Shut Up & Keep Talking with CNBC’s Bob Pisani

This transcript may contain grammatical errors.

Welcome to Wealthy Behavior, talking money and wealth with Heritage Financial, the podcast that digs into the topics, strategies and behaviors that help busy and successful people build and protect their personal wealth. I’m your host, Sammy Azzouz, the president and CEO of Heritage Financial, a Boston based wealth management firm working with high net worth families across the country for longer than 25 years. Now let’s talk about the wealthy behaviors that are key to a rich life.

On this episode of the podcast, we have a very special guest, Bob Pisani, senior market correspondent for CNBC, a very familiar face to investors worldwide. Bob’s been a CNBC reporter since 1990. He’s covered Wall Street and the stock market for 26 years. He now covers the global stock market, IPOs, ETFs and financial market structure. He’s also the author of an excellent book, Shut Up and Keep Talking: Lessons on Life and Investing from the Floor of the New York Stock Exchange. I’m really looking forward to our conversation. Welcome to Wealthy Behavior, Bob.

Thank you, Sammy, and happy to join you. Eager to talk about the book and the markets. Anything you want to talk about.

Awesome. Great. So one thing that I loved about your book is that it’s basically three books in one. One part is the history of the modern market and financial journalism. Another is your career arc professionally and as an investor through your investing journey. And then the third is a lot of investment and life lessons that you learned along the way that you wanted to share with people. Is that a fair summary of the book? And if so, why did you decide to take that path?

Yeah, it’s a tricky business because I did something unusual. I elected to stay put in my job. And I talk about this in the book. One of the things that everyone has to face is some point in the middle of their career, whether or not they want to do something else. And a lot of people do. I came into CNBC in 1990, 33 years ago, and CNBC was a startup. I literally joined in the first year. And it was tough in the beginning because we were still getting our footing and we really sort of took off in 1995 with the Netscape IPO. We didn’t know this, but the Internet was being born around us. And that’s sort of what made us famous, investing and the dot com whole era. And I started out as a real estate reporter in 1990, became the stocks correspondent in `97 in the middle of the whole Internet thing. And what happened was in 2000, after dot com and after 9 -11, a lot of people left. A lot of people went to other places. Financial correspondents were still in high demand. And we had them. And I decided to stay put. And as a result of that, twenty three years, twenty five years covering the stock market, what happens is you become inch wide, mile deep. You become very, very well known for a little part of the world, in my case, called the stock market.

And I’m now almost 70 years old. It’s been a long, long career. And you feel the need when you get to be somebody my age to sort of summarize, what do you think you know about the world specifically? What do you think you know about investing? What do you think works and doesn’t work? And a little bit about does any of this mean anything in the real world? And are there any applications for this to life lessons? So there’s a piece at the end, my favorite part of the book, Maxim’s. 58 Maxims on life and investing, where I sort of summarize in one sentence pithy aspects of what being on TV is like, what it means and sort of how to relate to the rest of the world. So I think you did a very fair characterization. It’s tricky doing a quasi history, particularly history you’re involved in, along with a quasi memoir. But the publisher was eager to do it and they said, look, as long as you throw in a lot of celebrity stories about celebrities ringing the bell, we’re fine. So I threw it a whole bunch of these, you know, what celebrities told me, ringing the bell stories.

It’s a really excellent book. And I think people will learn a lot. And I love the maxims at the end. And we’ll get to the serious stuff. But one of the ones jumped out at me and I needed to know more, avoid interviewing anyone wearing sunglasses.

Yeah, this is the maxims in the back. I’m Italian. And I when I look at somebody, I look into their eyes, obviously. But it’s amazing what eyes convey there. Some people stare right at you, and engage you, other people kind of look off, other people stare down. And they don’t necessarily do this because they’re avoiding you, they’re doing it, a lot of people have to think very carefully about what they’re saying, either because words don’t come naturally to them when they’re talking, or they want to be careful, or they’re not sure how to answer the question. There’s all sorts of reasons people stare away from you and try to formulate an answer. But I get very nervous when I can’t see their eyes, because I sort of use it as a way of figuring out what not just body language, but you know, how they’re answering, whether they’re mad at me, they’re sincere, all those kind of nonverbal cues.
And so a thing that kind of annoys me is when people show up with sunglasses. Now, I have glasses that get darker if you’re outside, you know, they just change. And so sometimes this happens naturally, but I tend to want to be able to see people’s eyes. So that was the purpose of that maxim.

Definitely. Fair enough. So you chronicle your search really over the years, through the investing universe to find the best investment trading secrets, you know, the quest for the secret sauce. And you had the opportunity to interact with so many amazing people along the way. And eventually you lead the reader to a set of takeaways that you got from five major influences. And you know, can you take our listeners through that journey because I’m sure they they’re trying to go down the same path.

Well, the question is what works and doesn’t work long term. And part of the problem is financial literacy is not very high. And when you write a book like this, you actually have to go back, it’s very interesting to think, well, what do I believe? What do I think I know, and I actually ended up, with like five pages of notes, like, this is what I think I know.
For example, market timing doesn’t work, generally avoid trading too much. So then you look at it and say, okay, so this is what I think I believe. Why do I believe this? And when did I come to believe this? And who taught this to me, I wasn’t born with this, right? These five pages of things I think I know. And you actually have a very interesting process you have to go through where you have to think, well, where did I come up with all these ideas? And then you go through a worse process, which is are they all still true?

So it turns out, what really happened with me was in the 1990s, I met a group of people, some of them were academics that had a profound influence on me, Jack Vogel, the founder of Vanguard, Burton Malkiel, Princeton professor wrote one of the most famous finance books of all time, A Random Walk Down Wall Street, Charlie Ellis, another academic who wrote a very famous book on long term investing called Winning the Losers Game, Robert Shiller, who won the Nobel economics prize for contributions to behavioral economics. He wrote a very famous book in 2000 called Irrational Exuberance, looking at why people do stupid things in investing, irrational things. And finally, Jeremy Siegel, who’s still a friend of mine with the University of Pennsylvania, wrote Stocks for the Long Run in the early 1990s, where he looked at the whole history of stock market investing, going back into the 1800s and bond investing, and came up with some very important research data indicating, you know, long term stocks tend to outperform bonds, the stock market goes up about 10 % a year. So these people and the books they wrote, actually was the basis for what I believe, although if you would have told me that six years ago, I wouldn’t have said it exactly that way. But when you have to write a book that’s 400 pages, you kind of get to the basics.

So there’s four or five things here that was common to all of these people. Number one is the components to investing are return risk, cost and time. Return is how much do you think you’re going to make? The risk is how much do you risk? Do you want to own bonds that are less risky than stocks? How much is it costing you to do this? Are you paying 1 % for your mutual fund, 10 basis points, that makes a huge difference over time. And then there’s the time. How long are you investing for? And this is when you say, oh my gosh, I can’t stand the volatility in the stock market. And I say, listen, you’re 30 years old, you’re going to live another 60 or 70 years. What happened last year, the S &P was down 20% isn’t going to matter to you even in the next few years. So those four components. So that’s one thing.

The second is just understanding compounding interest, which is the greatest thing that’s ever been invented. Very small differences in returns make huge differences when compounded over many decades. So the difference between getting a 2% return and a 5% return doesn’t sound like much when you have a thousand dollars invested and it’s one year. So you have $1 ,020 or $1,050, but when compounded over 30, 40, 50 years, those differences are enormous. And you can show that very simply when you show the law of large numbers, when you get into a hundred thousand, million dollar levels, which is where people get eventually. So that’s number two, the power of compounding invested.
Number three is timing the markets. The academic evidence is overwhelming. You cannot successfully time the markets. To time the market, you have to be right going into an investment and you have to go be right going out. And the chances that you’ll be wrong on one of those is very, very high. And you can show this by simply showing people what happens over any time span, 10 years, pick one. And if you’re not in on the five best days of those 10 years, it’s remarkable how different your returns are. And by the way, if you’re in on the five worst days, they’re also a lot worse. So you can show that very easy. So don’t try to time the markets.

Number four, other than long -term and how long you want to stay in, keep costs low. This was Bogle’s key insight in founding Vanguard. Own index funds. Generally, most people are best off owning index funds, or at least low-cost actively managed funds because Bogle was able to show 50 years ago that even the few investors who were active managers who outperformed the market tend to underperform because the fees that they charge destroys any alpha. So keep costs low.

And finally if you really look at risk adjusted returns, investment styles tend to produce pretty consistent average returns in the long run. So I would say stick with those points here, understanding what the components are to investing, understanding compounding interest and don’t try to time the market and keep costs low by generally owning index funds.

Yeah. Awesome stuff. And thank you for taking us through that. I mean, you shared a story in your book that I had never heard before, I think related to market timing really and the perils of attempting it. It was an outfit that had hacked their way into getting access to information early and they still weren’t able to outperform or perform to the extent you would think they should, even with that informational advantage.

Yes. So this was a group that hacked into the SEC database. So the SEC has a database where companies report their earnings and this is where they officially report, not the press releases that you typically see and it becomes the official record. Well, the companies can put the data in a day or two before just to make sure that it’s there so that it’s released exactly on time. So what happened was this band of thieves managed to hack the SEC database, to the great embarrassment of the SEC. And for a while, they actually had access to the advanced reports. You would think this is the greatest gold mine of all time. If two days before Apple reports, I have Apple’s press release in my hands, my God, if you don’t think you can make money on that? It’s like seeing the future. And they did a study of these guys and they actually had these guys investment record after they had hacked into the system. So they took the biggest bets that they had made and they looked at it and the guys didn’t outperform to any noticeable set. How is this possible? They had the keys to the kingdom. And it turns out that the market has very different reactions to earnings than you think. And what the problem was they saw, Oh, Apple’s going to make this thing. Therefore we believe that the stock will move the following amount. And that’s where they got wrong. They had the information, right? But they had the market reaction completely wrong. They didn’t, they didn’t get it right. So you see what I’m saying? If you think this is a gold mine, it’s hard to get the market reaction, right? So there’s a good example.

Yeah. It’s an amazing story. And I had not heard that before. The great financial crisis, I think turned you into a behavioral finance proponent not putting words in your mouth, but I feel like I got that out of the book, presumably because you saw a lot of investment mistakes being made during a very stressful time in the markets. And you saw them firsthand. Do you feel like how one reacts to market moves is one of the most important financial decisions they’ll make or series of financial decisions they’ll make?

Yes. My favorite part of the book and the thing I have been obsessed with for 20 years is why is everybody so wrong about the future? I mean, think about this. There is an entire industry on Wall Street, entire industry everywhere to predict the future, including weather forecasting. And yet the success record is terrible. And let’s just stay with finance. Amateur stock pickers are terrible at picking stocks, but professional stock pickers are terrible at picking stocks. Wall street analysts and strategists are not good predictors of macro trends or individual stock trends. The Federal Reserve, you think the finest economists in the world, and they do have the finest. You think they’d be able to predict the U S economy one year in advance. They have a terrible track record. They were so far off on inflation in the last two years, it was comical how bad their forecast was. How is this possible? Is everybody startlingly stupid? It turns out it’s sort of the other way around. Everybody is extremely intelligent, well -meaning, but there’s things that prevent people from getting forecasts, right? There’s two big things. And there’s a couple of chapters in the book about this. And it was my primary obsession.

The first is predictions are riddled with biases that infect people’s opinions and freeze their ability to make predictions. So for example, people have overconfidence in their ability to make predictions. People have heard instincts. They tend to follow each other in groups. People have recency bias. They think that what happened in the last six months is typical and they don’t go back and look far enough into the past. So number one, biases, and the cumulative effect of these biases throws the predictions off.

And number two is the future is fundamentally unknowable or difficult because there are so many variables. So let’s just pick somebody simple. You’re a Caterpillar analyst. Your job is to predict where Caterpillar’s price is going to be one year from now. You think, how hard can that be? So you look at Caterpillars earnings growth, dividend growth, and some macro predictions. You’d think that’s an easy task. It turns out it’s almost impossible because there’s actually millions of variables that can go into this. So think about this. There’s a macro variable where the global economy, the US economy or machinery economy, there is interest rates that go into how much people can borrow to get these machines that Caterpillar makes. Then there’s management. You could have a management change. The CEO could fall ill. You could have a buyout. They could make fundamental mistakes by misallocating capital. Literally I could do thousands of different variables that go into making up Caterpillar stock. That is part of the whole efficient market idea. And yet you can’t predict it. You literally cannot predict it. Forget about things like COVID or the Russian invasion. Where was that on anybody’s radar to affect Caterpillar? Yet it did. And nobody predicted it because it was one of those events. Maybe COVID wasn’t a black swan. People have been warning about pandemics, but it was certainly not predictable on anybody’s level.

So you put this bias that everybody has different ones together with the unknowability of the future. It turns out it’s really hard to predict the future. And when you realize that you get a lot more humble about sitting around, paying a lot of attention to everybody’s opinions. This does not mean that we should stand up. Like I go on TV and say, ladies and gentlemen, everybody’s a bunch of idiots. Nobody knows nothing. Back to you, Sue. You can’t do that. We’re all people who are trying to figure out, earnestly figure out the future. So it’s not that forecasting is useless. It’s just, you have to understand how hard it is. And I’ve gotten a lot more humble in the last 20 years about all these predictions. By the way, there are ways to do a little bit better on it. There are people who are trying to improve forecasting in general. I would look up a website, look up a good judgment project run by a University of Pennsylvania professor who I’ve been following. And they’ve been trying to figure out how to reduce biases, for example, in forecasting.

Yeah, no, I’m still cracking up from the back to you, Sue line on nobody knows anything. So, getting to the forecasters and the group that can’t do it. How do you feel like the Fed responds to things that they didn’t predict? I feel like they’re stronger in their correction mode and maybe weaker in their diagnostic mode.

They’re getting better at admitting that they’re terrible. I mean, Jay Powell has said that they get forecasts wrong. So, and I laud the man because if under Ben and certainly under Alan Greenspan, it’s a completely different organization. We used to sit there in the late nineties, listening to Alan Greenspan was like, listening to somebody speak ancient Greek. You had to interpret it. And then there was differences in the interpretation and he knew this and he did it deliberately because he didn’t want to be too pinned down. Jay Powell is much more plain spoken than even Ben Bernanke and certainly more than Alan Greenspan. So, the Fed’s gotten better. I like the fact that they do press releases, even though the slightest slip can move the markets. It is a little crazy how much we pay attention to literally commas in the way he talks, but it’s a lot better than it was 20 years ago. I think the Fed’s a lot more humble and I just hope that it remains completely independent because it needs to be. The Federal Reserve was founded specifically to manage bank crisis and to provide liquidity to banks in crises. That’s why it was founded. You don’t want anybody coming in and trying to micromanage them. So, I’m generally a big supporter of the Fed, even though everybody knows their forecasts aren’t very good.

So, in the book, you touch on a couple of times, this notion that everyone talks their book, be cognizant of the motives of the people you’re talking to. Could you elaborate on that and perhaps help individual investors understand that warning and also what’s the best way to interact with your network and are there segments and guests that they should be paying more or less attention to as they’re trying to navigate this investment universe?

Well, I say everybody talks their book because it’s so obvious. It’s like the air, breathing the air. Ernest Hemingway, who had a big influence on me growing up, I know this is old school, but he used to say that every reporter needs to have a built-in foolproof crap detector and there’s a lot of crap in the world. There’s a lot of people trying to sell you things and this is true on Wall Street. We get strategists and analysts, what are they trying to sell you? Well, XYZ strategist at Morgan Stanley says the stock market is going to be weaker three months from now. He’s trying to sell you a story that makes him look good and he’s got a point of view. Some people literally got money invested in stocks and are trying to convince you to go that way like hedge fund people who come on talking their book. They already have a position. They think bonds are going to go down, yields are going to go up and they’re going to come on TV trying to tell you why you think you should think bonds are going down and yields are going up, duh. We know this. We know they’re talking their book, so there’s nothing here that we’re trying to figure out. Gee, what are they trying to do with us? We know these guys’ positions, so when you know that, you can’t, you sort of drop the idea, oh somebody’s trying to con us here. There’s nobody conning us. You just have to be aware of what’s going on. Everybody’s trying to convince you of their position somehow, but that doesn’t mean that nobody has any value. I think there’s tremendous value. There are people I disagree with, people I think have been wrong for a long time. I know they’ve been wrong. There are people who’ve been right, and so what I do is I tend to put all of this through the filter of my own experience. This is what I mean when I say one of the few things about staying in one spot for a long time is you get very good at it.

I’m a Jack Bogle disciple, and I have a whole chapter in the book describing what I own. I am one of the very few people that have ever actually said, here’s what I did. Here’s the stupid mistakes I made in the last 30 years of investing, and here’s what I own right now, and I tell people. I literally tell the stocks, not the stocks, I own mutual funds and ETFs, and why I own them, and it should be no surprise to you that my biggest single holding is the S&P. I don’t think anyone would argue with me on that idea.

Don’t put too much into the idea that everybody’s trying to sell everything to you. I would be more concerned with understanding your own state of mind, your own behavioral economics, and that is how old are you? How long do you think you’re going to live? You’re going to live longer than you think. Trust me, you are. Let me be concrete with you. I’m almost 70 years old. For years, I used to think I was going to die at 85, and having hung out now with actuaries and seen medical advancements in the last 10 years, they’ve all been telling me I’m wrong, that I should work to 90 to 95, and I now think they’re right. I think the chances of me living to 90 are extremely high now, and so I change, and you’re going to live longer than you think too, and this is particularly true of people in their 30s, 40s, and 50s who freaked out last year when the market was down 20%. Understand how long you’re going to live. Understand your risk tolerance. If you’re 70% in stocks in your retirement fund and you’re down 20% last year, don’t freak out, or if you are literally not sleeping at night, maybe you ought to bring it down to 50%, but understand long-term how the market acts.

Before we go, I just want to get a couple of minutes on how the market behaves long -term, but the third thing is when you’re in index funds long -term, it takes a lot of decision making away from you, and that’s what’s beautiful about it. The market tends to go up over time. Three out of four years, the S &P 500 in the last 100 years has been up three out of four years, 60 % of the time the S &P goes up 10% or more a year. Now think about that. Now that didn’t happen last year, right? The S &P had a 20% decline last year. Do you know how rare that is? That’s like 12%, 10 % of the time that ever happens. Most of the time the S&P goes up three out of four times. It’s down zero to 10% about 15% of the time and 10% or more about 12% so the market tends to rise over time and declines don’t last long. Last year was down 20%. There’s only been I think eight or nine times since the 1920s where we’ve been down 20 to 30% and two-thirds of the time you were whole within a year. You went back to where you were. There’s only a few times it was down more. There’s I think five times it was down 30 to 50% and two times it was down 50 to 84% and again all of them eventually came back. The 1930—31 or 32 was a disaster and 2000 was a pretty rough time too but those are real anomalies. By and large the market tends to go up.

So the problem with investing the way I’m describing is it’s boring and people tend to want to make bets particularly now. So you got a phone and you’re sitting here on your phone and the problem today is you have a phone on one hand you’re in a bar with your girlfriend, your boyfriend, your wife, your husband. You got FanDuel on one phone and you got Schwab on the other phone and you’re betting on the Eagles game or the Giants game on your one phone and you’re betting on Apple on the other one and a lot of people don’t think there’s a difference. It’s the same thing. You’re just making a bet right? But it’s not. The stock market is not a casino. The stock market is the opposite of a casino. Whoever says that knows nothing about the stock market. In a casino if you keep betting, you are statistically designed to lose. That’s why it’s a casino. The house has the advantage. In the stock market if you keep investing you are statistically designed to win. It’s the opposite of a stock market. This is why I try to keep pounding this away on people who say oh I’m going to time it. I’m going to decide this week. I’m going to sell my stocks and then next week I’m going to go back in and you think you know when those best days are going to come? I assure you, you don’t know. So stick with the long term.

Now Bogle knew this. Bogle said people get bored. So what do you do with this? Here’s what you do. You take 10% of your money and you go ahead and you bet it any way you want. You think you’re a genius? You think you’re a great stock market investor? Go ahead take your 10% but keep 90% away in an index fund and you take the 10%. You bet on Apple, Microsoft, whatever the hell you want to bet, but if you’re honest about how you’re evaluating your gains you’ll find over time you are not going to beat. That 10% is not going to outperform the money you have in index funds if you do it over long periods of time. So there’s my advice to everybody. Take the 10%. You think you’re a genius? Go ahead. Invest where you want.

Absolutely well said. Thank you so much Bob. I know you have places to be and things to do so I would highly recommend our listeners check out, Shut up and Keep Talking and I do appreciate your generosity today and all that you do for individual investors.

Sammy, thank you very much for having me. A pleasure.

Thank you very much, Bob.