03/25/26 Show notes (SB1820)

Type show description here (paragraph 1 about the main guest, paragraph 2 headlines and Haven Life Line)

FULL SHOW NOTES: https://stackingbenjamins.com/diving-deep-into-stock-market-research-1820

Deeper dives with curated links, topics, and discussions are in our newsletter, The 201, available at https://www.stackingbenjamins.com/201

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Our Headline

• How AI-powered vibe coding is changing advisor tech (Financial Planning)

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Doug’s Trivia

• Who was the first person to walk on the moon?

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Want more than just the show notes? How about our newsletter with STACKS of related, deeper links?

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Other Mentions

• Join us for the film screening of Retirement Plan, plus a live Q&A afterwards. The screening starts this evening (March 25) at 8:00pm Eastern time.
• The Financial Freedom Scorecard

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Join Us Friday!

Tune in on Friday when none other than Paul Merriman joins our roundtable when we discuss creating all weather money systems (the famous “all-weather portfolio”).

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Written by: Kevin Bailey

Miss our last show? Listen here: The Real Return on Your Emergency Fund Has Nothing to Do With Interest Rates (SB1819).

Episode transcript

[00:00:00] Joe: Who’s with me? Yeah, Joe. Alright, let’s do this. People

[00:00:14] Doug: live from Joe’s mom’s basement. It’s the Stacking Benjamin Show.

[00:00:29] Doug: I’m Joe’s mom’s neighbor, Doug. And how would you like to be a stock market maestro? Today we are talking to two researchers who’ve studied the best and brightest for over a decade. And today we’ll report on their findings. It’s Claire Flynn Levy and Lee Freeman Shore. Yeah. And believe it or not, with all those names, it’s still just two people in our headline segment.

[00:00:51] Doug: More and more financial advisors and pros are using ai. Is there a potential downside we haven’t yet imagined? We’ll pose this question to og, but we don’t do that. Before I pose to you my awesome trivia question, I’ll bet you get today’s right so you can brag to all your friends and now two guys who brag to their friends that they get to help you with your money habits.

[00:01:15] Doug: It’s Joe and OG. 

[00:01:22] Joe: Well, hey there, stackers. Welcome back to the Stacky Benjamin Show. We’re super happy you’re here. Sit down and relax. You found us. Grab whatever you’re going to take notes with because we’re about to help you do better with your stock portfolio. I’m excited. We haven’t talked stocks in a long time, OG and with uh, markets, you know, those 

[00:01:41] OG: are going down 

[00:01:43] Joe: well.

[00:01:43] Joe: The markets bump around a lot. On a normal day, we always laugh and be like, oh, the market’s volatile. The market’s always volatile, but it might be a little bit volatile. Volatile. A little bit of extra hot sauce. Lately. So good time to talk about analyzing your portfolio. How are you doing today, man? 

[00:02:00] OG: Uh, just I’m, I’m a little upset on two fronts.

[00:02:05] OG: Number one, we are recording this on, uh, uh, opening day of March Madness, which is ridiculous. Ridiculous timing and, uh, planning on our parts. So I might be a scot distracted. And number two, how have we done 14 years of Stacking Benjamins? And we’ve never had a bracket challenge for our stackers. 

[00:02:24] Doug: We did one year.

[00:02:25] Doug: We did. 

[00:02:26] OG: No, 

[00:02:26] Doug: I don’t 

[00:02:27] OG: think so. Let me, let me own this. We never did this. I’d sure as I don’t remember 

[00:02:32] Doug: it. Are we gonna do a billion dollar bracket? Tell me we’re doing a billion dollar bracket. 

[00:02:36] OG: Well, it’s too 

[00:02:37] Doug: late 

[00:02:37] OG: where somebody gets 

[00:02:38] Doug: off 

[00:02:38] Joe: a billion if they win. 

[00:02:40] OG: It’s too late. Doug. The bracket’s already started.

[00:02:42] OG: We have to think through this. Um, you know, maybe, I don’t know. Do we have an intern? Do we have like an, maybe we should get an AI intern? I know we’re talking about AI today. We have an AI intern that reminds us to put this in the script in January. 

[00:02:54] Joe: Deputy graduated, got a fine job as a social media manager, and sadly, we don’t have an intern right now, so between interns, but next year that’s, that’s next year we’re gonna blame it on the intern.

[00:03:06] OG: We should a hundred percent do this and figure out a way to make it so that somebody makes a bunch of cash. 

[00:03:12] Joe: Well, let me tell you what’s gonna be really fun today. We didn’t do that, but what we did do is if you’ve. Ever had a coach analyze your swing if you’ve played a sport, or more importantly, if you, I’m trying to 

[00:03:24] OG: have Doug analyze my skiing one time.

[00:03:26] OG: All he did was laugh. 

[00:03:28] Joe: Well, that’s his analysis. 

[00:03:29] Doug: Don’t suck that much. And I won’t laugh. 

[00:03:32] Joe: Yeah. Or even more importantly, if somebody’s given you, you’ve had a great coach that’s helped mentor you, help you work, man. Our guest today, Claire Finn Levy and Lee Freeman Shore. Yes. Only two people, Doug. They are incredible.

[00:03:48] Joe: Have a great background and they’re gonna coach you. I’m better investing habits today. 

[00:03:53] Doug: They’re hogging all the names. They should give some back. 

[00:03:56] Joe: I think they’re also hogging all the bio because listen to this. Claire Flynn Levy, she’s the founder and CEO of Essentia Analytics, and they’re a FinTech firm that what they do, they work with investment managers and people who are capital allocators, right?

[00:04:13] Joe: For these big pension funds. They help them look at how they make decisions through analytics to know where their biases are, mistakes that they often make, how to stop making those mistakes, to see where the opportunities are. Just a hundred percent data driven. Before that, she spent 10 years as a fund manager.

[00:04:33] Joe: She ran over a billion dollars of pension funds for Deutsche Asset Management. Later she was CIO of Ava Asset Capital Management in London. Claire has done it, but she’s paired with because we get all the best coaches here in the basement. Lee Freeman sho, 16 years in investment management, one of the world’s top fund managers.

[00:04:53] Joe: He was co-head of equity research at Old Mutual Global. He has written several books on making better investing decisions. So we’re bringing at stackers, we’re bringing the best and brightest help you invest better. OG and Doug and I will kind of review with you after this next, uh, fantastic interview, what some of the hot points are.

[00:05:18] Joe: So we’ve got Claire and Lee coming up next, but before them we have a couple sponsors who help us keep on keeping on and we can bring great people to you like Claire and Lee for free. We’re gonna hear from them. And then Claire Finn Levy and Lee Freeman sho join us to help you with your portfolio. I.

[00:05:45] Joe: And I am super happy we have these two, I’ll call them maestros in research, uh, here with us. Lee and Claire joined us on my dead shortwave radio. Thanks for coming on. I appreciate it. 

[00:05:56] Lee: Yeah, thank you. 

[00:05:57] Clare: Thanks for having us. 

[00:05:58] Joe: You know, we’ve had Jack Schwager on a couple times talking about stock market wizards.

[00:06:03] Joe: These people that you know are traders, they’re heavy duty. And the general thing Jack Shares has shared with our stackers before Claire and Lee is that these people are remarkable. You don’t want to be them stick with index funds. What’s the difference between a wizard and a maestro? The work that you two really focus on, and I guess Lee, I’m assuming you may have coined the term, uh, stock market maestro 

[00:06:28] Lee: together.

[00:06:29] Lee: We coined the term. We, we were trying to think of a, a name of what to call our experts. Let’s just say. Yes, I mean, wizards and maestros in my mind and in Claire’s mind, I think the difference is wizards to us are people that are more short term orientated, more trading the 12 stock market mistro reach feature in the book, which are phenomenal investors.

[00:06:51] Lee: Award-winning investors are just that, they’re investors. The, the attempt to take a longer term view, you know, they’re investing in public equities, you know, name, you’ll have heard of you, you know, the big cap and, but we’ve got small cap guys in there. But that’s the key distinction there. They take a longer term view.

[00:07:06] Lee: They, they’re investors, not traders, and the phenomenal executors of ideas, and that’s why we call the maestros. And Claire can probably, probably want to chat about, you know, Claire, maybe what we looked at to determine how good they are at executing their ideas. 

[00:07:21] Clare: Yeah, sure. I mean, I, I think of both wizards and maestros are holding wands and the wizards going zap, zap, you know, like point and shoot direct.

[00:07:31] Clare: The maestro has like long sweeps and is, you know, conducting a symphony and it’s a much more fluid and less, uh, there’s something more musical about that to me. But, but the maestros and wizards are very similar. It’s a, you know, they’re both good. There’s nothing that’s not a question of, is one better than the other?

[00:07:51] Clare: The maestros that we’ve interviewed, they’re all public equity long only, well, no, some of them are hedge fund managers, all public equity fund managers and maestros. You get, um, traders who trade all sorts of different things, not just public equity, but in that way, they’re sort of closer to us, us being, you know, any old person who maybe invest in the stock market or doesn’t, but invest in mutual funds or ETFs or, or the like, like they’re doing the long-term investment thing is what we’re all supposed to be doing.

[00:08:20] Clare: So the, the learnings that come from them hopefully are very applicable to people who are not fund managers, but who you know, have yet to make decisions with their money. We all do. 

[00:08:31] Joe: Claire, your company has a series of metrics to evaluate these people and help them to evaluate themselves, which I find fascinating and to, to look at the traits that make them better investors.

[00:08:42] Joe: Is it more about process or is it more about results that makes them a maestro? I 

[00:08:47] Clare: mean, in the end it go, and this is how Lee and I actually met. So 10 years ago, Lee wrote a book called The Art of Execution, which was a study effectively of a bunch of different fund managers who he had allocated money to.

[00:09:00] Clare: So he and I were both, we both used to be fund managers, and in, in his book he, he documented what he learned from running money with these different managers. And I read this book and, and it really resonated for me because I had just started my company, Essentia Analytics. And having been a fund manager, what I was trying to do was create analytics that would be like sports analytics, but for investment decision making.

[00:09:25] Clare: So to make it possible to reflect in the same way an athlete reflects on their own performance. That’s what I had been looking for as a fund manager. Almost like Claire, like where the hitches are in your swing or where you’re throwing the ball the wrong way. I, exactly. You know, people spend a lot of money on golf, uh, analysis.

[00:09:44] Clare: It’s like this is no different. This is actually your livelihood unless you’re a professional golfer. But the way that Lee was looking at things is very similar to how we’re looking at things at Ascension, and that’s what ultimately led to us working together. But what he found was that in the end, the success of the manager or the investor, any one of us, it’s not just about getting it right all the time.

[00:10:07] Clare: In fact, it’s don’t even get it right. 50% of the time. Even the professional, very best fund managers typically do not get their ideas right Ev 50% of the time. It’s how they behave when they are right and how they behave when they’re wrong. That makes all the difference and that applies to every one of us.

[00:10:26] Clare: But it is the sort of thing you can see in, in data. So in stock market, meisters. We vetted lots. We vetted a, a long list of award-winning fund managers, 70 odd award-winning fund managers, and then got their data and analyzed it and narrowed it down to these ones because these are not all people who have a batting average over 50%.

[00:10:47] Clare: In fact, on average they’re under 50%. But what they do well is the slugging part. If people are baseball fans, uh, in the end it’s like you can be wrong a lot, as long as when you’re right, you’re very right and when you’re wrong, you’re only a little bit wrong. So you’ve gotta get the big things right. 

[00:11:05] Joe: I remember Peter Lynch saying something like that a long time ago that he lost far more often than he won.

[00:11:09] Joe: But when he won, he would be able to win big enough that it would make up for a bunch of losers. Lee, it fascinates me. When Claire talks about your earlier works, you actually, in the intro to this project, you focus on the different types of investors that Claire is beginning to shine a light on for us.

[00:11:28] Joe: These different, uh, people, the rabbits, the assassins, the hunters, the raiders, the connoisseurs. This was fascinating to me, by the way, when I first read about this a few years ago. I love these terms. Can you walk through this? ’cause I think, I think we all make these mistakes. We become the wrong type of investor at precisely the wrong moment, which res what could have been a great position for us to hold as an investor.

[00:11:52] Lee: Yeah, yeah. No, you’re spot on. So, just reiterating what Claire says, I mean, I, I discovered the chance of an idea of making money is fortune 9%. And these are the best, the best invest in the world. Very successful. Toss a coin as to whether an idea makes money, and yet people obsess about stock picks. What my research showed is no, no, no.

[00:12:11] Lee: What matters is what you do when you’re losing and winning. So going back to your avatars, if you like the tribes. So if you are losing people who typically fall into one of three tribes, they’ll become a rabbit, a hunter, or an assassin. You don’t want to be a rabbit. A rabbit is a losing trait. A rabbit, someone that when they’re losing, they do nothing.

[00:12:30] Lee: And what’s bad about that is that invariably, if you do nothing, you could hold something that goes down a lot. And if you understand just geometry returns, you know, if you’re down 50%, you need a hundred percent to break. Even if you’re down 75%, you need 300% just to break even. You don’t wanna dig such a big hole.

[00:12:49] Lee: Big. So they’re rabbits. And when I found rabbits in my team, um, or professional investors, I, I fired them, you know? Okay. ’cause they, they’re managing between 25 and hundred $50 million for me. So you don’t wanna be a rabbit, you wanna be an assassin or a hunter. I’m, I’m guessing for your, the audience of this show and assassin’s, probably the easier one to be an assassin is someone that says, okay.

[00:13:09] Lee: I’ve lost somewhere between 20 to 40% in this name. I’m getting out like a cold blooded killer. You just killed a position and that’s, that ensures you’re not gonna lose too much and you’re not gonna permanently impair your capital and you can move on. I mean, you, you’re kind of respecting the market. The market’s kind of saying either your ideas sucked or your timing sucked, or both.

[00:13:30] Lee: The other category, a hunter is someone that basically when they’re, when they’re down 20 odd percent or more, they kind of think, well, I still believe in the idea. Nothing’s broken. It’s just the market. I’m gonna throw a lot more money at the name now, that I would argue is a lot more difficult to do because when you’ve lost money, throw more money at an idea, you know, it kind of plays with your mind thinking, what am I, you know, kind of doubling up might be a mistake.

[00:13:53] Lee: So, you know, for a professional might be a bit easier to do that. So that’s on the losing side, on the winning side of the ledger. 

[00:14:00] Joe: Sorry, can we, before we get to the winning side of the lecture, because, because I do wanna talk about. When we’re losing, because when I began investing, my natural reaction was, this is a good idea.

[00:14:12] Joe: But timing, to your point, Lee, I might’ve been a little early, the position is going down, so I’m going to keep dollar cost averaging into it. Right? I’m gonna make my average lower so it’s easier to bring it back. But then I realized reading people like the two of you, that this might just be my ego getting in my way, and I need to be okay with the fact that I, I called it badly.

[00:14:35] Lee: Yeah. I couldn’t agree with you more. I, I think the ego is the enemy. I mean, that’s the biggest enemy of all of us. I mean, it’s very hard when you are, when you’re in a, you know, you’ve done a lot of research on the investment. You put your money in it, and then you see, you lose, you know, it’s losing and, and you’re kind of, it’s hard to walk away, especially if you still believe in the name.

[00:14:53] Lee: And sometimes you just have to acknowledge you’ve got it wrong. But to your point, I mean, if you’ve done a lot of work and you think you are right and the market’s wrong, which. Can be a bit of a dangerous way to think. Um, then pound cost averaging would make sense or my guys, they didn’t do, I guess the difference is for me, they didn’t do pound cost averaging a difference between a hunter and a and a pound cost average is a pound cost average would go, I’m putting say, a hundred dollars a month into a name and over time, that’s a great strategy, by the way, if you’re going into something like index funds.

[00:15:22] Lee: Yeah, I can’t fault that strategy that way, but in individual names, what my guys would do is they’d gone down 30% and then they’d double up and, and they’d put a lot more money in. And that’s a very different beast to pound cost averaging. And that if you not, if you don’t know what you are doing, that can be very dangerous and you can go to the poor house pretty quickly.

[00:15:38] Lee: Which is why I said earlier for a, you know, an average investor, I always think someone like my mum and dad, it’s probably better for them to adopt being as an assassin when they’re losing than trying to be a hunter. Or they could do what pound cost average and what you suggest is isn’t a bad idea. If, if they’re doing it in a traditional fashion of a little bit every month, da in a name, which is a bit of a different game.

[00:15:59] Lee: I mean, Claire, would you add something? 

[00:16:01] Clare: I mean, I, no, I would just say the, the key thing to wrap your head around is that you have a less than a 50% chance that your idea is right. So if it starts losing. To automatically wanna buy more. You’re assuming that this is one of the ones that you’re right about.

[00:16:19] Clare: Okay. So that it’s already the, you’ve got a, a less than 50% chance that this is one of them, but you’re saying it is one of them. Okay. You know, with a hunter, the hunter is saying. I’ve done the extra diligence. I’ve got really good reason to believe that this really is one of the 49% or the 40. Today, I see average hit rates closer to 40%.

[00:16:41] Clare: So you have to be able to work from the baseline of, wow, I know I’m gonna be wrong more often than I’m right. So then it becomes about being aware when I am wrong, sooner rather than later. And being aware when I really do have very high conviction that I’m right and, and revisiting that every time to say, Nope, this is one of the 49%.

[00:17:02] Clare: This is definitely one of the, in which case, double up. But I think most people innately believe that they’re right. More than 50% of the time we’re all above average, Claire. We’re all above average. Yeah. Yeah. Unfortunately, that’s called overconfidence and it is very well documented. Behavioral bias. It’s something we all struggle with, but if we can be very honest with ourselves and objective and forgiving.

[00:17:28] Clare: Not saying, oh, I get it wrong more than 50% percent of the time because I’m, I’m a bad investor, or I’m stupid, or whatever. No, that’s just you being a normal person, but knowing when you’re wrong. You know, in other parts of life you have signals that tell you like, hang on a second, I have a feeling I’m barking up the wrong tree here.

[00:17:46] Clare: Or I’m, you know, this is not the right person I should be with. The red flags are there, you know, we have to learn how to recognize ’em when they’re there, cut our losses and move on and, and take it on the chin. And I think it’s easier to get to that humble space when you’ve taken more punches, you know, the longer your life has gone on.

[00:18:07] Joe: I love that because, uh, you know, often a lot of our younger stackers, they’re afraid of making the mistake when they first start, and what you’re alluding to is make mistakes more often. Fail, fail forward. 

[00:18:18] Clare: Yep. 

[00:18:19] Joe: I do have a question though that I’m sure some of our stackers are yelling at their device. Why is it 49%?

[00:18:24] Joe: Is that because of the middle men and women between you and the trade? Is that why it’s not 50? Why is it 49 and not 50 50? 

[00:18:32] Clare: It just is. I mean, actually most in the stock market Meisters book, a lot of these people, in fact, the median, the Meisters median was 49%. They, the long list median was 45%. So it basically just looked at every single position that these people have ever held and said, what percentage of those actually outperformed the relevant benchmark over the period?

[00:18:54] Joe: I see. Which is why I thought, I thought we were starting at 50 50 and, and and and then going, well, you know what? You got a 50 50 shot. Well, you don’t because there’s a person in the middle, but this is the actual, which means then, Claire, this is why your 40% earlier is important because you’re saying for our average stacker out there probably would be closer to 40 or maybe even less than that.

[00:19:15] Clare: Yeah. I mean, that’s a good, it’s a good reason to invest in a, a fund if you want, you know, to not have to wear the stress of only being right 40% of the time because it, it can be stressful if you don’t get used to that just as a basic fact. 

[00:19:31] Joe: Guys, I love that sidebar, but Lee, you were about to transition into the winners on the winning side, where we get it right and where we get it wrong.

[00:19:37] Lee: Yeah. So when you find yourself winning, people are typically fall into one of two camps. They’ll either become a connoisseur or a Raider. And as much as I like raids of the lost arc, um, you don’t want to be a Raider Raiders. These are people that make 10 or 20%, and the, the bank, the profit move on. Now when you realize your success rate is less than tossing a coin, you banking 20%, believing that you’re gonna rotate that profit into a better investment is a bit of a fool’s errand dad, I’d argue.

[00:20:07] Lee: And the the main finding is you want to be a connoisseur. Connoisseur is are people that the Peter Lynch. You, you run your winners and you win big. You let your winners, you know, compound out and win big. And I can tell you that the guys on my team that, that were successful, we all had one common factor amongst them on the winning side.

[00:20:25] Lee: Two or three big winners accounted for the majority of their returns. So if you strip out those two or three big winners, their returns profile of their overall portfolio becomes very nah, average or bad. And you see, you can’t underestimate the importance of having one or two big winners. So if you’ve got a process whereby you are selling out of your winning names after making 10, 20%, and then you’re holding onto your losers and write them down 50%, you, you’re gonna go to the pool house pretty quick.

[00:20:53] Lee: So. Be a connoisseur when you’re winning. That’s the lesson. 

[00:20:56] Joe: The case studies on these people, on these connoisseurs, to me, is so fascinating, and the things that they share, the things that you got out of them are incredible. I’d like to talk about, well, let’s focus on one at first and then just talk about some traits that you found throughout the book.

[00:21:13] Joe: But Claire, let’s start where you start with Josh Goldberg, who is Josh Goldberg and, uh, why did he make it into your very, very short list of maestros? 

[00:21:22] Clare: Well, Josh is a hedge fund manager based in New York, and, uh, you’ll read in the book about his background. He actually, of all of the maestros, has maybe the most, one of the most traditional backgrounds in the sense that he went to Wharton and he, you know, went to work for hedge funds and he worked with all these well-known fund managers and learned his trade.

[00:21:44] Clare: Whereas, you know, of the other maestros, they come from all different backgrounds, all different educational training. You know, they all ended up getting finance training eventually, but Josh is probably the most, uh, traditional in that way. But what he has developed is a strategy that is very process driven, very straightforward in that it’s based on earning surprise and it on taking signals from the market.

[00:22:10] Clare: One. And it kind of goes back to the same point. It’s like, you know, you’re gonna be wrong at least 50% of the time, so you need to constantly be. Asking yourself, what evidence am I getting back from the market that this, this is one of the right ones? And for him, that’s earnings announcements where, you know, a company reports their corporate earnings and the market responds very positively.

[00:22:32] Clare: And he doesn’t mean just like a little bit positively, like big gaps positively to him that contains information and it reinforces his conviction that he’s right about that one. So it becomes, yes, I think this is one of the 49%. And then he has implemented rules around, you know, what, what does it take to get into the portfolio?

[00:22:54] Clare: So you’re either convinced or you’re not. So you’re not gonna have tiny little positions for any length of time. It’s either gonna show you it’s going somewhere, or it or it’s not. But also when things start going wrong. He’s got signals worked out through analysis and you know, he is a client of Essentia analytics, although I should say only half of the maestros are people I ever had met before.

[00:23:18] Clare: The, the most, the other half are totally random, but people who I was able to get the data for, 

[00:23:24] Joe: just to focus for a moment. On that note for him, he uses your data to get better. He subscribes to your data to find out what he’s good at. 

[00:23:33] Clare: Yeah. He is a continuous improver by nature and I would say all of the maestros that is something that they have in common.

[00:23:41] Clare: They’re all humble enough to look in the data mirror, which is not, you know, it sounds like of course you would be, but no, looking in the mirror can be kind of mortifying sometimes and not everybody is, is feeling brave enough to do that. But these guys. Have all gone there, had a good look, figured out what it is that they’re not perfect at, and either created rules or, or signals to help them manage their own emotions and, you know, mitigate the biases or they’ve, they’ve used it, what they’ve learned to substantiate like, okay, here’s how we hold onto our winners.

[00:24:16] Clare: So to achieve what Lee described in the having a handful of really big winners, you have to hold onto them. And that’s, uh, a brave thing to do a lot of the time. So it’s like you’ve ever heard the quote about you don’t wanna be watering the weeds and cutting the flowers. Oh yeah. 

[00:24:32] Joe: You 

[00:24:33] Clare: know? Yeah. It is like a garden, if you think about it that way.

[00:24:36] Clare: When you plant all the seeds, every one of those seeds is a precious, this is gonna be the best flour ever. And you put them in there and you water them, and then things start growing. Some of them work out way better than you thought they were gonna be. Some of them, there’s nothing there. What’s going on?

[00:24:51] Clare: There’s, it’s not growing, you know, and you just have to keep on. Testing the soil, you know, watering, fertilizing, doing the, doing the things and nurturing the ones that are going somewhere and clearing out the ones that are going nowhere so you can plant something else in their place. And that’s what these people are, are doing both with their portfolios, but also with their investment processes.

[00:25:13] Joe: Let’s use Josh to kind of dive into some of the tactics of getting in. He uses, as you just explained, he uses this idea of earning surprise. Does he try to predict which company has an earning surprise beforehand or does he do it after they’ve had an initial earning surprise Lee? 

[00:25:30] Lee: No. He, he always waits until there’s been an earning surprise.

[00:25:33] Lee: So he is, he is not trying to be a, a, a soothsayer and forecast the future. He is, he’s in that sense. He, a, a company was surprised on earnings and then he, he and his team will dial up the research on the name. 

[00:25:45] Joe: It makes it easier then to filter. I would think, Lee, I mean working from this whole wide range of companies to just a few every quarter, that probably surprise.

[00:25:53] Lee: Yeah, yeah, no, it helps narrow down the universe. Then he’ll jump on those that have surprised and decide which ones to allocate to. And I think the other key thing about Josh is, you know, he does that, he allocates capital to them, but then it’s how long do you ride it for? All the maestros have one thing in common, which is they’re masters of execution because it’s how you execute the idea matters.

[00:26:13] Lee: So in his case, what does a connoisseur mean for Josh and, and what, what you find with him? Thanks to working actually with Claire, he’s discovered that his sweet spot is to hold a name for about 15 months. So during that time, generally speaking, the earnings will surprise and keep surprising. But if you hold on after that, you risk kind of round tripping the name.

[00:26:35] Lee: But during all that time, when he is, the earnings are surprising. Him and his team are constantly on it, looking at it, thinking whether it’ll go more. But he’s got that flag that pops up around 15 month mark, which is okay, okay. Usually this is where it can start fizzling out. Do we still wanna be in it?

[00:26:51] Lee: And you know, that’s some of the wisdom he’s learned working with Claire over the years and feeding back and improving his game. 

[00:26:58] Joe: This way of getting in, you know, sounds like a machine, Claire, he starts off the machine with an earning surprise. They go into the funnel and then, you know, then he works it through all of his other processes that he has.

[00:27:09] Joe: To me, this kind of speaks to the idea of an investment policy statement, right? How big is an investment policy statement to these maestros, not just Josh, but all the ones you looked at versus My gut tells me that Apple’s gonna be big next quarter. 

[00:27:25] Clare: Once upon a time, you know, that is what we thought made a good traitor, that they were born that way and they had a great gut.

[00:27:32] Clare: Now, it is possible that some people are better at pattern recognition than other people, and that their gut is that, but all of these maestros have process, documented process that they follow. And it, it typically involves other people, not just themself. You know, they have teammates that they converse with when things hit certain levels or when certain certain things come up.

[00:27:55] Clare: Some of them have very formal When this happens, we sell this percent, James and Gliss Jones and Samantha Gleave from Lion Trust, uh, who are also Meisters profiled in here. They have what some people would call that a, a systematic fund. The humans in their case are making decisions, but they’ve literally implemented.

[00:28:14] Clare: Rules that say we always do this when this happens. In Josh’s case, he is not applying that rule as rigidly. He is saying, okay, I get a, a flag at month 15. I look at that and say, uh, all right, here’s five other reasons that it’s probably time to get out of the stock. And now, and the fact that it’s hit its 15 month birthday, we know statistically that in the past that’s tended to be the end of the road.

[00:28:38] Clare: Yeah. 

[00:28:38] Joe: I’m in the danger zone 

[00:28:39] Clare: now. Yeah. And it’s just the odds start to move against you that this is one of the ones that’s gonna keep performing. So now you have to ask harder questions of yourself to justify hanging onto it. So, uh, he’s sort of taken the, the, a slightly more human approach to applying these statistical rules.

[00:28:57] Clare: But in the end, they both used computers to work out. Where is it historically that I should have made a decision? What, what should that decision have been? And now I might use that to always make that as a rule in the future, which is what James and Sam did, or in Josh’s case, say, okay, well I’m gonna use that as a guideline for helping me make a, make a decision as a.

[00:29:20] Joe: I’m glad you focused on that because I feel like too many stackers out there, too many just individuals hear about their buddy at work did something or they’re in this wonderful fund and because of that it’s gonna fit my portfolio and it could be right for you and might not be right for you. And it also might not be any good for the person who’s telling you about it.

[00:29:38] Joe: Who knows what process they use. I love that all of these maestros also Lee, have a process of getting out. And often, and you talked about this earlier, you know, with Josh, there’s this risk after 15 months that he might follow it up and then all the way back down. Right? And you definitely don’t wanna do that.

[00:29:56] Joe: What are some of the keys to figuring out when I’m gonna get out of a position that might not serve me anymore? 

[00:30:03] Lee: So for each of the maestros, they, and the point of the case study is where we, we follow them in one of their investments or two other investments in terms of which worked and didn’t work. So you can actually see.

[00:30:13] Lee: What signals enabled them to sort of decide I’m getting out or not. If we, if we stick with Josh, you know, he will not lose more than 1% of the fund in any idea. So, you know, once he’s lost a hundred basis points in professional terms, he’s out. And some of them have those kind of hard rules, which is, you know, once I’ve lost this much of my money, I’m out.

[00:30:36] Lee: I don’t care if I like it. Still, it doesn’t matter. I’ve lost enough money. Idea could still be good, but I’ve lost enough. So some of that others will have different signals which, which, which trigger them as to when they should be, um, getting out. You know, a lot of the times, if they’re wrong, obviously these are professionals, they’ll be getting signals from the company itself, you know, in terms of looking at the fundamentals and things like that.

[00:30:57] Lee: This, that will trigger them to actually get out. And that’s why you want, 

[00:31:00] Joe: this is like a new earnings report comes out or something, or more news comes out? 

[00:31:04] Lee: Yeah, it could, it could be, it could be something like that, yeah. Where the, the something, some news flow comes out about the company or they read the, the quarter report or they have a meeting with the co management and if something doesn’t quite smell right and they think, no, I’m getting out.

[00:31:17] Lee: So I think you’ll find that quite interesting for each of the investors that there’s a myriad of soft signals, right. Which could trigger you to get out in terms of there, there’s loads of them. So you have the soft signals from, from the meetings with managers reading reports. And then you have the hard ones, which is, that’s it.

[00:31:33] Lee: You know, some will have rules like, okay, I’m down 20%, let’s review the name. And they do. You know, that’s a trigger, you know, so it’s not a stop loss. Like I think, you know, a wizard or a trader will have stop losses, you know, lose five tenths out maestros. ’cause they play a longer term game in public markets.

[00:31:50] Lee: Investing in stocks, you know, they’re, they’re more, okay down 20%, let me review, get the analyst together. Or they start looking at the investment case again. And then they, they have questions they’ll ask themselves, which are simple but powerful questions such as, okay, if I didn’t own this already, would I buy today?

[00:32:08] Lee: And you’ve gotta be honest with yourself. And that’s the difficult part. Try and forget you’ve lost a lot of money. And just say, if I was looking at this today, looking at the share price like this, everything I know would I buy, say. And I think a lot of people, if you ask yourself that very simple question, you’ll probably go, hell no.

[00:32:25] Lee: And if that’s the answer you sell, you run for the hills. 

[00:32:28] Joe: What I would think Lee helps you there is if you’ve built a system like we talked about, you have an investment policy statement, you just apply the top of the funnel. If your investment policy statement, if the answer is no, I wouldn’t have bought this, it wouldn’t have fit in the top of my funnel, then it makes it easier to get around your ego in, in that case, I would think.

[00:32:46] Lee: Yeah, but I’m big, big fan of, of Claire as well, I think. But it’s um, you know, in my first book, the also execution, I always talked about the importance of having a plan of action before you, even, before you put cattle in a name. Because trying to decide what to do when something’s lost money and you’re in a hot emotional state, it makes it 10 times worse if you’ve already got a plan of action as to if things go wrong.

[00:33:08] Lee: Here’s the checklist of what I’m gonna look at. Things, things I’m gonna look at. If I see, if I see this happen, I’m gonna get out. If I see these, it’s red flags. If I lose this much money, I’m gonna get out. You know, you should have all that set up before you even put a single penny in a name. Then you 

[00:33:23] Clare: have to follow it, right?

[00:33:23] Clare: Like that. Then you have 

[00:33:24] Joe: to follow it. 

[00:33:24] Clare: Yeah. People will put a ton of work into their investment policy document and now the document’s in a file, and now we’ve never seen that again. That’s the human in the end, undermining him or herself. So that’s where having using technology is key because you don’t wanna have to dig that thing out every time.

[00:33:44] Clare: It needs to be super handy, really easy to do, actually easier to do it than not do. It would be even better. That’s I think, the biggest piece of the puzzle. How do you get yourself to actually follow the process? ’cause you have great intentions, but if you make the process too complicated, you’re not gonna follow it.

[00:34:03] Clare: You know, so it needs to be somewhere in between, non-existent and like super thorough. And, uh, 

[00:34:11] Joe: I think we even need to do that like, like in our work lives, you know, follow the work on the machine. Don’t just go do stuff. Make a machine of doing the things you do every day. And it feels like it’s the same here.

[00:34:21] Joe: Lee, you were gonna say something? 

[00:34:22] Lee: I, I was just gonna add, you know, with all the sophistication in today’s world, a couple of the maestros adopt simple tricks that even I did when I was a fund manager. You know, one of them, Steven Annis, he has a laminated piece of paper stuck on his desk. So he is got these key learning messages and golden everything there just to, so he can quickly flip down it and just to remind him of things that matter.

[00:34:43] Lee: And another one, you know, John Lin, who’s, you know, arguably the greatest investor in China. So one thing we didn’t discuss, we’ve got US investors, European investors, global, and we’ve got the best investor in Chinese actors in the book. And, and for him, he has, you know, behind his desk he’s got, you know, a court board.

[00:34:58] Lee: And on those, he’s got pinned. Key rules, which, you know, every day you can look at, just glance over his computer, look at, just to remind him of the salient things in the moment that sort of like are there. So you don’t have to, to Claire’s point, dig out that policy document and remind yourself of various rules.

[00:35:13] Lee: So, you know, simple age like that. I mean, when I was for manager I used to have post-its around my, uh, computer actually. So I still do, 

[00:35:22] Joe: I had, I had my, uh, my screensaver was some of my big important things to remember when I walk in my office in the morning, like they were on the screensaver before I shook my mouse there it was right in front of me.

[00:35:33] Clare: Yeah, I like that. 

[00:35:34] Joe: Yeah, same thing. I do have a couple, uh, more questions before we say goodbye one Lee, you mentioned international maestros. We have a few US maestros, we also have international maestros. Claire, did you find anything that really changed when you’re looking internationally versus just looking, uh, one country specific?

[00:35:54] Clare: Hmm. I mean, every, every one of these meisters has a different strategy and you know, there are a few that are looking at small cap stocks and a few that are looking at large. So they might have a little bit of commonality in terms of what they’re looking at, but they’re all looking for different things.

[00:36:11] Clare: And I, I think only in the case of John Lin probably is there a very region specific thing going on. And that’s really to do with the characteristics of the Chinese market being so dominated by retail investors. And so the way that prices behave is, it’s like how they behaved decades ago in western markets.

[00:36:33] Clare: So he’s able to. Do a strategy that you probably wouldn’t be able to do elsewhere, uh, just because of the market opportunity that exists, Lee, would you agree? 

[00:36:43] Lee: Yeah. Yeah. A hundred, a hundred percent. I mean, he, yeah, in China, people will, you know, the taxi driver will buy something on Monday, sell it on Friday.

[00:36:50] Lee: Professional fund managers, he was even telling us, which is quite shocking. Their bonus structures can be based on weekly and biweekly performance. So they’re incentivized to basically lock in profits very short term and trade like grace. So a lot of, you know, momentum investing approaches at work may, you know, in the US for example, would be a disaster in China.

[00:37:09] Lee: And he shares these insights with the, you know, with the reader of the book. And, um, I think that’s an interesting case. So he’s the most differentiator, I’d say, of all of them because the Chinese markets are so very different. 

[00:37:20] Joe: I just, I just found the case study so fascinating and to your point, I think you said it earlier, Claire, just how different their strategy is, but their adherence to it.

[00:37:29] Joe: They would come in every day and just work the system, work the system, and improve the system. And man, that resonates through everything that these men and women do. You know, one place that our stackers are doing something different than the Your Maestros are, which is, you know, they’re trying to put together a portfolio for their retirement.

[00:37:46] Joe: So instead of focusing just on small cap or large cap or international or whatever, where a lot of these people are focused on one market, they’re focused on the broad, broader, getting sum of each, but still diversification. It seems like Claire matters to these people, like having only so much money in a certain position.

[00:38:03] Joe: Is there ever a time that you see that for somebody it makes sense to begin selling it even though it’s a winner, just because your exposure becomes too high and the risk becomes too high? 

[00:38:15] Clare: I mean, that’s actually an interesting one in that we have different approaches amongst the maestros. So there’s one maestro called John Barr, who he is a, a small cap specialist who he knows his particular part of the tech space like especially well because he used to work in that industry.

[00:38:32] Joe: I felt like he was, he was that kid. You made a baseball reference earlier. Claire. He was my friend growing up who knew the back of every baseball card he knew, which, which farm team kids played for like all their middle names. He knew everything. John Barr seems like that kind of person. 

[00:38:47] Clare: He definitely is that guy.

[00:38:47] Clare: He definitely is. But what he does, and, and we call this the lumberjack tribe. A brand new tribe is plant seeds. And then, you know, let them grow really, really big, like way bigger than a lot of the other. Maestros would, some of them would say, I’d never let a position become more than 4% of the portfolio.

[00:39:06] Clare: Now, sometimes it’s because the, the rules of the fund that they’re running are such that they, you know, they can’t. But in John’s case, he really takes running your winners to heart and lets them become very large. That’s a, that’s a way of making money. 

[00:39:21] Joe: What does he think about the danger in that? Because he clearly is a brilliant guy.

[00:39:26] Joe: He knows that his Achilles heel gets bigger as that tree gets bigger and bigger and bigger and he doesn’t chop it down. How does he handle the risk of that? 

[00:39:34] Clare: Um, that’s a good question. I think he, I, now, he is not an essential client, so I don’t actually know the, uh, the detail of, of the way that he does it.

[00:39:43] Clare: But I think that he’s watching drawdowns and he is definitely, when he has a big winner, that then comes back a good way. He’s reevaluating on the basis that, is this still, does this story still hold? Is this really, has it got that much more? Juice left in it because it’s so easy to fall prey to the endowment effect, which is, you know, the bias whereby we value something highly because it’s ours and you can fall in love with a stock.

[00:40:12] Clare: You can fall in love with pretty much anything. You know, the longer you have it, it grows on you and maybe it’s made him a lot of money. It grows on you that much more. But the risk is you don’t see the cracks start to form, you know, and then suddenly it’s over. 

[00:40:27] Joe: It’s like Lee said earlier that, um, you put it back at the top of the funnel, would I buy this today?

[00:40:32] Joe: Is kind of what you’re saying that, that, that he do. But it’s funny, Claire, that you bring that up because you, you’re really showing him is different for most of them. Then it really does matter when something, because if you’re, if you’re showing shining a light on John where it doesn’t, I think what you’re also saying is for the majority though, it does matter.

[00:40:50] Clare: You mean the how big the, the position is? Yeah. 

[00:40:53] Joe: How big the percentage of the fund is dominated by one or two different investments or are you not saying that? 

[00:40:59] Clare: It depends on what type of vehicle they’re running, you know, because different vehicles will have different rules attached to them, but for most of them, and Lee, feel free to disagree, but I think for most of them, they do have a strict rule about not getting bigger than a certain size.

[00:41:16] Clare: And that might be 5%, that might be 4%. It’s somewhere in, in that region. 

[00:41:21] Lee: Yeah. I mean, I, I’d just jump in and say, so if you, if you look at someone like James Bury, for example, UK hedge fund manager in the UK is very famous. He’s a guy that made over a hundred million in 2016 from positioning his portfolio from benefiting for the uk, leaving the European Union.

[00:41:37] Lee: If you look at him, we give, we share an example in there of something like plus 500 where he’s made, he’s been in it since 2013. He’s made over 6000%, and this is a name that’s had, you know, 50, 60, 70% drawdowns along the way. The way he controls risk and is being able to win so big is, is he will adjust the position size.

[00:41:56] Lee: So at various points you’ll see that name being as low as 1% and then as high as 9%. But the way he tries to size it, so, uh, he plays a sizing game is he moves incrementally. So he’s aware that psychologically, emotionally, we wanna do the wrong thing at the wrong time. So, so he’ll increase and decrease his positions in half percent steps.

[00:42:17] Lee: So if he’s 9% and he thinks, oh, maybe this has gone up a lot in the short term, or maybe I should take some chips off the table, he’ll go from 9% to eight and half percent, then he’ll take it to 8%, then seven half. So he, he moves like that, you know, slowly and incrementally. If you have someone like James and Ms.

[00:42:32] Lee: Jones and Samantha, the gle, uh, another u um, UK pair, but they invest in, um, European markets, you know, they’ll have a process whereby it’s more systematic. But if something’s working during the year, they let it run. They’re looking at the quarterlies every quarter and as long as it’s working, it’s fine.

[00:42:48] Lee: And then every year they have the hard reset. Would we buy this today? At that point? If they would still buy it today. But it’s one and it’s gone up to say it’s grown for, they start at around 3% position. But if it’s grown to about six or 7%, what they’ll do is they’ll take it back down to say 5%. They don’t take it down to 3% though, like a starting, which would start ’cause they recognize that often winners keep winning.

[00:43:10] Lee: So to hack it right back would, would be a mistake. And sellout would be a definitive mistake. So I mean that’s what you would tend to see. A lot of them don’t let positions get to Greg Badilla, who’s another one, US great, great investor in us, he’ll tend to let invest at about a 2% position and he’ll let it run up to about 6% position.

[00:43:29] Lee: I mean if you think about it. So you go from two to 6%, you fund, it’s gotta have done very well. And when it gets about then, then he’ll start trimming it back. All of them will trim back. And one last thing I’d say about John Barr is he’s a guy that, you know, we’ve got an example in there of one of his best stocks and um, just remind me of the name.

[00:43:47] Lee: It’s, uh, Nova. And Nova. He’s made a hundred x in Nova since he’s been in it a hundred x. But if you look at what he does, he’ll invest in it at outset very small, like 10, 20 basis points. So 0.1 or 0.2% very small. When he investing, he, he calls it a hidden compounder. So he is, he realizes in early, no one’s focused on the name and it could go wrong, right?

[00:44:09] Lee: But if it goes wrong and it’s only 10 or 20 basis points, it doesn’t matter. That’s why we call him a lumberjack. ’cause if it goes down 78%, it can kill the position like an assassins would, but it hasn’t cost him a lot, you know, which is different to a rabbit, it’ll be 4% position and drive it down that much.

[00:44:24] Lee: But then as it works, it starts to grow. He’ll let it grow to a two to 5% position. And the point when it’s a two to 5% position that. They’ve become what he’ll call a quality compounder. So he is, what was hidden is now there on public view. People know about it and it’s delivering. And Claire’s point earlier is, as long as it keeps delivering, he’ll keep riding it.

[00:44:44] Lee: But again, he’s, he’s not gonna let it get too much bigger than that. So they all, yeah, definitely. You won’t see anyone in holding more than 10% in a name. 

[00:44:52] Joe: I found that fascinating though, because he can plant a lot of seeds when he’s planting them that small. 

[00:44:56] headlines: Yeah, 

[00:44:56] Lee: yeah, yeah. Earlier I said, you don’t want to be a rabbit.

[00:44:59] Lee: Right? And that’s because rabbits, in my world, when I was investing, my guys investing just 10 ideas. Very focused, very focused funds. If one of those ideas goes wrong and it’s a 10% position and you write it down 90%, you’ve cost yourself 9% at a fund level. It’s a huge hit. But with, for someone like John Barr, if he’s got a, you know, 0.2% position, or I would say a 0.1% position, it goes down.

[00:45:24] Lee: 90% is nothing. It’s done nothing. So it doesn’t matter. So hence we had to come up with a new name for him, which we called the lumberjack. And, and just to explain the lumberjack, his background, his family background is from Chicago and his, his family is a, is a, is a lumberjack family. And he ordinarily would’ve gone in the family business, but he, as he describes, he wasn’t really cut out for it, you know, involves, you know, he shares a story about him driving the truck with all the, the trees on the back, all the tree trucks on the back, and he went around the corner and, and, and all the loads spilled over the road and, you know, and he took him all day to get those logs back on the back of the truck.

[00:45:57] Lee: And he says, yeah, it really wasn’t cut out for a family business. So Claire and I were thinking what’s, what sort of captures that and the fact he invests with small position sizes, an outset, sort of that forestry kind of horticultural kind of background and, and planting seeds seem to be. Well, and Claire came up with a lumberjack, which I thought was great.

[00:46:15] Lee: Great. Fix it with a family name. Planting seeds. It’s, it’s wonderful. 

[00:46:18] Joe: It takes care of all the above. I absolutely love case studies. I learned so much more through case studies, so I was super happy when I heard that the two of you had created this marvelous project. It’s called Stock Market Maestros, the winning habits, strategies, and Mindsets of the world’s best investors.

[00:46:37] Joe: And it’s available everywhere, correct? 

[00:46:39] Clare: Correct. 

[00:46:40] Joe: Yes. Awesome. Claire Lee, thank you so much for shining a light on, uh, this, for our stackers that don’t get to look really at what the pros do. And it’s so enlightening and I think so helpful what you did today. Thank you so much. 

[00:46:53] Lee: Thank you. Thank you for having us.

[00:46:57] bumper: This is Aaron from Colorado Springs, and when I’m not teaching three boys how to patch hockey, stick holes and drywall, I’m Stacking Benjamins.

[00:47:10] Doug: Hey there, stackers. I’m Joe’s mom’s neighbor, Doug, and it was on today’s date back in 1983 that Michael Jackson did the Impossible. He performed a move called the Moonwalk during the taping of a TV special for Motown’s 25th anniversary, creating a craze that lit up the nation and the world. When I think of the important things in my life, I probably put learn the moonwalk as a solid number one ahead of being born and marginally ahead.

[00:47:39] Doug: But that one time I scored a free dessert at the Sizzler. After Todd, the manager screwed up my order. That was so awesome. In fact, I’d rank Michael Jackson’s moonwalk as one of the greatest things in the past 70 years ahead of the birth of Taylor Swift and the actual first moonwalk. Here’s the question though, while Michael banked some serious Benjamins doing his moonwalk, all the other Moonwalkers did was create history.

[00:48:07] Doug: Who was the first person to actually walk on the moon? I’ll be back right after I go see if I can moonwalk upstairs to the refrigerator. Never tried it on a stairway. Maybe that’s the next big craze.

[00:48:32] Doug: Hey there, stackers. I’m Moonwalker and guy who just found a loose step on the stairs the hard way. Joe’s mom’s neighbor, Doug ha the joys of moonwalking. I love the idea, the backwards walk. In fact, I was doing it going down the street, and I almost ran into the postman. Seriously, I I never saw him coming, you know, because I was, I was walking backward.

[00:48:53] Doug: Any who, today’s question was this. Who was the first person to walk on the actual moon? Well, the answer is nobody, because we all know that stuff was fake, right? But you know, if you want to go with NASA’s official story with some guy allegedly named Neil Armstrong, that’s one small step for trivia, but one giant leap for your bragging rights with your friends and colleagues.

[00:49:20] Doug: You’re welcome. Head now back to Joe and og. 

[00:49:25] Joe: Doug, before we recorded, you brought up something great. How old are you? If you automatically just go, Neil Armstrong, 

[00:49:33] Doug: people of a certain generation. Like you couldn’t even finish that question before they would answer Neil Armstrong. 

[00:49:41] Joe: I was telling, uh, Paula Pant earlier in the day about this trivia question and I got it half out.

[00:49:45] Joe: She goes, Neil Armstrong, 1969. Oh wow. Just Oh, Paula. Paula for Paula. I know. 

[00:49:51] Doug: Alright, so we now know if she needs a point and a Friday trivia contest. This is the question we gotta, we gotta put in there. Just give her a soft toss point. 

[00:50:03] Joe: Yeah. And weirdly, we’re gonna change the Friday. Oh, we’re gonna do it the opposite way.

[00:50:07] Joe: Uh, Paula, you’re gonna go first instead of last. 

[00:50:09] Doug: Right. 

[00:50:10] Joe: Uh, big thanks to Claire and Lee and I need to nail home a couple things that Claire and Lee said, especially. Especially right now when people are so worried. You know what? There’s always something people are worried about, but I know there’s a lot of people out there worried about their portfolio currently.

[00:50:29] Joe: And just a couple points, og number one, their emphasis on these maestros, no gut decisions. Zero. Zero gut decisions. All data-driven all the time. No. You know what my gut says I should get, uh, I’m just thinking this thing’s gonna go up. 

[00:50:47] OG: I don’t have any oil in my portfolio. It’s up 30% since I last looked at it.

[00:50:51] OG: Maybe I should buy oil. 

[00:50:53] Joe: Yeah, yeah. Gut decisions. And I think it’s doing real good. Not not the way you make moves. 

[00:50:59] OG: There’s a very real factor of investment return that is called momentum. That’s a very real thing, but it’s hard to quantify on your own whether or not it’s momentum that is driving it forward or if it’s.

[00:51:16] OG: Just your personal observation of the market going up, that’s driving that forward. And that can be a very dangerous thing with without having a very solid IPS in place. And this is where like this time of the investing season, you know, whatever you wanna call this chaos that’s going on right now, it also happened last April, also happened in 2022, also happened during COVID.

[00:51:39] OG: All these times are perfect examples of why it makes a bunch of sense to when it’s not chaotic. To just sit down calmly and go, this is my investment policy statement. 

[00:51:49] Joe: Yeah, and well, and that was my next point, was the importance each of these maestros has on building a machine over just making moves.

[00:51:59] Joe: You can just continually react to the situation, react to the situation, react to the situation, or you go, wait a minute, this occurs all the time. Why wouldn’t I build a machine and operate the machine that will help me make better investment decisions in the future? I love that. 

[00:52:17] OG: Yeah. That’s what an IPS does.

[00:52:19] OG: That’s what hopefully a good advisor does for you is run the system that you guys created together. That’s what a good partner does. You know, if you’re working on your financial plan with other spouse or partner, whatever. Where we see people get in trouble is when they make decisions that are not based on the facts that they already had established earlier.

[00:52:40] OG: You know, short-term volatility in the market is a given. I’m doing some research right now on investment portfolios and the best that I can come up with is 76% of the time in one year. In one year returns is positive. So there’s a one in four chance that this year it’s negative anyway, no matter what you do like, yeah, that’s your basic VTI portfolio.

[00:53:03] OG: It’s one in four times it’s gonna be not positive. So if you go into it with that knowledge base of, you know, short-term results, short-term volatility does not mean this is how this is long-term. And frankly, like we talked about on a Monday, your money, you shouldn’t be looking at it on a daily basis anyway.

[00:53:22] OG: If this, you know, if this is your investment account, this is for 10 year money. 

[00:53:26] Joe: Claire’s point, having looked at all the data through her company, her point that these pros who are picking stocks. They make the right call 49% of the time. 

Yeah. 

[00:53:40] Joe: And then you look at the broader list of pros, the broader list of pros make good picks 40% of the time.

[00:53:46] Joe: Take the Stacking Benjamins audience that isn’t a pro, hasn’t lined up a lot of shots, isn’t doing this over and over and over with any process at all. In many cases, what’s the chance you’re landing a good shot, which goes back to indexing. But still, also an important point, even if you’re indexing, is the fact that these pros are humble enough to study their mistakes and to not make the same mistake over and over again.

[00:54:13] Joe: And to learn from the mistakes. Like the one guy Josh Goldberg they talked about who’s like, listen, I know I get in trouble on this stock if I do X, Y, Z. So I need to guard against that. How many times have you sat with somebody OG and they’re like, oh, I’m gonna, I’m gonna make this change as soon as this stock comes back.

[00:54:31] Joe: Like, what are you talking about? I remember one person that I sat with who had Ford stock and Ford was trading at $20 a share. And they’re like, well, I bought it at $30 a share, so when it gets back to 30, that’s when I’ll sell it. I’m like, A dollar’s a dollar. Who cares? Why are we gonna bet on one company?

[00:54:47] Joe: And it’s already gone down. Why are you, why are you gonna do that? And you know what? The next time we talked, Ford was trading at $8 a share. 

[00:54:55] OG: Yeah. The systems account for that. You know? And when you and when you don’t follow the system, you’re more likely to get burned. You’re gonna have some success too, honestly.

[00:55:05] OG: Sure. The reality is, is that there’s gonna be an opportunity for luck involved there. Luck is not an investment plan. 

[00:55:11] Joe: Yeah. Great stuff. So much. Great stuff. And we will, uh, link to stock market maestros. Just if you like case analysis of people who do stuff well, man, they brought it. Let’s do a headline.

[00:55:23] headlines: Hello Darlings. And now it’s time for your favorite part of the show, our Stacking Benjamins headlines. 

[00:55:29] Joe: Our headline today comes to us from financial planning.com, written by Rob Burgess. I wanna run this by you, og, because as I was reading this, I was thinking about potential downsides. Financial planning is a website that financial planners, financial advisors read people in the industry.

[00:55:48] Joe: And the headline was How Vibe Coding is filling the White Spaces in Advisor Tech stacks. Rob writes, he’s only been using it for about a week, but Tim with them said, vibe coding, building apps by intuitively prompting ai, so he doesn’t know any of the code. He’s just writing, I want you to create for me X, Y, Z, and blah, blah, blah, blah, blah, and then it makes it right without knowing it.

[00:56:09] Joe: Mm-hmm. That’s what Vibe Coding is for people that don’t know that term. This guy Tim, with him, says it’s already dramatically changed his practice in the past few weeks with him in a whole 

[00:56:18] OG: week. It dramatically changed it. Wow, that’s 

[00:56:20] Joe: pretty impressive in a week. Yes. Literally, he’s been using it for about a week in the past few days with him, the founder of Balanced Life Planning in Villa Hills, Kentucky.

[00:56:29] Joe: Said he’s begun using Anthropics, new Claude model, Opus 4.6. The software is more than paid for itself. He said it allows him to give prompts and receives code that he can use to build tools or modify a website without the in-depth knowledge required to write the code himself. I’m paying a hundred dollars a month for the AI now and it’s already generated thousands in added value, he said is a solo advisor.

[00:56:49] Joe: This is game changing and I thought about this. I’m glad you call it Spidey sense went up when you heard he is been using it for a week. ’cause that was the first thing that caught me. But the second thing that caught me is that he’s using AI that’s been built by somebody else that somebody else owns.

[00:57:11] Joe: And while it’s certainly for all of us, can make things go better, faster, stronger, give us more opportunities to find out where we can make a difference and where we can’t. Oh gee. I just wonder, in the world of financial advising, there could be somebody on the other end of this, even though there’s not, might not be today.

[00:57:32] Joe: The people behind Claude might be altruistic and well-meaning today, but Claude gets sold to some other conglomerate 10 years ago and they’re like, Hey, you know what? We got all this data from these financial planners and what they’re using this stuff for. I think security wise, I wonder if we might be stepping in it by not knowing who’s mining the stuff that we’re using AI for.

[00:58:02] OG: Well, um, couple things. I think this matters what level of subscription you have in terms of what the tools are. Using in terms of their learning as well. I mean, you’re taking at this, at their word, I’ll use some other tool that more people are familiar with, like Dropbox for example. Right? So ShareFile, Dropbox, these are online filing systems that many, many, many people use.

[00:58:29] OG: And all of these tools now have undergone intense scrutiny and security procedures to say, Hey, we meet these levels of security and I’m too dumb to know what they all mean, but I know that we have to have a certain level to, you know, we use Schwab as a custodian. For example. Schwab says, your stuff needs to be this way from a tech standpoint in order for us to, you know, work with you, you have to have this level of insurance and so on and so forth.

[00:58:57] OG: And so I know that Dropbox says we are secure in this manner. I don’t know whether or not they really are. You know what I mean? Like they could be pulling the wool over everyone’s eyes. I’m gonna assume that they’re not. 

[00:59:10] Joe: Well, and I guess my question is, do you think that Tim, the guy in this piece has looked at Claude that way and has said, Hey, you know what, I’m paying a hundred dollars a month.

[00:59:18] Joe: Am I looking at who’s behind this data and am I, I would 

[00:59:21] OG: hope so. And that’s a fundamental obligation I think. I still think that you are wanting to be safe with client data. You know, no matter the tool whenever possible, you know, you don’t want to email stuff. I mean, this goes back to like basically operational security 1 0 1.

[00:59:37] OG: Sure. Yeah. Right. Just don’t email tax documents, you know, that sort of thing. But we do individually, right? Like I’m sure Joe, I mean, I, I sent you your K one through Slack. We have this agreement that we go, we think this is secure enough, you know, for our use. I think advisors owe another level of, of, um.

[00:59:59] OG: What’s the word I’m looking for, Doug? Another level of scrutiny. How’s that? A higher level of scrutiny to make sure that they’re, when they’re using any tool, whether it’s a financial planning tool that we’ve all accepted as safe or a custodian or an email provider or, or a digital document solution or something new like ai, we as advisors owe it to our clients to make sure that we’ve done our due diligence on that to make sure that it’s as secure as we can make it.

[01:00:26] OG: And there are different levels where they explicitly say in their contracts, if you pay us this, we provide this level of security. If you don’t pay us this, then we’re not going to, 

[01:00:35] Joe: because I do know that’s a danger with some of the free off the shelf stuff like copilot, the meta thing, the uh, you know, Google Gemini?

[01:00:42] Joe: Yeah. Just if you’re using the free version, they are clearly open that they are mining your stuff. 

[01:00:47] OG: You know, I was talking to a guy, so I’m doing this bike race and I went to a professional bike fitter and it turns out that the guy is a exercise science guy. Professor at a big school and we were talking about AI and that sort of thing, and he said, you know, he said that the simplest way to look at AI is it’s just a language model of prediction.

[01:01:08] OG: He’s like, if you looked at the temperature today and we, we were talking about the weather and the temperature in Dallas, and I said, boy Joe, it sure is what outside, what would you say would go in the blank? 

[01:01:20] Joe: Warm, 

[01:01:21] OG: warm, hot. You know, the simplest form, what AI is, is doing is it’s going, you’re typing this in, it’s going, we think we know what the next boy, it sure is hot out like it already knows that you’re doing that 

[01:01:34] Joe: Well, based on, and how did I even say warm?

[01:01:37] Joe: It’s because we’re recording this at a certain time of day. Yeah, at a certain month it’s a certain thing and AI’s doing the same thing. It’s taking all of that data and going, okay, I’m gonna predict The next thing is X. 

[01:01:47] OG: The interesting thing, we’ve talked a little bit about this, um, offline. My team sent me a funny meme about AI and all corporate executives spoonfeeding, and it wasn’t even spoonfeed.

[01:01:59] OG: It was like, you know, the, the meme was like somebody pouring a bucket of water into a stuffed animal, you know, like drink all this AI Kool-Aid. And we are very heavy into looking at all of this for opportunities for us. I wouldn’t say that it radically changed our, I mean I’ve been using it for two full weeks, so it definitely is radically, no, uh, we’ve been using it for a longer bit.

[01:02:20] OG: At 

[01:02:20] Doug: least 11 days. You’re a vet. 

[01:02:21] OG: At least 11 days has radically changed. I think a couple of things. One, it is changing so fast and the tools and the companies that are existing, and I mean the quality of it’s getting better every single day, but it is still just a tool. We are using it for research, we’re using it for interesting deliverables of like, how do I make this look pretty?

[01:02:44] OG: I’m too dumb to know how to make PowerPoint look cool, you know, with cool graphs and backgrounds and that sort of thing. And you can feed that into Claude and say, here’s our brand guidelines. Here’s the colors we like to use. Here’s me doing the presentation. Can you make this into a PowerPoint slide that looks neat?

[01:03:01] OG: You know, and it will do that and and coding and making little charts. But I will have one little story that should give everybody pause if they’re just hell bent on diving headfirst into it and just going, sweet. I freed up all the time. Well, two stories. Number one, I read an article that said even the most adaptive ai com, the companies that are using it the most in terms of AI, still have found zero productivity gains.

[01:03:25] OG: There is no productivity benefit yet in AI, and maybe there never will be. And now is that because people are able to do more and they just take time off and they’re not actually adding productivity? I don’t know. 

[01:03:35] Joe: Which should be great. 

[01:03:35] OG: Which could be, yeah, if that’s the goal, it 

[01:03:36] Joe: could be quality of life.

[01:03:37] OG: The number two thing, and this is the dangerous piece with it, is. We’ve talked about it. AI is very, uh, supportive. Right. It’s like your mom who just like, you can do it, buddy. I know. Like, of course you can. Yeah. You’re doing great. 

[01:03:50] Joe: It’s like I talked about the other day where if new employees had that same approach 

[01:03:55] OG: Yeah.

[01:03:55] Joe: Where they came in every day, just like, I don’t know anything, but man, I love you. Yeah. And I love working here. Like those would be my favorite. Yeah. Like people had to, if they trained people to be like that in college, 

[01:04:05] OG: yeah. 

[01:04:06] Joe: That would go so far. 

[01:04:07] OG: Well, there’s a story about, and this is actually an advisor story who built a tool using AI and was very excited to show this off, right.

[01:04:16] OG: And was just like, build this thing. Cool. Let me, now I’m gonna use this in my client presentations. And was like using this thing. And it was this very interactive tool and, uh, unfortunately, um, he didn’t fact check it first. 

[01:04:30] Joe: Oh no. 

[01:04:30] OG: Of course. You know how this goes. An astute client notices and goes, wait, how, how is that, how does that number get to 3 million?

[01:04:39] OG: It’s like, oh, it’s just a slider here, and we’re just look at your portfolio. It’s like, no, I understand the mechanics of I 

[01:04:46] Joe: moving to the right. That’s how 

[01:04:48] OG: I understand the mechanics of your design. I’m challenging your math. And of course you can imagine the, the sheer terror on this advisor’s face when he realizes that he did not actually check the math on this before he started launching this into client presentations.

[01:05:05] OG: Only to find out that the math was off by a factor of 12. 

[01:05:09] Joe: Oh, 

[01:05:09] OG: it had somehow, somehow, somewhere in there didn’t multiplier of 12 because it just decided that that was a good thing to do. What’s that 

[01:05:19] Joe: old Bob Fer line, Doug? Just a bit outside. 

[01:05:23] OG: Tried the corner in missed, 

[01:05:24] Joe: yeah. 

[01:05:26] OG: Ball four, ball eight, ball 12.

[01:05:30] OG: Wow. So AI is super helpful. I guess what I’m saying is it’s super helpful. Sure. If you already know what the hell you’re talking about. I mean, I’m sure you guys have used it for health. Got this sore, what is it? What It’s probably nothing. Turns out it’s something or it’s something and it turns out it’s nothing.

[01:05:47] OG: You know what I mean? This is, this has been going on since Google has started, so be careful. 

[01:05:51] Joe: We were talking about this yesterday. I was helping a friend who had just gotten an inheritance, fill out the beneficial IRA forms. Last year there was a bunch of changes and I just went to check and see if the rules around beneficial.

[01:06:04] Joe: IRA had changed and I look it up in a restaurant on my laptop and AI gives me the wrong answer. And, and to your point og, you have to know enough about the topic. And I was telling my friend this, you have to know enough about the topic to know that it’s wrong. And I knew the answer it was giving me and I knew the answer it was giving me was based on just picking some of the words.

[01:06:27] Joe: It was based on IRA rules. It was going, oh, that rule changed from 70 to 71, 72. It depends on how old you are. I’m like, it doesn’t depend at all on how old you are. What are you talking about? Yeah. 

[01:06:38] OG: It’s still not even as good as Google from a q and a standpoint. 

[01:06:41] Joe: Yeah. 

[01:06:41] OG: So be careful with that. 

[01:06:43] Joe: Yeah. I think it is interesting, and I think it’s a good conversation to have with your advisor too, about how they’re using AI and, and, uh, what’s going on.

[01:06:50] Joe: And if you’re Tim’s client and he’s like, yeah, I’ve been using it for a week and it’s, it’s changed my world. And then, and then financial planning, frankly. If financial planning.com calls and I’ve been using it for a week, I’m like, no comment. I don’t wanna be in this interview 

[01:07:04] OG: or, or say I’m, I’ve tried it out for a week.

[01:07:08] OG: I’m really interested to learn more. 

[01:07:09] Joe: Yes, exactly. Yeah. Yeah. Now, wow. It’s changed my world. All right. Uh, very short back porch today ’cause we’re way over. We are going to tonight have a movie screening. It’s only seven minutes long. It’s not War and Peace. Uh uh, it is called Retirement Plan. It was up for an Oscar.

[01:07:27] Joe: Sadly, spoiler, if you didn’t see it, it lost. But the fact that it made it. As an animated, how often is there an animated short about personal finance, number one? And then number two, combining retirement and animation in a seven minute short movie. That’s very well done, I believe The New Yorkers behind it just fantastic.

[01:07:49] Doug: Remember in school how excited you were when, well, in the old days when the TV got rolled in at the beginning of class on the cart in the new days, you know, it’s the, the teacher popped up the a browser tab on the wall projected and, and you could tell she was gonna show some, uh, YouTube movie or something.

[01:08:07] Doug: Like, that’s how excited Joe is about this. 

[01:08:10] Joe: It’s gonna be great. It is such a good movie and I know that for those of you that have seen it, you already know it’s a great movie. I can’t wait to show it. But then we’re gonna have about a 45 minute discussion with our friends, Tom and Don from talking Real Money.

[01:08:23] Joe: But also they’re the creators of the Retire Meat Conference. So these guys are gonna help us deep dive a little bit on the themes that come up in this movie. So it’ll be, uh, OG and Doug and I, you and your popcorn, bring your popcorn, and Tom and Don from Talking Real Money tonight, 8:00 PM Eastern, 5:00 PM as Doug likes to say, specific hope you can join us, Stacking Benjamins dot com slash movie, get you there, or just navigate over to our Stacking Benjamins YouTube page, man.

[01:08:52] Joe: Big thanks again to Claire and Lee for hanging out with us and. And teaching us about stocks so important. And before we start wrapping this up, I know on Monday we talked about your cash and inefficiencies with cash. Today we talked about inefficiencies in your portfolio. If you would like to see where you stand and uh, evaluate where you are now and what opportunities you have to be better head to OGs teams scorecard.

[01:09:21] Joe: It’s Stacking Benjamins dot com slash scorecard. And when you’re looking at your cash, you’re looking at your investments, where do you stand? They will give you a score and you can take that rating and make better decisions much like we did today with Claire and Lee Stacking Benjamins dot com slash scorecard.

[01:09:37] Joe: All right, that’s gonna do it. We’ll see you on Friday where Paul Merriman’s gonna join us talking about stocks. The Paul Merriman 

[01:09:47] Doug: 800 pound gorilla in the space and we got ’em. 

[01:09:51] Joe: Doug, you’ve got it from here, man. What should we have learned today? 

[01:09:53] Doug: Well, Joe, take some advice from Claire Flynn Levy and Lee Freeman Shore.

[01:09:58] Doug: You can invest better by sticking with a plan. Maybe not by picking better stocks, but by understanding that pros don’t try to time markets. They work from an investment policy statement and they don’t cut and run based on emotions. Second, while AI is great, remember that you have zero knowledge who’s on the other side harvesting everything.

[01:10:19] Doug: You’re feeding it. Protect your credit and your identity and use AI as the helper. It can be. Just be sure you’re going into it with eyes wide open. But the big lesson, don’t even try to ask Joe’s mom to moondance. She’ll turn that into a reason to teach you to do the Carlton. The Carlton. You ask, look it up, man.

[01:10:41] Doug: It is so addictive. Thanks to Claire Flynn Levy and Lee Freeman Shore for joining us today. You’ll find their new book, stock Market Maestros, wherever books are sold wanna help the show. We’ll also include links in our show notes at Stacking Benjamins dot com, and if you use it, Amazon will pay us $1 million for every book you order.

[01:11:04] Doug: That’s just a little finder’s fee so that and I can use like an actual microphone that really works for these episodes. 

[01:11:12] headlines: Oh boy. 

[01:11:13] Doug: This show is the property of SP podcast, LLC, copyright 2026, and is created by Joe Saul-Sehy. You’ll find out about our awesome team at Stacking Benjamins dot com, along with the show notes and how you can find us on YouTube and all the usual social media spots.

[01:11:31] Doug: Come say hello and oh yeah, before I go, not only should you not take advice from these nerds, don’t take advice from people you don’t know. This show is for entertainment purposes only. Before making any financial decisions, speak with a real financial advisor. I’m Joe’s mom’s neighbor, Doug, and we’ll see you next time back here at the Stacking Benjamin Show.