Josh Brown On Evidence Based Investing

May 30, 2017

If you have access to any financial media, Josh Brown is hard to miss. Also known as “The Reformed Broker,” he has one of the biggest media presences in the financial services industry. Brown’s blog, “The Reformed Broker,” is a must-read for anyone following financial news. He has more than 650,000 followers on Twitter (@ReformedBroker), he appears regularly on CNBC-TV’s “Halftime Report” and has published books including “Backstage Wall Street.”

Brown is also CEO of Ritholtz Wealth Management, which is the new conference partner with IMN for the 22nd annual Global Indexing & ETFs: An Evidence-Based Approach, in Dana Point, California, June 25-27. Among other topics discussed with Brown was the idea of “evidence-based investing.” Let’s first talk about what your firm’s role is for the conference, and this evidence-based approach to investing.

Josh Brown: We've been on this conference like ivy. I’ve attended it twice now, and in both cases, I thought it was one of the best conferences I’ve ever been to. So IMN certainly doesn't need our help to put on a great event.

However, there's a movement in finance that goes far beyond just which index do I buy, which is evidence-based investing, and it deserves its own conference.

And to IMN's credit, this was their idea to approach us—it wasn't our idea—because they see the same thing we see, which is that people are reorienting the way they allocate assets and build portfolios around data, and obviously historical prices and current trends.

There’s a lot less gut instincts, or arguments of authority or "this guy's really smart." That paradigm is dead or dying.

Now, the younger generation especially wants evidence that the way they're investing has some basis in fact and that it's got a chance to work. So the conference is being arranged around that principle. “Evidence-based investing” is a new term, at least from my perspective. How is it different than the old paradigm?

Brown: The old paradigm was, "trust me; I'll figure this out." In other words, I'm a really smart manager. Here's my track record. Here's where I got my MBA. This is the pedigree of firms I worked at. Look at how much I manage already. I'm obviously successful. So just give me the money and I'll figure it out. We've been doing this for 50 years; trust us, we know what we're doing. Look at my boat. Look at my watch.

Evidence-based investing flips that on its head and says, “Don't take my word for it. This is, to the best of our ability, a statistical model of what usually happens, what the probabilities are, what roughly you can expect if A, B and C happens. And things will happen that have never happened before.”

On one hand, evidence-based investing is attempting to draw answers out of data. On the other hand, it's also attempting to build portfolios that are durable enough so that if something unexpected happens, it's not game-over for the end investor.

But that's part of the challenge of conferences, to define what is evidence-based and what is wishful thinking, or pure speculation. We'll never all be able to agree on a black-and-white line. But that's what makes this interesting.

Investing is never going to be physics. It's never going to be Input A plus Input B equals Input C. It can't be, because the market is not mechanical; it's biological. All of the market participants are biological. Even the machines that we build to trade the market are being built by biological people. So the market is never going to obey a law.

The purpose of the conference is to discuss the methods that people are using to try to find those answers. And those methods are increasingly quantitative and evidence-based.


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