Should You Invest in Dave Portnoy’s BUZZ ETF? | Erik Averill, Brandon Averill, Justin Dyer | AWM Insights #52
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Episode Summary
The most recent jobs report was released last Friday with data looking far more positive than previously predicted, which seems to suggest the economy is recovering. However, as we’ve discussed before, the economy and stock market are not connected. So, while the jobs report pointed to good news, the NASDAQ dropped four out of five trading days last week with big companies like Tesla, Apple and Netflix taking a downturn.
In the midst of market downturns, Dave Portnoy of Barstool Sports announced the launch of BUZZ ETF, which uses AI to track popular stocks, and has encouraged people to buy in.
Is this technology and methodology new? In our world of media personalities like Portnoy telling you how and where to invest your money – who should you trust?
In this week’s episode, Brandon, Justin and Erik break down the financial and investment news from the past week, dissect BUZZ ETF, and discuss how to set up a long-term financial framework that works.
Episode Highlights
(1:55) Why the Dave Portnoy ETF news made Brandon smile
(3:34) Why you should take your source into consideration when it comes to investment advice
(4:14) Is Portnoy doing the same thing he said he was fighting against?
(5:09) Trading on “Momentum”
(8:24) Should likelihood of success factor in investment decisions?
(10:21) Are celebrity endorsed products special?
(12:20) How to reorient in the midst of the marketing/advertising machine information age
(13:39) What research says about how often the stock market “performs”
(14:41) Headline stocks like Tesla, Apple and Netflix take a downturn
(16:22) Why we don’t just sharpshoot specific companies
(18:02) What are the sources of return?
Resources
Stay Connected
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Erik Averill: LinkedIn
Brandon Averill: LinkedIn
Justin Dyer: LinkedIn
+ Read the Transcript
Erik Averill (00:00): Hey, everyone. Welcome back to another episode of AWM Insights. It's your power three two CPWAs and a CFA. We're Erik, Brandon and Justin. And each week we cover what you need to know to cut through the noise of Wall Street and invest like a pro. And one of our favorite sayings around here is, "We are loyal to you, and not to Wall Street." And today we're going to jump into how should you be responding now that we're seeing the markets pull back a little bit, there's some noise going on around seeing Tesla drop, watching the NASDAQ drop four out of five trading days last week, but before we jump into that conversation, there's some news that we want to make sure that we cover.
Erik Averill (00:47): On last Friday, the jobs report came out, and the data was a far more positive to the upside, which is some great news to see that the economy is recovering, but it's an interesting point that we've covered so many times of how the stock market and the economy are not connected. We've seen from the private markets, Hippo announcing that it's going to be going public via SPAC, and then probably the biggest news item last week, the man, the myth, the legend who's never wrong with the crystal ball, Dave Portnoy launches in ETF. The shocking news though, it drops 4% the first day in trading, but still $230 million dollars are diving into follow this man, and then it dropped 7% on Friday. And so with that, we want to jump in. I'd love to hear your guys' conversation of is Barstool Sports, are they finally getting what they deserve when they enter into the stock market?
Brandon Averill (01:55): I don't know if you want me to start, because I might just take this thing all the way to the finish, but I'm not going to lie, [crosstalk 00:02:02] nothing made me happier than to see this ETF come out of the gates negative. And it's because we have so many clients, right? We have clients that are definitely impacted by the influencer that is known as Dave Portnoy. And at the end of the day, we ended up getting a lot of texts about this, "Hey, let's look at this. This could be a quick shot in the arm, everything that Dave touches goes to gold." And to see kind of obviously the reaction out of the gate, I'm not going to lie, it put a little bit of a smile on my face, and it's because let's remember VanEck is an investment company that's the sponsor of this ETF, and VanEck is not soliciting Dave Portnoy for his expertise on the investment side, that we know for a fact.
Brandon Averill (02:51): We can say that's an absolute fact, but what they are going after him for is his influence or ability, right? And the fact that he can do a nice little video on Instagram of him in the spaceship taking off for the sky in this buzz light year ETF, it's freaking fascinating to me, but it also reminded me of a quote that I read from Ben Carlson a while ago. And I had to go find it, and I found it. And basically he made the point, and I think it's such a great point that when all else is equal, a talented sales staff will trump a talented investment staff when attracting capital from investors. Brandon Averill (03:34): And this is all under the title of an unfortunate reality of the investment business. And I think this is just nothing new, right? We've hit on it I think at least a month ago in the podcast, but there was a guy named Joe Granville, the original Dave Portnoy, essentially. So anyways, I won't go on too much more of a rift, I think it's a great revisit to last week's AWM Insights, and that just take your source into consideration here, right? And I know Justin from our earlier conversations, you'll probably peel back even the layers a little bit more, and look at the motivations behind some of this stuff.
Justin Dyer (04:14): Yeah. I mean, I'm glad you touched on our podcast last week, right? Where are you getting your advice? What are their motivations? What are their incentive structures? And the irony I find behind this, the Portnoy deal, is he's out there kind of fighting for the little guy, the retail trader, getting mad at the Robin Hood CEOs, and whatnot. And he's doing exactly what Wall Street does time and time again, right? Well, let's be clear, VanEck is doing that, and he is in bed with VanEck somehow, right? There is a a trend in the marketplace to follow, to talk about stocks that are being discussed on social media platforms. There's a lot of attention being paid to that specific topic. And so this company goes, "Hey, let's create a product that basically does that exact same thing. We will be able to gain assets from that product."
Justin Dyer (05:09): And that's how they make money. And Portnoy is in bed with them doing exactly that thing. And that's not even to say that what they're doing is not even new. I mean, yeah. Okay, maybe they have some interesting AI technology, who knows. I mean, right? They're not going to open up that black box. I would be highly suspect of that. I mean, they launched this thing pretty quick, so be suspect of that. But really what this ETF is designed to do is to trade on something called "Momentum." Momentum has been studied in markets time and time again from academics. It's a well acknowledged factor, if you will, as we call it, that does explain some performance. But here's the problem, if you're chasing momentum, your going to turn over your portfolio so much.
Justin Dyer (06:01): And what, does that do? That impacts your after tax returns. I mean, we talk about it ad nauseum, but that's truly what matters, right? Your after tax returns matter the most, what you can actually use to meet your goals, meet your priorities, give to the next generation, whatever the case may be. It's after tax, it's all on an after-tax basis, and just chasing a fad because Portnoy's pumping it is generally not a great way to make investment decisions. I guess, to summarize it very subtly, right?
Erik Averill (06:36): Yeah. And I think you bring up so many good points, besides it being an after-tax return conversation is investing is individual, it's customized. I think of what's been going on over the last week where we see a pull back, and I had a conversation earlier today, literally jumped on a Zoom business meeting, and he's talking for the individuals like, "Oh man, it's been a rough week in the markets in my Tesla stock. And so I had to go in and trade it." And I felt for this person because they're trying to make good decisions, he's trying to educate himself on what it means to invest, but we are so conditioned by the media to think that we're supposed to respond when the market does something that is very, very normal.
Erik Averill (07:28): And what we say is volatility is the price of admission, right? The the fact of why we get rewarded when we take equity, or we take ownership positions, is that in the short term these prices can go up and down. And returning to something that used to get tons of coverage, Warren Buffet, right? In his annual shareholder letter, they said it's kind of the same story. You know what this guy said? "Be a long-term investor, don't bet against America," Right? "Don't try to be a day to day person." And so I just think for our audience, one of the core tenants that has been and always will be of a longterm investor is you be patient, you don't try to trade the markets, because you have one net worth, you have one after tax return, and it should be customized to helping you achieve your priorities.
Justin Dyer (08:24): Yeah. And just so we make sure this thing ages well, right? We're not saying that we're guaranteeing the BUZZ ETF doesn't do well. Right? It could, it very well could. One was launched very similarly, I think in 2016 or something like that, 2015, and it didn't do well. They shut it down because it kind of fell flat on its face. But this Portnoy thing could take off, right? Performance could be great, who knows? What we're saying is it's not a way to make good investing decisions, right? The likelihood it does succeed is pretty low, or the probability that it's a good decision is relatively low. So that's really what it comes down to.
Justin Dyer (09:03): We are making sure when we make investment decisions, the likelihood of success is stacked in your favor, right? So you can meet your goals, so you can protect the money you've worked so hard to earn over time. It's not just throw it away towards some trend following ETF that has no real long-term track record and is being marketed by some guy who albeit is a fantastic marketing machine, right? And that's really at the end of the day what it boils down to.
Brandon Averill (09:34): Well, and I think that's a great point, Justin, because, Portnoy's even quoted, he was quoted in the wall street journal, "We are a comedy site with no agenda, and in an increasingly humorless world we tend to piss people off. It is what it is. People who know us know our intent is always to make people laugh." There it is, folks. This is nothing more than a publicity stunt to generate his influence to make money. And you know what? I'm not going to blame that guy. The guy is a genius, quite frankly. If I had the spunk and the pizazz, maybe I'd do the same thing, I just don't, unfortunately. But we even take this out of the investing context, and a lot of people that are listening to this are influencers, right? They're athletes, or entertainers, or whatever it might be.
Brandon Averill (10:21): And it's no different than when you guys or gals go out and use your influence to sell a product or sell something. Now, hopefully you're selling something that you believe in, I would hope. Right? But we see this time and time again, the Rock he sells a tequila company. Is that a special tequila? Probably not. Is it any better than any other tequila? Probably not, but somebody's going to buy it because the Rock is involved, or Jay Z is selling off his champagne brand to Dom Perignon. Is it a better champagne? Maybe, maybe not. Or Seth Rogan finally realizing his dream and starting a weed company. These things are going to sell, and it's it's okay, right? It's just that we want our investors to know what they're getting into, and make sure that they're orienting themselves towards a successful outcome.
Brandon Averill (11:18): And don't get snake bitten by the power of marketing, because it's powerful, we all fall victim to it. I know I certainly fall victim to it. So it's really kind of going back, figuring out who you trust, make sure you understand your priorities, and don't get caught up in this whole FOMO bit, right? If you want to chase this, and there's a lot of this, there's other articles written about even the private side. We talk about quite a bit, and I know we will in the future, it's the angel investing lure, right? There was a quote, something like "It's not a more popular to drive a Lamborghini in San Francisco. What's popular is that were you in the series A round of Airbnb?" There's some social proof that comes from that. So I think just having that lens around everything is just try to boil it all back down to the motivations, and hopefully that helps you to have a successful investing experience.
Erik Averill (12:20): Yeah. And to your point of understanding motivations, it's also just realizing that we live in an information age in a marketing advertising machine that has to constantly produce news. And so it's really important that to take a step back, reorient yourself to what is it that you and your family are trying to achieve, and how have you laid out your investment plan? Right? We have what's called "investment policy statements" that help us have roadmaps that we have made decisions when we're rational, we're non-emotional, and we're using evidence based information to make the best decisions for our families. And so as we start to see markets go up and down, and we are going to experience very normal working markets, don't allow the media, don't allow social media to get you scared because there are temporary declines in the market. And so just to reorient our listeners, because we've had such a good run up of what is normal when it comes to investing in the public stock market, is so many people are going to quote the average stock market return around 10%.
Erik Averill (13:39): But there's this fascinating study put out by Dimensional Fund Advisors, DFA, and Dimensional laid out that while the stock market return, yes, has historically averaged 10%, the market has only performed within 2% of that actual number six out of 95 years. So only in six years did it even come within eight and 12% range. And so that means that 89 of the 95 years, you're not going to see those returns. And so we've seen returns as high as 54%, and we've also seen returns as low as negative 43%. And so none of this is new, this is the price of admission, and that if you're a long-term investor, and you have the right plan in place, you have your protective reserve, you're thinking through the proper financial structure, you need to play the long game, stay invested, turn off the news, turn off your social.
Justin Dyer (14:41): Yeah, for sure. Excuse me. Right. And what we're seeing as well, I would just go a level deeper too, right? We're seeing somewhat of a rotation, right? The headline stocks, those stocks that the news outlets are covering, Teslas, Apples, Netflix, and whatnot, right? Those are the companies that are really, really, really taking a turn for the worst. And I mean, it makes sense, they were such high flyers, there were so much good news and high expectations built into them from the market, from the market participants over the last year.
Justin Dyer (15:17): And as the economy starts to recover, to get better, Erik highlighted the employment numbers that just came out recently, really showing some strength. Now, albeit they're noisy numbers, so it could have another month of weakness down the road, but in general, the expectation is the economy's opening, and these companies that did so well and benefited from the pandemic, and their stock price benefited from the pandemic as a result, the participants are now looking at them through a different lens. They're repricing risk. There's a rotation into other parts of the market that maybe didn't perform as well last year. And so it's important to think about that as well. This isn't the market as a whole that has been suffering over the last few days. It's been a large part of the market, for sure, but it's kind of a subset that the media highlights that the darlings, if you will, that are really, really underperforming as of late.
Brandon Averill (16:22): And I think it's a really good point, Justin, just around concentration risk, right? That's why we don't believe in just sharpshooting specific companies, because it's just nobody has the crystal ball to understand what segment, which specific stocks are going to perform well all of the time. Right? And so I think even just kind of wrapping a bow on it before closing this out, going back to the BUZZ ETF, right? Even if you were so excited about this, you believed that you wanted to own these companies, with the proper strategy, guess what?You do own them. Our clients own every company that's in that BUZZ strategy, right? It's just that we're not enhancing the risk by narrowing it down so far to say, "Hey, this subset of companies is going to outperform," because there is no data, there is no evidence that that's going to actually be a successful outcome for our clients.
Justin Dyer (17:16): Well, and then I mean, I would just add, I know Erik, you got to wrap us up here, but we talk about the private markets a lot, and from a public market standpoint you do own pretty much everything, but from a private market standpoint, if we can get access to the right investments, right? There's a compelling argument to be made there, and hopefully you do own them. If you're participating in the private markets, if a lot of criteria is met, I mean, we're very thoughtful in that sense. But if that criteria is met, and access is available, then hopefully you're pre IPO in a company, which is where a lot of the wealth is created, if you will, or the returns are created. So keep that in mind.
Erik Averill (18:02): Yeah. And those are great points. I think of one of the fun things of doing these podcasts week in and week out is when we're referencing something the sources of returns is, Justin, you lay out that in the private markets, this is where you're rewarded, right? And so in previous podcasts, we'll link to it in the show notes that you can get over at awminsights.com, but we did a whole show on what are the sources of returns? But a lot of what I hear, Brandon, you talking about, Justin, I hear you talking about of risk and return are so correlated. So we aren't going to put more risk, more leverage into your situation because as certified private wealth advisors and CFA's, you know what we're concerned about.
Erik Averill (18:48): is making sure that you accomplish your priorities that are important to you. So one of the worst things we can do, one of the worst pieces of advice, and what we would show would be in the medical world is malpractice, is trying to convince you that you should introduce more leverage and more risk to your situation that can now actually put at risk the things that are most important to you. And so it's something we'll do in the future. The other thing that starts to happen when the stock market starts to experience some of the normal volatility that it's supposed to, it starts to be out of favor, and we start to hear a lot more about real estate, right?
Erik Averill (19:24): And it's, "Now I want to do this. I want to buy something. I want to renovate it, and now I want to refinance it." And just helping people understand when you're putting leverage in, your putting debt, just because you can't see the price of this house changing, or this apartment complex changing on a computer every day, there is tons of risk in any asset class. And when you add leverage to it, we just want to make sure that you're not risking the things that are most important to you. And so we'll cover in a future episode that there's a lot of confusion that sometimes we mistake where we invest the place, the public, or the private markets with what we're investing in the actual asset class. And so we will jump into that in the future. We appreciate your guys' attention. And as always, we're here to make sure that you can cut through the noise of Wall Street to accomplish the things that are most important to you. And so until next time, stay humble, stay hungry, and always be a pro.