How Investment Advisors Invest Their Own Cash

(NPR) Do you ever wonder how some of the world's top financial advisors invest their own money?

If so, you aren't the only one. Last summer, CEO of Ritholtz Wealth Management Josh Brown wrote a blog post titled How I Invest My Own Money that went viral in the finance and investment community.

Turns out, people are really curious as to how successful investors build their personal portfolios.

This blog post eventually turned into a book with Brian Portnoy called How I Invest My Money: Finance experts reveal how they save, spend, and invest where top investors share their personal investment strategies.

VANEK SMITH: Josh Brown is the CEO of Ritholtz Wealth Management. He invests people's money for them. He's been doing it for a couple of decades. We've had him on the show a bunch of times, and I have always wanted to ask him something. How do you invest your money? I mean, money managers always say things like, you know, don't panic in a recession. Don't move your money around too much. Don't sell everything when the market drops; buy and hold. But what do they do? In fact, that is the topic of Josh Brown's new book, "How I Invest My Money." So, Josh, in this book, you talk to your fellow money managers about how they invest their own money, what they do with it. Is this kind of like asking chefs, like, what they cook for themselves when they're at home?

BROWN: I think that's a really great analogy. I hadn't thought of that, but I like it. I'm going to steal that.

VANEK SMITH: Steal it. Steal away. So, yeah, tell me about - I don't know. Were there any surprises?

BROWN: There were. There were a few constants. We heard a lot about index funds being a building block for portfolios.

VANEK SMITH: Yeah. You're basically, like, placing a bet on the stock market going up, on the index itself going up. And this is, like, a 101 investors thing.

BROWN: Well...

VANEK SMITH: Like, this does not seem like what pros who know all the stuff would do.


VANEK SMITH: They're like basic (laughter).

BROWN: They're extremely basic, but they're basic in a good way because what you see is what you get. And for better or for worse, you don't have somebody who's trying to beat the stock market and failing. And then we heard a lot of people who had made investments that they know mathematically or logically weren't necessary. It's in one of my favorite chapters - is my friend Bob Seawright, who - he's got a couple of decades on me. But his concept was sometimes, the financial investment that looks the most illogical makes the most sense of all when you incorporate the emotional aspects. And he's talking about a beach cottage that he bought that is now where all of the memories of his family are made, and it's where he spends time with his grandkids. And financially, it's not a good investment. He'll probably not break even on it, but that's not the point.

VANEK SMITH: What was the craziest thing you heard?

BROWN: I think I was surprised that Howard Lindzon - he's an angel investor out West. I was surprised that he owned zero bonds.

VANEK SMITH: Oh. Yeah, 'cause bonds are like - that's sort of, like, the - I guess if we're going to keep our chef analogy, that's like pasta. That is like (laughter) - everybody's got pasta on the menu.

BROWN: I almost think it's even more elemental than that. I almost think it's the water that you boil and rinse vegetables in. Like...


BROWN: Risk - when we say bonds, what we're referring to is Treasury bonds, which are, colloquially speaking, the risk-free asset.

VANEK SMITH: Yeah. It's supposed to be the safest thing. Yeah.

BROWN: It's every - his entire persona is wrapped up in this idea of just growth as far as the eye can see, and he's willing to bear risk. And everything he's ever accomplished in his life has come as a result of bearing risk, bearing more risk than others would bear. And so that's like a - that's an example of an investment philosophy that overlaps with a life philosophy.

VANEK SMITH: Did you get any sense of how these investors deal with their money at a moment like this, like in a moment of crisis? - because I imagine that is a question you're getting all the time.

BROWN: If you're going to be a financial adviser to investors and you're going to be worth anything to those investors, you have to have an investment philosophy that's long-term in nature and that is built to endure market events, economic crises, et cetera. You have to get people to believe in what they're invested in if you expect them to hold on to that portfolio through market volatility. If their relationship with their investments is casual and not spiritually and emotionally meaningful, then it's easy for them to discard those investments the minute the sledding gets tough. And so I think one of the biggest trends in the market in 2020 is ESG or environmental, social and governance-focused investing. So these are portfolios being put together based on the premise that investors want to have their money go to companies that are doing the right thing.


BROWN: Doing the right thing in terms of the environment - when we say governance, are they treating shareholders fairly? When we say social, are they promoting women? Are they hiring people that are non-white, 40-year-old males? ESG is the only category of mutual fund that saw positive inflows this year.


BROWN: And the good news is that the millennial generation - they care about what they own.


BROWN: They want to have a connection with their portfolio, so I would say that that's, like, one of the silver linings of this moment in time is that Wall Street is waking up to the fact that this is a new generation of investor. This generation not only didn't panic from volatility, but the volatility actually drew them closer in.

VANEK SMITH: OK, Josh. You had to know this question was coming. How do you invest your money?

BROWN: Well, I'm an 100% crypto - so really simple.

VANEK SMITH: (Laughter) Same, same.

BROWN: So in my 401k, as...

VANEK SMITH: Which is your retirement.

BROWN: I invest directly in the same strategies that our clients do. On the other end of the spectrum, I'm doing some things that are a lot riskier than what I would do for clients. So outside of my retirement accounts, I'm making venture investments. I'm backing friends who are starting companies. So, like, for me, that's what makes me feel good - to be able to support things that I, myself, believe in or people, more importantly, that I believe in.

VANEK SMITH: So what is, like, the most amazing investment you've made? And, like, what's the one that got away?

BROWN: The most amazing investment I ever made was in my own company. In 2013, my partner and I put up $50,000. We built a firm that, I think, could be doing $10 million in revenue next year.

VANEK SMITH: Wow, so the best investment you ever made was in your own - having your own business, your own entrepreneurial venture. Was there one that got away?

BROWN: Well, when I was a teenager, I owned all of the dot-com stocks. And...

VANEK SMITH: As a teenager (laughter).

BROWN: I don't know - 19, 20.

VANEK SMITH: My God, you were like a savant, man. I was like - I don't even know what I was doing but definitely not investing in stocks. I think I was - buying earrings at the mall was my main activity.

BROWN: I wasn't really a savant. I was an idiot savant because I didn't hold any of them. I had a bunch of stocks that no longer exist, but I also owned Amazon. But I didn't hold it. Like - so, like...


BROWN: Right, so I've long since re-bought it, so don't worry, I'll be fine. But like I'm saying, you know, you say to yourself, how could you really regret that decision? How could you have possibly known, like, the 30 publicly traded dot-com companies from 1997, 1998 - that one of them was going to become as big and as important as Amazon? And you wouldn't have picked Amazon, by the way. It was a company that sold books.

VANEK SMITH: Yeah, sold books. Yeah, totally.

BROWN: So anyway, but like - so I don't - I try not to dwell on stuff like that.

VANEK SMITH: (Laughter).

BROWN: You know, that's an argument in favor of indexes because what happens in an index is the companies that go bankrupt and disappear - the smaller they get, the more they shrink in importance in the index because they get so small, whereas the winners that keep on winning balloon in size within the index. One of the best regret-minimization tricks I know of is to let the index do its work. And had you done that over the last 30 years rather than trying to outsmart the market, you probably did better than 99% of other investors.


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