Interview With Robert Johnson: Masters in Business (Audio)

part in the third year. It has about a fifty fail rate and a lot of people look at it as a um really a most challenging exam they'll ever encounter in their career in finance. We discuss all sorts of things, everything from the value of value investing to the impact of the FED on the investment process. UH, if you are at all interested in how people become certified to actually be c f A s and what the value of those those letters are to either a company or an investment bank or or an analyst, I

think you'll find this conversation quite interesting. Bob is really an interesting guy to talk to. He's very knowledgeable about a lot of areas tells some great stories about Warren Buffett. One of the books he wrote, which is called Strategic Value Investing, is on Buffets reading list. Every year at Berkshire Hathaway's annual fest they have a list of suggested books. His book has been on that list for quite some time. Anyway, I found him to be just a genuine, fascinating, interesting guy,

and I think you'll enjoy the conversation. So, with no further ado, my conversation with Dr Robert Johnson. This is Masters in Business with Barry Ridholts on Bloomberg Radio. My special guest this week is Dr Robert Johnson. Let me just give you the short version of his curriculum VITA. He is currently President and CEO at the American College

of Financial Services UH. He has been the recipient of the Alfred C. Morley Distinguished Service Award when he was one of the senior folks at the c f A Institute. He has won the RFK Memorial Student Award for teaching achievement. Serves on the editorial board of the Journal of Portfolio Management. He really helped to develop and refine the Chartered Financial

Analyst test. Will get to that later. Today. He is the author of numerous books, including Invest with the FED, Strategic Value Investing, and Tools and Techniques of Investment Planning. Dr Robert Johnson, Welcome to Bloomberg. Thank you very It's terrific to be here. I'm thrilled to have you. We met previously on Tom Keene Show, and I found it fascinating.

What are unique niche in the world of finance that you occupy sort of one foot in the world of academia and one foot in the world of actually helping um people become chartered financial analysts. So so let's talk a little bit about your background. When people when you first meet people and they say, hey, Bob, what do you do for a living? How do you answer that question, Barry, I tell him I'm a pracademic. A pracademic, and that's the word that I hope sometime comes into lexicon, the

popular lexicon. I hope it's in Wikipedia someday, maybe even in Websters. But basically, a procademic is somebody who operates both in the world of the practitioner and in the world of academia. And unfortunately, I don't think that those circles if you look at it in a Van Diagram sense intersect very often, and I think that if we had more of that, I think both worlds would benefit. So that's that's fascinating. One of the questions I wanted to ask you was you've sort of gone back and

forth between being a practitioner and being an academic. How does one make that transition in either direction? How do you go from a practitioner to an academic and vice versa. Well, I think if you stay close to the edge of each that it isn't much of a transition. When I was a finance professor at Creighton University, I also ran a money management firm. I had about fifty million dollars under management of private wealth, and I was a much

better teacher because I was actually managing money. And I think the same is true in reverse. I think that folks who practice, if they look at the best in academia, can benefit greatly. So I I really don't think it's a tough transition if you if you kind of stay close to the edge. Fortunately, I think people want to operate in the center of those circles instead of where they overlap. You know, we use so much academic research

in our regular practice. Whether it's the behavioral side as to how people misbehave, or just classic UM portfolio management theory. There's a lot of things to be learned from people who are spending lots of time just doing deep thought. You mentioned you were running a relatively small asset management business, but you've also been an outside director on some fairly substantial UM multibillion dollar management firms. What does the academic bring to a twenty plus billion dollar funds and how

does that help you? How does being on a huge twenty billion dollar funds board help you as an educator? Well, I think it's discipline and rigor that that the academic can bring to the to the asset manager, and I think it's the best of academic research. Or instance, one of the things we looked at when I was was

on the funds board that I was on was executive compensation. Well, I happen to have done my dissertation and executive compensation, and basically what my research showed was that incentive stock options change the way people worked. So I think when you bring some empirical evidence to the table that it no longer is just anecdotal that I think it really brings it to light and people can see that their substantive research behind a lot of the findings, So not

just a story, but actual data that that underlines it. Look, as long as you brought it up, let's talk a little bit about executive compensation. My concern about stock options are that you're paying people for based how well the stock market does, as opposed to how much they've improved

the underlying company. True of false, true the delta. What what you really would like to measure is the delta how much how how much that particular executive change the way that company operated, And too often they're just paid for a tailwind. The market goes up, the sector goes up, and your company within that sector is going to participate in both of those, whether you're great or terrible, there's going to be some overlap there exactly, and there's no

pure element. It's it's it's so difficult to disentangle the effects. So let's talk about another rising tide. And in the last minute and a half we have in the segment you wrote the role of monetary policy and investment management. Uh said differently, I was always taught don't fight the Fed. What is the proper role of monetary policy? In investment management. The curious thing is that when you say don't fight

the FED. Um. When I started that line of research, I was an asset manager and I noticed and this is in the late eighties. So remember in the late eighties, the people in the industry didn't know who the chairman of the FED to reserve it was. People didn't know people didn't know what the FED was. Now it's front page news. So if you put yourself back in there, I noticed that when the FED changed policy, it influenced asset prices, and so I wanted to rigorously study that

and empirically study that lo and behold. I started these studies in the early nineties, and the culmination actually was the book invest with the FED that was recently just published by McGraw hill. We're gonna get to that in a little while. That's on my list of things to chat about. I'm Barry rid Helts. You're listening to Masters in Business on Bloomberg Radio. My special guest this week is Dr Robert Johnson. He is the president of the

American College of Financial Services. Before that, he was a very senior person at the CIFA Institute, where he had a lot to do with the Chartered Financial Analyst Test the CIFA exam Levels one, two, and three as it's known and hated. Let's talk a little bit about the institute first. What exactly is the c f A Institute c fan Stude is basically two things. The cf an Stude is the organization that rights and administers the c f A exams, and cfn Stute is also a membership organization.

To maintain the c f A charter, one needs to be a member of cf A Institute, so it's a membership organization. I believe the numbers now are probably about a hundred fifty thousand people, So there's a hundred fifty

thousand cf A s out there in the world. You can be a member of cf A Institute without being a c f A. Very few are the lion share of people are c f A charter holders, are cf A candidates, some cf A candidates members safe to say a hundred thousand people have gone through all three exams, past all three exams, well, I think I think it's probably more than that because the exam started in sixty three, so some of those folks have died, so I think

that you've probably got over somewhere between a hundred and probably i'd a quarter and UM, what were your what was your role at the cf A Institute. You've had a number of positions within the institute. It's funny, Barry, I Uh, I'm laughing because I was at Creighton University. I was a tenured full professor of finance, last of the landed gentry in America, and c f A Institute came calling and said that they would like me to

come and work on the curriculum. So I took a two year leave of absence in n and I was hired to UH to run the curriculum development process UM too. About almost two years into the process, I was promoted to being head of the c f A program, the whole thing, the curriculum, exams, administering the exams, standard setting the exams, the whole thing. So I resigned tenure at cf at Creighton University and stayed on at cf A Institute. A few years later UM, I would promoted to being

in charge of all educational products they do. Cf A does some other educational They have the Certificate Investment Performance Measurement UM. They run the Financial Analyst Journal UM. A lot of professional publications, conferences and so forth. So I was in charge of all of those UM. Later on I was promoted to being Deputy CEO UM basically second in command at CFA Institute and manage the lions share of the organization reported up through to me at that time.

So uh and I ended up leaving in two thousand eleven. So I was there fifteen years. Your your bio says that you have quote extensive experience with the credentialing programs UNE. Now in English, what exactly does that mean. Well, there's a profession that's known as psychometrics, and these are people who have PhDs in measurement and testing. This is the science of test ng and the science of determining who

has indeed passed an examination. So what I did when I was at cf Institute was I knew we were good at finance, and we were good at investments, but I was convinced we really weren't very good at developing curriculum that was great for the distance learner. And I certainly didn't think we knew how to write exam questions like someone who studied that for a living did. So I brought psychometricians into the process and Basically what I what I believe happened is we professionalize the process of

writing the exams, developing the curriculum and so forth. I love that expression, the distance learner, the person who's not just memorizing something temporarily but learning it for the long haul. Well, and the other thing Barry with the c f A program was the lion's share of the candidates now or from outside of North America, many for many of whom English is a second language. So you have to take that into account when fighting the curricular materials and writing

the exams. And that's a big factor. Now, um, you know, just interest, just nomenclature and and just common terminology, no shorthand, no colloquialisms. It has to be the queen's tongue so to speak right. You have to think about the person in in Thailand or in Cambodia or in uh in Kenya who's studying this, who it isn't familiar with colloquial English. Huh, that's that's really never thought about that before. That's quite interesting. So the cf A exam has a reputation for being

a killer, especially um. Two of the levels are known as being notoriously hard. The fail rate is fairly high. What what is the fail rate on the each cf A level? Gosh? Now, I believe the fail rate on level one is about six the fail rate more than half? Right, The fail rate on level two is I believe it more than half, but still more than half. Failure rate on level three is less than just you know, you don't even have to study now the entrance walk right

through that. It's only like a forty eight percent fail rate? Are you could cram in like an hour? Barry every year. I used to get letters and phone calls when I was in charge of the CFA program and people said, well, you must have some mistake. I got a letter that said I failed the exam. There must be some mistake there. I have a degree from fill in your blank, Ivy League University. I've never failed any exam in my life. And something is wrong with you folks. Doesn't the Sea

Institute know about the gentleman cy? And the interesting thing there is that my response and I didn't respond in these terms, but um I I did a much nicer way than this. But I used to say, you know, this is a meritocracy. We don't know who you are. We don't know your lineage. It's how you do on that exam, and it means at eight percent of the

candidates did better than you. And and you know, we had people from community colleges that were passing the exam and I used to say, you know, I think you might want to write your letter to your alma mater instead of us. They're the ones that failed you. So in the last minute or so, we have left. What does this credential NG do for investors? What does it do for corporate clients, and what does it do for

investment banks? I think it really ups people's game. And when somebody is hiring a c FA charter holder around the world, and this is the same whether you're in Um, you know, Lagos, Nigeria, or Miami, Florida, you've gone through the same exam. If you have the letter c f A behind your name, it means the same thing. And you've attained that that that that level. And I think that employers know that you're really getting someone who not only has mastered a body and knowledge, but really had

the discipline to go through it. Because it's an arduous process. As you said, in fact Um, most of the successful people failed at least one of those exams, and it's tough when those exams are only given with level two and three are only given once a year. So you really gotta buckled down and say, now I got to redo this all over and do even more work than I did last time. And I think it's a signal to UH two investors, to clients that these are these

folks are bit really best to breed. I'm Barry Ridholtz. You're listening to Masters in Business on Bloomberg Radio. My special guest today is Dr Robert Johnson. He is the head of the American College of Financial Services. He used to run the entire cf A Institute Chartered Financial Analyst Testing program and the curriculum program, and is extremely knowledgeable about all things cf A related. Let's talk about a book you wrote way back when, called The Tools and

Techniques of Investment Planning. What what motivated you do to pen a book of such a title. To be perfectly honest with you, I want to do I have had a relationship of professional relationship with the individual that I wrote it with, and it was an excuse for us to uh stay together. He worked with me at c FA Institute and it was an opportunity to continue working

with him. His name is Tom Robinson. Tom is now the president and CEO of Double A CSB International, the accredited the Double A c s B, the accrediting agency that does uh collegiate schools of business. Oh, really, collegiate schools of business. So anybody who wants to my alamont is Stonybrook. They added a school of business recently. They had to jump through his hoops. They have to jump through those hoops recently, years ago, recently. Um, that's interesting.

I don't even know such a thing. I assumed it existed. I never knew what the acronym it was. So let's talk a little bit about the details of that. What should clients expect from their relationship with their financial advisor. They should expect that that financial advisor is acting in their interest. And unfortunately, what we have now is that the landscape, I believe, is that we have what you would refer to Barry as a financial services industry and

not a financial services profession. And I think you're a profession if you have three qualities, and those three qualities or knowledge that the second is that you have some experience, and the third thing that makes you a professional is that you aspire to a code of ethics. And whether you're a doctor, whether you're a lawyer or an architect, whatever your profession, a profession has to have those three elements.

And I think that's why, unfortunately the financial services financial services is referred to as an industry instead of a profession. And one of the things we want to do with the American College that C. F. Anstude is doing in the investment management realm, in financial planning is we want to make financial services a profession. That's what we buyer to do. So I'm on the same side of the boat as you. I think we should have a fiduciary standard.

I think the best interests of the client should be paramount. But let me, however, briefly take the other side of the argument. This is what in the we just finished a fairly robust debate about the fiduciary standard on retirement accounts. I argued against people who said we shouldn't do that.

I said, there's no reason we shouldn't. But let me push back, and and here's the argument that they said, Well, if we're on the brokerag side, we have our own ethical code that we're obligated to be maintain a certain level of ethical standard. We may not have a fiduciary obligation, but we certainly have to know our clients and have

only offer them suitable investments. And if we engage in any behavior that transgresses from that, we could be penalized or or I heard from the industry, what's what's wrong from with that argument? I think suitability burries a pretty low hurdle, to say the least. But I'm trying really hard to take that side of the case. It's not easy.

I don't think I really don't think there's a lot of people that oppose the statement that that people in the financial services and i'll say profession here should act as a fiduciary. I don't think there are many people would argue with that. Where people are arguing is this fiduciary standard, and that that it is fairly nebulous. For instance, reasonable fees. We'll define what reasonable fees are, define how much somebody needs to know in terms of fulfilling that

fiduciary standards. So let's separate that fact that we all agree that people should be a fiduciary with the fact that of course, the devil's in the details. Well, there are such things as best practices. You can could average costs, and there's always a gray line. Well, if the averages,

I'm going to use a fat round number. If the average is one percent, and you think you're doing something special and you're charging one in a quarter and one and a half percent, I don't think anyone's gonna argue that that is uxurious. On the other hands, when we see nine percent and really multiples of an average one percent, that that's a pretty bright line variation. So where it gets a little challenging is okay, one percent is is standard.

One in a quarter is a little high, but it's not ridiculous one and a half, especially for smaller accounts. The question becomes, shouldn't it simply be what's in the best interest of the client? Hey, here's our fee structure. Were transparent, We're gonna disclose our fees. It's all out in the open. There's no conflicts. Nobody else is paying us uh under the table, it's all here in front

of you. It should be fairly easy to make the interest of the clients that that shouldn't be a challenging standard. Best interest or fiduciary should it? I think the worry is, after the fact, how are you going to judge best interest? And let me give you just uh an idea of what I mean. Most of the studies out there, and you know this, most of the studies out there show

that active managers underperform the indexes over the long haul. Right, So if you take the fiduciary standard, and I know that it's not going to be taken to the limit, but if you take the fiduciary standard to the limit, gosh, isn't the best interest to put people in index funds that are virtually no cost? Now because index funds the cost has gone to zero, and the wealth of the evidence shows that at most active managers failed to beat I think, listen, that's how I manage money. But that's

not what necessarily what everybody wants. Some people. If someone says to me, look, I would be bored with that and I wouldn't be able to stay with So I need something just to keep me interested. You could talk till you're blue in the face to that person. I could say, look, all the academic data says overwhelmingly your best bet is low cost. Broadly diversified global indices, you rebalance it regularly, see you next year. Investing should be boring. If a person says to me, I can't do that,

that would board me out of my mind. Then I know in six months i'd be on too. The next advisor. Well me personally, I would say, well, let me save you the six months and go find another advisor now, and we'll we'll just say, hey, this isn't a great fit. But what about the advisor who understands that this guy needs a little excitement in his life and and Sunday night football doesn't get it done for him, and understands the risk he's taking. It's weird for me to make

this argument because I don't believe any of it. But he understands the risk he's taking in order to try and capture alpha, that he might actually forego beta. But he needs some of his portfolite. Here. We'll take ten percent. We'll put you in this high octane slug and maybe that will keep you focused on this so we could let the bulk of your portfolio do what it's supposed

to do. If a client understands and wants that, is it in his best interest to give him the medicine that he doesn't want, isn't going to take and is going to move on at a certain point, doesn't the behavior of the investor become a question. Oh, I wouldn't force it on anybody. But what I'm saying is the lay investor that comes to the advisor, I mean, the default to me would be indexing given the evidence under the fiduciary standard. So I just think that the devil's

in the details. And and after the fact, if somebody put an investor in active funds that underperformed, is that active manager going to be is that is that person going to be liable? And I don't know that we know that yet. I don't think we could say after the fact that if you went active because a client requested it, and we know of active managers don't hit their benchmark, Look, we can look at it over a decade. Once you're taking cost fees, taxes. Almost nobody outperforms the

indexes over a deck, you know. But I'm even saying the investor that comes, the lay investor that comes and doesn't have a predisposition toward active or passive, and the the advisor puts them in active, why did this advisor. Investor go to this advisor. There are a lot of questions, look the way, so let me I try not to talk about my practice on the air because it's too easy to just digress. But we set stuff up so that there's a three step process, and step one is, hey,

are we a good fit for you? When we have a client, content or prospective client contact us, and the first thing he's doing is what's your sharp ratio? How much draw down can I expect? How much should I expect to outperform the market? You know that those are red flags that let us force us to say, listen, let we appreciate your interest, let us explain what we do. And based on what you're describing, we're not sure you're a good fit. But here's what we do, Global low

cost index blah blah blah. But you were looking for a little more juice. Now let's figure out what you really want need when you canna retire, when you gonna draw down kids in college blah blah blah. And when we get to how the money is deployed. If you want to have a slug, if you want to have a sleeve of your money in a really sexy high octane, shoot the lights out when the times are good, but get she lacked when the times are bad. Sort of sleeve.

We work with other third party managers. Just somebody who I know offers that there's a handful of people who were great at it, but we don't think that's the best thing for you over the long haul. We think over the long haul, hey, the market's going to give you a certain amount with the lowest cost, the lowest amount of risk, the lowest turn over, the lowest taxes, blah blah blah blah blah. So sometimes you have to look at a client who I swear this is true.

I tell this to people, and nobody believes me. I got an email about five years ago from somebody who who send says to me, um, I just inherited a big slug of money, and I want to give half a million dollars to five advisors, and whoever does the best, I'm going to give ten million to. That's the money behind it, and what was the best over what time period? Over a year? So so I wrote him back and

said thank you, but no thanks. But before you dismiss my dismissing of your offer, let me explain to you what you just did. You just created created um a game theory agency issue where you've incentivized five managers. They know the odds are only one in five that you're gonna they're gonna win, So you've incented them to swing for the fences. And if they lose, well, I got a year fees out of this guy, and if they win,

you can't tell the difference between lat repeatable process. So no matter what, you just wasted a quarter two million dollars, and heaven forbid, you give money to the guy who did the best, and it has nothing to do with how he should manage your ten million dollars. The question you should be asking is what do I want to use this money for money as a tool? How best can I do that with the least amount of risk

to myself and my family? And where what is this going to do for me over the next sixty years and beyond not who's going to shoot the lights out? So I have bragging rights at a cocktail party, but nobody you know? So I never heard from that guy again. And I swear that was the email. I remember it was a million of person or a half of whatever it was. It was some idiotic thing. When we look at the right way to manage money for clients, is that really that person, what that person wants or what

that person needs is should be paramounts. So so that's the question. UM. I don't mean to go on a massive digression in the last minute we have in this section. Let me ask one short question. What is it that the industry is doing right and and what's its biggest flaw. I think that the biggest flaw is that the industry doesn't encourage enough people to invest enough. And I don't mean invest a large amount of money. I mean invest people want to speculate. You talked about that. We're in

an era of four seven. People can check their account balances. We have people that are constantly moderate monitoring what they're doing, and people want this action. You know, it used to be bury when I was back when I was teaching at Creighton. I used to record on VHS tape. So that's how long ago it was Wall Street Week with Chris Verkeiser. We've gone from Wall Street Week now to Jim Kramer scream mad Money. I heard something the other day on one of the twenty four seven UM business

business networks that was really interesting. There was a debate between two folks on a particular stock and they said, well, let's let's figure out over the long term. We'll come back over the long term and figure out who's right. And they said, yeah, we'll come back in six months.

So six months has become the long term. I think that that is the industry I believe is not doing enough to promote investing and is you know, looking at a speculating It's funny because over the course of my career, my holding periods have gone from minutes, two months, two years, to deck. I started out as a trader and if you had to hold something for twenty minutes, it was a long time, and then it slowly moved to long long term being defined as six months to a year,

and now long term is decades. So I kind of did full one eighty from my early days. But I see everybody else go in the opposite direction, the holding periods of getting shorter. Not talking about h f T s with the guys who are holding things for a nanosecond, I mean actual investors and traders. Is that your perception of this as well? It is um, you know. I think the other thing that I think the industry is doing wrong is that they tend to take something that's

pretty inherently simple. Investing is really inherently simple and making it very complex. I think investment bankers are wonderful for that. They always kind of stay one step ahead of folks in terms of making something incredibly complex that's pretty simple. Think about what happened in the mortgage crisis. So there's

there's a lot of money in complexity. There is money in complexity, and I think one of the things the financial advisors should do for folks is that trusted advisors should be able to cut through the complexity and go the other way. Take something that's complex and make it simple. Makes a whole lot of sense. When high was managing money, That's what I said of what I did was counseling, counseling and teaching. That's very very sounds very familiar. I'm

Barry rid Hults. You're listening to Masters in Business on Bloomberg Radio. My special guest today is Dr Robert Johnson. He is the president of the American College of Financial Services. He's a former head of the Curriculum and Testing at the c f A institute, author of a number of books. Let's talk about um a couple of books you wrote that I think are really interesting. What is it that strategic value investing is and how does that differ from

just good old value investment. Well, first thing I have to do is put a plug in for the book, and I put this whole segment. Last week I found out that my idol in the business, Mr Buffett, growing up in almahaa Braska. How can you not look sure, look up to Warren Buffett. Mr Buffett has put strategic value investing on his annual reading list for the Berkshire hand Hathaway Annual meeting. Oh my goodness, that's fantastic. There's

a very excited There are about three dozen books. I will be in Omaha signing books along at the Berkshire Hathaway meeting. And again, for somebody who grew up in Omaha, Nebraska, that is about the pinnacle of a career in investments. So someone from Berkshire reached out to you and said, we want you at the annual meeting and come signed books and will you get a chance that there's He works with a bookstore in Omaha, and the bookstore puts a list out of books that they believe should be

on the list. And how my book showed up on there, I didn't know. But one of our PR people called the Omaha bookstore that does this. The Bookworm is a name of the book, and they said that an email came from Mr Buffett personally to say, I want to put this book on the list. So you know, I've been on cloud nine since. But strategic, yeah, strategic value investing is simply there are various schools of thought and value investing. It started with Ben Graham, of course, uh

the father of value investing. But strate in strategic value investing, we look at several definitions of value investing, whether that be the traditional Graham and Dodd. We look at residual income, we look at asset based approaches. We look at a lot of different approaches to value investing. And what we believe is that gives the reader the opportunity to kind of figure out where their proclivity is, what kind of style they may want to develop, because you know, value

investing is a discipline. UM name your value investor, Wally White's, Warren Buffett, John Neff, they all have a little bit of a different variations on a theme. So I think that a book that describes all those different variations and shows them to people and kind of cuts through a lot of what they do, I think helps people develop their own style. Huh, that's quite interesting, So let's keep

let's keep plowing away through. So you're saying that your version of strategic value investing, it's based on traditional value investing. You're just looking at certain variations on that theme, the different variations on the theme. So let's talk about another book of yours invest with the FED that came out fairly recently. Um, what does that mean? And this goes back to the old Marty's Wide comment don't fight the Fed. Yeah.

The other Marty's Wide quote that I love is he said money makes the mare go if you look at it as in terms of horse racing. Basically, what we show in the book, and my co authors are Jerry Jensen of Greaton University and Luis Garcia Fijo of Florida Atlantic University. And once again this was an excuse to keep working with former colleagues. Both of those individuals worked

with me on the c f A program. But basically what we did was we in a very rigorous empirical sense looked at FED policy and how different capital markets perform, stocks, bonds, commodities, real estate, and so forth. And just to give you a little flavor, when the FED was being expansive with monetary policy, the SMP on average returned fifteen point two percent. When the FED was being restrictive, the market returned the

SMP returned about five point nine percent. And this was over a long time period of that's a giant, giant and it's even and that was over a time period from sixty six through two thousand thirteen. But it's even bigger than that, Barry, because if you factor in inflation, and inflation is higher in a restrictive environment than in an expansive environment, real returns were about twelve percent different. So there's something going on there. It's something that that

you can't ignore. Now, is that correlation relative to the fact that when the FED is cutting it usually means that you've just had a huge revaluation in markets and you're you're getting to buy when things are fairly cheap, or does it mean something else? Well, what I think it means is that the FED both reacts to and leads markets. Um, we're not saying that one causes the other. We're not saying that the FED policy causes these returns.

We're simply saying that there's this correlation and that it's something that's so dominant that you can't ignore it. And here's the other interesting thing we found. We found that commodities, the Golden Sacks Commodity Index, actually had a negative return during expansive time periods and a very high return during restrictive time periods. So you're not a big fan of commodities, I take it then. I'm not a big fan of commas, but they are a great diversifier during restrictive time periods.

And if you believe that we're moving into a restrictive time period, which I believe we are, UM, I think that you may see UH commodities performed pretty well in the near term. But by the way, I've pulled up your book on Amazon and looking at UH some of the interesting comments here on invest with the FED five stars on Amazon, forty plus reviews. That's actually really really interesting. So it's not that the FED is what's driving the markets necessarily. It's when the FED is doing their cycle,

when their expansionary something else is going on. When they're less expansionary, different things going on, and you could parallel their behavior in order to most advantageously position your portfolio. And what we look at two is and I always say the following, are you a golfer berry, I am not. Well, there's a famous golf pro Harvey Peanick was Ben Cranshaw's golf coach, and Harvey Peanuck had this saying that when you get a golf lesson and you get a tip,

take an asper and don't take the whole bottle. And what that means is that you don't over exaggerate something. So with invest with the FED, what we suggest is that you may want to tilt your asset allocations a little bit with regard to FED policy. That doesn't mean you sell out of equities completely and go to commodities

when the FED becomes restrictive. But for instance, we find when the FED is restrictive that necessity goods perform pretty well, and disc and UH and nondescrit and discretionary industries don't perform very well. For instance, don't perform very well when the FED is in a restrictive mode, but auto parts perform pretty well. Healthcare, food, basic medicines, hospitals that that's going to do well. People have to buy food and brush their teeth no matter what. If you break your leg,

you're going the hospital. It doesn't matter what what's going to happen. But you can delay that purchase of a new car, you can delay that purchase of a new suit UM during UM restrictive time periods. That that makes perfect sense. What else do we know about not fighting the FED and investing with them? What else would you add to that conversation that you know, I don't want to go chapter by chapter with the book, but I

thought there were some interesting things in there. Yeah. One of the interesting things I think is that real estate, Uh, real estate performs pretty well when the FED is in a restrictive period. You know, many people would think real estate doesn't perform, wouldn't perform because you're raising rates and making mortgages more expensive. Usually when the FED is tightening, it means that you later in the cycle and the

economy is already heated up. One would imagine that in yours to the benefit of certainly residential real estate and perhaps commercial resident real estate as well. And of course we're looking at real estate investment trust data because you can't get date on individual residences. You can't well, what you can get is just so regional. You can't ruin any specific questions. So so let's um, let's switch gears. I know you left uh the c FA Institute in

two thousand and eleven. About that time, that's when the SEC published a study that was mandated by Dodd Frank that that specifically recommended that advisors, whether you're working on retirement accounts or or discretionary investments, whether you're at a broker dealer or at a registered investment advisory, all financial advice providers should be put under the fiduciary standard. But that ended up not happening. The SEC was deadlocked and

couldn't agree with that. What are your thoughts on on that fiduciary standard for everybody? Yeah? Is it? Is it realistic? Are you gonna be have people that are going to be able to qualify professionally to do that? That would be my response to that is, for instance, we can we can set a very high bar that people have to get over, but are enough people going to be able to get over that bar to serve the public.

One of the things that I have concern about with the current fiduciary standard is is is it going to leave a middle market that desperately needs financial advice? Is it going to leave it under certain We've been speaking with Dr Robert Johnson, President and CEO at the American College of Financial Services. Dr Johnson, if people want to find your writings and your work, your your books are

obviously online. Where else can they read anything you've written, Well, you can go to www dot the American College dot e DU and see my profile in a link to some of the writings that I've done. Well, define define middle market, mom and pop and uh so with a few thousand dollars to put in in uh in a mutual fund every once in a while. So if you go back and look at what took place post cry

is this we saw? We saw Merrill Lynch Tell Brokers. Hey, if you're gonna have accounts under two D, that's up to you, but we're not paying any commission on it. Ubs Morgan Stanley, a number of other firms have similar but if not but not identical restrictions. But there's really a discouraging of taking small accounts from the big firms because it's a huge volume and there's no money in it,

so and that's without the fiduciary standard. You have the fiduciary standard, is there really much of a change if those clients aren't being served today anyway? Seem I think we need to find a way to serve that market and and that comes I believe that that comes very through education. You know, the Obama administration has made this fiduciary standard a big part of what they want their legacy to be well, and I don't think that the intent is wrong, and I think the intent is is

it's it's very pure. But what I think is that the realization is is that you're going to have this middle market that isn't going to be attractive, that isn't going to be profitably, be less served. And if you really want to make inroads into the retirement income crisis, which is arguably the biggest crisis in the country now Charlie Ellis has been banging the drum on this for years now, then somehow we have to encourage that market

segment to be served and not discourage it. And I know that's not the intent of the fiduciary standard, but I think that's actually going to be the realization of the fiduciary standard. So the UK said, we don't care. What's then do you have if you're managing retirement accounts your fees a cap at fifty basis points? Is that

a solution? I it's a possible solution. But I I think that what you are going to see, hopefully, is that ten years down the road, we're going to have seen some really creative and some really innovative people in the financial services industry come up with a solution on how to serve that market. But one of the things that we kept hearing in this fiduciary standard debates was the figure seventeen billion dollars. I'm sure you know that

that was what bad financial advice was costing Americans. Okay, how much was good financial advice making Americans? Well, we don't have to worry about good financial advice. It's doing good. We have to worry about bad financial advice. By the way, someone challenged me on that seventeen billion number. They said, how how on earth did you come up with seventeen And the answer was, well, if you look in in four oh one k fourth not four o three, be

just four oh one k. And IRA's they were. I want to say it was somewhere between fifteen and twenty trillion, some like huge, huge number. Assume that bad financial advice cost one percent of that, and let's assume that bad financial advice is only ten percent, right, So the seventeen trillion becomes a hundred and seventy billion, and then we're gonna take a one percent drag on returns. That's how

they got to the seventeen billion. Now, I will tell you that bad financial advice is out to more than of clients out there in the world, and even worse, it costs a whole lot more than one. I think they were being really kind. I think the number is close to the fifty billion dollars, but that's just my

back of the envelope calculation. The interesting thing too, though, to me, Barry, is that if you really want to solve the retirement income crisis, one of the one of the solutions that the Obama administration came up with it was this my r A accounts. Yeah, and that kind of went nowhere. I was really surprised. I thought it was an interesting idea, but the only thing you could invest in was savings bonds. Makes that makes no sense.

We'll see. That's my point is that we want to encourage people to save, and we want to we we create this vehicle that's sanctioned by the government. Well it must be a good thing. Well, you know as well as I do. If you have a thirty year time arising and you're investing in savings bond, you're giving money a one giving a lot of money away. It's this goes back to a lack of appropriate understanding of Congress's own role. Look, there's no people are willing to lend

Uncle Sam money at absurdly low rates. Take advantage of that. Take all of this debt, which is financed with all the short term paper seventeen trillion or now it's almost up to nineteen trillion. Take that debt rolling into a fifty year bond. There's people are dying for yield, dying for good paper. Rolling into a fifty year bond. Refinance America's debt, get it as low as possible, do another, build set of build America bonds and repave, rehearden the

airports and ports, redo the electrical grid. There's so much stuff we could do if we weren't stuck in a universe of partisan gridlock and just you know, the inability to imagine what made America great in the old day seems to have everybody confounded. It's not let's make America great, it's what we have to do to just go back to normal government functions instead of paralysis. And it was interesting. I was asked one time what should we do um

on financial literacy in this country? And I said, well, you should start with Congress. How about this, Why don't we make them they have their own healthcare plan, they have their own retirement plan, they have their own automatic salary increases. Why don't we take all that away and make Congress have social Security, Have Congress have Obamacare, and have Congress uh get paid the federal minimum wage. We'll see how fast things improve across all of those. If

you don't like Obamacare, then fix it. You have your own Cadillac gold plated healthcare plan and your own gold plated retirement plan. No wonder, Social Security is a mess, and no wonder Medicaid is a mess. But that's me getting on my soapbox in the last minute or so that we have what should the average investor know about

the Federal Reserve and how it impacts their portfolio. That if the FED is expansive in monetary policy, and the real simple way to look at that as if interest rates are falling, the stock market tends to do very well. If interest rates are rising, the stock market tends to

do less well. And it's very consistent over time. So my point is not that investors necessarily need to sell out or need to make any make any transactions based on FED policy, but that you need to, in in Larry David's terms, you need to curb your enthusiasm when the when the when the FED is raising rates, that typically that isn't a very good market environment. Bob, thank you so much for doing this. I appreciate um all the time. This is really, uh an interesting conversation. It's

great to be here. Thank you. It's a little wonky, it's a little in the weeds. I know there is an audience that's going to eat this up and a lot of people are going to go dr American College of What how well known is the American College of Finance? Not well enough? Not well enough known, berry um one of the things that were very well known in the domestic life insurance industry. In fact, that's the roots of the college. The college was founded in nine We are

a nonprofit, accredited degree granting institution. We have the same level of accreditation as a Yale, as a Columbia. It's UH and UM. But we largely have been known in the in the domestic life insurance industry. So do you have a program where you train people to take whatever the life insurance test is to become We administer the CLU program, the Chartered Life Underwriter program. We also administer the c HFC program, that Chartered Financial Consultant program, which

is very similar to the CFP. In fact, there's a lot of overlap between the CFP. We also do CFP education. By the way, we're one of the biggest providers of CFP education. We're fan, big fans of the CFP program, But our biggest program now is the Retirement Income Certified Professional Program r I c P. And what it is, Barry, is it's not the accumulation stage of retirement program. It's the draw down. It's when do you take Social Security?

It's longevity annuities, It's what can your spend down be, It's how is life insurance, long term care insurance, It's all of that and that is obviously becoming increasingly important because there's this uh you know, um um, basically perfect storm. People are living longer, people are have under saved, and we have extremely low fixed income interest rates in the environment. Now it's a perfect storm for retirement income planning and in a giant baby boom demographic as the pig is

almost through the python. And at the same those three things plus what is it, sixty people a day of retirement. It's ten thousand a day that retires some crazy number. It's a huge, huge, And here's the other thing that used to work. It used to work in our favor when we had pension plans. You didn't have to plan for that extreme event that you would live to be a hundred years old. You only get one draw the

distribution and a defined defined contribution plan. Right, you have to plan for that worst case slash best case scenario that is that you live to be a hundred You have to plan for that. In the pension world, there was averaging, so that it's an inefficient way to do things. Defined contribution plans are much more inefficient than defined benefits are plans are societally, But of course, since we moved

into this defined contribution world. We have to plan for those extreme events, and it's pretty clear most people are not either adequately planning or if they're planning, they're not adequately funding uh their retirement plans. The other thing that I'm really excited about College with respect to retirement income planning is we actually have our first cohort of PhD students that have entered their dissertation stage on retirement income planning.

We're going to actually be minting PhDs in retirement income planning, so that we hope that that helps inform the industry, the profession to become better at at at retirement income planning. That is truly fascinating. So that that leads me to one of the questions we didn't get to before on the financial planning segment, what sort of changes do you see taking place for the financial planning industry over the

next decade or so. I think that there are real um there's real pressure on costs, a lot more compliance costs, and I think that you're seeing that fees are going to be going down dramatically. So I think that the financial planning industry is going to have to be a whole lot more efficient and I also think they're gonna have to really raise their game with the fiduciary standard, really become better informed, really have a mastery over a

wider variety of products. You know, in the current advisory world, you have some what I would call one trick ponies, somebody that has a very deep knowledge about a very small sleeve of of products. And I think what you're going to see in the future as you're going to see people that have to have a much broader um

expertise across a much broader array of products. Again my own practice, we we've discovered that when you're doing corporate retirement planning, the skill set, the things you need to know about everything associated with four oh one K plan sponsors, third party administrators, custodians. We hired a full time person to just do that because it's not the sort of thing that you could kind of do well. The bulk of my practices this, but I dabble in you can't.

You have to have a person who is the expert in that, who can answer any questions, who is doing it for a while. And and if you look at the nonprofit version, we work with some foundations and some charities, so things have come up on the nonprofit side. The nonprofit equivalent of the four oh one K is the four oh three B. You would think it's the same rules, but it's totally different rules and again same situation. If you want to work in that space, you need a

person who's dedicated to that. Uh. We we ended up bringing in a team that only works with teachers and educators and other nonprofits because you can't you can't do it on the side. You can't dabble, you can't be well. The bulk of my clients are this, and I'm gonna work with a handful of teachers to understand all the permutations and wrinkles. It becomes a full time thing. And so we're seeing more and more specialization. I wonder if you're seeing that at all. Absolutely, And you said the

key word, there's teams. You're seeing advisory teams where people work in teams and they have they each have their own expertise, and you're gonna see much more of that in the future, I believe. So there are all these resources you can get from different firms. Were essentially a vanguard dimensional fun. We work with other other asset managers, but the bulk of our holdings are Vanguard and Dimensional

and Dimensional. D f A very intelligently recognized that they were sitting at this fantastic nexus where all this information was passing, and they signed up a person who only looks at firm analytics to try and figure out, what can we figure out from all the data we see from firms? What are what are small firms and big firms doing right? What are they doing wrong? What are best practices? It's really fast anything that an asset manager developed that sort of practice. And we see similar stuff

from Vanguard and similar stuff from from other shops. But I find that fascinating that a person who you wouldn't imagine would have a focus on that, just because of where they sit, are capable of of gleaning great insights. And you know the history of d f A. They are academics. Well you have Eugene Farma and French. And by the way, the Booth School in Chicago is named after David Booth, the founder and CEO of Dimensional Funds.

They're a fascinating shop. They're essentially a hybrid. You know, when I try and describe, well, I thought you guys do indexing, Well, this is indexing, but it's indexing based on this dimension. They were really I hate to use the phrase smart beta, but they were really a factor shop before that became the the hip phrase of the day. And see to me, they would be the ultimate and pracademics procademics. So you're taking that. I hate that word,

but I love the concept. Keep pracademics. I actually, uh I I prefer academics. What would you call the other way? If you want the other way but academs? That doesn't work. It's um But the idea of saying, hey, here's what the academic data shows, it's overwhelming. It's clear. Listen, the market may not be perfectly efficient, but the odds are that you're not going to beat the market on any consistent basis over any length of time. What what is it that we know? Well, we know quality beats junk

over long periods of time. Unleveraged companies are going to do better than highly debt and inconsistent, and we know that there's a small cap premium, and we know that over long periods of time. Um, sometimes the US does better than overseas. Sometimes overseas, there are all these things that are out there that you cannot argue and don't forget reversion of the main yesterday's winners or tomorrow's losers.

Losers are tomorrow's winners. Uh. One of my colleagues likes to say, Hey, if something in your portfolio isn't doing poorly, you're you're doing it wrong. You should always be If you're diversified, you're gonna be sitting with something that's a dog for now and eventually, uh it will it will go from go to hero while one of your heroes will eventually go the other way. Um. How would you define the proper responsibilities and roles of the financial advisor.

I think the financial advisor is a trusted advisor who has who is an educator. At least that's what I feel a really good financial advisor is is I want to educate. If I'm a financial advisor, I want to educate my clients. I want my clients to feel good about what they're doing, not simply because I say so, but because I have been able to communicate with them. Why the half I am taking is a good path? Man,

you are preaching to the choir here. Let me before we get into our favorite questions in in the last twenty minutes or so we have. Let me ask one more question. We briefly talked about the suitability standard and FINRA. Uh So, FINRA is the s R O is a self regulating organization that covers the brokerage firms, all of the broker dealers that aren't our I A s that aren't covered by the SEC. They're kind of an unusual organization.

What what are your thoughts on on FINRA. Is FINRA really an s R oh, because isn't a self regulatory organization? Aren't It isn't the definition of that that you're from that industry. Yes, the lions share of the board at FINRA is from outside of the industry, so it really isn't accountable to the government. It really isn't accountable to the industry, and it really isn't accountable to the public.

It's really an odd situation. I would think that FINNER would work better if it operated as a true s R. So, in other words, make the board all people. If you're going to be a self regulatory industry, the self part part self evident, I would think, right, So, the the people who are from outside the financial services sector who are on the board, why, why and what is the downside other than they don't really know the industry. Well, that's the point. I think that's the bad that's the

bad one. If you're going to be a self regulatory industry, I think you really need to know the industry. Now, I'm the last person, literally the last person who would ever defend FINRA. I have my longstanding views on them. I've never had an issue with them, I've never been in trouble with them. But I'm not a fan. Ah. But to take the other side, they would say, well, we want to bring diversity of thought, we want to

avoid group think. We don't want to be insular. We want to bring people who are gonna bring an outside perspective. And perhaps if we make it only industry people, we're gonna miss some important things. What is it that we need to see or do or what have you. But I think it's industry people. I think to to regulate

the industry, you have to know the industry. I mean, it sounds like a crazy thing to say, but I really think that's the important aspect of this, and I believe that that that finner the sec There's a couple a couple of things here. There's the ability to regulate, and there's the will to regulate. And I don't think that between the SEC and finer that the the our our legislators have given them either the ability or the will to regulate. And I think that's one of the

reasons that really contributed to financial crisis. They don't have the ability to regulate nor the will to regulate. And by ability and will, I define as do you have the laws on the books and you fund the organizations to be able to UH to to UH enact those laws, to carry out those laws. And I just if you look at, for instance, the SEC budget, it is a tiny, tiny fraction of really what it should and it keeps getting sliced, or at least it had been until the

financial crisis. It's even after the crisis. Though even after the crisis it was don't they capture some of the fines the issue which creates this idiotic conflict where you're incentivizing industry the regulator to find industry in order to have a but then you have but you have then you have regulatory capture where you have people that are immediately going from the SEC to work in the industry and so forth. And there's a I just I I think that if you really want to make a robust regulator,

you've got to fund it. You've got to give them both the ability and the will. All right, So let's put aside all these in the in the weeds, uh stuff, which I think is really quite fascinating. Let's jump to some of my favorite questions. UM, So I didn't ask you your background. What did you do before you got involved with the financial services industry? Was this right out

of college? Out out of college Berry, I graduated in nineteen eighty, and go back and look at a yield curve in nineteen eight, Um, I wanted to find a job in the investment management business. Good luck in nineteen eight, twelve and a half, it was. It was a crazy time. So um I went on and got a master's degree.

I was basically delaying, and I found a really interesting when I was When I was pursuing my master's degree, I got an assistant ship and I thought, you know, this academic lifestyle is a pretty good lifestyle if you get offered a ten year like I said, the last of the So I decided to make that a career and I but but while I was getting my PhD, I started a money management company and on the side, on the side, and that was night six, so right before the crash of eighty seven, and I cut my

teeth on the crash of eighty seven. And one of the things that I learned was that it's much easier to lose your own money than it is to lose other people's money. Did I take Oh yeah, No, when you when you're six, you stop at least if you have a well developed sense of ethics. When do you make an investment, it goes down. You're not happy when it's other people's money. You're like I've heard I've seen

people throw up in waste paper baskets. I remember earlier in my career waking up and just being sick to my stomach over I can't believe I have clients in this and it's a disaster. Or I can't believe this group of brokers has has clients in this and it's a nightmare. Even if it's temporary, it's a horrific, horrific If you want to you want to just wretch your guts up. A friend of mine, Rob Frame, talks about

his vomit indicator. He knows it's time to buy when he's getting ready to puke, when he feels that coming up. It's in very and he's tracted over decades, and he says, when I feel like throwing up because of how sick I am as to what either I or the market have onto clients, usually it's a good time to go the other way. And I remember distinctly going in that Tuesday morning. I had a lot of cash to operate.

I called all my clients on Monday night, you're talking the day after Black Friday, Monday, and I went and bought. It opened and I don't know if you remember, but it opened, so went the market went down at all, Yeah, no, until they unplugged. Tim Metz wrote a great book called Black Monday, and if you read the story, I'm drawing a blank on his name. Who used to be the head of the New York Fed. This was early in

the days of the Chicago futures feeds. And he went and he went into the NYC and he saw the futures feed. That's what was driving that's at least the argent story that you saw what the futures were. He had that unplugged, and the big banks decided to re establish credit with the specialists because they had caught him off for we're about to and he said, so you don't want to ever do business with the New York Stock Exchange. Was if you got off credit today, you're done.

Off the record, he says it to them. And if if you're interested in the academic history of that, read Tim Mats's Black Monday. It's a wonderful, wonderful book. So you were there on Tuesday and I went in and and I remember Tuesday morning was when I felt the worst. And how does the afternoon I felt a lot better. How long did it take before you got your confirms when you bought on Tuesday morning? Well, I when I was on the phone immediately. Yeah, so I I mean

I knew you got filled. I got we got filled. Could could have been one of the greatest buying opportunities in decades, to say the least. Although march O nine is looking more and more like that, the march On nine looks pretty good. So who are some of your early mentors? Well, yeah, again, not a mentor, but I looked up to buffett Um and other investors who influenced you. Yeah,

you mentioned you mentioned Graham. Certainly eight um Ben Graham certainly Phil Fisher, UM, phil Fisher being who um he wrote Common Stocks and Uncommon profets and Buffett claims that he is fifteen percent Fisher and Graham is what he says his makeup. UM. One of the curious things about being in Omaha, Uh, Barry, I had a UH class

that managed real money. These are undergraduate students. At the time, it was the only class in the country where students for a year long managed real money UM and UM. The class. The the term ended right around the time of the Berkshire Hathaway Annual meeting, and Mr Buffett was gracious enough to come in and talk to the class a few But I always would ask him. I said, who's going to be in town that I can co

opt into coming and talking to my class. So it's not enough that Warren Buffett is coming to speak to your class. While he's there, you're twisting his arm for hey, give me some more names. Yeah, and he Bill Ruwayne from the Sequoia Fund came and talked to my class one year, UM, and he had a really a very interesting story to tell too. But let me tell you one little, one little Buffet quip that I think tells you all you need to know about Mr Buffett. I

would take my students to the annual meeting. He always sent us tickets that I could take my whole class or sixteen kids. We'd go to the annual meeting, and we would pose every year for a picture. He would come over and and pose for a picture. And one year I said, Warren, I said, what right if you were teaching this class, what books would you use? And he said, let me think about that, Bob, that sounds like a Buffet response. Three days later, Barry, this is

three days after the annual meeting. I get a letter in the mail, Bob, and it was handwritten Bob. I would have the students read Security Analysis by Ben Graham, The Intelligent Investor, Security annalys by Graham, and uh the Intelligent Investor by Ben Graham, and Common Stocks and Uncommon Profits by Phil Fisher. H But he remembered me, and it wasn't that he had somebody writing that down wrote it.

He remembered that I had asked that question, and I was the least important person that day to Mr Buffett's annual meeting. But he remembered me, and I got it. Three days later and I hope you have that that letter it's framed. No, no doubt about that. So you mentioned three books? Any other books worth bringing up? Yeah, margin of Safety? Mr Buffett also said Seth Clarmon. He said yeah. I asked him, I said, who's the next Warren Buffett? And he said Seth Clarmon. And so I

looked and Seth Clarmon wrote Margin of Safety. I had my students buried by that book. Get out of here, so we can't. We used that in class and we bought sixteen copies, me and the students. That might be the best investment those kids ever made, compounded annual the actual value of the book from press. And I had a student. I still keep in touch with some of these kids. And I had a student call me and say, I just got two grand out of that book. He says,

I can buy the pdf. The pdf is on the internet, is free. You can pick it up for for nothing. I would want to save the book, but that's just me. Um are so, for better or worse? What has changed since you joined the industry? Boy? A lot's change. There's more algorithmic trading, more high frequency trading, and you know, on balance, I think that's a really bad thing. They say that it helps liquidity, but you know, I was in I was in your camp, and I have guys

like who guests of the show. David Booth of d f A, Bill McNabb CEO and chairman of Van Guard both insist to me that h f T has made their costs lower. It doesn't feel that way to me, but that's what they've said. Yeah, it doesn't feel that way to me too. You know, I said earlier, I think there's constant talking heads on TV encouraging people to have investment activity, is what I'd call it. I think

we've gone to more trading and less investing. Um. You know, I think that people like my sister, who's a lay investor, I think that you should have constant action. And when she calls me and says, well, you know, you haven't suggested that I do anything, And I said, well, Nancy, I have you in Berkshire, Hathaway, you've done. Just just sit and be happy. My colleague Josh Brown has a quote I love, and he says, the solution to high frequency trading is low frequency trade. So the less you trade,

the less likely you are to do something. Really silly. I think we have much more informational availability to investors, and I think that's a good thing, as does everybody. The takeaway the conversation with clients are what about this? Well, who doesn't know that? Therefore that's in the stock price? The way a piece of information is gonna give you an a investing advantage if it's a unique analysis or unique piece of data, assuming it doesn't get you sent

to jail. So that really eliminates a lot of the But I think, Barry, it's more what you do with that information, because Warren Buffett looks the same information I look at and he does a lot more with it than I do. And but what I always say is the great thing about investing is you don't have to have an original idea. You just have to be able to recognize a really good idea when it comes through.

So the my last two questions my favorite questions. So if a millennial or someone just graduating college where to come to you and say I'm interested in the career in finance, what sort of advice would you give them? My son is a millennial. My son is twenty one, and he has a different outlook than I did, And maybe it's a Maybe it's our upbringings because um, he grew up in a an environment where he didn't want for anything. I grew up in a lower middle class environment.

Um I wanted to do well. My son wants to do good. I think that this profession, the financial services profession, can afford somebody the opportunity to do both. You can really do well in terms of financially well, but you can really do good. And I think that's very appealing to millennials. You know, if you put somebody on proper

financial puttings footing, sound financial footing, that's life changing. And I think that if you do that right, and you you know, you do a good job at that, you can put your head on the pillow at night and feel pretty good about what you do. And you can also live a pretty good life, to say the least. And it's how much of that wanting to do good as a function of the fact that he's twenty one and when you're young and idealistic and life has kick the hell out of you, yet you can look at

the world that way. Well, I think I've gone the other way. I think I started wanting to do well and now have done well and want to do good. That seems to be a pretty traditional factor for people.

Once you realize that all your material needs are met, and how fortunate you are to be born in the United States, born in the century, and being a career that pays you more than anyone has any right to expect in a given lifetime relative to the rest of the um world, you start to think, Hey, I want to give some back and just recognize how appreciative I am of the opportunities that were afforded to me that

might not have been afforded to everybody you know. For instance, people may roll our eyes about somebody who sells insurance that, oh god, who would want to sell insurance? Well, my son saw an instance where his uncle, my brother in law, was tragically killed in a car accident. His family they had life insurance on him. Uh, the the the agent

basically delivered a check for two million dollars. So the house is paid for, the kids, college is paid for, retirement is set up, and although it's a terrible tragedy, at least it isn't a second tragedy when everybody is set back in their lives and can't achieve what they want to achieve, and you know he saw that, and I think that's shaping what he might want to do. So you could do well by doing good in other words, And our last question, I know they're gonna kick us

out of here any second. What is it that you know about investing that you wish you knew thirty years ago when you were just getting out of school, but perhaps didn't thirty years ago. Well, I I sure wish I would have seen the mortgage crisis coming. Um. You know, it's funny, Barry, how many people now claim to have saw that coming. Really annoying to those of us who saw it coming. All these people who are making that

claim it is I certainly didn't see that coming. You know, the thing that I see about investments is the the complexity of investments is just crazy. Ze I remember I had a student who went to work for Solomon Brothers, and he was on the mortgage desk and he called me and he said, I would like to ask you if you'd be interested in helping us um do a

little consulting in on the mortgage back desk. And he sent me everything that he had on mortgage back securities, which were nascent at the time, and I said, I, I don't understand anybody can I don't understand how anybody can value these things. I have no idea because they're so complex. Well, great, we've we've hit our target. It turned out that that was what it was, and I couldn't provide him any help. Well, long story short, I

think I was right. Um, but I think Barry that the theme that I would say is that I think that the investment world has gotten unnecessarily complex. Now is it safe to say that that's a feature, not a bug. It's not an accident that it happens that way, but there's not an element of design. I don't think it's

an accident that it happens. I think that the the eye banking community is a pretty um sophisticated, savvy, and very intelligent group, and I think that they can uh come up with a lot of different products, financial products that it's very that they are. They're very difficult to value, and I think that there's a thing out there that that people are unwilling to say the words I don't understand, and I think that's one of Mr. But that's one of the things I've learned from Mr Buffett is that

he stays away from investments that he doesn't understand. Famously stayed away from technologies in the late nineties. Everyone said he was a dinosaur, and then a year later everything crashes on him. Um, it's the idea of your circle of competence, So not how big your circle of competence is, it's that you stay within its perimeter. So what is that one thing you would that would have helped you

in your career had you known it thirty years ago. Well, I think I did know it, and I think it's that I think that you stay within that circle of competence, and I think that if I could help people, it would have been that I would have hammered on that. Don't be ashamed to say that you don't understand something. Dr Bob Johnson, this has been absolutely fascinating. Thank you

for being so generous with your time. If you've enjoyed this conversation, look up an inch or down an inch on Apple iTunes and you'll see the other let's call it ninety or so uh podcast radio broadcast conversations that we've been doing. I would be remiss if I did not thank Taylor Riggs and Charlie Volmer, my uh producer and booker for the show. And Michael bat Nick, the head of research who helps me put together all of

these scintillating conversations. I'm Barry Ridhults. You've been listening to Masters in Business on Bloomberg Radio.