The transcript from this week’s MiB: Carl Richards on Sketching Wealth Strategy, is below.
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Carl Richards on the Behavior Gap
A conversation with Barry Ritholtz
Guest: Carl Richards, author of Your Money: Reimagining Wealth in 101 Simple Sketches
[00:00] BARRY RITHOLTZ: This week on the podcast, old friend Carl Richards joins me to talk about his new book, Your Money: Reimagining Wealth in 101 Simple Sketches. If the name sounds familiar, he created the Sketch Guy column in the New York Times — it ran there for a decade. He’s probably done more than anyone to expand usage of the phrase “the behavior gap,” the difference between people’s portfolios and what the results actually are. I thought our conversation was charming, and I think you will too. With no further ado, here’s me and Carl Richards talking about money. Carl, welcome to Bloomberg.
[00:00] CARL RICHARDS: So fun. I’ve been looking forward to this for years.
[00:01] BARRY RITHOLTZ: Same — long overdue. We’ve had you on At the Money, but we haven’t had you for the long sit-down. Let’s start out talking about your background. University of Utah School of Business, bachelor of science in finance. That implies finance, investing, money. Was that the original career plan?
[00:01] CARL RICHARDS: No, not even close, really. I was an undeclared major, which back then meant you had no idea what you wanted to do with your life. I was the newest hire at a landscaping company, so I was literally digging ditches for a living. I come home one day — my wife and I had recently been married, this was ’95 — and she has the help-wanted ads open. She’s got a degree in finance, a job as the CFO of a small real estate company. So I said, “Hey Corey” — her name’s Corey — “what are you doing?” She said, “I’m looking for a job.” I said, “But you have one.” And she said, “I know, I’m looking for you.” I said, “What are you finding?” And she found what we both thought was a security guard job.
[00:02] BARRY RITHOLTZ: At a little shop called Fidelity.
[00:02] CARL RICHARDS: A security guard. I was like, I could work as a mall cop at night — this would be great, and I can still go to school full time. I went to apply. Nothing about kung fu, nothing about self-defense. They were asking about things I didn’t know what they were —
[00:02] BARRY RITHOLTZ: Securities.
[00:02] CARL RICHARDS: Exactly. I didn’t know the difference. And I got through —
[00:02] BARRY RITHOLTZ: I was gonna call BS on this, because — wait, how are you a finance major? But that happened afterwards.
[00:02] CARL RICHARDS: That’s exactly right. So I get through the interview, which tells you a lot about the applicant pool. They had narrowed it down to slim —
[00:02] BARRY RITHOLTZ: To none.
[00:02] CARL RICHARDS: Two of us. And they offered it to the other guy, and the other guy said, “I don’t want it, you take it.” So that’s how I ended up at Fidelity’s national call center, just before the Netscape IPO.
[00:02] BARRY RITHOLTZ: That’s unbelievable. I started on a trading desk and I was told, “Hey, rookie — no trading the Netscape IPO.” So you and I started just about around the same time.
[00:03] CARL RICHARDS: You know what was crazy about that? After I got clear that I wasn’t a security guard, I was like, what’s this job? I was looking around, and everybody was using calculators and math, and I thought, okay, this must be a math job. And then a couple weeks into training, they called us out onto the trading floor to answer phones — because back then you couldn’t get a quote, you couldn’t place a trade, unless you called. And it was the day of the Netscape IPO. And I remember thinking, this isn’t math. That was my first introduction to this idea. I like to say I got in by accident, but I stayed because of that moment — like, what is this crazy thing that we call money? Nobody was doing math in there. They were excited, mad, angry, upset. I always thought it was a mistake getting into finance. I always thought I would go off and do organizational behavior — the Stephen Covey thing at BYU. Because work is where people go to do things that matter. And then some of these early experiences opened the door to this idea: money is the ultimate portal to somebody’s soul. What do you really care about? I can find out pretty quickly by how you spend your money and how you spend your time. So that’s how I stayed. And afterwards I thought, maybe I should get a degree in this.
[00:04] BARRY RITHOLTZ: So then you switch, you get your degree in finance from the David Eccles School of Business. When do you go for the CFP, when do you become a certified financial planner?
[00:04] CARL RICHARDS: I was looking at that the other day. All I remember is I got made fun of for taking it — remember, back in the day? I left Fidelity and went to work for a big brokerage firm — you know, the one with the bull, owned by a bank. I got my CIMA designation, because that’s what the cool kids did, the institutional consulting stuff. I thought, I gotta figure this thing out, this whole money thing. And then I started to get my CFP. This was back when people on that side of the business were like, “What are you wasting your time on that for?”
[00:05] BARRY RITHOLTZ: This whole fiduciary thing. I mean, really —
[00:05] CARL RICHARDS: It’s great. Seriously.
[00:05] BARRY RITHOLTZ: “Waste of time. What are you gonna do, not charge people commission? What are you thinking, Carl?”
[00:05] CARL RICHARDS: That’s right. So fun.
[00:05] BARRY RITHOLTZ: So what I find fascinating about your career — and I’m now learning all the parallels between our careers — is you kind of reinvent yourself as a communicator, as an author, as a speaker. Is that something that helped you when you set up your own investment firm? Which came first, the chicken or the egg?
[00:05] CARL RICHARDS: I can remember who was in the room and where I was when I first sketched something out. I wasn’t a doodler in school. It’s obvious I didn’t take any art classes.
[00:05] BARRY RITHOLTZ: I don’t know if I’d say it’s obvious, because these are really kind of interesting. Charles Schulz very famously drew Peanuts and said he didn’t have skill.
[00:06] CARL RICHARDS: That’s a super generous comparison. Thank you.
[00:06] BARRY RITHOLTZ: Oh, I’m not making that comparison — I’m just saying someone else said something similar.
[00:06] CARL RICHARDS: Somebody else said something similar. Good. But I just remember sitting across the table from some really smart clients — he was an ER doctor, she was a technology sales rep at EMC or something. I was trying to explain a concept, and I was just getting blank stares. You know the feeling. That had happened before, but this was the first time it dawned on me: wait, they’re really smart — this must be my problem. So out of an act of desperation, in the shared conference room there was a whiteboard nobody used. I stood up one day and was like, “No, like this,” and drew some boxes and arrows, like an estate planner would. And they were like, “Oh, oh.” At that moment I didn’t make a grand conclusion. I just remember thinking, huh, that was really interesting. So that started this idea: anytime I got asked a question more than once — the second time I got asked it — I thought, what if I just wrote down the answer and sent it to everybody who asked? And, I don’t know if you remember, but there were these things called blogs back in the day.
[00:07] BARRY RITHOLTZ: Not only do I remember —
[00:07] CARL RICHARDS: You were one of the OGs.
[00:07] BARRY RITHOLTZ: I still am doing it. I have no interest in BeeHiiv or Substack. I learned early on, I don’t want to give my content to another company. I want to control it.
[00:07] CARL RICHARDS: So I started putting those things up on the internet — an answer to a question, with some sort of diagram. And, by the way, the hand-drawn sketches were a flaw at the beginning. I went to download Adobe Illustrator, and the download said three hours. And I thought, anything that takes three hours to download, I should not be using.
[00:07] BARRY RITHOLTZ: Illustrator would ruin this. The whole beauty of your sketches — and I know most of you are listening to this and not watching me thumb through a book — is just how simple and informative they are, with just a few lines, a few circles, a few wiggles. It’s not a giant org chart. It’s, “Oh, he did that in 90 seconds, and look how much information is in it.”
[00:08] CARL RICHARDS: Well, thank you. But early on it was like — I was only doing that because I couldn’t download Adobe Illustrator. I saw it as a flaw. So every couple of years, early on, I’d get them designed by somebody and post those, and people would be like, “Where are the hand-drawn ones?” So I finally learned — and I’m only telling you these stories because it’s so tempting for us to look back and create these beautiful narratives of the experience. But it turns out there was just a lot of random experimentation and playing, because the thing I thought was a flaw ended up being the feature.
[00:08] BARRY RITHOLTZ: Huh. That’s really interesting. I’m surprised you think of it as a flaw.
[00:08] CARL RICHARDS: Not anymore.
[00:08] BARRY RITHOLTZ: But how long did it take you to get to that point? To me, the beauty of your drawings is, first of all, it’s obviously not AI slop — you predate AI by 20 years. But more importantly, they look and feel human and personal. Someone has really put time into figuring out how to communicate a complicated idea in the least amount of letters, words, and images. So at what point did you think, hey, I could do something with these drawings — maybe publish them in the New York Times every week?
[00:09] CARL RICHARDS: Never. What happened was, I was putting these up on the website. I tried to stop.
[00:09] BARRY RITHOLTZ: I love that.
[00:09] CARL RICHARDS: It was like a compulsion.
[00:09] BARRY RITHOLTZ: Can’t help it.
[00:09] CARL RICHARDS: I even had people around me who were like, “Just focus on building your business. What are you doing?” And they were right. But I kept putting it up there. And there’s a guy named Kent, who I did not know, who sent them to a guy named Ron — Ron Lieber — who I did not know at the time.
[00:10] BARRY RITHOLTZ: I know of Ron Lieber.
[00:10] CARL RICHARDS: Kent didn’t know Ron. And Ron just sent a note: “Hey, I think you might like these.” I still have that email, because nobody believes me. The email was, “Hey, we love these. Could we try something?” And I knew enough from my security-guard background, as a kid in the hills of Utah, to say — I never thought, I was like, “Yeah, of course, what do you have in mind?” I’ve talked to Ron since: “Why did you open that email?” Because he gets stacks of things he’d love to reply to and read — that’s the kind of human he is — but he just doesn’t have time. So why did he open that one that day? I don’t know. I should still be sending Kent a gift every Christmas. I never thought maybe this could appear in the Times.
[00:10] BARRY RITHOLTZ: So from the late nineties — when do you launch the firm that you ultimately build up and sell in 2012?
[00:11] CARL RICHARDS: I’m really, really bad with dates, but we were in —
[00:11] BARRY RITHOLTZ: Early two-thousands.
[00:11] CARL RICHARDS: No, 2008 or ’09.
[00:11] BARRY RITHOLTZ: After the financial crisis. So four years you build this up. Why sell it? You just like, “Hey, I’m gonna focus on the security-guard business”?
[00:11] CARL RICHARDS: The first thing I should tell you is why I left and started my own firm. The impetus was two things.
[00:11] BARRY RITHOLTZ: This is at Fidelity?
[00:11] CARL RICHARDS: Fidelity? No, I was now working at the big brokerage firm, and I left to start my own RIA firm. I remember that cover — I can’t remember if it was Fortune or Forbes — it had Rex and David at DFA, and it said “How the Really Smart Money Invests.” I had that in the top drawer of my desk. Every time I opened the drawer — because I still had this “I’m just a kid from the hills of Utah” imposter-syndrome thing, like I’m supposed to be in jail — and I’m helping people make really important decisions with money. I needed to figure out: am I a security guard? Is this math? So this idea of how the really smart money invests — I called and said, “How do I get access to this?” They said, “Well, you can’t do it where you’re at.” So I left for that reason. And then the second reason ended up being one of the greatest disappointments in my career. I left because I thought it was really important to be able to tell everybody that I was a fiduciary, and that everybody would care. And one of the greatest disappointments was that nobody seemed to care. Of course you and I both know it’s incredibly important, but most people don’t. I just remember people looking at me like, “Fiduciary, what? Of course you put my interest first.” So that’s why I left to start the firm.
[00:12] BARRY RITHOLTZ: That’s fascinating. So you sell it in 2012. When did the Sketch Guy columns for the New York Times start? Before that?
[00:12] CARL RICHARDS: Way before I sold the firm. Part of the reason I sold —
[00:12] BARRY RITHOLTZ: You sold the firm to concentrate on your doodles.
[00:13] CARL RICHARDS: That’s right. The book came out in 2012, and I sold the firm about the same time. And I remember specifically having this conversation with my wife. I was like, “Oh, we’ll never sell the thing.” I always thought of it as a security blanket, like I’d never sell it.
[00:13] BARRY RITHOLTZ: It’s an annuity. It generates income every year, and typically you have a 10% year that you’re up, just due to the market.
[00:13] CARL RICHARDS: It’s such a great business.
[00:13] BARRY RITHOLTZ: It is a good business. And especially if you’re a fiduciary and doing the right thing by your client, you not only make a decent living, you get to sleep at night.
[00:13] CARL RICHARDS: That’s exactly right, all the things. So I never thought I’d sell it. But there was this increasing demand — the book was coming out, I was getting asked to speak all over the world. It was clear that I really, really liked that stuff. I had to make a choice. And in the end I was like, “This is security.” My wife said, “Hey, maybe it’s an anchor.”
[00:13] BARRY RITHOLTZ: You guys speak the same love language — it’s kind of fascinating. That’s a very insightful observation from your wife. She’s the one who tried to get you a hat and a shield and have you parade around the mall like Paul Blart. You guys are very much on the same page.
[00:14] CARL RICHARDS: I know. She’s been amazing — 31 years, 33 really, amazing. And it’s the best it’s ever been, and I hope it’s better tomorrow. One of those two competing truths at the same time. I could have never dreamed of it, and I want it a little better tomorrow. I hope I never stop thinking that way. Anyway — I left, sold the firm, went full-time into this speaking and writing thing. For a little while I was at the firm that bought my company.
[00:14] BARRY RITHOLTZ: Another nameless firm.
[00:14] CARL RICHARDS: That was Buckingham, back then.
[00:14] BARRY RITHOLTZ: Oh, okay. I kind of remember that.
[00:14] CARL RICHARDS: Went to work for them in those days and loved it.
[00:14] BARRY RITHOLTZ: Who else did you work with there? There were some people I really liked.
[00:14] CARL RICHARDS: Larry Swedroe — tremendous. That whole crew. Adam, the whole crew there. It was really, really good.
[00:14] BARRY RITHOLTZ: So we’re gonna spend a little time talking about behavior. But you came from several big shops — Fidelity, Merrill, as well as Buckingham. They all have PhDs and Monte Carlo simulations, and they run factor-model tests. And yet people still buy high and sell low. What is it about the human condition that is a permanent drag on performance?
[00:15] CARL RICHARDS: That feels to me like the question I’ve been exploring for 20 years.
[00:15] BARRY RITHOLTZ: That’s why I asked it.
[00:15] CARL RICHARDS: I almost left the business at first, because I couldn’t solve this problem. After I got my CIMA designation and came back —
[00:15] BARRY RITHOLTZ: Explain for laypeople what that acronym is.
[00:15] CARL RICHARDS: The Certified Investment Management Analyst. It was for people doing institutional consulting work.
[00:15] BARRY RITHOLTZ: So not a CFA, but more than a CFP.
[00:15] CARL RICHARDS: Yeah — sort of like CFA light, that can talk to people. Back then it was taught in conjunction with Wharton, so I went to Wharton for two weeks. That was the whole reason — I’m always looking for external validation.
[00:16] BARRY RITHOLTZ: Goes hand in hand with the imposter syndrome.
[00:16] CARL RICHARDS: That’s exactly right, and I’m not afraid to admit it. But I came back working with clients and realized: okay, now I’ve got this great system, the best training in the world — honestly, some of the best training at the firm. And yet I still had this repeated experience where we’d create really detailed spreadsheets of how to hire and fire managers. And then, over and over, the manager that showed up on our buy screen — we’d commit clients’ money to it; I thought that was our job, the search for the best investment — would go through a normal cyclical period of underperformance and show up on our fire screen. I repeated that two or three times over a three- or four-year period and thought, I don’t know what’s going on. Maybe it’s just me. And then I ran across some of that industry research around investor returns versus investment returns, where you see that the average investor underperforms the average investment.
[00:17] BARRY RITHOLTZ: Not only does the average investor underperform the average investment — the average investor underperforms their own investments.
[00:17] CARL RICHARDS: I just remember being so excited that it wasn’t just me. Wait — this is an industry-wide, huge problem. What that research said to me was that I could own a mediocre investment, and if I behaved correctly, I would outperform 99% of my neighbors. And that’s all we care about in the first place, right? Outperforming our neighbors. That’s the whole goal.
[00:17] BARRY RITHOLTZ: “How is that idiot down the block getting rich, and I’m not?”
[00:18] CARL RICHARDS: Exactly — as if that’s the thing that matters. But that’s what we do.
[00:18] BARRY RITHOLTZ: That’s how people work.
[00:18] CARL RICHARDS: Exactly right. So digging into that a bit — I really think Buffett’s statement, that if you were to design a poor investor you would design a human, is as close as we get. We are hardwired. I think it was in one of Jason Zweig’s books where they hooked up scanners and had people open their brokerage statements — talk about a masochistic experiment. And if the statement was down, you process that in the same part of your brain as you do mortal danger — as if you’re being chased by a bear.
[00:18] BARRY RITHOLTZ: Breaking through the room — fight or flight, right there. My favorite Bill Bernstein quote is, “It’s all about your amygdala. If you don’t get your limbic system under control, you will die poor.” And it’s that exact same system.
[00:18] CARL RICHARDS: That’s right. And if the statement’s up, it’s the same part of your brain as security and pleasure. I think it was in the book that for women that’s chocolate and for men that’s sex. I didn’t quite understand the difference in the book, but —
[00:19] BARRY RITHOLTZ: Between sex and chocolate.
[00:19] CARL RICHARDS: Anyway. So if that’s what’s going on, it’s a little bit like the interaction we have with our phones now. On the other side of that interaction are 300 PhDs trying to get us to pay attention to what’s going on on Instagram. And I think we finally have to recognize: unless we put some serious guardrails between us and the big mistake, we’re gonna make the big mistake — because it feels like… I don’t care what you tell me, Barry; if my hand’s on a stove, I’m taking it off.
[00:19] BARRY RITHOLTZ: A hundred percent.
[00:19] CARL RICHARDS: So that, to me, is the work — worrying about what it means to be a real investor, a successful investor, versus what it means to find good investments.
[00:19] BARRY RITHOLTZ: Let’s talk a little bit about the behavior gap. I don’t know if you created that phrase, but you’ve done more than anybody else I know to popularize it. Tell us what the behavior gap actually is.
[00:20] CARL RICHARDS: It started out as a very narrow thing — the difference between, the technical term would be, time-weighted rates of return and dollar-weighted. Because I’ve had to explain this so many times, maybe I’ll go through the explanation. Imagine you open a newspaper and there’s an ad for a mutual fund. It says the fund has returned 10% a year for the last 10 years. That’s the investment return. And just for a minute, forget taxes and fees — that’s the return you would’ve gotten if you had invested money at the beginning of the 10-year period and not added or taken anything away and left it there. But nobody invests that way, except your clients. We are always chasing whatever we hear in the news — the financial pornography network waves their hands, and we’ve got a list of 10 funds to buy. So we end up running around, and the average investment return is 10%, but the average investor return is always different from that.
[00:21] BARRY RITHOLTZ: Who does the annual report that everybody criticizes — that shows this differential?
[00:21] CARL RICHARDS: That was one of the early reports I ran across — Dalbar. I spent the time years ago to understand it; I don’t really know that number well. I know Morningstar does a number, and it seems to be comparable — 80 to 100 basis points, not 6%.
[00:21] BARRY RITHOLTZ: And then what about the SPIVA numbers on manager performance?
[00:21] CARL RICHARDS: For sure.
[00:21] BARRY RITHOLTZ: So you’re running across these behavioral errors on pretty much both sides — the manager who’s running their funds and frequently underperforming. And the longer that timeline is, the greater the percentage of managers underperforming. And on the other side, the buyers of those funds tend to not only underperform the benchmark, they’re underperforming their own funds. So if only there were an alternative way to invest.
[00:22] CARL RICHARDS: Let me tell you a quick story. This is back during my institutional consulting days. We had this client; we do a manager search and selection, and we find the best large-cap value manager for this client and hire them. As I recall, it was Davis New York Venture, back in the day.
[00:22] BARRY RITHOLTZ: Chris Davis. Yep.
[00:22] CARL RICHARDS: We go two or three years. Davis has one of those cyclical underperforming moments — value, as it’s going to do.
[00:22] BARRY RITHOLTZ: Value especially, which runs in and out of favor so frequently.
[00:22] CARL RICHARDS: And it was even in comparison to other value managers, as they’re gonna do. So we fire Davis, not knowing any better, and we hire another — we’ll just call them X, Y, Z. And the client’s like, “Yeah, I understand.” Two and a half years in, we make this change. We go to X, Y, Z. Two and a half, three years later, X, Y, Z does the same thing — cyclical underperformance. We go through our manager screening, they’re up on our fire list, and guess who pops onto our buy list? Chris Davis.
[00:23] BARRY RITHOLTZ: Chris Davis.
[00:23] CARL RICHARDS: I call the client thinking I’m so smart: “Hey, we need to fire X, Y, Z and hire this manager — it’s called Davis.” And he — this client’s name was Jeremy — was like, “Wait, wait, wait. Didn’t we just fire them two and a half years ago?” And I said, “Yeah.” And he said, “You know what I’d like? I’d like the return of Davis from the day we first hired them until now, and I’d like the return of X, Y, Z from the day you first hired Davis until now. And I’d like that compared to my account.” I was, of course, like, “That’s not how it works.” He said, “Yeah, that’s what I’d like to see.” And we all know the story — he underperformed both of those. He would’ve been fine in either one.
[00:23] BARRY RITHOLTZ: Just leave it alone.
[00:23] CARL RICHARDS: Just leave it. And that was my first moment of, “I gotta get out of this business, I gotta go to law school or something.” And that’s when I discovered, for myself, this idea that maybe the investment process only matters to the degree that I can behave.
[00:24] BARRY RITHOLTZ: So let’s talk about what you call the financial pornography networks. They talk all day long about the 10-year yield and the Fed and credit spreads and geopolitics and earnings and news. And you spend most of your books talking about fear, regret, envy — what moves markets and, more importantly, what moves investors’ portfolios.
[00:24] CARL RICHARDS: That’s such a good question. And I want to be careful about the term “financial pornography network.” I think that was originally the Jane Bryant Quinn term.
[00:24] BARRY RITHOLTZ: That’s right. Which I love.
[00:24] CARL RICHARDS: Which I love. But I think it applies really broadly.
[00:25] BARRY RITHOLTZ: I call it the fire hose of financial noise. Is that a fair phrase?
[00:25] CARL RICHARDS: Yeah, that’s fine. Sometimes “media circus.” It’s a media business, and there’s nothing — I want to be clear — I live in the hills in Utah, I ride my mountain bike every day, the trails are out my backyard. I have a different hobby. Just because that’s my hobby doesn’t mean my hobbies are better than anybody else’s. I walk in this building and I see happy human after happy human walking through the halls — shiny happy people everywhere. Who am I, on three cappuccinos, to say? But what’s important is if we start to recognize what we’re doing it for. What’s the goal? Because if it’s something to talk about, there’s nothing wrong with that. If it’s entertainment, there’s nothing wrong with that. But basing your actual investment decisions on something you heard — even if it was secret, underneath the subway, and labeled… isn’t the Economist the one all the really smart people read anyway? You’re not the only one who’s heard it. So we have to be careful about making big investment decisions based on every wind of news or entertainment, versus linking — and this is back to how do we solve this behavior problem — the portfolio has to be designed to give me the greatest likelihood of reaching my goals. And my goals have to be carefully clarified, and they’re gonna change over time. So it’s this constant process of saying, are these investment decisions aligned with what I want out of my life? Both sides of that equation are really challenging. Getting clear about what you want out of your life is super hard. Making sure you have a portfolio built on data and evidence that’ll get you closest to that — also really hard.
[00:26] BARRY RITHOLTZ: So let’s break that into two pieces, because I feel like there are two distinct conversations. We’ll get to the goal portion in a moment; I want to stay with the media circus. Isn’t there really a very simple problem — the mismatch in time horizons? When you’re putting money away to save for retirement, or even a 529 for college, or to buy a house or a second house, you’re thinking 5, 10, 50 years. But all of the financial noise, that fire hose, is about the church of what’s happening right now. If we can simply readjust our media consumption into some context with the longevity of our portfolio goals, doesn’t that solve a lot of this? If I’m putting this money away for 20, 30 years, what do I care what happened on a random Thursday?
[00:27] CARL RICHARDS: And gosh — what if we actually kept track of every single change of opinion, and how sure somebody was? Remember that old statement that even a broken clock is right twice a day?
[00:28] BARRY RITHOLTZ: Often wrong, never in doubt. That’s exactly it.
[00:28] CARL RICHARDS: And that’s entertaining — and there’s nothing wrong with entertainment. We go to the movies, we go see plays, we ride our mountain bikes. I just think we have to understand what it is. What you’re saying is, that’s day-to-day entertainment. I like it because I can talk about it. Just don’t base my 5-, 10-, 20-year decisions on it.
[00:28] BARRY RITHOLTZ: And yet we continue to see people have that problem. So let me re-ask this question in a different way. How do you bridge the gap between what clients ask for — what they think they want — and what you know they actually need?
[00:28] CARL RICHARDS: Barry, you’re super good at this whole job.
[00:29] BARRY RITHOLTZ: It’s all AI. It’s all I didn’t write.
[00:29] CARL RICHARDS: Now you’ve layered in another problem, because the humans we call clients show up having been trained by us as an industry — speaking really broadly — that what matters is this day-to-day stuff. They think the job of an investor is to find the best investment, because we taught them that on television, waving our hands. So it’s no surprise that clients come in expecting that — we did this to ourselves. And that’s why I think clients who work with real financial advisors often go through a period of financial-pornography detox, where they wake up 18, 24 months into the relationship and go, “Hey, you know what? I’m not really paying that much attention anymore. All the stuff I used to think was critical has lost its urgency.” So we’ve got this problem where — back to the wiring in our bodies — it feels like we should be doing something. The news is saying we should be doing something. The guy at the club is saying we should be doing something. And I call Barry, and Barry says, “Hey, let’s hold on for a second. Let’s take a breath. Are these goals still the goals? Is this still what’s important to you?” Turns out, if that’s true, we’re okay here. And almost always we end up at the same place: diversified, low-cost portfolio, hold onto it for a long time.
[00:30] BARRY RITHOLTZ: There’s this inherent bias toward action, which is the nature of that fight-or-flight response.
[00:30] CARL RICHARDS: One or the other. Act.
[00:30] BARRY RITHOLTZ: “Don’t just sit there, do something.” And really the right way to do it is, “Don’t just do something, sit there.” But that causes a great deal of discomfort among people. Let’s take this to the next phase. Jack Bogle and Vanguard gave us low cost. Everything we’ve learned from Richard Thaler and the behavioral finance folks is about the importance of humility. What does the next generation of investors learn once they figure out diversified, low cost, and a little bit of humility? Where do you go next?
[00:31] CARL RICHARDS: You know what’s so hard about that? This “everyone’s a gambler” thing that’s sort of slipped in —
[00:31] BARRY RITHOLTZ: Actually, today.
[00:31] CARL RICHARDS: It’s slipped in. I don’t envy growing up as a 25-, 30-year-old trying to sort this out right now, because it just feels like everything’s a bet.
[00:31] BARRY RITHOLTZ: And it is.
[00:31] CARL RICHARDS: And it is. To me — I’m careful with advice, but the observation I’ve noticed most frequently is that when I’m younger, if I can focus on human capital and then realize that the money over here does the job of compounding, my main job should be to earn a bit more. Raising my human capital — my ability to earn and save when I’m young — will far outstrip getting an extra 25 basis points by paying attention to some newsletter on the internet.
[00:32] BARRY RITHOLTZ: It’s funny you mention gambling being everywhere. We were talking before the podcast about Nine-Fingered Howie. He wrote a post and created an index called the Degeneracy Index, where he puts in all the various prediction markets and gambling apps — and it’s been outperforming the Nasdaq, which has been on fire, like two to one. And it’s a kind of warning.
[00:32] CARL RICHARDS: What do we do with that?
[00:32] BARRY RITHOLTZ: It’s a warning. I understand the Supreme Court decision that says gambling can’t just be legal in one state — but maybe the decision isn’t to make it legal everywhere. Maybe the decision is to say an entire industry based on human foibles, cognitive errors, and innumeracy is kind of an evil industry.
[00:32] CARL RICHARDS: I know. We’re the problem; we need to realize that we’re just not wired for it. It’s not that we’re dumb, it’s not that we’re bad. We can have any discussion we want about the morality of the whole thing, but underneath it all sits this idea that we’re not wired to handle it. And another piece that’s interesting right now: I don’t think we’re really wired to handle the level of uncertainty that we’re dealing with — the sort of change fatigue.
[00:33] BARRY RITHOLTZ: And it seems like a lot of what Wall Street sells is this illusion of certainty.
[00:33] CARL RICHARDS: This false sense of precision. Certainty is so easy to sell — it’s impossible to deliver, but it’s super easy to sell because everybody wants to buy it. So I think those are the two: human capital, and learning how to come to grips with the reality that the world is uncertain.
[00:33] BARRY RITHOLTZ: So the quote of yours that always stays with me is, “Money is less about math and more about emotion.” That was your insight watching the Netscape IPO. Why is that so challenging for this industry, for finance, to accept?
[00:34] CARL RICHARDS: It seems to me — and I’ve been in a lot of the rooms where this discussion takes place — that we have a deep sense of physics envy.
[00:34] BARRY RITHOLTZ: For sure.
[00:34] CARL RICHARDS: We just want the law of gravity for money. And when we understand that the systems that handle money — markets, economies, politics, and then humans — are a mix of complex adaptive systems… they’re not simple, and they’re not even complicated. They’re complex, adaptive, almost chaotic. And when you understand a complex adaptive system, you start to understand that even with the benefit of hindsight — you see this all the time — we look back and say, “Here are the seven steps.” It turns out that only works for that period of time. You replicate those seven steps and it doesn’t work again.
[00:35] BARRY RITHOLTZ: All models assume the future looks like the past, and very often the future looks nothing like the past.
[00:35] CARL RICHARDS: Exactly. “All models are wrong; let’s make ours useful” is much more helpful. This idea of saying, okay, if that’s the reality I live in, then how do I navigate a complex adaptive system? And that gets us to the point where it’s more about — the problem is you, the problem is me, the problem is us. So I think that’s why it’s so hard. We have to say, “Oh man, we don’t know exactly what we’re dealing with here.” It’s so cute after a big crisis to see all the people who have very specific plans about how to avoid that exact same thing. We’re still taking our shoes off in airports.
[00:35] BARRY RITHOLTZ: You don’t have TSA Pre yet?
[00:35] CARL RICHARDS: Yeah, I do. I haven’t taken my shoes off in a while.
[00:35] BARRY RITHOLTZ: I’m gonna share one of my favorite random data points — I don’t know if this made it into the last book. Earthquake insurance sales go up tremendously right after an earthquake. And if you think about how the plate tectonics work — these two pieces sliding — the odds of an earthquake happening after that 10, 20, 30 years of pressure is released plummet immediately. The worst time to buy earthquake insurance is right after the earthquake. The best time is, “Hey, this is an earthquake zone and we haven’t had one in 20, 25 years — now’s the time.” I remember getting offered structured notes with downside protection in, like, October ’02, and I’m like, “Why do I need this? The Nasdaq is down 83%. Where were you in late ’99 when this might have been useful?” Down 83%, I’m a buyer — I want all the upside. Why would I give any of it away? I had that conversation in a room full of the salespeople pitching this, and got called into the chairman’s office: “What are you doing? We’re trying to set up a relationship with these people.” I’m like, “This is crap. Nobody should own this product. I know you want a relationship — tell them not to bring us junk that we don’t need.” I like dessert as much as the next guy —
[00:37] CARL RICHARDS: This is what I came for, right here.
[00:37] BARRY RITHOLTZ: I remember several times getting called in as the market strategist — called into the vice chair, who was general counsel, or the chair. By the way, the firm was Lehman Brothers. So not only was I right over and over, but the counterparty risk was such that you would’ve gotten nothing anyway.
[00:37] CARL RICHARDS: And we will go to the lengths we’ll go to make up stories about that after the fact. Do you remember — I’m gonna deeply paraphrase, and I’m sure I’m ruining the story — but after Long-Term Capital Management went under in ’98, there was some quote where one of those PhD Nobel Prize winners said, “Our models weren’t wrong; reality just refused to conform to them.”
[00:38] BARRY RITHOLTZ: I don’t remember who it was, but — When Genius Failed, that quote is somewhere in that book.
[00:38] CARL RICHARDS: Exactly right. And I only point that out to say that I will certainly go to great lengths to make up a cute story that protects me from dealing with uncertainty — because our nervous system takes uncertainty as a threat. And it turns out we are in a period of uncertainty, and I don’t think we’re going back, to be honest.
[00:38] BARRY RITHOLTZ: Let me — this is supposed to be about you, the guest — but you pushed my buttons. Whenever I hear people saying “markets hate uncertainty,” my knee-jerk response is always, “Markets thrive on uncertainty — it’s the whole point.” The only time there’s certainty is when everybody’s on the same side of the boat. In late ’99, everybody was certain trees grew to the sky. And in March ’09, everybody was certain markets were going to zero — except for the handful of people who stepped up and bought. The future is inherently unknown and unknowable. When people say things are uncertain, I always feel like what they’re saying is, “Normally I could lie to myself enough that I could BS you people that I have some idea what’s gonna happen — but goddamn, whatever’s going on is so crazy I can’t maintain that fiction anymore, so I default to uncertainty.” In reality, most of the time everything is inherently uncertain.
[00:39] CARL RICHARDS: Can I — real quickly, I’m super interested in what you think about this. I feel like you and I came up in the financial planning industry, the financial advice industry, which really grew up during a period that was an aberration. For a certain group of people, there was a predictable path of progress.
[00:39] BARRY RITHOLTZ: Give me some years.
[00:40] CARL RICHARDS: I’m seeing postwar. My grandpa got a degree, could afford a first-time home on one salary, stayed there for 30 years, retired with a pension. There was this window —
[00:40] BARRY RITHOLTZ: That was the aberration. The entire postwar period is the aberration.
[00:40] CARL RICHARDS: Right — like the Roaring Twenties, the uber-rich and the rest of us. Things weren’t like that before, and they aren’t like that now.
[00:40] BARRY RITHOLTZ: And we falsely believed, “Oh, this is the new era.”
[00:40] CARL RICHARDS: The problem is that was when we built all of our tools, our language, our planning tools, our Monte Carlo simulations — all around that aberration. Much more likely is, if you think it feels uncertain now, we’re not going back there.
[00:40] BARRY RITHOLTZ: “No, no, it’ll all settle down, this’ll all go away.”
[00:40] CARL RICHARDS: Exactly. Ain’t gonna happen. So to me, that leads to a really interesting discussion around how I learn — whether it’s a posture shift, instead of trying to defend an outdated map. Like confirmation bias — you know, “10 best days.”
[00:41] BARRY RITHOLTZ: Ten best days — it’s a great concept. And 10 worst days.
[00:41] CARL RICHARDS: Anytime anybody’s scared of anything in the markets, we just parade it out. You saw this on Twitter back when it was useful — if anybody said anything bad, like “I’m scared” or “this market scares me,” a bunch of financial advisors would jump in and say, “Don’t you know, if you sell and miss the 10 best days, you may as well be in CDs over the 20-year period?” Or you miss the 10 worst days. And I think that was an effort to say “Don’t worry” — to spray people with facts and figures when they’re feeling irrational.
[00:41] BARRY RITHOLTZ: “I like the gun you hold.”
[00:41] CARL RICHARDS: Spray people with facts and figures. Because when you’re feeling irrational, the last thing you want is somebody to try and reason with you.
[00:41] BARRY RITHOLTZ: Wait — you’re telling me that pure logic doesn’t satisfy emotion?
[00:42] CARL RICHARDS: You’re trying it with a teenager, right? The last thing you want… what you want, metaphorically, is a hug first. We’ll get to the facts later — let’s never get to the lecture. So I think if we shift that posture a bit, where we’re like, “Turns out uncertainty is reality”… add in sequencing risk — are we gonna have a great market for the first five years of your retirement or the last five years? Who knows?
[00:42] BARRY RITHOLTZ: Not that useful in the last five years.
[00:42] CARL RICHARDS: Exactly right. It turns out we’re dealing with a very complex adaptive system, and the ability to make really important decisions in the face of irreducible uncertainty is the primary skill. If I was younger, I would be studying complexity theory. I’d be studying being resilient. I’d be studying how to make really important decisions when I don’t know — how to get comfortable not knowing. Like a mountain guide.
[00:42] BARRY RITHOLTZ: But those are life-and-death decisions.
[00:43] CARL RICHARDS: Yeah. Some of my favorite people are really thoughtful — people who worked in distressed investing. Because if they’re on the ground with the company, they’re having to make mission-critical decisions, and they do not know how they’re gonna work out. I’ve got a really good friend like that, and he’s like, “Yeah, every day, some of these decisions are thousands of jobs, and I don’t know how it’s gonna work out.”
[00:43] BARRY RITHOLTZ: And you’re making these decisions in zones of intense uncertainty with incomplete information.
[00:43] CARL RICHARDS: Right. And no amount of spreadsheeting will get you more information. The only way they get more information is to take an action.
[00:43] BARRY RITHOLTZ: Fascinating.
[00:43] CARL RICHARDS: To me, that’s the skill. That’s what this market is calling for in terms of leadership — the ability to create containers for collective interpretation, rather than scream at people.
[00:43] BARRY RITHOLTZ: So let’s talk about this book. You describe it as a conversation grenade. Explain.
[00:43] CARL RICHARDS: First of all, I think I first heard that term from Hugh MacLeod — Gaping Void.
[00:44] BARRY RITHOLTZ: Love his work. I have some of his stuff on my wall. And on the opposite wall, some of your stuff.
[00:44] CARL RICHARDS: That’s cool. Thank you.
[00:44] BARRY RITHOLTZ: “Buy high, sell low, repeat until broke.” Number one. It’s on my wall. Full disclosure.
[00:44] CARL RICHARDS: Well, thank you. I have some of your stuff in my office too. So, conversation grenades — this is the only reason I wrote the book. I’d sworn off writing.
[00:44] BARRY RITHOLTZ: Why?
[00:44] CARL RICHARDS: Because I love audio so much. After I wrote the second book, I thought, “I’m just gonna speak.” And then podcasting came around and I was like, “This is amazing.”
[00:44] BARRY RITHOLTZ: Not mutually exclusive.
[00:44] CARL RICHARDS: Exactly right.
[00:44] BARRY RITHOLTZ: Between Bailout Nation and How Not to Invest — a solid 15 years. I needed to recover; that was my refractory period. I needed a decade and a half.
[00:44] CARL RICHARDS: And it just took the pandemic to make me start thinking about it. I kept noticing that people like physical artifacts.
[00:45] BARRY RITHOLTZ: I agree. I don’t love a Kindle.
[00:45] CARL RICHARDS: Same — I like other people to have it physically. Working with Harriman really allowed me to make everything about the book designed for that.
[00:45] BARRY RITHOLTZ: Think of it — we have the same publisher. I didn’t even notice.
[00:45] CARL RICHARDS: I’m sure Craig helps you.
[00:45] BARRY RITHOLTZ: He’s great, for sure.
[00:45] CARL RICHARDS: So everything about that book is designed to feel like you toss it in a room and conversations break out. That’s the conversation-grenade analogy. You set it on the coffee table — an unpretentious coffee-table book. I’m gonna pick it up, I’m gonna mess with it. We talked about hardback; I wanted that soft cover. We moved the front matter, the legal stuff — you go to page one, there’s none of it in there.
[00:45] BARRY RITHOLTZ: You moved it to the back.
[00:45] CARL RICHARDS: They let me move it to the back. And they said nobody’s ever asked.
[00:45] BARRY RITHOLTZ: Dude, I love that.
[00:45] CARL RICHARDS: Nobody’s ever asked. I was amazed they let me do it. But that stuff’s in the back. Because what reader has ever said they want to see that crap? There it is, in the back.
[00:46] BARRY RITHOLTZ: I always assumed it was a legal requirement that it had to be up front.
[00:46] CARL RICHARDS: They said nobody’s asked. So they let me do all sorts of things that allowed us to say, “No, this is in service of the reader.” We just want you to have this sit there. The number of stories I’ve heard — “I had it on my table, my son asked me a question,” or “I sent it out to clients.” It’s really meant to be a conversation grenade.
[00:46] BARRY RITHOLTZ: So we started out talking about your deceptively simple sketches. Is this simplicity a conscious act of rebellion? There’s so much complexity and arcane language — every profession uses arcane language to hold laypeople at arm’s distance. Was the simplicity in your sketches purposeful, or am I reading too much into it?
[00:46] CARL RICHARDS: Deeply purposeful. Deeply. I think it’s maybe just the way my brain works — I only have enough RAM for one problem at a time. So I like to get into it, understand the nuance, the edge cases — and it gets like a giant ball. There was actually a sketch in there about this. It’s a simple question, and then: what about this? What about that? What about that edge case? And once I get in there, I’m like, okay. And you actually shared a quote one time —
[00:48] BARRY RITHOLTZ: Investing is simple but hard.
[00:48] CARL RICHARDS: No — “There are a lot of answers that are simple, elegant, and wrong.”
[00:48] BARRY RITHOLTZ: I remember this. I don’t know where I stole that. That could actually be me.
[00:48] CARL RICHARDS: I remember you shared somebody else’s quote.
[00:48] BARRY RITHOLTZ: “Simple, elegant, and wrong.”
[00:48] CARL RICHARDS: Yeah. And I really worry about that, because when you’re in that ball of yarn and you decide to distill or edit, you have to make some conscious decisions about what to leave out. And I often get that wrong. And when I do, I hear about it, and it makes the work a little bit better. There are words and lines in some of those sketches I’ve been thinking about for over a decade. I removed a word that had been in there 15 years.
[00:48] BARRY RITHOLTZ: Which sketch?
[00:48] CARL RICHARDS: It’s the —
[00:48] BARRY RITHOLTZ: “People you love, experiences — spend the money.”
[00:48] CARL RICHARDS: Yeah, that’s one of my favorite ones.
[00:48] BARRY RITHOLTZ: That is one of my favorites. You do like a good Venn diagram.
[00:48] CARL RICHARDS: By the way, the Venn diagram police have come after me, so I just call them circle sketches.
[00:48] BARRY RITHOLTZ: What?
[00:48] CARL RICHARDS: Oh, dude. I used to get two-page emails from the Times readers about —
[00:48] BARRY RITHOLTZ: I call these people Venn diagram police.
[00:48] CARL RICHARDS: Picture-shapers, picture-straighteners. I used to send equal rebuttals, and then finally I just developed a template email. It said, “You’re right. I call them circle sketches.” So the Venn diagram piece is pretty loosey.
[00:48] BARRY RITHOLTZ: Wait — these are legitimate Venn diagrams.
[00:48] CARL RICHARDS: They can make an argument, of course.
[00:48] BARRY RITHOLTZ: No — if it’s this over here and this over here, and the overlap that you want to focus on. “Things that matter, things that you can control” is another one of yours.
[00:49] CARL RICHARDS: What we should focus on.
[00:49] BARRY RITHOLTZ: And then the overlap. How is that not a Venn diagram?
[00:49] CARL RICHARDS: I don’t know. Somebody will find — but my point really is that when you distill and leave things out, you get things wrong sometimes. And you asked which one —
[00:49] BARRY RITHOLTZ: But you’re trying to communicate cleanly and simply.
[00:49] CARL RICHARDS: It’s true. But some of that feedback’s amazing. The Venn diagram police weren’t particularly helpful, but some of the feedback is — like, “Hey, have you ever thought of this?” — and it makes me reconsider and adjust. There have been changes I’ve made. There’s one sketch that used to say “what’s important to you.” It was an alignment sketch — your use of capital aligned with what you say is important to you. And that word, “say” —
[00:49] BARRY RITHOLTZ: It’s implying that it’s not important, but you’re claiming it’s important.
[00:49] CARL RICHARDS: That word “say” bothered me for a decade, before I was like, “No, no — we want to get to what’s important to you, not what you say is important.”
[00:50] BARRY RITHOLTZ: You were hinting at another problem with people not speaking —
[00:50] CARL RICHARDS: That’s right. Stated versus revealed preferences. I’m more interested in the revealed preferences. What’s actually important to you?
[00:50] BARRY RITHOLTZ: That’s really interesting. So let’s stay with the concept of spending money, since I just flipped to whatever that was. Every advisor who manages money for people can tell you story after story. My favorite one I’ll share here. “Hey, Barry’s a car guy, he has a boat. You want to buy a boat and a car? Why don’t you talk to Barry?” So I speak to the client. He says, “I’m thinking about buying a 50-, 60-foot sailboat, and I’m thinking about buying a Ferrari.” I go, “That’s really easy. What’s your boating experience?” “Zero.” You don’t start with a 50-, 60-foot sailboat that requires a crew. It’s two and a half million dollars. You’ll take it out twice, and you’ll sell it for a 30% loss. On the other hand — by the way, this guy could buy a Ferrari a month for the rest of eternity and be fine — go buy the Ferrari. Take the whole family down to the Ferrari high-performance driving school. I’ll let you in on a little secret: all of these advanced driving schools are really defensive driving classes in disguise. You’ll learn the limits of the car, that you’ll get nowhere near, but you’ll also learn the limits of your own driving ability — and, more importantly, how to operate within your own skill set.
[00:51] CARL RICHARDS: And so will your kids, if you bring them.
[00:51] BARRY RITHOLTZ: That’s right. So everybody becomes a better, safer driver. So he goes out and buys a Ferrari, they do the class, they love it.
[00:51] CARL RICHARDS: Yeah.
[00:51] BARRY RITHOLTZ: He also buys the boat. A year later, he sells it for a 30% loss. Anytime Barry gets on the phone with a client, the advisor always says, “Do not mention the boat.” The only thing worse than being right is being wrong. And I can say this at the back of a podcast, because you can confess to murder at the end of a podcast and no one will know.
[00:52] CARL RICHARDS: No one will hear.
[00:52] BARRY RITHOLTZ: So I’m very comfortable saying this here. But with that Barry digression — let’s talk about how you help people focus on what’s important, what matters, and what the purpose of money really is. What should they be doing with their money, especially later in life? They’ve accumulated a nice pile. Can’t take it with you.
[00:52] CARL RICHARDS: Running experiments, practice. One of the things we see is that the very things that got you to that spot are working against you going forward. You were being frugal, saving aggressively, being very disciplined. And now you’re saying, “Hey, this delayed-gratification thing was really important — but it definitely got me to the spot.” You get to a point where you should no longer delay. There’s not gonna be time to delay.
[00:52] BARRY RITHOLTZ: It’s so tough for some people to make that switch.
[00:53] CARL RICHARDS: Super. So you practice. Your boat example is great. I’ve literally had people who can’t spend any money — and, like you’re saying, have enough that they could spend it for the rest of their lives. “Go get a coffee with a friend, pay for theirs. Go on the trip and enjoy the trip.” One of my favorite stories is from Alan Smith in the UK — a great financial planner; he’s told this story publicly. He had a client whose relatives had moved. There was a bunch of people from Wales who moved to Argentina from mining, way back. She’d always wanted to go see the Welsh national rugby team play the Argentinian Pumas, in Argentina.
[00:53] BARRY RITHOLTZ: I know exactly where you’re gonna go with this.
[00:53] CARL RICHARDS: And she was like, “I just can’t.” And he’s like, “You could do this every month for the rest of your life.” “Well, I can’t sit that long.” “You could have a lay-flat bed.”
[00:54] BARRY RITHOLTZ: Or you could go from Wales to New York, New York to Brazil, Brazil to Argentina. You don’t have to do it in one trip.
[00:54] CARL RICHARDS: So he finally, over time, got her used to the idea. She went, and she said it was the best. “We’re never gonna get those things back. We’re never going.”
[00:54] BARRY RITHOLTZ: AI is not gonna replace that.
[00:54] CARL RICHARDS: No. So to me it’s like — I don’t know if I’d rather err on being irresponsible, but I know we should spend the money. Spend the money.
[00:54] BARRY RITHOLTZ: But irresponsibility never comes into it. You’re looking at someone’s portfolio: you have $10 million, you live on $350,000 a year, and you want to bust out another $50,000 so you can take the whole family — take the kids on a trip to the old country and show them where your grandparents came from. Why not? It’s not even a hundred thousand.
[00:54] CARL RICHARDS: Yeah. And these are — by the way —
[00:54] BARRY RITHOLTZ: These are very first-world problems.
[00:54] CARL RICHARDS: Of course. But they are problems. Brené Brown got really clear that comparative suffering does us no good. So whenever I hear “first-world problems,” I’m always like, “Well, yeah, but this is a challenge” — and it happens to be the challenge that many of your clients and the people I’m talking to are facing. So why not just practice? Can we pick something small — something you’ve always wanted to do? It might be simple, like take the grandkids to the art museum this weekend.
[00:55] BARRY RITHOLTZ: I’m gonna share another line with you — not comparative suffering, but: “Comparison is the thief of joy.” Often falsely attributed to Teddy Roosevelt; it hadn’t been around till the late 1980s. What a great phrase. There’s always someone with a bigger boat, or a larger house, or a faster car — whatever you’re envious of. You have this car, you’re really happy with it — then who cares what the guy on the block has? That’s pointless.
[00:55] CARL RICHARDS: Real quickly — one thing that makes it even harder is we’re never exactly sure: do we really want the boat?
[00:56] BARRY RITHOLTZ: Well, if you’re not sure, then that’s easy. Don’t get the boat.
[00:56] CARL RICHARDS: But you could go out for a day.
[00:56] BARRY RITHOLTZ: You could rent a boat.
[00:56] CARL RICHARDS: You could try little experiments. I just remember growing up — I grew up in the hills in Utah — we all had BMX bikes.
[00:56] BARRY RITHOLTZ: I love this BMX story of yours.
[00:56] CARL RICHARDS: I always wanted a slightly better BMX bike.
[00:56] BARRY RITHOLTZ: Oh no, you wanted a really nice bike. And what did you end up doing?
[00:56] CARL RICHARDS: Which one are you talking about — the road bike? The Moots? Yes, the titanium bike. There’s a Steamboat story, but that’s a different story. Are you kidding? Those things were — I think those were six or seven thousand.
[00:56] BARRY RITHOLTZ: That’s nothing today, in terms of people who ride. You could drop 10 grand on a bike.
[00:56] CARL RICHARDS: In a hurry. But still, that bike — per dollar, per unit of fun — unbelievable. I never made a better investment.
[00:56] BARRY RITHOLTZ: What’s the BMX story?
[00:56] CARL RICHARDS: When I was little, like eight, I had a slightly better BMX bike than some of my buddies, and some of my buddies had slightly better. That’s all I knew. I didn’t know at the time that I was supposed to want a private jet. And now I do — Instagram has taught me. So I think we have this problem of cultivating our comparison set. Now we’re even talking about getting clear about the word “goal,” which is hard — because you don’t know if it’s your mom’s goal, society’s goal, or Instagram’s goal. Five million dollars and a sailboat — when did that come from?
[00:57] BARRY RITHOLTZ: Let me share a fun private jet story with you.
[00:57] CARL RICHARDS: I love private jet stories.
[00:57] BARRY RITHOLTZ: So whenever anybody used to ask me, “Are you gonna sell the firm? What’s your FU money?” — my answer has always been the same: whatever it takes to never step foot into a commercial airport ever again. And then I made the mistake of saying this in public somewhere, and all these Marquis Jet guys started sending me pitches. So out of curiosity, one day I said, “Run the numbers for me. What does this really look like?” It turns out East Coast is $6,000–$6,500 an hour; cross-country to California, $8,000; you want to go to Europe, it’s $12,000 per hour of travel. So do the math. I’m a numbers guy deep down inside, and I’m like, “Oh, this is a quarter million, half a million a year.” For that to be rational, you’d have to be earning $10 million gross — to spend a mere 5% of your annual income, after cap gains, on a PJ at half a million a pop. “PJ” — that’s from Succession; I never heard that phrase before that show. And all of a sudden I’m like, “Oh, I have no interest in that. I don’t ever expect to be pulling down $10 million a year.” And while it’s attractive — bypassing all the airports — I kind of learned: all right, I’m not gonna go on high-traffic days. We travel for Thanksgiving weekend, I’m the first flight out Thursday morning; we blow through security in five minutes. Two hours later it’s a zoo. So all right, I’m not gonna spend half a million a year. I could spend a little bit of brainpower trying to navigate around the worst. I won’t arrive at the airport at five o’clock, because I don’t want to get stuck in traffic, and I won’t take a nine o’clock morning flight. So I’m not flying private; I’m trying to fly a little smarter commercial. Even if you’re in the front of the plane.
[00:59] CARL RICHARDS: But that to me is a really good example of thinking that something might be important, running a little bit of an experiment, actually running the numbers, and deciding. We’re just constantly narrowing in, for our whole lives — and those things change.
[00:59] BARRY RITHOLTZ: It would still be delightful to just show up at the airport.
[00:59] CARL RICHARDS: And you made a trade-off decision about when you want to leave —
[00:59] BARRY RITHOLTZ: And save a day of travel on each side. But is that worth half a million dollars a year?
[01:00] CARL RICHARDS: To you, it’s not.
[01:00] BARRY RITHOLTZ: I’m gonna overshare one more thing. So some friends of my wife get a pied-à-terre in the city. They’re empty nesters, they downsize, they have a house and then the city apartment. And I started thinking about a pied-à-terre — we loved it when we lived down at Gramercy Park. I start looking at this and running the numbers, and I’m like, “Wait a second.” Just the monthly co-op fees are three or four grand a month, to say nothing of the insurance, the taxes, and the one-, two-, three-, four-, five-million-dollar purchase price. And I’m doing the math: this is like five grand a month, 60,000 a year, that I can’t spend. We take weekends in the city — I can’t spend $60,000 a year on hotels and restaurants. I can’t spend that much if I tried. We do a few weekends in the city; it’s a couple thousand bucks, certainly not 60 grand. Pied-à-terre makes no sense to me. And I’m explaining this to a very wealthy client, and I see this look on her face, and I go, “Oh — you’re saying if $60,000 is too much in co-op fees, you really can’t afford this pied-à-terre.” And she says, “Well, I wasn’t exactly thinking it, but you’re not wrong.” And what I was about to defend myself with was, “Well, the $60,000 just isn’t worth it to me.” But before I said that — yeah, but if you had 50 or a hundred million dollars, who cares? I just want a place I’m comfortable in, where the bed is, my clothes are in the closet, and I’m not dealing with checking into a hotel. That’s worth 60 grand to me if you have X dollars. She never said that, but I immediately saw the whole caveat.
[01:02] CARL RICHARDS: I have a question for you on the heels of that. What’s the last thing you decided, “I’m gonna buy that,” and you didn’t run the numbers — you were just like, “I don’t care, I’m buying it, it doesn’t matter how much it costs”? Because in both those examples, you wanted a thing, ran the numbers, and decided not to do it. Is there a time when —
[01:02] BARRY RITHOLTZ: When was the last time I decided not to —
[01:02] CARL RICHARDS: No — you decided to do it. You didn’t even care what the number said, you didn’t even look — you just wanted to do that thing so bad you were like, “I’m doing it.”
[01:02] BARRY RITHOLTZ: There are two answers: the Barry before he turned 60, and the Barry after he turned 60. When Barry turned 60… I think this is a function of immaturity. I never had a midlife crisis, probably because when I should have, I was still an idiot child — I was still 10, 20 years maturity level below where I should have been. And I turned 60 and very much woke up with a sensation: all right, fourth quarter, down by seven; if you want to win this game, you gotta get busy. Literally, that’s what I thought. I don’t know if I ever told this story on the podcast — and the spouse still survives, so I can’t really go into details. But a person about to sell a business for a ton of money, hundreds of millions of dollars, gets a diagnosis: six months to live. And you know this, if you’re managing money for enough families — the actuarial tables are such that people will begin to die. That’s just the normal human finite lifespan. So it’s easy to start to pick up that pattern: life is short, what are you waiting for? The combination of turning 60, soon after the pandemic ended — a lot of people lost a lot of people during that — I kind of said, “Money should never prevent anyone from experiencing joy.” So what I started doing is not saying no, and gifting a lot of stuff. My favorite thing in the world around Christmas is to pick a book and send it to 10, 20, 30 friends — the same book.
[01:04] CARL RICHARDS: Same — good. 20, 30 bucks.
[01:04] BARRY RITHOLTZ: This year it was The Uncool by Cameron Crowe.
[01:04] CARL RICHARDS: Wow.
[01:04] BARRY RITHOLTZ: I was talking about this with somebody and I said, “Oh, I gave that book to a few people for Christmas.” And then I went through Amazon — oh, I gave 26 of these to various people.
[01:04] CARL RICHARDS: So good.
[01:04] BARRY RITHOLTZ: It’s $300 — for anybody making a reasonable income.
[01:04] CARL RICHARDS: I love that idea. By the way, you don’t have to wait until Christmas.
[01:04] BARRY RITHOLTZ: I know. I was just thinking about that. Carl’s secret book club.
[01:05] CARL RICHARDS: Launching that.
[01:05] BARRY RITHOLTZ: It’s so fun.
[01:05] CARL RICHARDS: It’s really fun. There’s a little bit of a puzzle figuring out what’s the right book for the right person — not everybody gets the same book, because they’re different people. But this all comes back to —
[01:05] BARRY RITHOLTZ: Spend the money.
[01:05] CARL RICHARDS: So — again, it’s the end of the podcast, so I can say stuff. Alexis, don’t cut any of this out. A 1987–88 911 Cabriolet I purchased three or four years ago for like 60 grand. It was an old, ratty car that needed to be restored, and the plan was to convert it to an EV. This car wasn’t right for that, so I ended up doing the EV conversion with an ’87 coupe with 300,000 kilometers on it. But the ’88 turned out to be this rare, matching-numbers M491 911, worth a ton more than I paid for it. So I put a bunch of money into it. My wife was complaining she doesn’t get to drive a stick anymore. So — “Hey honey, here’s your weekend car. I bought it for this reason, we’re just parking cash, and it’s worth double what I paid. Drive it.” And she’s like, “It’s loud, it smells, nice clutch, but no airbags, no ABS.” And I’m like, “So what are you saying?” By the way, this is my cross to bear: my wife is very unhappy that I got her an old 911, and she is forcing me to buy a newer Porsche. These are problems that most married men do not have. That’s how you know you married the right woman.
[01:06] BARRY RITHOLTZ: Well, if your wife says “nice clutch,” you’re onto something.
[01:06] CARL RICHARDS: I taught her to drive a stick when we were dating. She drives a stick better than — so her daily driver is an unusual color, another great purchase during the pandemic. When everybody was freaked out, I got her a Panamera hybrid in amethyst metallic — super rare color, substantially less than it should have been. And one of the guys from my car group says to me one day, “You have the only amethyst-metallic Panamera on the island. I saw your wife driving it. I tried to catch her — she’s got a crazy lead foot. I couldn’t catch her, I was beeping, I was waving.” So I go home that night and I say, “Hey, how was your day?” She goes, “Crazy thing — this guy in a green 911 was haranguing me, chasing me, and I just put the hammer down and this guy couldn’t catch me.” And I said, “You know, that was Joe.” She’s like, “That was Joe? He was just swinging by, trying to catch up to say hi.” I’m like, “He said he couldn’t catch you. It’s a GT3 — the fastest street-legal Porsche, just below the turbos.” There’s only one other car that’s the fastest street-legal Porsche with a stick shift.
[01:08] BARRY RITHOLTZ: So good. So that’s what I’m talking about. So I’m in the process of swapping the ’88 for a 2024. I know exactly what I’m gonna replace it with — I found a bit of a unicorn. The only problem is the color is wrong. But with a relatively new car, you put a PPF wrap around it to protect the paint, and now they make those wraps in colors. I really like this paint-to-sample violet — that’s like a $20,000 upgrade when you order the car new. No — just put the plastic on, it’s six grand, and now you have a car whatever color you want. So she picked that color — she’s gonna be the purple. I found this: it’s a GTS, it’s a Cabrio, it’s a stick, it’s a chalk interior, which is even rarer, and rarer still, ceramic brakes. It’s just the wrong color, and I’m gonna fix that. This is an obscene amount of money, and I don’t care.
[01:09] CARL RICHARDS: You’ll tell me that 20 years from now —
[01:09] BARRY RITHOLTZ: Nobody looks back and says, “Oh, why did I buy that?” We look back and regret the things we didn’t do.
[01:09] CARL RICHARDS: Exactly — not the things we did. My version of that is, two months ago, I didn’t know that my 24-year-old son was gonna ask me to go spend some time on adventure motorcycles this summer. It wasn’t in my financial plan.
[01:09] BARRY RITHOLTZ: Do you have a license for that?
[01:09] CARL RICHARDS: I actually do, because 10 years ago I was on a BMW 900 GS.
[01:09] BARRY RITHOLTZ: That’s a big bike.
[01:09] CARL RICHARDS: Yeah. And so we just got Yamaha Ténéré 700s — which is a great bike. But my son is the one who asked, and I didn’t know it’s costing me more money than I’d planned on spending. Who cares? I’m not gonna regret a second of it.
[01:09] BARRY RITHOLTZ: Isn’t that —
[01:10] CARL RICHARDS: That’s the whole point.
[01:10] BARRY RITHOLTZ: First of all, you have to stop — and I know you have gratitude drawings in here — the fact that it’s a realistic option for you and me to indulge in these ridiculous spending things… part of me knows how utterly ridiculous this is. So first you have to have some gratitude for that. But second, if not for that, what are you gonna do with the money?
[01:10] CARL RICHARDS: And the fact that my 20-something son asked me to do it — he’s enthusiastic about it — the answer is yes. So what, I’m gonna look back five years from now, 10 years, 30 years from now, and regret it? No. We spent more money than we really should have on our four years living in New Zealand, and I would do it again.
[01:10] BARRY RITHOLTZ: What years were you in New Zealand?
[01:10] CARL RICHARDS: ’16 to ’20. We didn’t mean to do it — it wasn’t political. We went in ’16 for a year and ended up staying for four.
[01:11] BARRY RITHOLTZ: 2016, I assume. It was fantastic?
[01:11] CARL RICHARDS: Unbelievable. We spent way more — the whole thing was borderline irresponsible, even in this case. But it was a requirement. My wife was essentially like — after the financial crisis and everything that went on, I was just a broken human.
[01:11] BARRY RITHOLTZ: Really? I never thought of you that way.
[01:11] CARL RICHARDS: Well, that’s nice of you. That was part of the problem — I was a superhuman out here, doing the job, master of it, but not inside, not in the house. It was a lack of patience, not deep presence. And she was like, “We’re going. Would you like to come?” And I was like, “Yes.” We ended up staying four years. It was hard money-wise — it was a bad decision financially.
[01:11] BARRY RITHOLTZ: Were you working there?
[01:11] CARL RICHARDS: Yeah. In New Zealand, different time zone, doing the same thing. My point really is, it probably wasn’t the best from a spreadsheet financial decision, but I would do it all over again. Same thing with a car spend. To the degree that you can find the things that align with your use of capital and your family — the experiences with the people you love — we know we will not regret spending time and money on experiences with people we love.
[01:12] BARRY RITHOLTZ: So we’ve been at this for a solid 90 minutes. Let me jump to my favorite questions, which I ask all my guests, otherwise I’m gonna keep you here through dinner. Starting with: who were your early mentors who helped shape your career?
[01:12] CARL RICHARDS: I thought really carefully about this. The one that probably had the biggest shaping on me was Ron Lieber — Ron had a huge impact. So between Ron and Seth Godin.
[01:12] BARRY RITHOLTZ: Oh, really? Seth Godin’s stuff is really interesting.
[01:12] CARL RICHARDS: I always saw Seth as somebody doing something in a narrow space that had broad application. He was a marketing guy, but it had broad application, and he did it consistently over a long period of time. Behavior Gap Radio was started because of Seth’s daily blog. He said to me, “Why aren’t you doing a daily blog?” I said, “I don’t like to write.” He said, “You like to talk.” And so I started — we’re at episode 1,500 now.
[01:12] BARRY RITHOLTZ: Unbelievable.
[01:12] CARL RICHARDS: So Seth Godin and Ron Lieber had the biggest impact on me.
[01:12] BARRY RITHOLTZ: Let’s talk about books. What are you reading right now? What are some of your favorites? And I know when you’re writing a book, it’s really hard to read books.
[01:13] CARL RICHARDS: Two really impactful books: Fooled by Randomness —
[01:13] BARRY RITHOLTZ: Nassim. Come on. I wanted to have him on the podcast — he told me to go pound sand.
[01:13] CARL RICHARDS: He probably said that, exactly.
[01:13] BARRY RITHOLTZ: I’m giving you the polite version.
[01:13] CARL RICHARDS: I’m sure. So that book, and then Pema Chödrön’s When Things Fall Apart.
[01:13] BARRY RITHOLTZ: That’s a really interesting combination.
[01:13] CARL RICHARDS: They’re both related to this idea of the false sense of certainty that we talked about. So Pema’s work has had a massive impact on me. Reading right now — I just finished, literally last night, Homesick Nomad. I can’t remember her name — Brianna something. It’s a short memoir about a woman who drives her van around the desert of southern Utah. She has a Salt Lake connection, so that was really good. And Buffalo for the Broken Heart, Dan O’Brien’s book.
[01:14] BARRY RITHOLTZ: Someone else mentioned that.
[01:14] CARL RICHARDS: I think I told Meb about it in his book roundup, maybe.
[01:14] BARRY RITHOLTZ: Really interesting. What are you streaming these days? Tell us what you’re listening to or watching.
[01:14] CARL RICHARDS: Mike Birbiglia.
[01:14] BARRY RITHOLTZ: So hilarious.
[01:14] CARL RICHARDS: Working It Out.
[01:14] BARRY RITHOLTZ: You know, he has a podcast also — Working It Out.
[01:14] CARL RICHARDS: I thought that was the name of his stand-up on Netflix.
[01:14] BARRY RITHOLTZ: I listen to it religiously. Mike, if you’re listening — I’ve been trying to get ahold of you for a long time.
[01:14] CARL RICHARDS: So there’s a handful of comedians with their own podcasts now. Not just Seth Rogen, not just Joe Rogan. Tom Papa has a podcast.
[01:15] BARRY RITHOLTZ: Marc Maron — the original.
[01:15] CARL RICHARDS: Marc is the OG in the space.
[01:15] BARRY RITHOLTZ: Who’s the guy — Pete Holmes? And who’s the guy who co-wrote with Dave Chappelle? Drawing a blank on his name. His pod is occasionally interesting.
[01:15] CARL RICHARDS: Pete Holmes is actually really great too.
[01:15] BARRY RITHOLTZ: Why do I know the name Pete Holmes?
[01:15] CARL RICHARDS: He’s another one of these Netflix comedians.
[01:15] BARRY RITHOLTZ: Good Hang with Amy Poehler — I was just watching her with Billie Eilish. That was really kind of fun. There’s a ton of them.
[01:15] CARL RICHARDS: The reason I really like Birbiglia is it’s really about the process — testing bits, seeing how they land, paying attention to “that didn’t work quite the way I wanted.” Mike does a really good job of explaining that. And then I just finished The Dark Wizard — the story of Dean Potter, who was an El Cap climber long before El Cap climbing was this mainstream thing. And about his untimely passing through base jumping — it’s an amazing story.
[01:16] BARRY RITHOLTZ: There are a lot of these hobbies — I don’t mind going fast on the track — where my brain does the risk-reward analysis and says, “Oh, there’s just way too much random risk in this.” Like base jumping.
[01:16] CARL RICHARDS: He’s a wingsuiter.
[01:16] BARRY RITHOLTZ: Yeah.
[01:16] CARL RICHARDS: He was driven by the fact that the only thing that made him feel alive was the death consequence.
[01:16] BARRY RITHOLTZ: That’s a whole psychological issue.
[01:16] CARL RICHARDS: It’s a whole other thing — that’s why it’s called The Dark Wizard. But it was super interesting.
[01:16] BARRY RITHOLTZ: We’ll skip that. Final two questions. What sort of advice would you give a recent college grad interested in a career as a financial planner, an author, or an artist? And I know you sometimes don’t think of yourself as an artist, but you clearly are.
[01:17] CARL RICHARDS: Just take the next step. I think getting too caught up in “How is this gonna work? What’s the narrative journey?” —
[01:17] BARRY RITHOLTZ: A thousand-mile journey starts with the first step.
[01:17] CARL RICHARDS: Try not to compare. There’s a Lao Tzu quote: “Be who you really are and go the whole way.” I wish I would’ve started that a little earlier. Take one small step. And if I was in finance, I’d get more comfortable — especially on the advice side — with learning to be deeply present with people. Curiosity, questions.
[01:17] BARRY RITHOLTZ: Deeply present.
[01:17] CARL RICHARDS: I think financial advisors aren’t gonna be paid for solutions. They’re gonna be paid for presence — opening up the ability to have these conversations — because the solutions are table stakes at this point. It’s like self-driving cars. I was in the Waymo — it was safer than the Uber driver before.
[01:17] BARRY RITHOLTZ: Did it feel very weird?
[01:17] CARL RICHARDS: But here’s the thing: I still have to tell it where to go. And even more importantly, on the journey, if I saw something — “Oh wait, what’s that park?” — that requires…
[01:18] BARRY RITHOLTZ: Could you do that in a Waymo? Could you ask it to stop?
[01:18] CARL RICHARDS: Yeah, you can tell it to stop. I don’t know how you do it — on the app. So I’m a big fan of self-driving money, I can’t wait. And there’s still gonna be somebody there who needs to say, “Hey, is the boat really important to you? Go try the racetrack thing.” That, to me, is curiosity and presence. You’ve still gotta be a technical rockstar, but curiosity and presence is where the value will be.
[01:18] BARRY RITHOLTZ: Final question: what is it that you know about the world of investing or psychology today that might have been useful back in the 1990s, when you were first looking at that Netscape IPO?
[01:18] CARL RICHARDS: That compounding does all the work. Stop spending time trying to find the best investment, and just own stuff. If it compounds — I don’t know who said this — if it compounds, let it compound.
[01:19] BARRY RITHOLTZ: The line I use is, your job is to prevent yourself from interfering with your portfolio’s ability to compound.
[01:19] CARL RICHARDS: That’s exactly right. Time is the thing that matters.
[01:19] BARRY RITHOLTZ: Absolutely. Carl, this has been an absolute delight. Normally I want to make this about the guest, but there’s something about you that just encourages me — that’s my whole goal. It’s your aura. You bring it out in people, which is probably why you were a good advisor — you get people to open up to you.
[01:19] CARL RICHARDS: That’s a really high compliment. Thank you, Barry. It means a lot.
[01:19] BARRY RITHOLTZ: Absolutely. Cheers. We have been speaking with Carl Richards, author of Your Money: Reimagining Wealth in 101 Simple Sketches. If you enjoyed this conversation, well, check out any of the 639 we’ve done over the past 12 years. You can find those at YouTube, Bloomberg, Spotify, Apple, or wherever you get your favorite podcasts. I would be remiss if I didn’t thank the crack team that helps put these conversations together each week. Alexis Noriega is my very patient video producer. Sean Russo is my researcher.
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