Episode #301: Dr. Daniel Crosby, Orion Advisor Solutions, “You Want The Best Anxiety Adjusted Returns”

Episode #301: Dr. Daniel Crosby, Orion Advisor Solutions, “You Want The Best Anxiety Adjusted Returns”


Guest: Daniel Crosby, Ph.D, is Chief Behavioral Officer at Orion Advisor Solutions. In this role, he is responsible for bringing behavioral tools, training, and technology to financial advisors to allow for the practical application of behavioral science.

Date Recorded: 3/17/2021     |     Run-Time: 58:14

Summary: In today’s episode, we start by hearing what the 2020 bear market and pandemic looked like from a clinical psychologist’s perspective. Daniel touches on behavioral coaching and why that’s the primary value-add a financial advisor can provide. Then we move onto topics that aren’t discussed much: mental health, social isolation, and depression. He explains why it’s helpful for advisors to have their own therapist to help them handle the day-to-day stresses of the job, and how the increased social isolation over the last year translates to what we’ve seen recently with Reddit, Robinhood and NFT’s.

As we wind down, we discuss the potential for technology to help us become better investors and how some fintech firms are using technology and nudges to encourage bad behaviors.

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Transcript of Episode 301:

Sponsor Message: Today’s episode is sponsored by Bitwise, you’ll hear more about them later in the episode.

Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: What’s up, friends? Great show. Our guest is the Chief Behavioral Officer at Orion Advisor Solutions, where he helps organizations understand the intersection of psychology and the market. In today’s episode, we start by hearing what the 2020 market downturn and pandemic look like from a clinical psychologist’s perspective. Our guest touches on behavioral coaching and why that’s the primary value add a financial advisor can provide clients. Then we move on to topics that we don’t discuss much, mental health, social isolation, depression. Our guest explains why it’s helpful for advisors to have their own therapists, to help them handle day-to-day stresses of the job, and how the increased social isolation over the last year translates to what we’ve seen recently with Reddit, Robinhood, NFTs.

As we wind down, we discuss potential for technology to help us become better investors and how some fintech firms are using technology nudges to actually encourage bad behaviors. Please enjoy this episode with Orion Advisor Solutions’ Dr. Daniel Crosby. Dr. Crosby, welcome to the show.

Dr. Crosby: Thanks, man. Great to be here.

Meb: Giving a timestamp on this, it is St. Patrick’s Day. You’re wearing a beautiful, could be green robe, I don’t know. I can only see you from the waist up.

Dr. Crosby: It is a green cardigan. True to my shrink roots, I have an exquisite cardigan collection.

Meb: Well, I have no green. I have a green coffee mug despite being part Irish, so I’ll count that. But I am wearing my Virginia hat. The NCAA Tournament starts tomorrow, so fingers crossed. The only positive of the pandemic was that UVA got to be national champions for two years, soon to be three. We’ll see how it goes. Do you have a team? What’s your… You’re an Emory guy. They’re not on the tournament, are they?

Dr. Crosby: No, I did my postdoc at Emory. My bachelor’s and PhD are from BYU. So BYU is always going to make the dance and they’ll always be out in the first round. So I know that…I can predict that with great certainty.

Meb: I think you and my wife were at Emory at the same time. She was in grad school. We’ll talk about that afterwards. But one more question before we get started is, how does an Alabama-Atlanta guy end up a Cardinals fan?

Dr. Crosby: So it’s actually three generations deep. So my grandpa grew up in Texas in the middle of nowhere before there were Texas teams. And so the only radio station they got on his ranch in middle of nowhere, Texas with KMOX, the Cardinals had a strong radio tower. So my grandpa grew up in Texas, a Cardinals fan, my dad grew up in the Bay Area, a Cardinals fan, and I grew up in North Alabama, a Cardinals fan. My son and daughter are edging towards liking the Braves, but I got to keep them a distant second, but I’m working hard.

Meb: I’m a Rockies fan so I’ve had nothing to cheer for, for a long time but I love…I miss going to ball games. That’s early on my coronavirus reopening to-do list. Speaking of coronavirus, looking at the last year or two, I thought we’d maybe use 2020 and 2021 as jumping off point to talk about a few things, few topics. I feel like it’s a giant snow globe for someone like yourself getting to deal with some of these things in real-time that we haven’t quite experienced in some ways but in many other ways, they’ve rhymed. Talk to me a little bit about what last year was like. How did you kind of think about it? What were the conversations with advisors, investors, the main sort of issues you dealt with on a day-to-day basis?

Dr. Crosby: Yeah, so last year was wild and it’s one of those things when we’re now hitting all the one-year anniversaries. You look back and you see screenshots of how red the market was and how precipitous that drawdown was. And like we’ve forgotten it because things have gone from 1929 to 1999 so fast, but it was an incredible year because it was sort of cataclysmic there for a little while on a number of fronts. So I think one thing that doesn’t get talked about is that when we look at the research from ’07 to ’09, 93% of financial professionals showed clinical levels of PTSD, anxiety, or depression. So 93% of financial advisors and related fields showed really high clinical levels of significant mental illness. So a piece of my job just became helping the helpers, like trying to encourage the advisors that we serve to take care of themselves.

Because in the same way that a shrink or a psychologist experiences sort of secondary trauma from dealing with clients in distress, an advisor who is talking to 100, 200 clients who are all simultaneously losing their minds, and that advisor is the last line of defense between them and a catastrophic decision, that’s tough. Like, I mean, there’s a real, like, mental, physical toll that that takes on an individual. So a piece of my job became being sort of a de-facto therapist for some of the advisors that we serve. The second piece of my job became sort of explaining investor behavior during that time and trying to help people stay the course and offer them something to hang on to. And it was really fascinating to dig into this.

This was our fourth pandemic of the 21st century, and weirdly, every single time we’ve had a pandemic, the market has just exploded. None of them had the reach that COVID had, of course, but if you look at SARS, MERS, Ebola, all the other…swine flu, all the other pandemics, every pandemic year has been a banner year for the markets, I think anywhere from 11% to 27% up years. And so like trying to give people some context, trying to give people something to hang on to, did a ton of client-facing work, there is sometimes 25 client-facing seminars a week just to, like, help advisors communicate with their clients. So trying to help the clients, trying to help the advisors stay in a good headspace so that they can help their clients, and then trying to give people some context because everything sort of felt so unprecedented, it was good to be able to give people something to hang on to, I think.

Meb: One of the biggest benefits of having an advisor is sort of this almost therapist’s role where when the markets are going down, and I can see why it’s so stressful for so many advisors, where people, when they’re losing money or something is going down, although totally normal and natural, often wants someone to blame or complain. And we deal with this all the time. People will email us in, complaining about who knows what, some fund, something going on, and 95% of the time, we’ll respond, and they’re, “Oh, I didn’t actually think anyone would respond.” Like, they just wanted to send this, you know, this cathartic email into the void and actually didn’t think that there’s me, a human on the other side, but that’s one of the benefits of having an actual advisor.

You have a great tweet, I don’t know when this was from, but you actually said, this is actually recent, “Every financial advisor needs their own advisor and a therapist.” And my guess is, I don’t know, you can give me a more accurate number, but I would think at least two-thirds, three-quarters, 90% have neither, maybe one. Talk to us a little bit about that. Why do you think that’s something that’s actually useful? I need one, by the way. You can be my therapist. I actually need, by the way, listeners, I need a CPA. I’ve been doing my own taxes for like a decade and that’s so foolish. If you’re the world’s greatest CPA, email me after the show. Over to you, doctor.

Dr. Crosby: Yeah, so it’s interesting. So we as an industry, and it takes us to the study a few years back, an 83% of financial professionals said that the number one value they added was basically behavioral coaching, hand-holding emotional coaching, decisional coaching. So we, as an industry, have really embraced and lead with this message that behavioral coaching is the primary value add of a financial advisor, and the data backs it up. But then, you look at advisors’ behavior and, anecdotally, I’m going to say less than a quarter of advisors that I’ve talked to have advisors themselves. And so if we really believe that, like, the ultimate test of that in my mind is if you yourself pay an advisor to manage your money, and I do. I do pay an advisor to manage my money.

Now, listen, I don’t say this out of arrogance, but like, I probably know more about market mechanics than my advisor but that’s not what he’s there for. Like, he’s not there to know about market microstructure and factor out performance and a hundred other things, he’s there to keep me out of my own way, and he does an excellent job of that. And so if we believe that, we should have an advisor. So to me, it’s a little bit hypocritical to be preaching that to clients and not be embracing that for ourselves because all of the research on advisors, it shows two things. It shows that advisors are enormously efficient at keeping clients out of their own way. There’s a ton of great research that shows the positive outcomes that accrue to clients who work with an advisor. There’s return-based stuff, there’s quality of life-based stuff, there’s preparedness-based stuff, like, it’s awesome. There’s huge value.

And yet, we also see that when advisors are managing their own money, they make all the same mistakes as the next person. So we shouldn’t suppose that because we have the technical chops to manage other people’s money, that we’ll do a good job with our own money because as we know, it’s not about technical chops, it’s about behavior. And then to the therapist piece, you know, I just harken back to that 93% stat I cited earlier, if behavioral coaching is indeed our highest and best use, it’s tough, it’s taxing. Like, I left. You know, I’m a clinical psychologist by education. I left that world because it was eating me up. It’s really hard. And advisors go through the same thing, and having a therapist and having that outlet is going to be so positive. Having that catharsis that you talked about, people just firing off, yelling at you, and, like, that’s enough, sometimes that’s all we need, is someone to talk to about the things we’re going through.

Meb: One of my biggest themes of investing personally over the past seven years in kind of start-ups has been this sort of mental health wellness, and I kind of bucket it, slash, other side of the coin, sort of, increasing happiness, sort of, thematic. And 2020 was so hard on so many different populations and people, but financial advisors, as an example, dealing with not just the client side but also being lonely and isolated, majority of which a lot of, around the country, their job is a very personable, in-person sort of relationship. How does an advisor go about finding a therapist or finding a good outlet or a way to think about this? Is it just Google Zocdoc? Is it talk to friends and family? Like, I think a lot of people, particularly men, which most financial advisors are, and older, that generation is probably less likely, I assume, to want to reach out, search for something like this. There’s shame and embarrassment. How do they find it rather than like where’s a good way to go find someone that might be a good fit?

Dr. Crosby: It’s actually a really great question. So if you look at the clinical literature, the best predictor of patient outcomes is rapport. So basically, how much you like your therapist is the best predictor. It’s a better predictor than how many years they went to school, their school of thought, all this stuff. It’s like, “Do you like them?” So the thing that I tell people to do is, first of all, you probably have some sort of inkling about who you want to work with from, like, an age perspective, from a gender perspective, whatever. So, you know, start there, like, narrow it down to people close to you that fit that sort of broad concept of who you think you could open up to. And then from there, ask them for a 10-minute phone call or a 10-minute Zoom meeting or whatever, in-office consult.

Most therapists will do that for free and just say, “Look, I’m aware that the literature says that that connection is the best predictor of success, like, let’s just, 10 minutes on your lunch break, let’s just see if we hit it off.” Because I know so many people that go to therapy once and go, “Uh, it was weird, like, we didn’t connect, it fizzled,” and then that’s it. You lose the energy to go do it from there. So I would say, have 10-minute phone calls or Zoom meetings with 3 different therapists, pick the one with whom you experience the greatest rapport, and then go from there, because it’s kind of counterintuitive. I think we look for things like are they board certified, like, do they have a PhD, like all this stuff, and it’s really like, do you like them? It really is the relationship that seems to be sort of the healing element there, if you will.

Meb: You may not have a certain piece of advice here, but is there a certain website or resource on ways to find, you know, a good therapist that you recommend? Is it friends and family? Because friends and family part, I think, is harder for a lot of people because a lot of people don’t want to admit or they want to do this as very private. So how does someone go about finding it? I mean, is it as simple as Zocdoc, Yelp? Are those useful at all?

Dr. Crosby: Yeah. So “Psychology Today” has a pretty comprehensive listing. I think some of the APA and the professional organizations have listings, Yelp, of course. But honestly, friends and family, like if you’re cool having that conversation, I think I single-handedly have kept a couple of therapists afloat because I refer so many, you know, so many people come to me looking for referrals and I know a couple of great ones and send a lot of folks that way. So I think that’s powerful if you’re willing to talk about it. If not, I think “Psychology Today” is a good place to start.

Meb: It’s a touristic sort of squishy, subjective review sort of approach, and I was actually tweeting about this, and you’ve, I know, talked about something broadly similar on the finding of a financial advisor, in general, is a similar challenge. And one of the biggest hurdles has been some of the marketing rules and testimonials and payment for sort of those, and I think the SEC is modernizing those rules. Someone, maybe Ryan, maybe someone else, will build a beautiful portal that enables sort of like this concept of Zocdoc for financial advisors because a lot of people, it’s the same way. They don’t know and there’s so much jargon and lingo about, is it a fiduciary, are they a broker, or they have a whole bunch of broker check, you know, crosses against their name, and it’s hard.

And then the challenge of the testimonials, too, is that you could get the people that are just mad about… Anyway, it’s an opportunity, listeners, billion-dollar idea. Someone will solve it. Let me know. I’ll invest if you get it figured out. Moving sort of forward from this kind of 2020 loneliness, you had another great tweet, I’m just going off all your tweets at this point because you’re good at Twitter, where you had a fun financial resolutions for 2021. And then you said, “And 20 things we’re leaving behind in 2020,” and this was at the end of the year. And I’m going to start from the end and work backwards because one of your things you’re leaving behind in 2020 was chasing speculative fads and pretending it’s an investment.

Dr. Crosby: Whoops.

Meb: Well, fast-forward to 2021, and I think GameStop and AMC and SPACs and crypto and non-fungible tokens, I can’t…the list goes on and on, said, “Hold my beer. Hold my Guinness. It’s St. Patrick’s Day.” Talk to me a little bit about what’s going on here. What’s your general…how’s the conversation shifted from what you were experiencing last year from the swan of depression, isolation, loneliness to, I don’t know, global Ibiza, Cancun spring break about to happen, feels like?

Dr. Crosby: Yeah. So I think sort of the overarching behavioral consideration here is that humankind tends to project the current moment into the future indefinitely. So markets tend to mean revert, the human gaze tends to be static. So last March when everything was blood red all the time, all we could think about was, this is all that will ever be, like, this is what life is like now. It’s going to be one permanent lockdown and stocks are going to bleed indefinitely and that’s all we could see. Well, that’s mean reverted very heavily now and I think all that people can see now is these excesses, these trees that grow to the clouds, just growing forever. Now, I think that’s sort of the overarching conceit, but it’s interesting.

You’ve talked about loneliness a couple of times now. The research on loneliness coming out of the pandemic is crazy. So, you know, here in Atlanta where I live, calls to the suicide hotline are up 450% year over year. In the UK and Japan, they now have governmental bodies, they have ministers of loneliness, because the loneliness and social isolation pre-COVID had become so epidemic there that it was really impacting health outcomes. We know from the research that social isolation has the health impact of smoking 15 cigarettes a day, that’s twice as damaging as obesity. Like, social isolation is this killer and I think that people have been looking to invest in tribes because we’re lonely. Our lives have been completely de-risked. We sit in our house all day, we wear a mask, and bathe ourselves in hand sanitizer in the few times we go out.

So our lives had been completely de-risked and there’s a human tendency to want to take some level of risk that’s showing up, I think, and then we’re so isolated. I see things like the Reddit trading, I see stuff like the NFT stuff, the tribe that has cohered around crypto, like try and say something critical of crypto and you will be swarmed, right? Because it’s a religion. It’s a religion and I think that people are lonely and I think that people are looking for ways to invest as a collective, and the Reddit thing paired two sort of super compelling narratives simultaneously. At the beginning of the Reddit GameStop thing, it was we’re going to get super rich and we’re going to stick it to the man. And so like banding together with your buddies, your Internet buddies, to get paid and stick it to a bunch of hedges is like the most potent narrative that could ever exist. And so I think we’re lonely, our lives have been de-risked and you’re seeing this human tendency to think that trees grow to the sky.

Meb: We’re tweeting out the annual Schroeder survey that was showing that U.S. investors were expecting 15% returns because they’re extrapolating it, and arguably, in my opinion, one of the, you know, more overvalued periods we’ve had in quite some time. So you have how many kids? Two, three?

Dr. Crosby: Three.

Meb: Okay. One of the challenges I have in not only investing, but this applies to parenting too, so you can get your doctor as well as parenting dad hat on, you know, with investors, is simultaneously wanting people to behave well and do the right thing, so putting the advisor cap on, but also, there’s an element particularly for the younger crowd or people that maybe don’t have a lot of money early in their career, so this isn’t the 60-year-old who’s got all of his money in retirement that’s getting ready to do this, but rather say a 20-year-old with $1400, for example, who has a lifetime of human capital ahead of them, the challenge of saying, “Look, here’s what you should be doing, I’m trying to give you guidance,” but also understanding the very real importance of having experience that burns your hand on the stove where you learn from adversity and mistakes.

And same thing with being a parent, like, you don’t want your kid to do something really stupid but that’s how they learn. Talk to me about that challenge. So my lead-in, this is really long, but the challenge for me a lot is like not trying to be condescending or talk down to people and I was saying this kind of through the whole GameStop saga, I said, “Look, I feel like this…” Because this was me 20 years ago. The names were different. It was E-Trade, not Robinhood, it was Biotech options rather than GameStop, but talk to me about the challenge there, about everything involved in what’s happened so far on the first three months of this speculative orgy.

Dr. Crosby: So I think that the parenting analogy is apt, and if I have one big lesson about markets, right, because I came to this gig from the outside, like I went to school thinking I was going to help women with eating disorders and, like, I find myself here talking to you, right? So I’m an outsider. So when I first started learning about markets 12, 13 years ago, it was all kind of academic and you know all these things but then you encounter real life and the things that you know and the way that you feel, like, there’s no…you know, emotion is so overwhelmingly more powerful than knowledge. And so you really have to learn things the hard way in some respects. You have to learn them viscerally. You have to experience them.

But I think your job as a parent and an investor is to learn lessons in a way that’s educative and you can bounce back from. There are things that kids can do that there’s no coming back from, and that’s…I think that that’s what you try and do as a parent, is keep your kid from driving drunk or whatever it is. Potentially, that’s a mistake that you can’t bounce back from, and I think as an investor, that’s the same thing. You manage risk so that you can have exposure, you can learn lessons. You can’t protect yourself, your money, or your kids from every risk, but you want to make sure that your risks are sized in such a way if the negative thing happens, you can learn from it and you can bounce back because there are lessons that are only learned first-hand in markets.

You can read every single book and you won’t know what it feels like to have a day like we had a year ago. There’s just reading about it and living it. The time is different. You know, you read a book and you go, “Oh, this 10-year period, here were the returns.” Living through days like we experienced last year where every day feels like a year, it’s totally different. So just make sure you can experience it in such a way that you don’t die.

Meb: Yeah. Avoiding the catastrophic sort of outcome, I think, is really important. And I was tweeting about this today also that on the flip side, with markets, you know, ripping and roaring this year, you also have to remember investors, what the whole point of this is in the first place, which is setting up goals, whatever it may be, your kids’ education, retirement, freedom, whatever. So many people get to those goals and then move the goalposts, where they get to somewhere and say, “All right, I’ve won the game. I got all the money, but oh, you know, I’m chasing this dream of 15% returns.” You got to remember why it’s there in the first place.

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Meb: You have a couple of more tweets. One was, “Here’s how to build wealth. Start a business, own a part of someone else’s.”

And I like a companion tweet, which was, “Start a SPAC, buy some Vanguard Funds, watch Netflix a few years, outperform 90% of SPACs, brow down.” What does the doctor do with his money? How do you go about…you said you have an advisor but how do you invest? How do you think about investing? How do you put in the guardrails of all the behavioral work you’ve been doing over the years to not totally nuke your portfolio?

Meb: Yeah. Well, I’d like to invite you and your listeners to invest in my SPAC. No, so what I do, I have sort of these three E’s that I’ve come to for myself and for other people, but I mean, I learned this first-hand through watching myself do stupid stuff, watching myself do stuff that I’ve written books about not doing. We know that doctors and nurses smoke at a higher rate than the average population. We know that the guy that wrote the book on gullibility was an investor in made off spawn. Like, we know all these stories so it’s not enough to know what to do. So sort of my three principles for keeping myself on the straight and narrow, the first thing is education, right? We need to know what to do. The second thing is the right environment. That’s the right portfolio. And then the third thing is encouragement.

This is the personal trainer, this is the advisor who sort of slaps the bad idea out of your hand before you can make it. So I was an entrepreneur for about 10 years, so I had some success doing that and lucky to work for a great organization. But yeah, I mean that’s…my investing is as boring as can be. It’s internationally-tilted, it’s value-tilted, right? So it’s internationally-tilted, it’s value-tilted at the current moment because that’s what I think is about the only reasonably priced game in town, and every two weeks, I buy more and I leave it alone. I’ve also done things to buy myself peace of mind that don’t make rational sense. Like, I’ve paid off my house at a time when there’s two and a half… I could get a 2.5% loan on my house and I paid it off, and like, it’s a meaningful percentage by net worth, and I did it because it helps me sleep at night and it helps me take risks with the rest of it.

So I think one of the things that behavioral finance shows us is you’re never going to get the best returns, you want the best anxiety-adjusted returns. And so for me, owning the roof over my head gives me a great deal of solace and that helps me take a lot of risks with the rest of my capital. And so that’s what it looks like for me. It’s probably not the best idea on paper but it’s the best thing for my behavior and that matters a great deal.

Meb: I think I’ve also heard you say that you keep a percent or two in a play money account. Is that still true in 2021?

Dr. Crosby: Oh yeah. Look, I got to dabble in some of this insanity and, you know, I got to dabble in some of this to write about. So yes, definitely.

Meb: So long Dogecoin, got it. It’s funny what you mentioned about that. So many people spend, I don’t know, 90% of their time thinking about their investments and what to buy and how much and stressing about it all the time. And when you think about life, I mean very rarely are people, the outcomes related to this sort of mean-variance optimization of ideal return and risk and everything else, like you mentioned, the things like paying off your house. And the flipside too, the regret minimization, but also, the pain in the ass-ness of so much of this stuff, just dealing with it and having the simple approach is such a weight lifted. So why doesn’t everyone do this? I’ve already talked this before about, you know, why if some of the concepts are simple, implementation in 2021 is simple, what’s the challenges? Is financial education just an impossible dream? Is it something where we need to set up all the automations and nudges at point of sale? How do we fix this? How do we make it work?

Dr. Crosby: I mean education is a piece, you know, going back to those three E’s. Education is sort of the foundation, is necessary but not sufficient. My favorite example of this is that in the early ’90s, the U.S. government starts labeling all our food, right, so we know fat, calories, whatever is going into our food. And so we have perfect, effectively perfect information about what we’re putting in our bodies. And since that time, our country has become twice as fat and three times as morbidly obese, right, since we started labeling food, and that’s because nobody had any misgivings about the fact that a banana and a candy bar, nobody had any questions about which one was good for you and which one wasn’t. And I think even most people who just dropped their entire net worth into GameStop, if you said, “Hey, is this prudent in the strictest financial sense?” They would say, “No.”

I think a couple of things get at this, the first of them is overconfidence. Overconfidence has three parts. We typically only talk about one. We typically only talk about the one that, you know, we think we’re better drivers or better looking or whatever than the next person or smarter. That’s just one piece of it. The other pieces are thinking that we’re luckier than other people, right? Like, we miss-estimate how likely things are to happen to us, like, divorce or cancer. We underestimate these things by an order of magnitude. So it’s not just about being better, it’s also thinking that bad stuff doesn’t happen to us. We tend to own things that are optimistic and delegate things that are dangerous.

And so as long as this sort of overconfidence is part and parcel of who we are, it’s sort of the meta bias. Overconfidence is the bias that emboldens all other biases and it’s not going anywhere because it’s what gets us out of bed in the morning and what gets us out, moving through the world, and it’s what keeps us happy. So it keeps us afloat but it keeps us broke too in a very real sense.

Meb: I was thinking, as you were talking about this, you know, about the food pyramid of our youth and kind of feeding my son in the mornings now and reflecting back to what the food pyramid used to say, which was, you know, the base was like all carbs. It was like pasta, cereal, bread, you know, everything, and at the top, it was like fats or whatnot. And from someone who grew up on eating Frosted Flakes and Fruit Loops and all the crazy stuff that we were taught versus what it looks like now, I mean, there’s probably some similarities. We did an old paper on similarities to the sort of investment pyramid of our parents’ generation versus now, but the learning compounds over time, you know, on how to go about this and it goes back to your tweet, which was, start a business or own a part of someone else’s business.

When I was asking people what should we talk about, and we’ll get to barbecue in a little bit, one of the topics was Robinhood. So what’s your general takes on this brokerage? Are they the Shining Knight? Are they the Sheriff of Nottingham? Would you design it if they hired you tomorrow? If Vlad said, “Dr. Crosby, we’re going to hire you away or pay you a bunch of money,” what would you say? How would you fix things, if at all, or will you just leave it as is?

Dr. Crosby: It’s tricky because this is one of those instances in which what’s remunerative for the company and what’s in the best interest of investor behavior are going to often be at odds. Like, they’re incentivizing people to over trade. We know from 19 different countries that we’ve looked at, that the more people trade, the worse they do. And things like free trading, of course, makes trading easier, things like confetti hailing down on you every time you make a trade and the ease with which you can trade options and other things, all of this stuff makes it easier for you to blow yourself up. Someone was joking on Twitter about like, “Oh, Meb’s going to ask you about the 10-year lockup fund, you know, idea he has,” that’s one of those ideas that’s like a great idea behaviorally that no one would ever sign up for.

So a lot of what we profess to want, liquidity, transparency, all these things that we profess to want in a technology are actually horrible for us as investors. And, you know, you even look…I laugh, one of my clients made me go do like the most brutal thing I’ve ever had to do professionally. It’s not that bad. I had to go to Times Square in January and, like, walk around with a microphone and ask people about the best and worst financial decisions they’ve ever made. I know. You’re shaking your head. It was…

Meb: It’s stressing me out already.

Dr. Crosby: No, it was terrible, but to a person that they said that real estate was the best investment that they had ever made, and to a person, they said that some stock or other was the worst investment that they’ve ever made, and you look at the returns on real estate over the last 100 years, you know, Shiller did this whole thing, real estate has basically kept up with inflation and that’s it. And you look at what the market’s done, 11% a year, 10% a year over the last 100 years, so why is it that everyone thinks that real estate is such a great investment because it’s not marked to market, or, at least, it hasn’t been historically. Grandma bought her house for 100 grand, she sits on it for 40 years and sells it 40 years later for 500 grand, you go, “Oh, grandma did awesome, like, you know, grandma 5X-ed her money.”

We don’t think about the opportunity cost, it’s not marked to market, we don’t see the daily fluctuations. It was just this thing that we own and we left it alone. And so yeah, I mean, if I were to design Robinhood, I’d do it very differently as a behavioral guy and yet, they’re never going to because what they’re doing is working so well. And in fact, they’re just giving the people what they want. They’re just giving the people what they asked for. But what people think they want and what is good for them are very different things in this case.

Meb: Yeah, the challenge was so many these fintechs, and I think there’s a great Charlie Munger quote that goes along the lines of, “Show me the incentives and I’ll show you the outcome,” is they’re incredible businesses. I mean, I can list 10 and I consistently get dunked on Twitter because I say, “Look, this is great for the company. This is not good for the consumer,” but why are tens and hundreds of thousands and millions of consumers signing up? The issue I have is when they do present themselves as a fiduciary or someone who is acting in your own best…and that’s literally in their name when they say Robinhood and we’re doing the right thing, and you can just go laundry list down the road and say, “No, you’re not,” like across the board.

So I’m okay with people signing up knowing what they’re getting into and say, “Look, I want a casino. I want to bet. I want a Bovada account. I’m going to gamble. I’m going to bet on, you know, this,” that’s fine. But the people going in thinking that they’re getting someone who’s acting in their own best interest and realizing it’s not is where it gets, I think, really frustrating. And the hard part for me is that it gives the financial industry, I think, in many ways, a bad name. And it’s not just Robinhood but many others too. The behavior is, it’s tough, because it’s this whole, going back to the very beginning of the conversation, it’s all Wall Street, being the bad guys, sort of, you know, and so it’s hard, it’s complicated, it’s tough. Anyway.

Dr. Crosby: Yeah. You talk about billion-dollar ideas a lot. You’ve tweeted out some gems. I’m consistently impressed with your billion-dollar ideas. I think there’s a billion-dollar opportunity in making goals more visceral and building something that incents people to make the right decisions. So one of the problems that we have with goals in financial planning is that there’s a lack of salience. You ask someone what their goal is and they go, like, retire, move to Florida or something, and it’s this sort of bland thing that then lives in some dusty folder somewhere. I think there’s an opportunity to really make people’s goals seem to make these things more vivid and to create decision technology for whatever the subset of people is that really wants to make optimal financial decisions that says, “Hey, do you want to buy this fund? There’s a cheaper one over here.”

Or like, “Hey, do you want to trade this? Here’s the tax implications of this.” I think there’s a huge opportunity there. It’s not being done at scale, I think, and I think that’s a big opportunity. There will always be subset of the population who wants to be sort of degenerate gamblers and the Robinhood’s of the world will facilitate that but there’s also people who are genuinely in the dark and want to do the right thing and I think it’s a big opportunity.

Meb: Yeah. The challenges of Robinhood, though, is that it’s like literally in your name, but at every possible turn, you do the wrong thing for clients. And I’ve had a Robinhood account, you know, same as you, I just like to play around with and I was like, “My God.” I remember Jason Zweig wrote an article that was critical about Robinhood. He just got absolutely just eviscerated and I was like, “I don’t see anything that’s not true.” And it’s frustrating because, look, Vanguard has been doing this for 50 years and democratizing access for individuals and a few brokerages had the chance in 2021. I remember public being like, “No, no, all right, we’re done with payment for order flow. We’re now just going to accept tips.” And I was kind of like face palm, I was like, “Oh, what? That’s the weirdest…” I mean, who knows? Maybe it’ll work.

My opinion is that I think that people care less about kind of how you make money on their account with payment order flow, the interest with the short lending as long as you’re open about it. And then I was like, “Why not just share some of it? You don’t have share all of it.” And so there’s some shops like Schwab or Interactive Brokers, Interactive Brokers has the worst sort of front end. I mean, that company would be a 10 or 100X if they just did like a refresh, but hopefully, we’ll get some good multibillion-dollar companies coming out of this but I don’t know. I don’t want to do it. Too much work.

Dr. Crosby: It does sound like a lot of work.

Meb: Opportunity for Orion. All right. Let’s move on to some other topics. By the way, did you ever find out what your neighbors did, that drive the McLaren and the Lambo, the Maserati? You had a great tweet, you’re about to figure out what my neighbor does and go do that.

Dr. Crosby: So my neighbor has a Mercedes AMG, like E-Class AMG. It’s, like, whatever, $150,000 car. There’s a McLaren, a Lamborghini, an Escalade, and a few other cars. I think he’s an athlete but I haven’t verified yet. We do have at least one baseball player in the neighborhood and I think that he’s an athlete. I haven’t confirmed yet, though.

Meb: This is an opportunity for you to go over there and knock on the door and say, “It looks like you might need a financial advisor from the looks of your car collection.” I don’t know.

Dr. Crosby: From the looks of these depreciating assets, sir, I’d like to have a word with you. I think that’s my most shared tweet of all time, which is just, I don’t know.

Meb: Yeah, that’s the way it goes.

Dr. Crosby: It’s like 10 years of trying to provide scientific commentary and I tweet a picture of my neighbor’s Lambo and it goes completely insane.

Meb: You did a webinar earlier this year, didn’t get to see it, but you can summarize for the listeners something along the lines of how to make 2021 your best year yet. So tell me, I’m ready to have a good year. 2020 was garbage. What were some of the bullet points from that talk?

Dr. Crosby: It was a New Year’s presentation, right, and it was all about the knowing-doing gap and just creating incremental habits. The book “Atomic Habits” and other books like that, the BJ Fogg book about, I forget what it’s called, “Tiny Habits,” I think, but these books were really influential on me. The longer I live, the less I believe in willpower. And even, this is controversial, but even to some extent, free will. Like, one of the things that I think that we as a society overestimate is our own willpower in the face of a bad context, in the face of a bad environment. And in my research for “The Behavioral Investor” and for “The Laws of Wealth,” I found really, like, fascinating stuff, like the best predictor of weight loss was the weight loss or weight gain of your five best friends.

So like the people you surround yourself with and the people you’re benchmarking to, in a very real respect, is highly predictive of your own success. I found stuff like the music that was played in a liquor store was highly predictive of what types of liquor or beer people bought. Like, when you played French music, people would have as a 75% increase in the purchase of champagne. When you played German music, there was a 50% increase in the purchase of beer. And what’s cool or what’s crazy to me is when you ask the person coming out with a case of German beer, “Hey, like, why did you buy this,” no one, no one, not a single person would say the music, and yet, the music was the thing that did it.

So that webinar was really all about building small habits incrementally and even more than that, putting yourself in a situation to succeed, like, surrounding yourself with the right ideas, the right people, the right framework. I do something simple, like I have this little journal right here that I write in and I put it in my chair, like this chair that I’m sitting in, every morning, so that I have to contend with it. Every morning, I come down, sit in my chair, I’m like, “Oh, this journal.” And so because it’s there, I do it. It’s the simple thing of if I had it off to the side, I likely wouldn’t, but the simple act of putting it in a place where I have to contend with it causes me to write, which incrementally gets me to where I want to be, which is a successful author. So it’s really about surrounding yourself with the right people, the right ideas, and the right environment, I think is how you have a good year.

Meb: You already are a successful author, huge in Finland, by the way, from what I hear. I was laughing as you were talking about this because, I mean, I’m very well aware of this sort of behavior and nudges. In many cases, it impacts me. In some ways, it doesn’t. I mean, a good example is I’m a terrible surfer but I love to go surfing and I was having a conversation with someone the other day. I said, “Ninety-nine percent of the time, maybe 100% of the time I go out surfing,” and this applies to exercise in general, “every time I come out, I am happier.” I’d never want to look back and be like, “Man, I wish I hadn’t gone out.” Maybe in San Francisco at Ocean Beach when you paddle for an hour and don’t even pass the waves. And yet, why don’t I do it every morning? Well, it’s because I’m lazy and I’ll get up and make coffee and start scrolling on Twitter.

And so unless I have my nudges, which are my friends that are much more motivated than I am that drag my ass out of bed at 7 in the morning when it’s cold in LA, it means 60 degrees, but when it’s cold out, you know, I won’t do it. And so I think being very thoughtful and honest about these sort of frameworks is important to guide you to where you really want to be. I mean, it sounds simple and it’s obvious but how many of us really go about it? What else are you thinking about as we’re in 2021, almost putting a bow on the first quarter? By the time this publishes, we probably will have. UVA will have won the tournament at this point. What are you excited about? What are you working on? Any more books? Anything on the brain that’s burning, searing the front of your brain?

Dr. Crosby: I’ve been thinking about, and I mean, I’m really just thinking about it, I have no great insights, I’ve been thinking about the concept of enough. So some of the research I did for my latest book, “The Behavioral Investor,” was all about sort of the sociology, the psychology, and the physiology even of how we make investment decisions. And in that research, I learned a lot about, like, why there’s only one human species left, right? There’s only one human species, there’s a million species of dog and bird and whatever else, but there’s just one species left of humans. And a lot of the scientific consensus was that we were better risk managers than the others. Like, we were quicker to move. When food got scarce, we were quicker to hide in the cave from the animal or whatever. And so we were better risk managers.

So we are this species that’s wired for risk management in a time of massive abundance. Like, more people die now of overeating than famine, more people die now with suicide than just about every other cause of death. And so it’s fascinating to think about being wired to see danger everywhere in an era when we’re kind of fat and happy. And so learning to have enough is something that I don’t think we talk about enough as an industry, certainly not as a nation, and sort of overcoming the hedonic treadmill, taking your surfing example, right, like learning to do the things that we love and do them consistently, learning when enough is enough is just nothing we’re good at, but I feel like we’ve got to sort of rewire our brains and that’s something that I’m super interested in pursuing in the years to come.

Meb: Someone actually tweeted this to me and I know the story but I’m going to read it anyway. My single favorite behavioral psychologist who talks about investing, not intentionally really, Kurt Vonnegut, you’ve read “Galapagos”?

Dr. Crosby: Yes.

Meb: Okay. One of my favorites books, and randomly applied to the pandemic last year and kind of everything that’s going on, that was incredibly accurate. But here’s another Vonnegut story real quick where they were once at a billionaire’s mansion on Shelter Island. It was Vonnegut and Joseph Heller. And Vonnegut turns to Joe, he says, “How does it make you feel to know that our host made more money probably yesterday than your novel ‘Catch 22’ has earned in its entire history?” And Heller responded, “I got something he could never have.” And he said, “What on the earth could that be?” And he says, “The knowledge that I’ve got enough.” This was in the “New Yorker.”

And I think there’s so many examples of this that everyone kind of knows it, it’s hard to think about, you know. And so being reflective and having a sit-down as you listen to this podcast once, twice, thrice, think about in your own life, like what does that mean and how does it express itself with money as this tool? How do you set things up that you don’t even in particularly older age, so many people are still chasing so much risk across many different sorts of ideas. What does a meaningful life mean and what does enough mean?

Dr. Crosby: Yeah, my favorite line in literature is actually a Vonnegut line. It’s, “Everything was beautiful and nothing hurt,” from “Slaughterhouse-Five,” like, that line to me is just so evocative, this is dorky. I put it on my shoes. Like, I collect sneakers, I collect Air Max’s and I do like the Nike design your own. So I put that on my shoes a lot or the acronym on my shoes a lot. But yeah, it’s this thing where we’re so miss-wired for it and yet, you read the…there was a hospice nurse a few years ago who did this top five regrets of the dying. She, like, interviewed hundreds of people in their last days, again, like not a single person was like, “I wish I had worked more,” or, you know, “I wish I had stacked more chips while I was here.”

Money is a tool and some people treat it like liquid happiness. They use it as sort of the end-all-be-all for keeping score, measuring their self-worth, and I’m at least as prone to that as anyone. And so like trying to get away from that, I think, will be a lifelong pursuit but I want to attack it from a more scientific angle soon. So maybe that’s my next book.

Meb: An idea that I’ve been kicking around is trying to, in this concept of financial education, going to your very simple tweet, which was, start a business or invest in someone else’s business, and trying to convey that in a narrative storytelling format. And I was thinking about it in the context of Jay Z’s famous line of, “I’m not a business…” I’m going to get it wrong right now, “I’m not a businessman, I’m a business man.” And so I was trying to think of doing profiles of say, you know, a dozen, two dozen athletes and celebrities that had made all their money from business, not their actual careers. So Jay Z is a perfect example, but on and on and on, and you see all these athletes now that are investing, which is fantastic. Early on, I was a little skeptical because usually, that’s a sign of like a sentiment top when people were getting involved in things, but they’re actually educated now and investing in legitimate companies and start-ups and businesses, and you can give me on-air criticism.

The challenge that I had with that idea is that it feels a little not relatable, you know, where people say, “Well, yeah, it’s easy for Jay Z to make a billion dollars because he already had the income.” And so then I was like, “Well, maybe we do a whole section on regular Joes that have done it, the janitors, the teachers, the people that just saved and put it away or personal.” I don’t know. It seems like an opportunity to motivate and try to get as many investors as we can, saving and investing, going back to your old real estate comment, like, the whole point of that was not that real estate did well, it was the fact it forced you to save and invest in the first place. I don’t know. You should be the one to write this book, not me. So I’m a…

Dr. Crosby: No. It’s been fun to watch, like, Shaq is an incredible investor, Jay Z is obviously killing it just in the last couple of months, especially A-Rod now has a show on CNBC where he helps sort of rehabilitate the financial lives of other stars who sort of lost their way, so it’s really cool to see. I think there is an analogue for everyday people, though, like, I mean, so I will rightly get roasted. I’m not comparing myself to Jay Z, but I look at my own career, it’s like there was a period in which you sort of make a name for yourself, you write, you get your ideas out there, and then that platform, you use that platform to elevate you to bigger and better opportunities. And I think that we live in a day and age where that is accessible to the average person. Like, you put good ideas out there, you write, you create, you make podcasts, you make a name for yourself, and then I think it becomes easier to, whatever, get a great job, get a start-up funded. I think it becomes easier to take bigger and bigger calculated risks on the base of that platform, which is, I think, at a macro level, all that people like Shaq and Jay Z and those folks did. So I do think there’s something there.

Meb: And then you get to come on podcasts and wear cardigans all day now.

Dr. Crosby: That’s true. Now, I’m a full-time cardigan enthusiast.

Meb: So when asking people what to talk about and you mentioned barbecue, I just tried my first brisket this past weekend. And going back to the part about being lazy, I was not about to get up at 2 a.m. and do the full 12-hour brisket so I did like a sous vide version and then finished it in the oven. And the part I did at home came out good. I wouldn’t say it was exceptional or great. I took it over to a friend’s house who had a grill and tried to finish it on the grill, and the temperature control wasn’t that exacting so it basically turned it into a somewhat delicious jerky, not the intended output. Talk to me about barbecue. Are you Alabama barbecue style? Do you cook your own? Are you aficionado? What’s the story?

Dr. Crosby: Yeah. So I’m from North Alabama originally so I am a south…well, and even the Midwest and Texas, of course, have these sort of barbecue rivalries. This is embarrassing. I can’t remember which of the “Animal Spirits” guys tweeted this out the other day, but he was talking about just having had Alabama white sauce, like there’s this white mayonnaise-based Alabama barbecue sauce that is absolutely incredible that you mostly put on smoked chicken but it’s absolutely incredible. So yes, the “Animal Spirits” guys have done such a good job of co-branding themselves. I can’t ever remember if it was Ben or Michael that tweeted it out but one of them.

Meb: I was going to say there’s only two of them so you got a 50% chance of getting it right.

Dr. Crosby: I think it was Ben, he couldn’t like the Alabama barbecue sauce. But yes, all listeners are encouraged to go try some Alabama white sauce. It’s pretty awesome. And I do smoke meat here on this somewhat regular. Yes.

Meb: And what’s your style? Do you have a smoker? Do you do it on a certain type of grill?

Dr. Crosby: I have a smoker. I got a smoker for my birthday a couple of years ago and it’s been the best couple hundred bucks I ever spent, so it’s been awesome.

Meb: A million years ago, I won a smoker when I was living in Tahoe at a happy hour and it stayed in Tahoe. I was not about to carry that down to LA, but I actually just saw a pitch for a start-up grill company at, like, I think the pre-money valuation. I’d never even heard of it. It was like $30 million or something. There’s a lot of money sloshing around if you can raise that much money for grills. I’m not going to say who it is because the grill actually looks kind of nice but I don’t have enough room. I need to get some room because my barbecue game needs some work. We always ask people, what’s been your most memorable investment, anything come to mind? It can be good, it can be bad, it can be neither, and you’re not allowed to say your partner.

Dr. Crosby: So, no, no, no. I was early to Nvidia. How’s that? I was very early to Nvidia. In one of my books, I sort of laid out this, what I call RBI. I’m a big baseball fan. Sorry that we took Nolan Arenado from the Rockies but, you know, I just…I laid out this RBI rules-based investing system, right, and I oftentimes run those screens, and it’s sort of a value quality momentum composite screen, and it caught Nvidia really early and that’s been a great ride. So Nvidia is the first thing that comes to mind.

Meb: I was thinking about, as you mentioned, RBI, baseball, going back to behavioral, for me, it goes all the way back to playing my brother in Atari baseball and he would just consistently beat me. He was seven years older so he would consistently just take advantage of me. Our parents would make it a rule that we cannot bet more than a quarter. So also, this is a lesson in inflation, listeners. And then as soon as they’d leave, he’d be like, “Five bucks or a dollar,” or whatever and, of course, I’d say, “Yes,” and then lose all my money again. So everything old is new again. We’re seeing, I mean, my childhood of baseball cards and everything else that’s getting all the attention and money flows. I think I just need to buy, going in your play money account like you say, like the 2% account, I just need to just buy that Ken Griffey upper deck rookie card, and that’ll just satisfy my whole collectibles gambling urge that seems to be going on right now.

Dr. Crosby: So I have a funny story. I have a seven-year-old son and I would bet on baseball games and stuff with him. And I would bet…I would make stupid bets because I love him and I want him to win, right? So I’d make these stupid bets within my bet on video games and throw the game and stuff so he could win some of my baseball cards. And so he won, he took my Ken Griffey Jr. Rookie, he took a couple of good Bo Jackson rookies, a couple of other things. And I was collecting in the junk wax era, which I’m sure you were too, it’s like this massive overproduction of cards, they never thought they were worth anything. And so for Christmas, I got him a Beckett price guide and we started looking at…I had given him like $5000 worth of cards. And so I was like, “Wait a minute.” So there’s no more betting and I sort of restarted collecting right after Christmas and it’s been super fun, so join us. I’ve spent way too much in the last three months on cards but it’s been a blast.

Meb: Well, listeners, see, if any of you did this, Dr. Crosby as well, my brother, with the comments, you know, the baseball cards that usually weren’t worth anything, we used to play a game where if you would flick them across the room and try to land it into like a bowl or something and if you got it into the bowl, you got all the cards that were on the ground. And I’m sure there’s some at this point that are worth something. My favorite story about, you know, my brother and I, I can’t imagine how many years of allowance was dumped in…I mean, this was like the peak. We grew up during the peak of the baseball card boom. And then, sure enough, my mom, I went to live partially and went to high school in North Carolina so the vinegar barbecue world, you know, she was a Carolina, love Michael Jordan, bought basketball cards when everyone else was falling over baseball cards, and she owns a Jordan rookie to this day and it’s probably, I mean, who knows, I don’t know, six figures.

We got to get that thing graded, put it in a lock box. It’s probably sitting in a drawer somewhere. But just goes to show that she’s by far a better investor than I’ll ever be with that contrarian streak. Dr. Crosby, we could do this all day. Where do people, they want to see what you’re up to, they want to follow along your writing, what’s going on? You got any events coming up that people can tune in to, listen to your podcast? Where do they go?

Dr. Crosby: “Standard Deviations” is the name of my podcast. We’ve had some great guests. We’d love to have you over there. Check out the books. The best ones are “The Laws of Wealth” and “The Behavioral Investor.” And then I’m @DanielCrosby on Twitter and Daniel Crosby, PhD on LinkedIn, and I post all my blog posts and everything there, so catch me there and I’d love to connect.

Meb: Daniel, thanks so much for joining us today.

Dr. Crosby: Yeah, man, my pleasure.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at feedback@themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.