May 9, 2017 · 1h 10m · capital-allocators
Josh Brown – When Witchcraft Failed (Capital Allocators, EP.06)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Josh Brown, CEO of Ritholtz Wealth Management, about his journey from transactional stockbroking to becoming a prominent fiduciary advocate. Brown shares insights on evidence-based portfolio design, the primacy of financial planning over active management, and the crucial role of behavioral coaching in guiding long-term investors.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 21.2% of the talking time here. How this is scored →
Ted as informed peer 4.3 Guest teaching 3.3 Guest disagreement 2.2 Ted pushing back 2.0
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 57:15 Josh blasts indexing purists for questioning his stock commentary
Josh aggressively dismisses critics who claim talking about individual stocks violates passive investing principles, telling purists to 'kiss my ass' and rejecting their 'make-believe church'.
Hardest push from Ted ▶ 48:55 Ted challenges Josh on his dual role as passive advisor and CNBC stock punditTed directly presses Josh on the cognitive dissonance between his disciplined, passive investment philosophy and his regular television appearances engaging in short-term stock race commentary.
Biggest teaching moment ▶ 37:20 Josh exposes the arbitrary nature of index classificationsJosh educates the audience on the subjective nature of index committees, pointing out that Amazon is categorised as consumer discretionary rather than tech, debunking simplistic sector macro bets.
Ted holds their own ▶ 59:08 Ted offers an allocator's counter-perspective on Buffett's compoundingTed counters Josh's Twitter survey framing by arguing from personal experience with Buffett that while Buffett would become a billionaire again starting with $1M, he would do so through private dealmaking rather than public markets.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Origins of The Reformed Broker and Industry Evolution | 3 | 2 | 1 | 1 | Ted opens the interview by asking Josh about his well-known monikers and origins as 'The Reformed Broker'. Josh provides a concise, cooperative recap of his early career cold-calling at retail brokerages and realizing the transactional model was broken. | |
| Incentives, Behavioral Traps, and Predatory Product Cycles | 4 | 4 | 3 | 2 | Josh describes predatory sales incentives where brokers sell whatever worked yesterday, pointing out how the same aggressive sales types rotated from tech stocks to subprime mortgages to payday loans. Ted interjects to note the growing societal danger as predatory products moved into basic necessities. | |
| Hitting Rock Bottom and Partnering with Barry Ritholtz | 3 | 1 | 1 | 1 | Josh narrates hitting financial and professional rock bottom during the 2008 crisis, his wife's ultimatum, starting his blog, and meeting Barry Ritholtz. The tone is deeply collaborative and reflective. | |
| Financial Planning as the Core Anchor of Asset Management | 4 | 3 | 1 | 1 | Ted asks how Ritholtz Wealth Management approaches client money, and Josh explains that asset management is subordinate to comprehensive financial planning and liability matching. Ted listens as Josh outlines their planning framework. | |
| Rules-Based Portfolios and Abandoning Star Active Managers | 5 | 4 | 2 | 2 | Josh explains why his firm abandoned star active managers like Bill Gross and Bruce Berkowitz in favor of rules-based core allocations and systematic tactical sleeves. Ted notes the industry tendency to chase yesterday's winners when assembling portfolios. | |
| Asset Allocation Boundaries and Portfolio Cost Discipline | 5 | 4 | 2 | 2 | Josh breaks down their liquid, rules-based asset allocation approach, strictly budgeting fees below 50 basis points and tilting emerging markets with dividend screens while skipping commodities. Ted asks detailed probing questions on implementation and portfolio constraints. | |
| Sponsor Message: Ridgeline Investment Management Platform | 5 | 5 | 3 | 2 | Following the sponsor break, Josh details why attempting to outsmart macro narratives or sector classifications is flawed, highlighting the arbitrary nature of index construction. He also explains why he deliberately recused himself from his firm's investment committee to eliminate agency conflicts. | |
| Behavioral Coaching and Navigating Flat Market Cycles | 4 | 3 | 2 | 2 | Ted asks how Ritholtz keeps clients disciplined during extended periods of market underperformance. Josh recounts guiding clients through the brutal 2014–2016 flat earnings recession via persistent evidence-based content and education. | |
| Balancing Media Commentary, Active Trading, and Educating Kids | 5 | 5 | 6 | 5 | Ted directly pushes Josh on the apparent contradiction between preaching low-cost passive investing and appearing daily on CNBC trading commentary. Josh pushes back aggressively and colorfully, defending his missionary role on television and explaining how individual stocks teach his kids market realities. | |
| Sports Parallels, Active Management Viability, and Compounding | 6 | 3 | 2 | 3 | The conversation shifts to sports analogies, Phil Jackson, and whether legends like Peter Lynch or Warren Buffett could beat the market starting today. Ted offers his own seasoned perspective on Buffett's compounding model, demonstrating allocational insight. | |
| Personal Reflections, Youth Coaching, and Life Lessons | 3 | 2 | 1 | 1 | In the closing rapid-fire section, Josh shares heartwarming stories of coaching his seven-year-old son in Little League, playing Candy Crush to decompress, and reflecting candidly on self-editing and lifestyle management. |
Statements from this episode (23)
The retail transactional stockbroking business model is fatally flawed
“The entire business model of transactional Brokerage with retail clients was fatally flawed, could not be done correctly”
The easiest financial product to sell is whatever just worked
“The first is the easiest thing to sell is whatever has just been working. And the reason it's the easiest to sell is because it's the only thing the buyer wants is to be a part of whatever's working now.”
Regulation cannot cure investor fear, greed, or Wall Street evasion
“There is no amount of regulation and I'm pro regulation, but there is no amount of it that's going to cure, you know, the fear and greed aspect to investing or that's going to stop someone from doing what they want to do, like in the end. And you can do, Three…”
A business is flawed if it must hurt clients to make money
“If you're in a business where you have to hurt your clients in order to make money, you're in the wrong business.”
Barry Ritholtz uniquely connected the housing bubble to market risk publicly
“Barry was really the guy that was drawing that line from mortgages to houses to the stock market. There are other people that were doing that too, but Barry was doing it like on a blog, and Seriously doing it. Like, six, seven posts a day sourcing from ex-trea…”
Asset management is useless without a comprehensive financial plan
“The asset management is great, and it's really important to us, and it's the thing that I focus on and Barry focuses, but at the end of the day, it's useless if it's not in service to a financial plan.”
Cash need timing matters more than the absolute dollar amount required
“The timing, arguably, is more crucial than anything. Not how much money will you need? When will you need it?”
Ritholtz Wealth weeds out prospective clients seeking complex financial products
“The people that are coming to us and they want the bells and whistles. Within the first conversation, we're going to weed them out. And it's for their own benefit, because we're not doing enough circus act stuff to make them happy.”
Advisers should manage asset exposure instead of picking star active managers
“Why the fuck are we apologizing for active managers when all we really need to do is get clients the right exposure in these asset classes, and then the decision making is not, did we back secretariat or a glue horse? Then the question is like, do we own too m…”
Forcing clients to endure 50% drawdowns guarantees behavioral blowups
“In the real world, nobody can watch a 50% drawdown take place in their portfolio and live through it. And actually, the more you try to force people to do that, probably, the more of a likelihood there is That your client's going to blow themselves up.”
Ritholtz Wealth invests client capital exclusively in liquid public markets
“At the current moment, everything we do is in a liquid public market.”
Public small caps no longer capture historical returns as companies stay private
“There is an argument to be made that absent private companies at this point, you're not really capturing what small caps historically gave you because these companies are not coming public anymore. They're coming public as large caps.”
Ritholtz Wealth targets portfolio expense ratios under 50 basis points
“We would like to have the internal expense ratios in our portfolios be less than 50 basis points, but that doesn't mean they all are, and some of them are way below.”
Ritholtz Wealth holds zero commodity exposure across client portfolios
“We have no commodity. None.”
Currency hedging is unnecessary because currency risk generates investment returns
“We're not big buyers of the currency hedging idea. We think that currency is a risk, but risks are sources of return. So give me the risk.”
S&P outperforming international stocks by 100% over a decade is historically rare
“This is the first time in a long time, and only the third time in history, that international stocks have been outperformed by the S&P by a hundred percent. Over the trailing 1010 year period.”
Amazon is classified as a consumer discretionary stock, not technology
“You think Amazon's a tech stock? It's not. It's consumer discretionary. It's not in the tech index.”
Brown avoids his firm's investment committee to eliminate conflicts of interest
“Now, why am I removed from it? Because I'm the CEO of the firm, and I never, ever want us to make an asset allocation decision for our clients for the sole benefit of the firm or for Where there could potentially be some conflict”
Financial advisory is about behavioral coaching, not short-term stock picking
“The real job is not define, you know, divining, ooh, is like Dr. Pepper Snapple going to be better than Pepsi? Which one do I buy for this quarter? Like, that's not the gig. The gig is getting people through.”
Ritholtz staff retirement assets are invested in their client models
“My retirement money, my real money is all in the models that we manage for clients.
So I eat my own cooking and everyone at the firm, by the way, all of our, for one K contributions go right into the same models our clients own.”
Jim Cramer advises putting initial market investments into index funds
“Jim Cramer's last book, the first, this is a change in religion for him.
The first thing he says is the first money you accumulate in the market should be in an index fund.”
Stock prices move on performance relative to expectations, not product popularity
“It's not about whether or not people are buying the clothes. Are people buying more or less of the clothes than the people investing in the stock thought they would? And teaching him about expectations, and then throwing this up, and then one day it would go u…”