-buying decision: “A rational advisor would recommend taking advantage” of very low interest rates and “investing extra savings in higher-return assets, like stocks.”]

RWM co-founder and director of wealth management Kris Venne did your financial plan for you. Why didn’t you create it yourself?

Doctors have doctors; lawyers hire lawyers. I’m sure I could have done my own plan, l but I liked getting the perspective of somebody who knows me well enough to understand what I really care about and who could sit down with my wife and me to help us figure out what we’re really trying to do.

About 10 years ago, you stopped working directly with clients. Do you miss it?

No because I don’t think I can do for an individual household what the firm’s client-facing advisors can. Most are certified financial planners, and I feel that’s the right point of relationship between the clients and our firm. It’s where a lot of the value is being added.

Amid the coronavirus pandemic, what’s changed in the way you’re operating and serving clients?

I’m really trying to amp up the human connection between me and everyone that works with us. One of the biggest lessons I’ve learned from the pandemic is how important human connection is.

But hard to maintain that when almost all work is carried out remotely, right?

We’ve always done a lot virtually and have relied on technology. We have employees in multiple states, and we [often] onboard clients virtually without ever meeting them. But one of the things I found to be challenging in the pandemic was keeping the employees feeling as though someone was paying attention to them, who cared about how they were doing.

How did you meet that challenge?

I reached out to them to make sure they had the [technology] they need to do their jobs and made them know that as a leader, I was aware of how much work they were taking on. I built into my schedule checking in with people each week so that everybody felt we were all in this together. They said: “I’m so glad you called today. I’ve been feeling very isolated.”

Were they feeling anxious and scared too?

In the early stages of the pandemic, there was some of that. In March, I believe, I told people that no matter what, we’re not laying anyone off. I said that the firm is going to get through this in its current configuration. I wanted every employee and every client to hear that from us publicly [employee meeting filmed and posted on firm’s YouTube channel].

Why was it important for the clients to know there’d be no layoffs?

I didn’t want them to worry that the person they were dealing with was going to be gone. And I didn’t want my employees trying to keep clients calm while in the back of their minds they were worrying about their own job security.

What was the reaction?

People calmed down and focused on what had to get done. The client reaction was incredible. None of us had experience running a business or managing money through a pandemic. But if I could  give people one major constant they could anchor to, it was that I guaranteed the firm would do what it had to do to maintain everyone’s employment. All I could say was that the firm was going to get through this. I’m glad I did that — and so far, so good.

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