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Joshua Brown Interview: Three Tidbits of Investing Apropos for All Investors

Joshua Brown - Seeking Alpha Profile

Joshua Brown, an  author of a financial blog The Reformed Broker, must have an enlarged right side of the brain.  From the popular Financial Periodic Table to his unique financial blogger high school fueled by his creative engine,  I've quickly grown into his writing style and contents.

Recently, I had the opportunity to ask him a few questions that were on my mind personally.  He is a great writer and has given us great insights on how to become a better investor. 

"You have certainly been building your track record in the financial industry for quite some time.  What has been your journey like?  What's your background?"

I've known that I wanted to work on Wall Street since I was 16.  For whatever reason, the town I grew up in bred a ton of brokers, traders etc. and these were the guys I wanted to be like when I finished school.  In the beginning, I took menial jobs at brokerage firms and investment banks during the summers between college just to get involved.  I've never done anything else.

"Can you tell us a bit about your experience as a broker during this financial crisis? I'm sure it wasn't quite like the prior years.  What's it like being a broker during this insane market?"

Let me see if I can give you a metaphor for being a broker during the financial crisis of 2008/2009...Imagine if your job was to walk into the office each day and get bashed over the head with a pillow case stuffed with soda cans and D batteries.  Like every hour of every day for almost two years.  Picture that and you get just a taste of what it's been like to talk investors off the ledge on an hourly basis.

It's not fun to witness the collapse of hardworking people's careers, portfolios and even lives in some cases.  That said, this is the type of environment that separates the real from the pretender.  Your best relationships with clients are not forged in bull markets, they are solidified in times like these if you are on the phone with them discussing strategy rather than throwing your hands up or hiding.  Keeping a steady hand on the wheel over the last 2 years so that people are positioned for the recovery has been the most important thing I've ever done in my career.

"For your personal accounts, what type of investments do you make lately? What's your investment style, and has this new market changed your trading style at all?

I try not to do much trading in my own accounts because every idea I recommend for clients, I would also buy for myself.  The inherent problem with that is the conflicts that could come with my price on a sale being better than a customer's.  Clearly, you can't have that even be a possibility.  As a result, most of my own money is managed by someone else or is in index products.  My trading/ investment style and philosophy have been severely impacted by this period, and like all professional investors, I hope improved.  Anyone who invests for a living and says his style is unchanged by what's gone on this decade is a liar or a fool.  Core principles are good, but evolution is better.

"For those thinking about getting into the world of investing, what would you recommend them study?  Is it Economics?  Statistics? Finance? Something else? Or Does it even matter?"

If you had asked me this question even five years ago, I would've reeled off a list of stock selection and trading tomes like Peter Lynch's books or "Reminiscences of a Stock Operator", the story of Jesse Livermore.  I still love the classic stock market books but I would say that having a background in Macroeconomics or at least a good understanding of the big picture is more important than ever.

An analyst who specializes in, say, semiconductor companies or railroad stocks cannot make you money if he doesn't also have a feel for the macro trends, which essentially dictate everything when asset classes and sectors are as correlated as they've been of late.  When I call in to my office to see what's going on, I don't ask for stock quotes, I just ask for what the Dollar is doing vs the Euro.  The answer to that will tell me exactly what my entire portfolio is doing, give or take.  Stock picking is still secondary to global trends and being on the right side of them.  I don't see that changing anytime soon, so understanding how the puzzle looks from 35,000 feet and being able to read the tape is way more beneficial than excelling at discounted cash fow analysis, for example.

"You have quite an extensive list of Blogroll.  I suspect you don't visit all of them everyday.  What are some of the main blogs you visit or people you follow?"

I actually rarely use the blogroll to check in with my fave sites.  I must confess that I'm a Google Reader fanatic and I can get up to date on everyone's stuff really efficiently with it, plus keep up with non-finance related subjects of interest to me.  Many of the feeds that are tracked by my reader are history, art and science-related.

The blog that inspired me the most to put my own voice out there was Barry Ritholtz's The Big Picture.  He's the best in the game from every angle and stands in a class of his own.  You will learn more about economics in a month of reading his blog than in a semester of econ at most schools, at least as far as practical knowledge goes.  Recently, I've been obsessing over The Pragmatic Capitalist and Market Folly as well.  When I want culture with my finance, I go to Infectious Greed (Paul Kedrosky) or The Epicurean Dealmaker.  When I want to chuckle, I read Dealbreaker and LOLFed.  And when I want to have my mind blown, I turn to Money is the Way (Michael Fowkes).  If you do not have the time or inclination to search all this great stuff out, then make your life easier:  Subscribe to Abnormal Returns' excellent email newsletter and you will get many of the most important links delivered to you daily.

"So you already know I loved your 'Who's Who?' section.  I think it's very unique and I loved the creativity.  Now how did you go about building such an extensive list of influential bloggers out there?"

The list started out as a way for me to categorize the hundreds of great sites out there and then to expose my readers to them in a humorous way.  I plan to update it each year and it will be interesting to see how many finance blogs are no longer with us and how many new ones will have sprung up.  Almost everyone on that list has interested me or inspired me in one way or another.  I'm an unabashed fanboy.  If there were a finance blogger convention, I would be in costume.  LOL.

"Lastly, do you have any advice to the current investors out there?"

Well, I don't give investment advice on the internet as I am an advisor to high net worth investors based on their individual needs, risk tolerance, objectives and goals.  You can't take individualized, tailored information like that and dispense it to the world as though it is appropriate for everyone.  That said, I will offer these tidbits that I think are important and apropos for all investors right now:

1.  Understand the Great Debate of Our Time:  Nothing on earth matters more for investors than the Great Debate of Our Time, namely, whether or not we're in for Deflation or Inflation over the next few years.  There are many terrific voices on either side of this debate, and I myself have not firmly taken a side yet.  That said, getting this one question right will be more important for your results and performance in the intermediate term than any other single thing you decide.  You absolutely must pay attention to the deflation/ inflation issue and understand it, especially as a pro, because being on the wrong side will mean career suicide.

2.  Keep your enemies close:  By this I mean to always keep informed of what the other side thinks of a trade or investment.  No matter how bullish you may be on a sector or theme, you mustn't tune out the bears just because they disagree.  Understanding both sides of the trade will keep you rigorous, and will instill a healthy amount of doubt so that you are not blinded to obvious clues that you could be wrong.

3.  Vary your information sources:  It is not enough to read the C Section of the WSJ followed by an hour of CNBC's Squawk Box to keep yourself up to speed.  If you do this, you will only be hearing a very small fraction of what matters.  Blogs are more timely and important than the mainstream media because they distill the best of the mainstream media and then elaborate on it or dissect it, giving you an even more useful look at the subject matter at hand.  Also, the blogging world features many great sources for technical and quantitative analysis rather than the fundamental analysis that dominates the mainstream (because it is story-driven).  The more perspective from different analytical disciplines you can absorb, the better.

Thank you Josh for the in-depth insight on investing.  I hope you can take away something valuable from his interview and take your next step to financial success.

Disclosure: No Positions