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JOSH BROWN: This is what my clients have been 'brainwashed' into thinking
(Josh Brown, Ritholtz Wealth ManagementCNBC screenshot)
Josh Brown is the CEO of New York-based financial firm, Ritholtz Wealth Management. A while before that, though, he solidified his place as the most prolific financial writers of the internet age with his blog, Reformed Broker. You can also see him on CNBC's Halftime Report.
Let's get to the questions.
Linette Lopez: You're a big proponent of passive investing. Can you talk a little about how that model has evolved in the last year and what you consider its next steps in terms of growth?
Josh Brown: I think there's probably no such thing as pure passive investing. Even an S&P 500 index fund has its components chosen actively by a committee of (highly fallible) people, with biases and cognitive issues of their own. The real argument, to me, is whether less is more or more is more. Whether people should seek out expensive solutions that might work or less expensive solutions that definitely will. Whether people's investing should require a lot of decision-making day to day or as little as possible. For me, the answers are obvious. We're pro active management, so long as it can be done in a reasonable, methodical way and at a competitive price. There's not a lot of that yet so we default to systematic strategies.
Lopez: What's the biggest thing on clients' minds right now that they keep asking about?
Brown: They've been brainwashed into worrying about the duration of their bond portfolio and by fear of the Fed hiking rates. The industry produces these data points about what a 1% change in rates would do to a portfolio of bonds, and it's really misleading. The Fed hiking the overnight rate by 25 basis points once a year does not lead to the entire yield curve moving in tandem overnight. This is called a "parallel shift" and it is theoretical only, has never actually happened in real life. Investors who have fretted about duration and rate risk for six or seven years have left a lot of money on the table and have maybe driven themselves crazy. My job, as an advisor, is to cut through that bulls--- and show people evidence, not scare-pieces.
Lopez: If you could take back any call you made or view you had in 2016, what would it be?
Brown: I sold Facebook and Netflix stock personally into the January-February rout for no reason. I hate myself every day. It's good though, that's how you know you're alive.
Lopez: You write a lot about traps investors fall into, but those traps often vary depending on the kind of market we're in. What traps are you seeing these days that have become a feature in this market?
Brown: I think investors have probably spent the last few years liquidating positions in foreign developed market stocks (Europe, Japan, Hong Kong) and have run in fear from emerging markets. The three and five-year numbers for those investments look terrible against the S&P 500 and everyone invests in the rearview mirror. This will be seen to have been the absolute wrong thing to do. EM stocks are crushing US stocks this year already and, at a certain point, foreign developed will start working as well. This is a fairly typical mistake, it gets repeated every year in a different way.
Lopez: Did you endorse Gary Johnson? Do you think he'll make a good president? Why is voting for him not a wasted vote?
Brown: No, I never endorsed Gary Johnson, as I never endorse any candidate for office. I did remark at the fact that it was great to see a third party candidate in the race and I was enamored of some of his achievements in office. And then he opened his mouth, Oh well. I dislike Hillary very much but I think the other guy is a national emergency so in early November I will make the only choice I think reasonable people can make. This is not an endorsement, it's a mercy vote, as in "I give up." I think the country would be in better shape if we were electing President Romney to his second term right now. He would have made a fine president.
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