Interview With Charles Rotblut: Masters in Business (Audio)

methodology asking questions of individual investors. Going back that far, we speak about the Weekly Sentiment Survey, which I find a little noisy, but it extremes it certainly can be useful, and the A A II Ascid Allocation Survey, which I find to be tremendously useful. It has pretty much marked the bottom of every major UH market correction since UM as well as marked the top at at major highs.

And and it was one of the things that were screaming up and down late early two thousand that hey market have gotten U way too way too uh frothy, and that investors are wildly overweight equities relative to their historic averages. UH. He's an interesting character. He he does a number of fascinating things for a AII. If you're interested in what individual investors are doing, thinking, saying, and

how they're allocating their portfolios, I think you'll enjoy this podcast. So, with no further ado, my interview with a AI eyes Charles Rotblood. This is Masters in Business with Barry Ridholds on Bloomberg Radio. My special guest this week is Charles Rotblood. He is the vice president at the American Association of Individual Investors. He's also the editor of the AII Journal UH. He's a c f A, and he is the author of Better Good Than Lucky, How Savvy Investors create a

fortune with the risk reward ratio. Charles Rotblood, Welcome to Bloomberg. Thanks for having me so. I've been following your work for a long time. I'm a big fan of of some of the surveys that aii UH performs, Not so much the day to day or weekly things, but the longer term asset allocation number I find absolutely a compelling UH. They say you don't ring a bell, but there are times when that UM survey rings a bell. But before we get into the nitty gritty of exactly the surveys

and other things you do. I told my wife I was interviewing you and I described your title and she goes, she asked me, um, well, what does he actually do? When I go, I'll ask him. So when people say to you, what do you do for a living, how do you answer that? Well? I start off by just saying a magazine editor, and that of course lets you well what magazine and who publishes that? So kind of

give a long answer. But main job as I am the editor of the AI Journal, which really compels really really it's a matter of providing information about how do you invest better? Uh So we do a lot stuff in the house. I reach out to a lot of smart people on Wall Street. But in addition to that, we're focused on investor education, and part of the way

we do that is we provide different model portfolios. We have a Stock Superstars Report which invests in different types of strategy, so we're diversifying by strategy, growth value and not only by industry a dividend investing portfolio. We're also no of our microcap portfolio, which is run by our chairman,

Jim Cluton at Investor Microcap Stock. So part editorial, part portfolio management, and also just a lot of speaking to people and and for people who may not be familiar with A I I. You're a nonprofit, you have a hundred and seventy thousand members. Is that about right? That's right? And essentially you guys have been around for over thirty years. Is that about right? Yeah, we actually started in nineteen seventies.

We are actually started by Jim Clunen, who's who is a professor de Paul and he's still still at the office. Saw him on Monday. So now we know what AIII is and we know it does um. I think you guys are actually one of the largest successful subscriber newsletters that really doesn't specialize in making forecasts. Is that a fair statement? Yeah, it is. We don't. We do not

make any market forecasts. We actually think people overall are better offically just didn't make any forecasts because the tendencies to have this confidence. So I'm saying this with isis I'm saying this with China. You don't worried about Janet Yellen. And the reality is it doesn't matter what the market's

gonna do next week. It really matters when you're ninety, do you still have cash in your account that you can live in, and it's very hard for people to lose sight of that because that doesn't necessarily grab headlines. But as an individual investor, your goal is to really get to your last day and still have still have at least a dollar in your bank account. And let's talk about your membership. Who who's a typical AII member, Well,

we care individual investors are. Average member is in the sixties, affluent, college educated, and that's really demographic. If you talk to a morning Star about their consumer division, look at various investment newsletters, it's it's all pretty much the same demographic. And I would love to get people in their twenties and thirties and involved because we could help them so

much at such a young age. But in general, even when I said invest hoals in Zack previously, it always tended to be older men and who could clean, who actually had built wealth over their life for their careers. That tends to be the key demographic for really any individual investor type of newsletter or service. Well, if you want more millennials, you have to make your acronyms sound less like a r P. I think they see a A and they don't even get to the I I fart.

They just see that and uh and run. You mentioned morning Star. Who do you guys consider your your competitors. Who's out there, if not an identical space, who's who's in a similar space to a AI. Yeah, there really isn't one. I mean morning Star on us do overlap. We have some competitive products, but then we have a lot of people from the organizations. I think Christine Ben's

talks to more of our members than I do. Uh. But you know, better investings out there they do education, though they're more focused on investment clubs UM and they have their own stock picking system. We're really the only organization that's really focused on comprehensive investment education out there, at least that I'm aware of. And you know, UM.

I interviewed Dr Robert Johnson, who was at the c FA Institute and is now president of the American College of Finance, and he's another person who advocates for investor finance. But I'm starting to wonder how successful investor education can be. It seems like people make the same mistakes over and over and over. Can we ever really reach a critical mass of people? Uh? And and prevent them from shooting themselves in the foot. You know, I'd like to do that.

I think it's always gonna be hard because people are always being torn in different directions. There's always gonna be services. Do this now that make money, do that now they make money. I'm in just a pure emotions when I speak. One of the very first slides I show actually has a quote from Charlie Ellis who said, as in Driving, the secret, the secret to success is avoiding the big mistakes. And I tell people, if you want to make a lot of money in the markets, just don't screw up.

And if you avoid those behavioral errors that cause you to make a big mistake, that's gonna put you a light years aheavy game. But it's easier said than done. So in the last minute, we have in this segment, what is one of the biggest errors that investors make? You know, I think it's really panicking and selling at the wrong time, Panicking when there's a bear market, panicking

when it's a market correction. Because when people do it, they just tend to stay out with the market too long and they basically lock in losses and miss out on the chance to recoup those losses. I'm Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio. My special guest today is Charles Rotblood. He is vice president and editor of the American Association of Individual Investors as

well as the a ai I Journal. I wanted to talk a little more about some of the sentiment measures that ai I does. Probably the most famous one is the weekly sentiment measure. Tell us about that? Sure? So we started this in eighty seven and we ask our members a very simple question. Over the next six months, I feel the market will be up, bullish, unchanged, neutral, down,

bearish UH. And we've tracked this weekly and we've seen since eighty seven seven, and we've seen over time, when you know, near peaks, bull sentent hits very high levels. During bear markets hits very low levels. March five, two thousand nine, right at the very bottom of the bear market,

bullish sentiment was below UH. And what's interesting about is everyone focuses on a weekly changes, but it's really when it's way off kilter, when it's just way beyond the averages, that's when you have to pay attention, particularly bull sentiments. When I've looked at it, eliminated all hindsight, when you see bull sement unusually low optimistic levels, and you would say below is how often does it hit that? Then not very often, not very many times in the history

of the survey. So so the really you're you're looking to more or less that's interesting, the noisy week to week stuff, But where really is in an vestable decision is when it reaches the extreme. Yeah, And the other thing that's interesting, and I'm curious to see what's gonna happen now because we've seen it a lot of the last twelve months. But when neutral sentiments a way above its average that's also been correlated with rising markets. Has

that happened previously. It's happened previously, but it's mostly prior to two thousand and so. Now over the last year, we've had several readings with it being unusually high, and kind of will let I want to let things play out to say, do we now see this correlation pop up again? It's not causal, but there's certainly a correlated link between sentiment being very off and the market's changing direction. That's that's quite interesting. So that's consistent with what I

know about um sentiment. You really want to take a take a notice when it reaches um, when it reaches an extreme. So that raises the question of of when we have a whole lot of bullishness um or very little bullishness. Are these sort of booms and bus bubbles and and collapses? Is this the inevitable fate of markets? This is this just the way human beings behave? Yeah? Unfortunately,

I think so. We just we tend to be greedy by nature, we tend to be risk adverse, and everyone thinks, well, risk of version means I'm afraid to lose money, but it also means you're afraid of not making money when you see everybody else making money. So read is just the inverse a panic? Yeah, absolutely, And you know it's just human nature. And we have very short histories. We have volumes of market history. Anyone can pick up security analysis and read about what happened leading up to the

Great Depression. But you know next, lots of exuberance, lots of lots of frothy sentiment, and people just no longer paid attention to the traditional metrics. Yeah, you know, I think if you changed probably seven words in that whole book, reprinting a two thousand you would have thought it was about the tech bubble. It's funny. Funny you say that.

There's a book by Richard Wycoth written in nine and it's called called How I Trade Stocks and Ones, And the stuff he talks about are telegraph and telecom, railroads, like a handful of major industries, And you could swap out the names of the industries you couldn't tell the difference as if it was written yesterday. No one's talking about telegraph. But if you swap telephone and telegraph for Internet, you would not be able to tell the difference. It's

the exact same narrative. It's quite fascinating. Um So, so the next question, the related question to this is given that these booms and bus are inevitable, given that we're always gonna have bubbles, we're always gonna have crashes, how should investors deal with their own emotions? How do they

deal with fear and greed? You know? I think that's where it ties into weight loss, where they talk about triggers, something that prompts you to eat, and I think people need to be aware what promps you to trade and setting up barriers. I I personally advocate for rebalancing because I think when you are scared or you're feeling greedy, it gives you a positive emotional outlet take in your

portfolio back to your targeted allocation. So, in other words, the market has gotten she'll act, it's down where it was, and your portfolio is supposed to be making up round numbers US equities, developed x US and ten percent emerging market and all of those have moved off of those preset measures. By rebalancing, you mean you're gonna sell a little bit of everything else that's run up and move

these allocations to their previous levels. So if you're supposed to be US and now it's twenty seven, you're gonna move it back to thirty. Yeah, And the beauty of it is two things. A you're buying low selling, high proven strategy, but you're also giving yourself back that sense of control where okay, this is going on, and here's something I can actually do and I know why I'm doing it, and that alone, from emotional standpoint, I think can help people a lot. It's certainly not the only way,

but I like it. From a behavioral standpoints quite quite interesting thing. Um, anytime people can do something that doesn't shoot themselves in the foot, especially when they're dealing with their own emotions. Uh, is a really really good thing. Let's let's talk a little bit about valuations. Are our US markets expensive, cheap or fairly valued? You know, I think they're fairly valued when you look at it. Obviously, the big question is do we get earnings and revenues growth?

And that that's a big question. Uh. If we don't get earnings, we don't get revenue started up, then obviously we can make an argument that stocks are of our valued. But I think right now they're probably fairly valued. Um. And you know, some people can point to CAPE saying, well, that's out of whack, but but that's been out of whack for a long time. Yeah, we actually decades out of whack. Yeah, we actually are giving an investing portflow. We actually just the numbers and thought, okay, what if

we start out when races first started being raised. Uh back, I guess twenty years ago. I started when started peaked, they started coming back down from two, and we looked at the CAPE from there and based on that measure, it's about average. So if you figure, okay, we're an slow interest rate environment, it makes sense if you really are convinced the Fed's gonna raise rates and every four days aggressively, right, and every forecast about that's been wrong

for six years running. Now. Uh, you know, it's it's hard to argue that stocks are expensive on that measure. What do you think is a good measure evaluation for the average individual investor? Yeah, I think on an average level looking at stocks, UM, I like price the book. I think price earnings a price of sales from the market overall. Uh, the pe is just good because it's so easy to find and it's just out there. I'm very rid helps you're listening to Masters in Business on

Bloomberg Radio. My guest this week is Charles Rotblood. He is a vice president at the A A I I out of Chicago, a nonprofit association of individual investors. I mentioned earlier the A A II Acid Allocation Survey, which I've been a big fan of, mostly because it only makes really significant CAN readings on rare occasions. So first let's talk about the survey itself. Tell us about the survey. What do you ask people and how often are you

asking it? Can we do the survey monthly and we ask members how much your alacane, the stocks, stock funds, bonds, bond funds, and cash. We've done it since seven. We've occasionally had people asked, we'll want to include gold, why don't you add real estate commodities? Yeah, and our reason is, well, we have this history that's been pretty stable that we can now compare it against, so to update it, we'd lose all that long term records. Yeah, what's the average

long term history? What is the typical equity exposure stocks and stock funds that you get from UM your AII members. It's been so about six and I've noticed that there are times where it's significantly underweight as well as significantly overweight, But it only reaches these streams on rare occasions. In fact, you could go back to it was really at a very very low level, as overboard as I've ever seen it in in later oh two it was back to those levels early ninety levels, and then again in O

nine was the lowest I've ever seen it UM. So that's what five four or five signals over over thirty years is. This is essentially the intention of the allocations survey. Very rarely does it reach those extremes. Yeah, Well, we serve our members, and we started just because no one

else was tracking it? How are you allocating it? So we look at more as information, but should certainly coincides where he sees the market peaks in these market bottoms where people adjust their portfolios, and part of it's just portfolios dropping, but part of it, even though we encourage our members to be long term, they get to the point where fear takes over, our greed takes over, and their portfolio goes to extreme levels. So how did the

survey come ab out? Was it simply, Hey, no one else is doing this, let's just start asking our our members how they're allocated exactly. It was really a case where we just didn't feel like anybody was giving voice to individual investors. And that's what really started the sentiment survey and the ass allocation survey. Let's give our members

a voice. Let's actually figure out what they're doing and let them explain to everybody else this is what I'm actually doing, versus having people, you know, guests as to how the individual investors reacting. So you know, we've only seen four really extreme um overboord er oversold signals going back to you can even say was a was a fairly over oversold signals. So let's call it five. Where where is the allocation model today? You know, it's pretty

close to average. Stocks have been running a little bit of average, but they're still in a low sixties. Uh. And the one thing I hear consistently from our members as I can't get any interests, I can't get any yield. A lot of our members because they were hire res or their near retirement, they're thinking about I need cash,

I need want to earn something in my cash. So I do think there's a lot of investors who are either holding cash are investing in stocks because they just don't like bonds and they're frustrated with low interest rates and they're fearful at some point rates will rise, even though that fair has been around for a while. Now, Well, I have to think that eventually rates are gonna rise, but you don't know when that eventually is going to be,

and you need the income. Now that that's why they've invented bond ladders, so you can basically, as rates go up, you sell the most recent year and and reinvested that. That should be a fairly standard approach for most bond investors. Shouldn't it be. Yeah, it should be. And even if somebody doesn't want to own bond funds, they can buy there's bullet shairs, which basically our bond ladder funds that mature a certain dates. So there's certainly options are you

could even do it with CDs. Uh even I think a lot of people just look at that low interest rates and they have a hard time. They can good, I'm gonna get one percent of my interest are one and a half percent interest and it's hard conceptually to figure that out. But they're not thinking, yeah, you're not getting paid any interest, but you're also not going to lose any money. So so let's talk about the divon investing.

As long as we're talking about field, you guys have in the last minute we have you have the Dividend Investing newsletter. I keep hearing from individuals that they're looking at dividend stocks as a bond substitute. Are you are you hearing anything like that? And what is the dividend Investor letter? Like, Yeah, we do, but definitely here about that. We hold twenty four dividend paying stocks. We focus on growth and low evaluations, so I do think they can

supplement income. But I think investors need to view bonds as this is what I want to use for safety, to protect my short term assets, and maybe dip into when I need to buy stocks on a dip, versus as solely the sources of income. And I think dividends,

particularly for retired investor can help. But even for someone away from retirement, you know, you're just basically juicing the game because you get the increasing in your stock price and then you're in cash on the side that you can then reinvest in stocks and obviously get more dividends from doing that reinvestment. I'm Barry Reholts. You're listening to Masters in Business on Bloomberg Radio. My special guest this week is Charles Rodblood. He is vice president at the

American Association of Individual Investors. He is also the author of Better Good Than Lucky, How Savvy Investors can create a fortune with the Risk Reward Ratio, as well as editor of the a AII Journal. So we've been talking a lot about sentiment and what it means for investing. Let's let's get into a little more of the details the segment. How important is sentiment analysis to the average stock market investor? Yeah, I think it provides some colors

to what's going on. Um. I definitely think it can be an alert to go look closer, particularly if you see sentiment being way off, that should be a signed what else is going on. I don't think sentiment initially higher low drive stock prices in the other direction, but it's usually assigned there's some other things going on. Maybe evaluations are too high, maybe evaluations too low. Maybe there's

too much fear being priced into the market. Uh So I think it's a good alert to take a step back and start looking at the broader forests instead of focusing on one tree and asking yourself, have things swung too far? And what's causing them to swing too far? Interesting? Um? And relevant to this. When do you think sentiment analysis works best. Is it something that's just there in the background for color, or is there time where it seems to be more astute than others? You know, I think

it's very astute. Whenever you see the market getting very expensive or very cheap um. And I think that's the time where you can start getting a sense that maybe people are going overboard. Uh. I mean we saw this with housing when you get to two thousand seven, where people were buying no interest loans, you know, over paying on houses where everyone's saying, oh, housing can't lose um and you start seeing things on magazine covers, it's usually a sign that maybe there's too much greed being put

into the system. And anytime you hear filling the blank can't lose, you know there's trouble comming. Absolutely so that raises another question. How significant is investor behavior to their own ability to generate decent returns. I think it's absolutely critical.

There's a study I can't recall where it was done, but they looked at professional traders and they actually gave them cortisol the racer stress hormones, and what the researchers figured out was that as the stress hormones were raised, these traders who are professionals, became more and more risk adverse. Uh So, I think there's definitely a biological components um as Conoman and diverse Key found out Daniel Koneman and Mr vers Key Bill Laureate Winners and Economics for their

psychology work. Exactly, they figured out that we're risk adverse and we'll pretty much do everything we can to avoid occurring losses. Are to limit the pain of losses were more focus as humans on avoiding the pain of losses than we are gain those gains we feel we feel uh, the pleasure of gains half as intensely as we do the pain of losses. A rule of thumb, yes, I

mean really, I find the stuff endlessly um fascinating. So from a related perspective and and from your seat dealing with a lot of different individual investors, what do you think that the average American investor is overly concerned with? I know you had mentioned ISIS and the election, but those are kind of passing news events. What from a thirty thousand foot view, are they consistently over um concerned with? Yeah? I think in the day, it's what's front of front

of mine, what's going on right now? Why are they sing at versus thinking long term? I think they just succumbed too often to recency bias versus thinking I have this portfolio and it needs to last for the end of my life, and not even realizing that if you're a ter at sixty nowadays, you can be looking at thirty or forty years more of life and not thinking

in terms of those long periods. And it's hard to do I think everyone's too focused on the very short term, on the immediate headlines, and not thinking over the long term and what has history suggested works over the long term. I know I'm gonna mangle the statistic because I'm doing it from memory, but I recall reading something along the lines of if as of today, you make it to age seventy five, you have a two and three chance of making it to ninety or or something along those lines.

It's because when you look at the longevity the average lifespan, it's relative to you know, how many people died in childbirth, and there's a whole series of things that affect the average lifespan. But if obviously you make it seventy five, you've bypassed all those things, the odds of making it to ninety just go up dramatically versus uh the average person, which significantly impacts how much money you're gonna need across the course of your retirement. Yeah. Absolutely, I mean there's

things that happened throughout life. People diarly because the diseases, their accidents, what have you. And you're right, people get to a certain age and then life inspectancies actually started increasing. The average life inspectacies, because once you get to seventy five, you have all those people that have lived to a hundred or older pushing their number reports. So have you guys come down on the active versus passive debate? I

can't say I've seen anything recently along those lines. How how do you guys feel about indexing and how important is active stock selection to long term returns? Yeah? We're both um and I tell people, look, if you have no interest, you just don't want to spend time on it. Too passive and really passive investing should be your benchmark. Can you do better? Can you get more return and

more income? But I think someone who's willing to take some control, particularly if they're willing to step outside the SP five hundred and really look at the other several thousand stocks that never get mentioned. Uh, they certainly can get much higher returns than the SNP five hundred over the long term. Are you seeing individuals using a lot of e t f s. I know that they're cranking out a million of them now has got to be over a thousand e t f s. How um useful

have these become as a tool for individual investors? I think it's split I see some people are are using them a lot, I think particularly it's I can't really say what type. I do think a lot of people are using them, but I still see people who are fearful about using them. They hear about the higher frequency traders UM and these you know, things being kind of wild and some bad news when you have some of these specialized ones that really just trade out of whack.

But I think it's mixed, and I haven't necessarily seen in a trend where everyone's shifting. The t fs are there not UM. You know, I think when people look at it really comes down to what's easy and also how are you investing if your dollar cost averaging A mutual fund works better just because you can buy this fractional shares, but you know, a commission explained fractional shares, because I bet some listeners are not familiar. You buy

any TF, you're buying one share of THETF. But with the mutual funds, the mutual fund you can buy you know, point one oh weight shares. You can buy a thousand dollars worth of things that turns out not to be an even number. You get the fractional share and they can track that exactly, so your entire money goes into

worth an E T F. Uh. You know, if you have an et F and I RA, maybe you have twenty dollars and fifty cents and change sitting there in cash because it's not enough to buy share of anything, single share and over time that on a dollar coast averaging basis, that can add up to a lot of money. Absolutely, So let's talk a little bit about your book, because we really didn't get to that last segment. Better Good

than Lucky, tell us what is the risk reward ratio? Well, I came out with a ten point plan for analyzing a stock, looking at valuation, looking at growth rates, looking at the balance sheet, and the idea was, how can you analytically look at a stock to determine as at risky or is it actually a good value um? And the whole idea is really has some quantitative where you

can actually measure stock against. What I'm doing right now is I'm actually refining the strategy, trying to actually simplify it a little bit more because I really realized at the end of the day, if you just get value momentum, those two factors which are completely uncorrelated, low value and upward moving price. That alone is the cornerstone you need. And then just overlay some of factors to get rid of the junkier stocks, the stocks with bad balance sheets,

the stocks are less profitable and add to it. So I'm actually revising the strategy right now. But the ideas you have a quantitative measure that you can use to analyze the stock and determine whether or not it's a good value or not. So ultimately, if you are looking to identify are these when you say good value, is it lower cost stocks or is it just good value relative to other characteristics? What what matters most? You know?

I I look for a low valuation, low price the book I'm actually testing right now looking at absolute which I used in my book originally looking for a price that earnings below twelve price the book below too, but I'm also now trying to test it below twelve price of the book below too correct? And how does that compare to the historical averages for both of those metrics, And they tend to actually be in a lower over time.

I mean obviously at the exactly yes, absolutely times you're a little bit higher at the times a little bit lower. But in general that seems to mesh pretty well over the long term. And and so how does one use this metric? Is it just a matter of sorting And here's a list of these are the cheapest stocks straight down? Is that? Is that the upologe? Yeah? The ideas you can use it for a screen or if you know, you're watching news and someone says ACTE Incorporated is the

new company, it's great. You can then take this measure. Okay, I'm hearing about the stock. How does it actually stack up? And I think for investors, even if they're not using that system, just having a set of quantitative measures where we can take any stock and measure it against We'll give you a quick five minute you know analysis. Is this something worth pursuing or is this something I should

walk away from? And if people want to learn more about AII, where would they go to find out more information? AII dot com write our websites and they could they could become a member, they could subscribe to the journal there and your writings are on the AII blog. There is that correct, Yes, on the blog. I do actually do a weekly email, the AI Investor Update that's on the website. Uh, if people want to join it's twenty nine dollars a year, so it's very cheap to actually

subscribe and be a member. That sounds great. We've been speaking with Charles Rodblood. He is the vice president of the American Association of Individual Investors. If you enjoy this conversation, be sure and stick around for the podcast extras, where we keep the tape rolling and continue chatting about all things investing. Be sure and check out my daily column on Bloomberg View dot com. Follow me on Twitter at rit Halts. I'm Barry rit Halts. You're listening to Masters

and Business on Bloomberg Radio. Welcome back to the podcast. I don't know why I do this every time, Charlie, thank you so much for doing this. This is really interesting. I have been either reading your surveys, following the asset Allocation model, or or seeing your name in print for I don't know how long have you been with them.

It's been years and years and yeah, I've been there about six and a half years now, Okay, but I and I've been following a I I stuff, especially that asset allocation model, which I've posted on the blog a few times for I don't know how long, for for decades. I've always anything that generates a signal very infrequently becomes really fascinating and people forget about it. Oh yeah, this thing hasn't thrown off a signal in in fifteen years.

Just just ignore it, they said in nine and then it went from moderley overweight to aggressively overweight to wow, we've never seen this at seventy seven percent when average is that's pretty significant. So people kind of forget that these things exist because they're most of the time they're in the middle of the range. But once they get to these extremes, it's really it's really quite fascinated. Yeah, and absolutely, I think you're right. People forget what history

is and it's very easy to do it. But as I said earlier, it really comes down to if it's reaching those levels, it's a good little trigger stop, look what's going on, because it usually one hits his extremes. Uh, usually it's pretty close to market bottom or usually pretty close to our market peak, and there's usually some other

things going on. But you're in a day to day news the headlines, it's very easy to lose sight that you have these longer term indicators, and you can even point to the Shiller's Cape and other things where there there are long term but once they hit those levels, it's really worth paying attention and taking a step back and doing that broader analysis. So how did you find your way to a AII You've been there for six and a half years. How did you Let's let's go

way back. Where did you tell us about your background? Where did you start in in finance? Yeah, I actually started finance for a small business valuation firm. And what happened was I actually my degrees in journalism, worked in advertising for six years UM and then I was doing some temp work and I got a call to work

for a firm and I joined. It was a small business valuation firm, so we were valuing closely held businesses and I knew Microsoft Excel and the owner when the owners of the company said to me, I think it's easier to teach accounting than Microsoft Excel. And this is the mid nineties where a lot of people weren't computer literate. Uh, just happened to be a good fit and that was I guess twenty two years ago. I'm assuming you're still a regular user of Excel absolutely? Do you like the

latest version that I was so annoyed. They all the buttons that I've grown to love, They've moved hidden, made more difficult to find. Oh, I hate the new menu. I wish they would go back to the old one. I can't find exactly how I feel. You know, I kept an old one for as long as I could, but eventually the upgrades around it, the operating system upgrades, eventually it broke the old Excel, which was just so

much better than than No. One. Yeah, I don't mind when itows ten, but I just hate the way Office in General's design. I wish they just give me the option to have the old menus back. So I'm waiting to go on Stephanie Rules Show a couple of months ago, and I'm just sitting there reading through my mail, and I look up and there's Bill Gates standing all by himself in the back of the room. So I walk

over and introduced myself. Hey, you should come on our podcast, blah blah blah, and uh, I had to tweet something and I couldn't just tweet. Met Bill Gates in the green room at at at Bloomberg Go. So I I swear this is on Twitter, I added complained to him about the buttons on on the new Excel, asked to go back to the old style, and people like yelled at me, like I actually did that. You know, he's not a Microsoft anymore. It was a joke exactly. So I'm glad to hear when when someone else is an

Excel Power user and hates those buttons. I used to know my way around the program, and now I feel like I'm wandering in a in a jee I've never been in this town before, and it's been like three years. I still haven't adapted to everything. Yeah, I've learned where certain things are, if I still find myself clicking on things Where's this, Where's that? Because it used to be so intuitive. It used to be right there, it's prettier.

Now it's just much less useful. Absolutely, I completely agree. Um, so, so you start out from journalism, how did you eventually get to to a AII. Well, so, I started working for a small Missis valuation firm and I think it was there for about six months and my boss, who's also my mentor, looked at me and said, I think you should take the CFA exam. I don't think you should pass it, but I think you should try, and so I took it ended up passing all three on

the first try. So I go to him, Yeah exactly. I guess he knew how to motivate me. And then from there, um, I went to work for well, what's now Investorals Think or Swim back then it was Telscan back then worked for them part of t D exactly exactly. Um, So I was with them for about five and a half years. Uh. Then I actually took a job in Denver working for Curian Capital, which was under the Jackson National Life credentials a big shop at one point. Yeah

it was, and I was working for him. They were still pretty much in start up stage. Worked there for almost a year. Uh. True. Sequence of events, we had our holiday party investco Field, they let the president go, and then they had a massive layoff at the firm, all in about a span of about six weeks. Yeah.

So what what led you eventually to to this gig? Well, I was in Chicago working for ZAS afterwards, and our vice president, Ai is an old Fratorney brother of mine from college, and one night he called up and said, we have this position. Our editor is retiring. You should come in and talk to us and I looked at my wife and I said, I know what the organization is. I don't know much about this position. By no, Adam still going and talk, and pretty soon I into the conversation,

I realized this could be a really good fit. Yes, so it's the Wall Streets old boy network at work. Yeah, absolutely so. So you mentioned one of your early mentors earlier, but you didn't get any more specific. Who were your mentors? Uh? Well, I think for investing, probably my biggest mentor was Jeff Schumacher, my first boss. He passed away several years ago, but he was a CPA that focused on business valuation, and

he just really understood the concept of evaluation. And I know a lot of people get their start on Wall Street working with a big investment banks, but there's something about I think working on that private side where you're really being hands on and really look at these small businesses, understanding how they're actually being run, having to really look at the cashlow statement, and I think having evaluation, if it goes to court, you're able to defend it. I

think it definitely. I think from my standpoint, it gave me a better background. Quite quite intriguing. Um So he was a mentor. What other investors influenced the way you think about investor? Yeah, I think Warren Buffett actually did his name comes up all the time. Yeah, And and really because of Warren Buffett, I sat down and read Security Analysis, the whole whatever you have, the whole eight hundred pages or whatever it is. Um. I read Phelip

Fisher's Common Stocks and Common Profits. That that's the second time that book has come up in the past a couple of weeks. It's it's one of those things that is just a classic. Yeah, it is, it really is. And so I read a lot of books because of that. Um, you know, and that what other investors, you know, other investors that influenced me. I mean he's the best a lot of people. I just look at things they do. Uh, Carl Richards, I try to look at his stuff all

the time. He does a sketch column for the New York Times, and I just love his ability to simplify things. Um. I do find myself constantly look at Jim and Shoughness sees what works on Wall Street where he book basically looks at various indicators for stocks, varias measures how they've worked. But I just try to read what other people say. This is a really famous book where the customers yachts. I know that's been mentioned. It's very funny. Yeah, you know,

people don't realize it's really a very amusing book. Absolutely, and the education sort of sneaks in when you're not paying attention. Yeah. And actually recently for an article, I picked up Peter Lynch's One Up on Wall Street and there's something through that. It was amazed how much in that book never gets pointed out too. And he has a lot about selling stocks, and all people think is, oh, Peter Lynch by what you know, But there's far more

to strategies than that. He's he's really a fascinating guy. I think he's still chairman emeritus or something like that at Fidelity up in Boston. Yeah. I don't know what his status is right now in terms of career what he's doing. It could be possibly. So he stepped down um from was it Magellangell like just fantastic time and got there ranked wracked up fantastic numbers for a decade, oh not even a little less step down at the top and kind of just became a marketing person for them.

But man, what an amazing track record he accrued in in a very short period of time. It's really impressive, and it would have been curious to see what he would have done afterwards. And I think the one advantage Warren Buffett has ever Peter Lynch is not having them worry about those outflows. And you know, put Peter Lynch in a warm buffet type situation where he doesn't have to deal with inflows and outflows, it would be interesting. It would have been really interesting to see what he

would have done. So you mentioned a handful of books. You mentioned Common Stocks on Common Profits. What other books do you find especially important, influential, or just enjoyable. Well, one book called point Out it's coming out later this year,

a little self serving. Our chairman and founder Jim Clinton's writting a book called Investing at Level three UH, and it's gonna be somewhat controversial because he's basically taking on the whole notion of portfolio management UM and his view of risk is not the day to day volatility, UH, having enough money to last you through the rest of

your life. So he's really advocating long term going for stocks, and he's actually going to make the mathematical argument over the long term, not only should you be mostly the stocks, but you should actually use some leverage. Uh. If you're leverage, he did the calculations, you'll never have a margin call over a long period of time, but you'll choose returns. But what is so the worst crash we saw huh uh nine is gonna be a a near eight percent collapse.

Wouldn't wouldn't that have generated a margin call? He said? Even if you just a little bit to you still would have hit it. Yet if you if you went over, you would have but that limit, you still have enough in there. I mean, you had fifty seven percent recently. That shouldn't generate margin call if you so. And I'm gonna assume he's in the Nick Murray camp of no bonds, just just doing equities. Yeah, his arguments just have about four years of bonds, so if you're retired, you have

money to actually withdraw. And that's a Now I've been hearing a lot the ideas for four years, meaning what something he depends What depends on the size of your portfolio. It's really four years of living expenses. So you know, where are you getting some security? What are you getting in pensions? And then maybe have annuities and what you need outside of that to live on. That's going to be a controversial book. Yeah, that'll that'll be interesting to

see when that comes out. What other books really stick out in your mind? Uh? You know, I pointed out what works on Wall Street. That's why I have I have that in the office and at home. It's a tome, but it's terrific. Absolutely, it's terrific. One book that came out earlier this year, uh, that I don't think really got of attention. It's called The Art of Execution by Leaf Freeman. Sure, he's an art of execution exactly, and it's all about selling. He he's a manager, really, he's

a money manager in London. He basically separated his accounts around I can't remember how many traders, many traders, and then he looked to see, okay, what were the traitors who are doing well? What were it? Happits? Were they do they have? And the ones you were doing, pully, what were they doing? And he actually separated into five different tribes, rabbits, hunters, and he basically found commonalities between the guys that, like I think rabbits, he said, tended

to dig a hole when they were down. Versus had some other investors where assassins. If a stock fell by thirty percent, they would just cut the position and get out. He had one group, he said, kind of source, which were the most successful long term investors, but they took profits over time, so they weren't always trying to sell once or just wait for that one big thing, but gradually get off of the stock. And it was It's interesting because no one really talks so much about selling,

and he did a very good analysis of it. I was gonna say there was one other book I'm familiar with, and I want to say it came out in the eighties or maybe even earlier, maybe even the seventies by Justin Mamis, called When to Sell. But for that book, the really you're hard pressed to find a book that says, Okay, if you're gonna buy individual stocks, here's what you're selling. Discipline should be. It's an amazingly overlooked part of of the investing experience. So the name of this book again

is called the Art of Execution. Art of Execution, and is the whole thing on uh, when to jettison stocks? Or is it more a broader portfolio. It's it's his analysis of those traders, of what each tribe of traders actually did and what their commonalities were. So and so the book is based on a study he did on exactly how many traders did he look at. I try to remember, right, you know, I cannot remember the numbers.

I've drunk a blank on it. But it was a pretty I'm gonna guess it's a pretty significant that's a pretty central size on there. Um. All right, So let's keep going. So you've been in this industry for a while. What has changed for the better and for the worst. You know, I think for the better in terms of

people's ability to do research. You know, when I started, if I needed to do research, I remember gonna Rice University in Houston where I worked, and Hugh's done and and go Alexis Nexus, go through periodicals, occasionally through microfish. And now you have sites like SSRN where you can just anyone can do research. Kenneth French's website on data people want long term data on viouation ratios, just tremendous amount, completely free. Chiller also has a huge of It's amazing

how much information academics not only are they publishing. But they are doing a huge um it's a huge benefit to anyone who's willing to roll up their sleeves and wade into it because all the numbers are there. You don't have to rely on anecdotes or myths or best guesses. The data is actually there. Yeah, I think even just

a speed helps. You Remember probably in the nineties, if you downloaded a ten K from the SEC's website, you click on the link and then you'd go make dinner and come back and it might be finishing up just then you've got mail exactly. How that the dial up modems, you weren't moving files, if it wasn't text exactly, who could be bothered waiting for that? I totally, I totally get that. Um. So, technology clearly has changed how how we do business. The amount of information available is tremendous.

But if everybody has access to the same information, what advantage does it beget to any individual investor? Yeah? I think it comes down to being disciplined. Um. I think individual investors, as I said earlier, I really need to think about looking at the whole span of stocks, not just you know exactly, not just what you hear about in the media because those large institutional investors, as you know, they have so much money to invest below certain market capitalization,

they just can't allocate it. They'd have to buy the entire company. Um, And so I think investors need to do that. I always encourage investors to just go slow, you know, put your trade order in, step up, take a deep breath, and just think about what you're doing. These high frequency traders, if they're concerned about milliseconds, I don't care what app you're used, how speaks are not going to be exactly. You have to play a different

game exactly. Yeah, playing a different different sandbox. I can't say I I agree. More so, given given what's changed, what do you see as the next shifts that are going to take place in finance? Yeah, it's interesting. Um, I definitely think the robot advisors are probably gonna continue. We'll see what happens with a dictionary rule. Uh yeah. I think we're gonna see probably new products from Wall Street. We're seeing with ets right now, where they're really reaching

with new ideas. So, um, I think at some point someone's probably gonna come up with some new idea that hasn't been created yet. Uh, not sure what's yet you always have those big changes that always unexpected. But I definitely think there's just too much money, too much creativity, and too much type A personalities out there for something not brand new to be created. I'm working on a robo advisor that all it does is create new types of ETF. So every day cranks out twenty new ETFs.

The goal as we want to have a million ETFs by the end of the decade. It feels like that sometimes if you look at the number of new names that that keep coming out. Um, and now we're down to my last two and my favorite questions. So someone who's a recent college graduate or a millennial comes to you and ask for advice on a career in finance,

what would you tell them? Yeah, I think the one thing more than anything else is just figure out how can you explain things asn't simple and asn't simple English as possible. I know you've been at conferences. I've been at conferences where we get a conversation and I just want to say to him, I know what you're saying, but let's speak English. And I think the ability to just communicate these very complex concepts and very simple, concise

language that alone is invaluable. I couldn't possibly agree more. When people ask me what I do for a living, that was a question I asked you. But I always say, my job is to take these complex, hard to understand sit you nations, and make them simple and easy to understand. My wife teaches art, my mother is a retired school retired real estate agent. If I can make so when they say to me, explain to me what h F

T is. If I could make somebody both very smart but just not in in a field that uses a lot of jargon and a lot of math and a lot of uh specific financial terms, if I can make them understand something in a way that, oh, that makes sense and it's not complicated. I know, I've I've achieved something, And yours seem to be saying the same thing. Taking complex situations and making them easy to understand, that's uh,

that's something that is important. How does that apply to a millennial or someone just starting out in a career of finance. Well, I think that's one of the things that I think gives them an edge, being able to communicate those things no matter you know, whether they want to be very calm on a tablelea base where they want to do more journalism or editorial. Just having that skill set. A lot of people don't have it. It's a lot of very smart people that can't necessarily break

things down to layman's terms. And and that's one skill. If you can do it, and you ever have a situation where was a bad bear market and it's tough to find a jump in finance, you then have that skill set where you can't carry it to somewhere else. But if you want to work in finance, I think it just opens doors for you. But I would say I do think in the cf A helps immensely. It's definitely helped my career um goods of knowledge base, and I think in the industry it's very much smiled upon.

I know that sounds self serving, Um No, it's absolutely true. It's it's we've we've heard that if it's you versus another candidate and you're a c f A and they're not, you're you, as a c f A very well may have have a big advantage there. I found it to be completely invaluable in my career. And the final question I have, what is it that you know about investing today that you wish you knew twenty years ago. Yeah, I think probably behavioral finance, and I wish I recognized

that I knew about it twenty years ago. I think not only would have helped me and made me more discipline twenty years ago, but I think it might have changed the way talk about things and how I view things. And I it's probably the last five or six years I really started studying and really started grasping it, and it just really like when I started really painted to the value that really meshed. Behavioral finance really meshed. So I really wished twenty years ago I knew more about it.

And certainly there's a lot more now about a lot more that's come out of the last twenty years than existed back then. But I think it explains a lot of things, not only what other people do, but also why we do certain things, and it allows people to clear myself, to set up barriers and sub systems so I don't make the same mistakes. Really interesting stuff. Charlie Roplitz, thank you so much for coming to Bloomberg. We've been speaking to Charles rod Blood of the American Association of

Individual Investors. If you enjoy these conversations. Be sure and look up an entry down an inch on Apple iTunes and you could see the other ninety or so of our podcasts. I would be remiss if I did not think Mark our recording engineer, Taylor Riggs, our booker, Michael bat Nick, our head of research who helps prepare all of these questions, and Charles Wilmer, our producer. Uh, thank you for listening. I'm Barry Ritolts. You've been listening to Masters in Business on Bloomberg Radio