Josh Brown's Advice for the Financial Advice Industry

The chief executive officer of Ritholtz Wealth Management, Josh Brown, continues to say the quiet part out loud as he challenges the financial services industry to do better.

In his latest book, You Weren’t Supposed to See That, the advisor known on social media as the Reformed Broker offers an unfiltered look behind the curtain of wealth management.

Be Mindful of Media Consumption

Jeff Benjamin: You talk a lot about staying optimistic as an investor, how can investors keep themselves in a positive mindset?

Josh Brown: The way to do this is to know yourself and what your triggers are. If you are unable to swim in a sea of information without feeling susceptible to all the opinions and forecasts, maybe spend less time consuming media. If you’re the kind of person that needs to understand everything that’s happening, then for the love of God, find the right people to follow and stop consuming all the junk food.

Attention Is Currency

Q: As one of the original financial bloggers who built up a social following, how do you see traditional and social media shaping investors’ perceptions and decisions?

A: The thing that is important is to ask yourself why is the person or publication I am listening to saying what they’re saying? What is their motivation for saying it? What are their incentives? Once you start doing this, you’ll become a better consumer of news and opinions.

We live in the attention economy; it’s the only currency left. Everyone wants you to click URLs or subscribe to newsletters or scroll their videos. This desire drives the kind of content they are doing, the creation of headlines, the writing of ledes, etc.

Illusion of Control

Q: What is a common misconception that professional investors have that they are hesitant to admit?

A: Professional investors ascribe their poor decisions to bad luck and their good decisions to expertise. Most will not readily admit, even to themselves, the role of luck in their positive outcomes. Or the good fortune of having been in the right place at the right time. This is endemic to the human species as a whole, it’s not just a trait of professional investors. We hate the idea that we are not in control or that hard work doesn’t necessarily lead to success all the time.

Advisors as Coaches

Q: It seems like an obvious truth that you can't reap rewards without taking some risk, and yet many people still struggle with this fundamental concept. What’s your take on this? 

A: My role as a financial advisor is not to protect my clients from all risk; it's to coach them through the taking of risks and to make sure they are taking the right types of risks. After a bear market, everyone wants to hear stories about how they could be invested but with limited or even no potential downside. This is when the fund companies and insurance firms get really creative with their new product innovations and marketing campaigns.

Behind closed doors, asset management executives do not have meetings about what would be the best products for investors. They have meetings about what products would be the easiest to sell to investors. These are two different things entirely.

The 'Behind the Scenes' Book

Q: What motivated you to write You Weren’t Supposed to See That, and what do you hope readers take away from it?

A: This book is the culmination of 15 years of blogging where I chronicled some of the biggest events of the era in real time. We took the most important ideas and lessons from these moments and turned them into the story of the modern markets. I took people behind the scenes and shared some stuff that they won’t be hearing anywhere else. I wanted to cap off this era with a book that would capture the feeling of being there and preserve it forever.

IQ vs. Emotional Intelligence

Q: Can you discuss the interplay between financial literacy and emotional intelligence in investing?

A: Warren Buffett said that investing isn’t a game where the guy with the 160 IQ beats the guy with the 130 IQ. He says that this game is about temperament, not just intelligence. You think you’re smart? Guess what, everyone is smart. Now you can focus on your own decision-making and remaining rational.

Diversification and High Quality Win

Q: Inflation is still on investors' minds. You wrote that “publicly traded companies are obscenely good at raising prices,” we know this impacts consumers, but how should investors consider that idea?

A: The undefeated champion of long-term inflation hedging was, is and always will be, a diversified portfolio of high-quality stocks. As prices rise in the economy, corporations work feverishly to continue earning profits which often involves cutting costs and raising prices. This results in earnings growth which fuels stock prices. Don’t overthink it. You don’t have to invest in gold bullion or timber REITs.

Wall Street's 'Hidden Truths'

Q: What examples of hidden truths can you share that resonate with investors, and why are these so often overlooked?

A: The hidden truths I focus on in the book have to do with the incentives people on Wall Street or in the financial media have and how those incentives drive everything from fund creation to IPOs to the way news is reported to the way money is managed. Once you train yourself to understand these incentives, you begin to see them manifested in everything. You cannot unsee it.