Supported by Greenhaven Road Capital, finding value off the beaten path.
Josh Brown was on the Bespoke podcast to talk about his job, his tweets, and whether New York City is selling high or selling cheap. Host George Pearkes also got the answer to a question I’ve wondered about – why does Josh Brown spend so much time on Twitter and talking on CNBC?
1/ Watch out for the okay name. Brown is introduced as an author, blogger at The Reformed Broker and “a regular contributor on CNBC.” That helps to set the tone but we should beware of the okay name. The authority of being on television or from Harvard (like Royce Yudkoff) is only one part of whether someone is trustworthy or not. Brown (like Yudkoff) has a larger body of work so we’ll move on with the notes but remember that So-And-So from Such-and-Such isn’t a good enough reason to trust someone.
2/ Create structures. I’m a big fan of creating structures. In the last April edition of Mike’s Notes, I wrote about arranging our two sets of default actions. We call our internal defaults habits and our external defaults structures. Time and again we see that even small structures can have large behavioral effects.
Brown takes this same approach for his clients. “We want to set things up in advance so we can make as few decisions as possible in the future.” It’s a measure twice (thrice), cut once attitude.
Rituals are an example of structure. There’s a great book about them. Steven Pressfield credits them with his success:
“There are so few people that process self discipline….coming up I had one friend that got up at the crack of dawn and he was a role model for me. I basically tried to become him. I copied so much of the way I live right now from this one particular friend. Role models are tremendiously important.”
If these things work so well for writers, why not for financial planners? That’s what Brown is trying to do.
3/ Compare to something else. This part was excellent.
“Can you imagine going to a real estate investors, someone who bought an apartment building and is renting out the apartments. Can you imagine going to that guy and saying, ‘Let me see your returns. Okay, you would have done better in an office properties REIT or the Vanguard REIT ETF. You’re screwing up.’”
The guy is just like, ‘what are you talking about? I’m investing in real estate, leave me alone.’ Nobody would ever do that but we do it with the stock market.”
The point Brown and Pearkes make here is that it’s not hypocritical when you reframe a trading account as a hobby rather than an investment. Brown says that his firm will set up fun money accounts for clients.
Reframing investment accounts as hobbies is a powerful tool to consider the same situation differently. Andy Grove reframed his job when he asked, ‘what would a new another leadership team do?’. Another way to reframe something is to think of a challenge as a game. Ray Dalio uses words like “puzzle.” Chris Dixon said it’s a “maze.” Astronaut Chris Hadfield said, “A mistake is like a loose thread you should tug on hard, to see if the whole fabric unravels.”
4/ What job are you hiring for? When Brown and Barry Ritholtz teamed up to form Ritholtz Wealth Management they had to be “more than a transactional window.” So they did what every other advisor did; surveys.
Risk tolerance surveys are to the financial world as pain tolerance questions are to the medical one. In her book, Run, Don’t Walk, Walter Reed physical therapist Adele Levine writes that when she had surgery the doctors asked her how much pain she was in. Compared to what? Levine thought. Every day I see double, triple, quadruple amputees from the Middle East wars. Compared to them, I’m a two.
That same framing is what Brown saw with his clients. “You can ask a client what’s their risk tolerance and if the market is down that day they’ll say, ‘I don’t like a lot of risks,’and if it’s up that day, ‘oh, I can handle a lot of risks.’”
Brown et al. had to find the real problems, not the superficial survey responses.
He needed to figure out what people really want. To use Clayton Christensen’s phrase (of Harvard Business School while we’re on the topic of Okay Names), what job are you hiring for? Christensen uses this question to look at how companies get disrupted and that’s what happened in investment management. People didn’t want risk surveys, they wanted to know ‘Am I going to be okay?’
The job people hired for was for someone to convince them they would be okay. Brown said they had to reorient around that rather than “our own brilliance.”
Part of that job is communication. “In my opinion, we have five of the top twenty-five financial blogs,” says Brown. They want to know there’s a plan and that it’s built on facts.
When Reed Hastings talks about Netflix’s competition he only mentions Amazon and HBO within a larger set of competitors. The competition, says Hastings, is everything. It’s sleep, exercise, Facebook, and Josh Brown’s Twitter feed. His point is that people hire many services to fill their leisure time. To put it another way, everything that’s not sleeping or work is Netflix’s competition.
If you serve customers, what job are they hiring you for?
5/ Deep work and twitter. Why is Josh Brown on Twitter so much? Because someone else is minding the store. Brown explains that there is a (growing) team at RWM that does excellent work. It’s “an amazing squad.” Brown’s posts, tweets, and tv appearances are all “in service to running the firm.”
As Tren Griffin wrote in The Rise of the Freemium Business Model “The cost of educating the potential customer about the benefits of the product can be dramatically lower once a potential customer has used the product in the free setting.” That’s just one part of a great article and explains what Brown does.
It’s hard to imagine someone doesn’t know about RWM and what the company does and how they do it. Those “five of the top twenty” blogs are one part education, one part marketing.
But I’d still wager that long, uninterrupted blocks of work happen. I read those blogs, they’re good.
If RWM is like a restaurant, Brown is the maitre d’. He greets you, knows the menu, and helps you choose a wine. But there’s a lot of cooks in the kitchen that make food so good you’ll tell your friends about it.
Thanks for reading,
The link to Mike’s Notes is what Griffin calls “premium freemium.” If you’d like to show support, that’s the place.
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[…] was able to recruit people who wanted to be there. This is what Josh Brown does through blogging. It’s what Warren Buffett does through letters. And the form matches […]