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FEG INSIGHT BRIDGE PODCAST

We are thrilled to interview some of the world’s leading investment, economic, and philanthropic minds to provide insight on how institutional investors can survive and thrive in the world of markets and finance.

Podcasting for the Rest of Us... and the Money Too!

Acclaimed author and founder of the Money for the Rest of Us educational platform and podcast, David Stein, joins us for a discussion around podcasting, principles of investing, and the current market environment. Topics covered in this episode include:

  • David's background; from FEG to podcasting
  • Differences between individual and institutional investors
  • The influence of the Federal Reserve on markets
  • The role of non-traditional investments like gold and cryptocurrency
  • Biggest risks amid COVID-19
  • Principles of investing from his book, Money for the Rest of Us: 10 Questions to Master Successful Investing
  • David's current reading list and favorite books on finance

SPEAKERS

J. David Stein
Founder and Author, Money for the Rest of Us

David Stein is the founder of the Money For the Rest of Us investment education platform. Since 2014, he has produced and hosted the Money For the Rest of Us investing podcast and led the Money for the Rest of Us Plus membership community. David's podcast reaches more than 40,000 listeners per episode and has over 14 million downloads. He is the author of Money for the Rest of Us: 10 Questions to Master Successful Investing, which was published by McGraw-Hill. Previously, David was an institutional investment advisor and asset manager. He was a managing partner at Fund Evaluation Group, LLC. At FEG, David served as Chief Investment Strategist and Chief Portfolio Strategist.

Host
Greg Dowling
Chief Investment Officer, Head of Research, FEG

Speaker bio snippet goes hGreg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Podcast Transcript

Greg Dowling (00:09):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment economic and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling (00:33):

Today's episode is entitled, "Podcasting for the Rest of Us, and the Money Too." Podcasting is new for FEG. We had two client conferences planned for 2020 before the coronavirus hit. Out of necessity, we turned the first into a series of podcasts, but prior to this we knew absolutely nothing about podcasting. So today we are recruiting a veteran podcaster to help us. I'm pleased to welcome FEG alumni and creator of the wildly popular podcast Money for the Rest of Us, David Stein. David will talk about how he got started, lessons learned, and thoughts on the current market. David has been featured in The New York Times, Motley Fool, Forbes, and U.S. News and World Reports. Today we are excited to have him here on the FEG Insight Bridge. Welcome back to David Stein.

David Stein (01:29):

Great to be here. Thanks for having me.

Greg Dowling (01:31):

Yeah, well we're excited. We need some help with this podcasting thing. And before we do a deep dive, we thought maybe we'd start out with the FEG years. So first things first, you often reference FEG sometimes not by name, but your "previous job." So for listeners, what did you actually do at FEG, David?

David Stein (01:52):

Sure. So I joined FEG in 1995. It was a very small firm at the time, only 25 employees. And then I was there 17 years, so I left in 2012. At a 25-person firm we pretty much did everything. Everybody did everything. So I was an analyst consultant. We did our own research. Then I became a partner in 1998. Eventually I was on our FEG executive committee for many years. I co-founded what became FEG's OCIO effort--at the time it was called "managed portfolios." And so I oversaw those portfolios. And then when I left I was co-leading the research group as chief investment strategist and chief portfolio strategist. So it was, it was a great... I have very fond memories of my years at FEG and learned a bunch.

Greg Dowling (02:37):

Yeah. It's funny. Even prior to this, your name came up. We were looking at a research report and I said, "Well, how old is that research report, Greg?" He said, "It is so old that David Stein wrote it." I go, "Boy, we need to update that one."

David Stein (02:50):

[laughs] Exactly.

Greg Dowling (02:52):

Well, what are some of your favorite memories or lessons learned from your time at FEG?

David Stein (02:58):

As a young firm at the time, 25 employees, there's always been very low turnover, both from coworkers, partners, and clients. And so it's just, it's those years of being with colleagues and clients and the trust that you have in your fellow co-workers. And that's one thing I miss about not being with the firm, is just the trust you have in your fellow partners. What I learned was just, we were all curious and we were all trying to figure out how investment markets work, navigate increasingly complex capital markets. And so I really liked the constant change and that's one reason I got into investing. Instead of having to move to the next job all the time, everything else was moving around us in terms of how markets were evolving. And so that was great. And the big takeaway from that is, as you know, you learn humility as an investor. The reality is, no one really knows what's going to happen. You know, I thought when I was an investment advisor that I had to know that people were paying me to predict the future, and you realize that you can actually manage assets and allocate assets without having perfect foresight. There's ways to manage risk and to do that and make decisions and just recognize that we don't know, and the humility that comes from that, the longer you invest.

Greg Dowling (04:13):

No, that's great. There's definitely a difference between risk and uncertainty and sometimes you just have to embrace the uncertainty. I thought that was very well said. I certainly recognize that I know a lot less than I thought I did. And each year I feel like I know less. It is a great market. So I remember the day... We were at a partner's retreat. You said, "I'm just going to retire and we were all like, "David, you're too young to retire!" So you retired and do what? You didn't immediately turn to podcasting. You retire. What happens next?

David Stein (04:53):

So I left in 2012 and I launched the podcast in 2014. I spent a couple years writing about investing. There was a number of businesses I started and shut down because I was afraid somebody would hire me. I had been in investment advisors for so long. I just... I loved investing, I just couldn't find the way that I wanted to continue to do it without--so I didn't have to manage assets and have that weight of that fiduciary responsibility. I was a guest on a friend's podcast in 2014 and realized that was kind of fun. Because what I missed about FEG was the opportunity to teach. To go to an endowment's investment committee and to just talk about investing and talk about our latest research. And so after that guest appearance, a few weeks later, I thought, "I'll just experiment. I'll launch a podcast that's structured kind of like an investment committee, just not do interviews, do more, a solo show, 25 minutes talking about money, the economy, investing." And at the time, more and more people were getting smartphones. They had data plans. And so I saw a shift and podcasting. So timing turned out to be very good, as there were not really that many investing podcasts at the time. And so that's what I've been doing since. It's been six over six years now.

Greg Dowling (06:15):

So did anybody listen to that first podcast?

David Stein (06:18):

I did. And a few family members. It never went viral, but it grew steadily year to year. So now I'll get about 50,000 downloads per episode. So it's done well. It's been a fun experience.

Greg Dowling (06:38):

That's great. Now your audience is different than the audience you had at FEG. Different types of investors. Can you explain how you're geared and your practice.

David Stein (06:50):

Yeah, so most of my listeners are individual investors. Clearly some are institutional, I do have some financial advisors that listen. But, but by and large, highly educated--98% have a university degree, more than 60% have an advanced degree, more than half have investible assets greater than a million dollars. So it's a group of very smart, successful individuals who want to have a good understanding of the financial markets. And that's why they listen. And they're able to learn about money and sort of the inner workings of the economy, central banking, and ultimately, how to live without worrying so much about money. Having some knowledge so you don't spend too much time worrying about what's going to happen.

Greg Dowling (07:36):

You know, those are two different worlds. I mean, I know you've always been an active personal investor, but how do you wrap your arms around the differences between a taxable investor and a tax exempt investor that has an infinite lifetime, they should be around in perpetuity. So how do you sort of gear yourself to those types of topics and questions and maybe help for the audience? Explain what other differences there are?

David Stein (08:05):

Well, I mean, the biggest difference between my audience and a typical institutional investor is it's their money, in that your typical board member, they're concerned about their alma mater, but they don't quite have the level of emotion that they have when it involves their own finances. And risk is different. For an institutional investor, risk is typically, as you know, is measured by volatility. Whereas for an individual, risk is the personal harm that can be caused by financial losses. And they, as you mentioned, they have a very different time horizon. So sequence of return risk is more of a factor. The need to have some type of guaranteed income source so their entire retirement isn't dependent on the whims of the financial markets. So those are some of the differences, but there are lot of similarities. The asset allocation focusing on... As an individual investor, we don't really think of it, but we are portfolio managers. So we allocate our assets, try to figure out what's the best mix. Diversification clearly is important. Costs are important, including taxes. And those things carry over from the institutional world.

Greg Dowling (09:15):

So your buddy invites you to be on his podcast and you basically say, "Hey, I can do this". So what do you need to have a podcast, besides having a great voice? Do you go out and buy a microphone. What's the next step in creating that first podcast?

David Stein (09:32):

Having a mic is helpful. And it's surprising... The bar has been raised when it comes to sound quality. In the six years of listening to my show--a lot of people, because much of that content's evergreen, they'll literally start with episode 1 and go through all 300--and you can see the sound quality improve. They might not notice it, but I notice it right away. It's like, "Oh, I can't even listen to some of the earlier episodes." You just get better over time. But mainly, I mean, what's so fascinating is anyone can launch a podcast. The technology's there, it's easy to do. The hard part is finding an audience and finding people willing to share, because this is not a medium that lends itself to search engine optimization or people finding it on Google. It's generally people telling their friends and family members about the podcasts they listen to.

Greg Dowling (10:27):

I've listened to a bunch of your podcasts. Every day, driving home, I listen to another David Stein podcast.

David Stein (10:37):

You're sick of me now, I can tell! [laughs]

Greg Dowling (10:37):

[laughs] No, they're good, they're very good, David. What struck me is the variety of different topics that you discuss. It got me to wonder, where do you get some of these topics? Are they questions from some of your listeners? Are you getting your same ideas from the proverbial Wall Street Journal that everybody else reads or will you get different sources of information? How do you get great topics?

David Stein (11:03):

I get ideas from listeners, from members of my community, and books I'm reading. A lot of it's the news, though. When I do my podcast, I don't have eight weeks of prerecorded episodes. I'll prep for my episode on Monday, I'll record it on Tuesday and release that evening to premium members and the general public on Wednesday. And so I do read The Wall Street Journal, but I also subscribe to four other newspapers as well as a number of institutional research services like Ned Davis Research, Capital Economics. And so anywhere I can get an idea. And if it just happened, if it's something that I'm interested in, I'll do it. I don't know what my episode will be from one week to the next, but one of--we can call it a competitive advantage--is the ability to find a topic. If it's timely, I can record the episode and release it the next day. In fact, during the last presidential election where we didn't know what the results were going to be Tuesday evening, I recorded the last 10 minutes of that week's episode Wednesday morning. I released it that then. And so whatever intrigues me that I think will be interesting to the audience, the listeners, that's what I do the topic on.

Greg Dowling (12:14):

I had no idea--I guess in my mind I thought you had these things planned out for months and months--that you have that much flexibility. That's fascinating. If I may ask you, so you said you've gotten better. What, been your favorite podcast so far and why?

David Stein (12:33):

Of my episodes?

Greg Dowling (12:33):

Yeah.

David Stein (12:34):

I don't really have one. It's usually the one that I'm working on that week. Yeah, it's just whatever that week's topic is. One of your prep questions was, "Have you left any episodes on the cutting room floor?" Like no. I mean, when you don't have a backlog of episodes, whatever one you're doing, you need to release it. So you have to get it into shape. I spend way more time. I spend more time now than I ever did in post-production. For a typical episode, I'll spend 3 hours. The typical episode is 25 minutes. I might record 40 minutes of content. And I'll spend 3 hours editing it. And you almost have to do that in podcasting just because, with a lot of the big national media companies releasing shows that they're heavily editing their podcasts, and so that's important. But whatever that week's episode is, that's the most interesting to me.

Greg Dowling (13:30):

Interesting. I wasn't sure if maybe your first one, or if there was one where you're like, "Wow, I nailed that one. I took a topic that I didn't understand but I was fascinated or interested in and by Tuesday I had a podcast." And it just sticks in your memory.

David Stein (13:48):

Well, yeah, I mean, there's certainly topics that I've learned more about having done the episode--I'll mention one later in this interview when we talk about central banks--that just never really occurred to me. So, I mean, there are, I get revelations occasionally having done the research. And my views have changed in the six years. I'll have somebody write me, they'll listen to one of the early episodes and say, "You said this, and now you're saying this." And it's like, "Well, yeah, [laughs] it's been six years. People are allowed to learn things and to grow." And so that's certainly the case.

Greg Dowling (14:23):

Can you share one of those learnings from six years?

David Stein (14:25):

Yeah. For example, in the early episodes, I would have said that when the government spends that creates money and when they tax that destroys money, and that's really a simplification. Because once you actually look at the mechanics, well, the government has federal government has an account at the Federal Reserve where it is possible that the federal reserve--just like they're doing with the bank of England--can fund that account with their digital money and the government could spend it. The central bank can do that. That's not how it happens in the U.S. So, in fact, when the government spends, they have to spend money in their bank account at the Federal Reserve. When they raise taxes, it runs through that account. So it's more nuanced. It's just not necessarily as simple as: government spending is creating money, government taxation destroys money. There's more nuances now.

Greg Dowling (15:27):

And that nuance is probably more important than ever in understanding how that works.

David Stein (15:31):

Well it is, right. And I know way more about how central banks work today than I did six years ago, because I've done numerous episodes on them and I've tried to walk through the accounting and then you watch, and over these past six years, central banks have been more forthcoming about how the monetary system works and what they're doing and the power that they have. Where six years ago, you would've never seen a member of a central bank or the Federal Reserve policy committee say that they have unlimited spending power, that they can create infinite money. They just wouldn't say it. Now they say it.

Greg Dowling (16:12):

When anybody talks about something being unconventional--you're going into surgery and doctor said they're gonna try something unconventional--that that's typically not a good thing. And really post-GFC, the Fed has been doing unconventional monetary policy. But you're right that it's important to understand that, because I think a lot of us--and I would include myself--back then thought, "Well gosh, they're printing money, it's QE, that's going to lead to runaway inflation." Right?

David Stein (16:43):

Well right. And you realize, "Well, we haven't gotten any, so what's going on? What are they really doing?" Well, you realize that no, they're not printing money and sending it into the marketplace. They're creating money in the form of bank reserves that are sitting on banks' balance sheets. And so we talk a lot about, "What is it?" And central banks have mentioned this, that when they make a loan or when a commercial bank makes a loan, that is what creates money through accounting. They're not trying to find reserves to go spend. I mean, they can always true-up the reserves by borrowing it. And these topics I find fascinating, just how the commercial banking system works. It's somewhat mind-blowing when you realize this is how it works. And that's why trust is so important, because it is--there are money trees out there where money can be created, but there's also constraints and limits.

Greg Dowling (17:38):

I was going to ask you this question a little bit later, but since we're on the topic, the Fed now. As we think about where we were, we kind of had the first step of unconventional policies with QE one, two, and QE infinity inching their way towards potentially trying to raise rates at least a little bit here and try to get out of some of this and then the pandemic hit and we're kind of back into it. What lessons from the previous period can we use for this current period and are there diminishing returns on what they can do? Is it truly unlimited? What are your thoughts, given all the time you've spent studying the Fed? How should we interpret their actions now in terms of investments?

David Stein (18:28):

Well, they do have unlimited ability to create money, but the constraint is: do people want to accept that? That the dollar is a non-interest-bearing Federal Reserve liability. That's all it is. They can create it as much as they want. But I did an episode a few weeks ago, episode 295 where I talked about: could the Federal Reserve go insolvent? And this is an example of something that had never occurred to me. I looked into the work of an economist with the London School of Economics, Ricardo Reese. And he said, "Insolvency of the central bank is not just theoretically possible, it's also frequent in practice across the world, as attested by multiple currency reforms that have taken place." And it had never occurred to me that commercial banks that have all these reserves from the central banks could decide, "We don't want them anymore," and trade them in for dollar bills, for cash.

David Stein (19:32):

Now, I don't know if they would or not, but they could. And that--if you take these reserves that are locked at the Fed and converted them to actual dollar bills and that started flowing into the economy... It all comes down to trust. The trust that citizens have in the central bank. The trust that commercial bankers have in the central bank. And so when you see the Federal Reserve buying non-investment-grade bonds, or basically buying bonds, including some non-investment-grade, those that have been downgraded, and realize, "Well, what would happen if default rates spiked?" and you see how leveraged the federal reserve is, that they could go insolvent. And then what happens? Does the federal government replenish their capital? Do people panic? And so there's all these uncertainties and unknowns. But recognize that central banks have a huge amount of power, but they're not infallible, there are constraints. And ultimately, if people don't trust them, then their behavior changes, and that's what can lead to inflation, capacity constraints, and a devalued currency.

Greg Dowling (20:48):

In a few of your podcasts, you mentioned gold. Is the work that you've done on this led you to include gold in some of your portfolio allocation recommendations? Or generally what's your view on gold as a hedge to currency?

David Stein (21:04):

Yeah. So about 5% of my net worth's in gold, primarily in gold coins. One of FEG's colleagues, Mike O'Connor, taught me a lot about gold. I used to be negative on gold and spent more time looking at it and then realized that, "No, this isn't--this is an asset, a speculative asset that's been around for millennia, and it's a way to diversify currency exposure." And so yeah, I recommend... I don't include gold in my actual model portfolios because those are basically public markets, but I encourage members to have assets outside of traditional financial markets, including gold, as an inflation hedge or just a hedge against uncertainty. I also own cryptocurrency. So there's ways that you can diversify away from the dollar, including having international stocks that are not hedged into the dollar. But gold hitting record highs this year. And it's an interesting asset class, because if somebody's bearish on gold, they always compare it to, "Well, it hasn't done much since 1980," and you realize 1980 was a bubble, to the extent gold can be a bubble.

David Stein (22:19):

I mean, it was clearly the top. But if you look at gold since the late sixties, on average it's increased 5.7% per year. This is some data from Ned Davis Research. So it's not a great inflation hedge, because a true inflation hedge would protect you immediately. Like TIPS, right? There's a direct connection to inflation with Treasury Inflation-Protected Securities. But with gold, it can go through periods where it doesn't keep pace with inflation, so it's not a perfect hedge, but over the long term, it has maintained its value and actually grown on a real net of inflation basis.

Greg Dowling (22:58):

Yeah, that's interesting. And certainly gold is one of those assets that are under-owned on the institutional side. It seems to be more prevalent with high net worth. The same could be said for bitcoin. And so you may see institutions on the private equity side, or really venture side, investing in some of the blockchain technology, but not really owning bitcoin. So I'd just be curious on your views on Bitcoin as an investment,

David Stein (23:31):

Right, so I have followed and owned Bitcoin, really, since 2013. And unfortunately I sold some--most--a couple of years later before it took off. So it's something that I've monitored. But it's a form of digital gold. And it's like any asset, like gold. Gold, there, isn't a way to value it. There is no income. It's worth whatever investors and speculators are willing to pay. Gold has an advantage because it has earned that trust over a millennia. Bitcoin's been around for about 10 years. And so people own it... And it's fascinating, you can carry on your phone tens of thousands of dollars' worth of cryptocurrencies such as Bitcoin and, and send it immediately. So it has some advantages, but it will only work if people actually trust it. Same with fiat currency, it works based on trust. And it's earned that trust. It's extremely volatile, but it's something that I own just as a speculative hedge, a couple percent--2%, 3% of my portfolio--in bitcoin, ethereum, and some of the other cryptocurrencies. It's not something that I would put a ton of money in, but certainly something to keep an eye on, just because of how fascinating it is and the technology behind it is equally as fascinating.

Greg Dowling (25:07):

Thanks for sharing that. Again, I think that is very interesting. Are there other sort of non-traditional investments that you follow or recommend to your clients?

David Stein (25:18):

Well, there's some that like in the institutional world... I remember once we had an FEG client who was a new foundation that had spun out of a healthcare organization. The investment committee was made up of primarily people tied to the insurance company, and I think at the time we did the only preferred stock manager search ever at FEG, the first convertible bond manager search ever at FEG. As well as some other asset classes we don't typically use. And you realize that for an individual, there are elements--as individuals, we're not allocating huge pools of money, so we have flexibility to go into some of these asset classes. We can buy a preferred stock issue that got beat up in the sell-off and buy some sort of, they aren't traditional asset classes, they're just not heavily used in the institutional world. And so those would be some examples. Preferred stock being a primary example.

Greg Dowling (26:21):

Definitely. Those certainly aren't as well-trafficked on the institutional side.

David Stein (26:26):

The other thing that, as individuals, that we have the advantage of is closed- end funds. I know, Greg, that's something that you worked with in the early years of your career. It dumbfounds me. And one reason I spent a lot of time educating individuals is so many, when they first get into investing, the first thing they get involved in is trading forex or options. I mean, in what other field do you get a little bit of training and suddenly you're competing against professionals trying to trade options or foreign exchange? Whereas, if you want to trade, why not trade closed-end funds because they're primarily held by other individuals. It's one of the things that I talk about in my book is who's on the other side of the trade, who are we trading with? And closed-end funds, I mean, you can see the inefficiency when you see a closed-end fund selling at a 15% to 20% discount to the NAV asset value. And so that's something else I spent a lot of time teaching about and people can--I share on my membership site what I own and all the trades that I make just because I think it's important to be transparent. But as part of that, I definitely talk about closed-end funds.

Greg Dowling (27:40):

Yeah, that's certainly a sleepier market. And sometimes for active management, you want those less efficient markets. You don't want to be competing with machines or hedge fund managers. Other retail investors might be the--probably not as sexy, but you can make a lot more money, and that's certainly the goal of any of these exercises.

David Stein (28:01):

Well, right. Why trade in forex when you can trade in something that yields 8% to 9%?

Greg Dowling (28:06):

Exactly.

David Stein (28:07):

At least while you're learning, you're picking up some income.

Greg Dowling (28:11):

If you look at the markets now, and there's certainly a lot going on, outside the Fed--maybe they make a policy error of some sort--what are some of the other big risks that you're worried about right now?

David Stein (28:24):

Well, COVID-19, the pandemic. One of the things that I do--and I did at FEG as part of my chief investment strategist role was to do a regular market commentary. Since leaving, I do a monthly investment conditions report where I'm looking at economic trends, valuations, and some market internals or technicals and rate them red for bearish, yellow for neutral, green for more bullish. And in my case, overall investment conditions have been red since early March. Once the Fed started to be more active in terms of what they're buying, we've slowly been adding back risk, but this has probably been the most challenging investment environment that I've seen since I've been investing, mainly because of the uncertainty of COVID. How, when we first started out, we didn't know. We literally didn't know how bad it would be.

David Stein (29:25):

One of the principles that I follow is called the precautionary principle. And the first rule of that is in the face of extreme uncertainty, take preventive actions to avoid ruin. So I reduced risk in my portfolio in early March, as well as in the models that I run. And then slowly, as we learned more about the disease, such as the infection mortality rate, or fatality rate, was not as high as was first thought and watching how federal governments in terms of their fiscal response and central banks slowly adding back more risk. But the biggest concern is that the virus mutates, becomes more deadly and the recession is much longer and deeper than anyone expects. That's a concern for me. A loss of trust in institutions--the central bank, the federal government, I mean the whole political process and just how disheartening it is in terms of the sheer anger both sides have and the lack of belief.

David Stein (30:43):

It just dumbfounds me how people don't seem to want to believe anything anymore. So far, that hasn't impacted investment behavior, but it eventually could. Where people started hoarding and you started getting real fear regarding the dollar and it starts to fall. And these are things that I think are remote, but they're very real risk, which is why I think we should have some currency diversification, own some gold, own perhaps some cryptocurrency, own assets that are apart from the financial system, private capital assets, own some land as an individual. Just so you can be protected against who knows what may happen.

Greg Dowling (31:29):

Yeah. Those are certainly not probable, but they're possible, right? So you have to have that scenario in your investment playbook. Broad diversification is always a good thing, but what you just explained, maybe canned goods should be part of that too. That was a pretty dire assessment of things you're worried about. I certainly can sympathize. I love watching the news, but it is, it is hard to watch the news these days. Certainly a lot going on.

David Stein (32:03):

Canned goods is something. I was back in Cincinnati in mid-March for a funeral. And it was on that flight back when suddenly it hit me how severe this pandemic could get, and I'm even questioning, "Why am I on an airplane? Like what, what are we doing?" I mean, if it hadn't been for a close family member that had passed away, we wouldn't have been there. But going to Kroger in Madeira that weekend and seeing the shelves bare. And you really... And I've been to countries where the shelves are bare like that. Cuba, for example. Italy often was like that. And you realize that, no there's... Who would've thought toilet paper would, there'd be a run on it? And so, yeah, having some food storage somewhere. I think all of us have learned that the system can break down very quickly, and then you get people panicking and then it breaks down even more. And those are remote, but we saw it happen.

Greg Dowling (33:10):

In a certain way, I think as individuals and as corporations, we're moving from just-in-time to just-in-case, and that's certainly going to have some broad implications on markets, right? The supply chains and everything else. Those are certainly some important thoughts there. Because your're podcasting once a week, do you ever listen to the competition?

David Stein (33:33):

Well, I don't have a commute, so... Having a long commute's really good for listening to podcasts, so I don't listen to that many. But there are a few on the investing side. I have enjoyed Jim Grant's Current Yield Podcast. I'll listen occasionally to The Sherman Show, which is a podcast that DoubleLine does. The Investor's Podcast is another one I listen to because Dick Ferguson's a good friend of mine. So those are some on the investing side. I have always enjoyed the work of Seth Godin. He's a very good marketer. His podcast is called Akimbo. So those are a few that I listen to and very much enjoy.

Greg Dowling (34:14):

You'd also mentioned you wrote a book, so not only are you a podcaster, but you're an author now. What are some of the lessons that you're writing about or things you're trying to teach the reader in your book?

David Stein (34:25):

The book came out last year, it's published by McGraw Hill. It's called Money for the Rest of Us: 10 Questions to Master Successful Investing. And it was really geared toward individual investors to teach them how to think like a portfolio manager, recognizing a portfolio manager compares different investment opportunities and allocates those among different assets, or decides how to allocate this pool of money amongst those different investment opportunities. And the key aim of the book was to teach a framework for doing that, a good process. And we've seen this as we've researched--and FEG's researched--managers, that those that tend to do well have a very disciplined investment process. And we should have that as individuals. And so I walk through 10 questions that every investor should ask before they invest. The first one seems obvious, but people don't do it, and that's: what is it? To be able to describe to a friend or a colleague, "Here's this investment. Here's the risk. Here's how it works." We often just kind of plow into an investment without really stepping back. And like the question I mentioned, who's selling me this asset, who's on the other side of the trade? These are important components. Having that framework before we invest in something is very important, and that's what I try to teach in the book.

Greg Dowling (35:47):

That's great. Yeah, even on the institutional side I think everybody wants to believe in magic. Sometimes you get caught up on these great ideas. It's really important to kind of back up and say, "What am I investing in? Why will it work? Who's selling me this?" Those are all really important. Thanks. Anything else of the 10? Please don't--we don't have enough time to go through all 10, David, but is there a couple more that you want to share with us?

David Stein (36:14):

Well another one is... There's some obvious ones is: what's the upside? So understand what the return drivers are. What's the downside? What is the risk and how is that risk being measured? I think another important question is: what has to happen for this investment to be successful? Is it dependent on forecasting ability? Or is there something underlying that could lead to this investment to be successful, even if something doesn't work out? And that's why I like investments where there's cashflow. I think that's an important component. Another question is to ask--it's the second question--is it investing, speculating, or gambling? An investment is something that has a positive expected return, usually because you can value it and there is a cashflow component to it. Whereas the speculation is where there's some disagreement between whether the return will be positive or negative.

David Stein (37:11):

Gold is an example of that. And then something would be gambling if it has an expected negative return. You do that to be entertained. You go to Vegas to be entertained because it has an expected negative return, but oftentimes there are asset classes... A brand new investor that's trying to trade binary options is going to have a negative expected return due to their lack of knowledge and due to their being taken advantage of. And so it's important to break investments into these broad categories and spend most of our time trying to understand investing investments. What's the expected return? What has to happen for us to be successful? Understand the fees. And so those are some other examples of the questions in the book.

Greg Dowling (37:56):

Gotcha. Now I've always known you to have a very eclectic reading list. So what are you reading these days? Maybe give us a few--some of your favorite investment books, and maybe a few non-investment books that are just good to get the mental juices flowing.

David Stein (38:12):

Well, this summer I'm reading Middlemarch by George Eliot, so that's kind of been... I've always read sort of classic novels, and this is one I just hadn't read before. But from the investing standpoint...

Greg Dowling (38:25):

[Inaudible] They get through it?

David Stein (38:27):

Yeah. I'm getting there. I'm probably two thirds of the way. I've not watched the movie, I'm sure it's come out in a movie multiple times, so I have no idea what's going happen with the book. But this was a book written in, I think, 1870. It talks about life in the UK in the 1830s. And you realize how people in the 1830s thought they were on the cutting edge. And you realize the themes that are covered in that book are the exact same themes that happen today. We just have faster cars than they did. But other than that--so there are some things that I can learn from books like that. From the investing side, a couple of books that stood out this year that I've enjoyed. One was Robert Shiller's latest book, Narrative Economics: How Stories Go Viral and Drive Major Economic Changes.

David Stein (39:12):

I've always been an investor that--you realize how much narratives do drive the financial markets. If you do this long enough, you realize that there's fads that come in and out, and stories. We saw this in the Great Financial Crisis. It, it was probably a year or two in, and suddenly Europe and what was going on with Europe and the euro became the big worry, whereas year before it wasn't. Nothing had changed, just suddenly this is the worry that's in vogue. And that's one of the things that worries me. What happens when people start to worry--really start to worry about the central bank or the dollar, and start to act on those worries. And that that's an important component. I also like The Rise of Carry: The Dangerous Consequences of Volatility Suppression. It's a book that came out earlier this year by Tim Lee, Jamie Lee, and Kevin Coldiron. And then last year, I really liked Allison Schrager's book. She's an economist. It's called An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk. That was a very good book on risk.

Greg Dowling (40:21):

Those are some good ones. How about for folks that are just looking to read "the best investment book"? What are a handful of your favorite all-time--maybe not recent reads, but favorites of all time?

David Stein (40:37):

Probably the one that--well there's two that stand out. I really liked The Wisdom of Finance by Mihir A. Desai that came out three or four years ago. As well as Adaptive Markets: Financial Evolution at the Speed of Light by Andrew W. Lo. Both of those books really took deep dives into finance, particularly Lo's book on how markets have evolved and it's really an extension of modern portfolio theory. That modern portfolio theory is good, it has flaws, but at times there's other ways to look at it. And that was a very helpful book

Greg Dowling (41:14):

I'm sure your reading ends up in your blogs. Is it more for fun or does it really help you think through some of these different topics?

David Stein (41:22):

No, it definitely helps. I mean, most of the books that I read somehow end up in my podcast at some--it might even be a side note. I read a lot of East Asian philosophy, so I've done a lot of classic episodes on early Japanese writers. Anything that happens to be of interest, I'll read it, and if it's appropriate I'll share at least part of it as part of a podcast episode. I try to make the podcast more narrative-driven and try to interweave different topics or elements, just because--I saw this even at FEG--using analogies and metaphors really help clients understand the financial markets better.

Greg Dowling (42:07):

Yeah we all seem to process stories a lot better than numbers. Which, to your point about narratives, sometimes that's good, sometimes it's bad. Sometimes those are false narratives that lead us to the easy button. But yeah you certainly bring in a lot of different stories that, uh, which I think probably people appreciate it and find your podcast to be very interesting. Not the Dragnet "just the facts." You're throwing in some very sometimes obscure references in your podcast.

David Stein (42:46):

Well, you're right. This is not a podcast where it's four bullet points. And sometimes you look at negative reviews and people leave negative reviews like, "Well, he didn't use four or five bullet points. Why did he tell that story?" That's something I've learned over time is, sometimes the right story doesn't belong. So I do cut stuff. An example of something I cut and I should sometimes share this story is like, we bought a camper this year and we're out in the middle of--out by the Salmon River. Nobody's there, Lapearl and I are there alone. It's 9:30 at night and we lock the keys in the car--and this is a 2002 Suburban. There was no fog, like the car is locked. Stranded. What do you do? There's no cell phone coverage. You can't call a locksmith. So we took a rock and threw it through a window to get into our vehicle. Now there's an analogy there. There's a metaphor there. I didn't use it in that episode because I just couldn't find a connection to the investing market. So sometimes its just not... It's good to have stories, but just telling a story for a good story's sake--if there's not a point to it, then it's often best to leave it out.

Greg Dowling (44:04):

Definitely. You mentioned feedback, maybe some criticism. We live in this social media world, which, it's good, right, because it's offered you a whole other medium, a whole other career. It's easy for you to get out there. And people are generally liking what you're doing. But it's also really easy for them to criticize you, so it cuts both ways. How do you deal with that? Does that used to bother you, does it not bother you now? What's the general feedback and how do you deal with it?

David Stein (44:39):

I occasionally look at podcast reviews, I don't spend a lot of time on it. There is constructive criticism and I'll take that to heart. I had a guy that spent--he had a podcast reviewing other podcasts and spent 30 minutes just critiquing my podcast. It was brutal, but I listened to it. And one of the things that he mentioned, he says, "He has a lot of mouth noise and he's a breather." And I thought, "Huh. Well maybe I should look at what he's talking--first figure out what that even means, and find a way to fix it." And I hired a voice coach and spent more time thinking about what does the audio sound like? Is there white noise? Is there breathing sounds?

David Stein (45:30):

And mostly we don't notice it. We all breathe, but you realize that we can tend to tune that out. But you can always be improving. But there's other venues where... Like I did YouTube for a while and finally gave up because the comments there were just mean. I mean, they're not helpful. Like I like constructive criticism, but a YouTube... Podcast reviews are way nicer and more helpful than comments on YouTube. And the problem with YouTube is you're so dependent on that algorithm that you have to interact with those comments in order to grow your channel. And I finally gave up. It's like, "I don't want my business to be dependent on YouTube's algorithm" and having to interact with inane comments that, like, this isn't even worth a reply.

Greg Dowling (46:20):

You have a better-educated clientele in the podcast world. Is that kinda what you're getting to?

David Stein (46:26):

Well that's part of it. And people like to just troll for fun on YouTube. I still have videos up there that get tens of thousands of views, they have hundreds of comments. I just don't even look at them because the comments haven't changed. And they were controversial topics. One was on modern monetary theory or MM, and another one was on dollar crashing. Things like that that tend to be a little more political. And so it brings out the knives, I guess,

Greg Dowling (47:00):

Is that helpful? If you're choosing a topic, do you want it to be controversial or timely? Are those kind of the two big levers that you'll pull to get listeners?

David Stein (47:12):

Well, my approach is--like my podcast--is not political. I have political opinions, but I've not... Let's take the Trump administration. There's enough comments about the Trump administration in the news every single day that I don't need to spend time talking about that. But I can talk about trade policy or immigration, or talk about the economic consequences of political discussions without necessarily being political or partisan. And so I've tried to do that. And that's a learning process. You realize... For example, I shared in a recent episode--maybe at the very end of a podcast--about five minutes on the whole concept of privilege. And I realized that based on--and I had people that were like, "We really enjoyed your comments." I had people quit my membership site and said, "How dare you lecture me!" Which I've never lectured on my podcast, but I realized in talking to other associates, like, "What could I have done better?"

David Stein (48:20):

And you realize that that's too important of a topic to spend five minutes on. That's an entire episode. And then it's a question: is that the type of episode that I want to do? Does it have an economic consequence or is it about money investing in the economy? And so take it from that frame. So I think part of it is learning to filter and not just say whatever comes up, but figure out how does it fit with what listeners expect from my brand with while still being authentic. I still might--like climate change, I've talked about climate change because climate change is having more of an economic impact and an investing impact. But I think there's a way to approach it in a way that's more even-handed even if I share an opinion. Like I had one guy after that privilege episode that says, "Your platform is not the medium to share your opinion." And I thought, "Well, no, actually [laughs] this is my podcast. I'm allowed to do that." But there's a way to do that in a way that's constructive and helpful to people so they can learn and make their own decisions and they don't feel like they're being lectured at, because that's not something that I want to do.

Greg Dowling (49:34):

It's a tough time, right? We started off earlier talking about there's a lot of angry people out there. And so I've found that debate has often gone out the window. Just a lot of people yelling on both sides. But you're right. I think that's a good way to approach your podcast through the lens of economics, which is hopefully apolitical and more factual. As we talk about all of this and how it's developed, from you retire from FEG, try a few different businesses, couple years later you try this podcasting thing and it gets a little traction. Later you dabble in YouTube, write a book. I've admired that you've done a lot of different things. What is the journey for David Stein look like now? What's next for you?

David Stein (50:28):

Well professionally, this year I'm very focused on upgrading the video content on my membership community. So you realize, "I've been investing for several decades, is there a way that I can describe and teach investing better?" Some of my videos were shot four or five years ago, so I'm going through--I have a whole Asset Allocation and Portfolio Tools section of my website--so I'm spending way more time... Like, "What's the best content that I could put out on that topic to take a beginner or an advanced investor and walk them through step by step to build an investment portfolio?" That's what's driving me professionally now, as well as, you know, put out a solid podcast every week--actually two podcasts, I do a free podcast and then a premium podcast. Outside of that, I spend a lot of time fly fishing. My FEG clients, those that fish could never understand why I lived in Idaho. Some of the best trout rings in the world are trout rivers and I don't fly fish. So when I quit FEG, I learned to fly fish. I spend a lot of time doing that. Lapearl and I spend a lot of time hiking, camping, and just getting out, as well as reading good books.

Greg Dowling (51:42):

Well I'm jealous. Good luck recording some of those videos from a few years ago. You probably didn't have that great of a beard back then. Probably the beard is more fully grown. So the look will definitely be different. We've learned a lot. I've learned a lot. And who knew there was a podcast reviewing other podcasts. This has been both fun and entertaining. So we really thank you, David, for your time and coming on here.

David Stein (52:09):

Oh, no problem. It's good to be here. And that guy that did the podcast, I wrote him. And he actually apologized because he felt bad afterwards and shut down his podcast eventually. But I learned from it and I got better. And that's what we do in investing. We learn from our mistakes and we get better or humble about it and we just keep trying to improve.

Greg Dowling (52:28):

That's great. Well, thanks again, David.

David Stein (52:30):

Thank you.

Greg Dowling (52:31):

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