Robin Powell: One of the ironies of evidence-based investing is that some of its most vocal proponents used to take an entirely different view.
The blogger Josh Brown is a classic example. He used to work on Wall Street, selling expensive active investment strategies. He likens his role in those days to that of a story-teller.
Josh Brown: People don’t buy facts, they buy emotion. So, what we were taught was, “You’re not selling the steak, you’re selling the sizzle”. The waiter walks through the restaurant with the sizzling steak, the steak is the steak, but people want that sizzle coming to them. It was effective, brutally effective. Of course, it took me a few years to realise this is not actually helping investors, although it’s helping me as the financial salesperson.
RP: Josh Brown now writes one of the world’s most successful investment blogs, The Reformed Broker, advocating long-term, low-cost investing. It is, he admits, a harder sell.
JB: Consumers understand that a $90,000 Mercedes-Benz is a better car, in every way than an $18,000 used Toyota Tercel. Everyone understands that and it’s obvious. You can look at any kind of luxury product or high-end restaurant or a luxury hotel and you can say this is better than that, obviously.
With financial services, it doesn’t work that way, and it’s one of the only things where what you don’t pay is what you get or what you pay is what you don’t get. That’s the challenge, it’s to say this doesn’t work at all like the luxury auto market or the luxury handbag market, this works differently.
RP: Vital though the cost issue is, Josh says, there’s an even more important message that he wants to get across to investors, and that’s about the link between risk and return. Periods of market volatility, he says, are the inevitable price we pay for achieving our investment goals.
JB: I think a lot of people in our industry, maybe the majority, think it’s their job to tell people that they can have the upside without the downside. Of course, they can’t, or they can accept less downside but they’re accepting less upside and they have to be okay with that. But for me, the really, really big thing is getting people to accept volatility as their friend. Showing them the link between volatility today and reward tomorrow, and having them accept it. That’s a given we’re going to have to live with and it’s not something we can play games and dance around.
RP: Thank you to Josh Brown, and to you for watching.
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