You Weren’t Supposed To See That: Secrets Every Investor Should Know

You Weren’t Supposed To See That

Joshua M. Brown

Contents

Introduction

Just Own the Damn Robots

You Weren’t Supposed to See That

My Wolf of Wall Street Review

Scarcity and Abundance

When Everything That Counts Can’t Be Counted

Eight Lessons from Our First Year

The Relentless Bid, Explained

The Apotheosis of David Tepper

I’m Here, to Remind You

I’d Like to Solve the Puzzle, Pat

My Little Trick for Coping with a Correction

The New Fear and Greed

I Did Everything I Was Supposed to Do

Simple vs. Complex

Nine Surprising Things Jesse Livermore Said

American Gods

Everyone Is a Closet Technician

I Got a Story to Tell

Optimism as a Default Setting

The Stuff They Don’t Teach You in Books

The Rules

The Butcher of Park Avenue

Acknowledgments

Publishing Details

Introduction

You will finish reading this book, put it down in front of 
you, sit for a moment and then say to yours elf, " Wow ."

At least that’s how I picture it.

There’s a lot in here you’ve never heard before. There are some things you may have heard before but you’ve never seen confirmed. There’s some behind the scenes stuff in this book you’ve probably never even considered. So the wow is not going to come as a result of my writing ability. It’ll come because I’m going to share some details with you that no one else has a vested interest in sharing.

To be honest, I don’t even have a vested interest in saying these things myself.

In fact, I’m probably working against my own interests sometimes as a daily chronicler of the investing world. I never really know what bridges I’m burning when I press publish on a thing. I’d like to say that I do it anyway because I’m on some sort of quest to reveal the truth and save the world, but it’s a bit more prosaic than that. The reality is I just talk too much. And when I see a thing, I can’t pretend I didn’t. And if it’s a thing that’s notable, I have to say so.

I’m both a player on the field and a commentator in the press box, acting and narrating simultaneously. It’s a strange vantage point but there are no lines anymore. Everyone’s doing content these days. The hedge fund guys are tweeting. The CEOs are writing on LinkedIn. The venture capitalists have YouTube shows. There’s no fourth wall. We don’t wait until after we’ve accomplished a thing to write a book about it. Now we write the book as we do the thing. The exposition of the effort becomes part of the creation itself.

This mirrors what’s happening in professional sports, with Derek Jeter having created The Players’ Tribune and several 
active NBA stars producing podcasts while they’re still playing in the league. Musicians comment on the state of the music industry as a means of cultivating a fan base who will help them chart high, sell out concert venues, and defeat their perceived enemies and rival musicians on social media.

These days, we’re all both the performer on stage and the narrator who explains the performance as it happens. The Gen Z kids do a thing where they post an embarrassing photo of themselves and then caption it, Not me showing up to my class wearing two different shoes LMAO! or Not me losing my job at the funeral parlor for taking selfies in front of an open casket!! OMG!! A lot of the time I feel like it’s, Not me revealing secrets about a tactic that’s going to piss off a thousand people I do business with!!

But again, I can’t help myself. So that’s what’s in this book. Things I probably shouldn’t be talking about.

I spent 15 years writing about investing, trading, markets, regulation, economics, geopolitics, trends and fads, heroes and villains, entrepreneurship, culture, and the collision between Wall Street and Main Street. My blog, The Reformed Broker, ran from the fall of 2008 through the fall of 2023 and has been read by millions of people over the years. I’ve heard from fans and critics from around the world. I’ve met people who’ve been reading my stuff from every walk of life—young, old, amateur investor, professional trader, you name it. I’ve gotten thousands of emails, most of them encouraging and grateful for my perspective, some of them completely unhinged or furious with something I’d said. I’ve posed for pictures, responded to written letters, sent Happy Birthday videos to fans, signed thousands of books, and I even surprised a guy whose wife begged me to stop by a lunch she had planned across the street from my office on the off chance I’d say yes. That one didn’t go well, but that’s a story for another time.

The blog has been the center of my professional life and it occupied a great deal of my personal life as well. The blog is what saved me from a career in obscurity selling stocks to strangers over the telephone. The blog is how I met my mentor, idol and current partner, Barry Ritholtz. The blog is how the first dozen or so employees who’ve come to work with us discovered what we were doing. The blog got me columns at Fortune, Forbes, the Wall Street Journal, Yahoo Finance and elsewhere. The blog got 
me seen by the television producers at CNN, Fox Business, Bloomberg and, ultimately, CNBC, where I’ve been an on-air persona since 2010 and a contributor under contract with NBCUniversal since 2012. The blog established me as a pundit worth listening to. The blog landed me on all the 40 Under 40 and Most Influential lists. The blog opened doors to me all over the world. It changed my life and, according to many investors and fellow advisors I’ve heard from over the years, it’s also changed theirs.

And that’s why this book is so meaningful to me. Because when I write here and elsewhere, I’m not just talking about finance or money, stocks or bonds. I’m talking about my life. Your life. What all this investing and money in motion is supposed to mean. What is the point? How does it work? Why should we care? How should we think about it? What is it all leading to? What are we trying to achieve?

I hope to help you answer some of these questions for yourself with what you’re about to read. I hope to educate and entertain you on the way to uncovering these answers. And most of all, I hope to convey how helpful this process is for me, as I am also in search of these answers, right alongside you. Still, after all these years.

The Wall Street Journal’s Jason Zweig once said, The longer I’m doing this, the more I realize I don’t know. Similarly, I think I’ve figured out quite a few important things along the way, and these are the things I’ll be telling you about on the pages within. But it’s never over, which is why the writing continues. Let’s begin.

Joshua M. Brown

Long Island, New York

April 2024

Just Own the Damn Robots

…five ranks of ten machines each, swept their tools in unison across steel bars, kicked out finished shafts onto continuous belts…

Paul unlocked the box containing the tape recording that controlled them all. The tape was a small loop that fed continuously between magnetic pickups. On it were recorded the movements of a master machinist turning out a shaft for a fractional horsepower motor. He’d been in on the making of the tape, the master from which this one had been made.

He had been sent to one of the machine shops to make the recording. The foreman had pointed out the best man – what was his name? – and, joking with the puzzled machinist, had been hooked up to the recording apparatus. Hertz! That had been the machinist’s name – Rudy Hertz, an old timer, who had been about ready to retire.

And here, now, this little loop in the box before Paul, here was Rudy as Rudy had been to his machine that afternoon – Rudy, the turner-on of power, the setter of speeds, the controller of the cutting tool. This was the essence of Rudy as far as his machine was concerned.

Now, by switching in lathes on a master panel and feeding them signals from the tape, Paul could make the essence of Rudy Hertz produce one, ten, a hundred, or a thousand of the shafts.

Kurt Vonnegut, Player Piano

There’s something insidious going on in the psyche of investors that deserves a lot of the credit for today’s bull market, and almost no one is talkin g about it.

But I will.

The first American retirement system was available only for gunfighters. Let’s say a colonist in Massachusetts picks up his arms and goes off to defend his settlement against the Indians. They chop off his arm, rendering him unable to participate in the only form of labor that existed in those days (manual). He can’t build shelters anymore, raise animals or till the soil. So the colony takes up a collection, in the form of taxes, which enables the wounded fighter to retire and continue to support himself and his family.

You know who collected these taxes from the colonists? Usually the guy himself. True story.

The concept of retirement evolved from there. For most of the 1800s, you basically worked on a farm til you died. Retirement took place in a graveyard. Until 1875, when the American Express railroad company established the first private pension fund in America, followed by many other companies shortly after. It was no big deal, given that the average person wasn’t expected to make it long past their 50th birthday. The US government created a public version of this in the 1930s—the Social Security system—when it became apparent that not everyone was going to have a job long enough (or secure enough) to earn these pensions.

And then that went on into the 1970s, whereupon the personalization of retirement funding began, with 401(k)s and individual retirement accounts (IRAs) and the like. Pensions were replaced with investment accounts owned and managed by each worker, which is where we are now. So the concept of retirement as we know it is essentially just 50 years old. It’s what the majority of investors have been doing in the markets in the first place—deferring spending today so that they’d be able to have enough money to spend later on.

But something else is going on right now. There is a sense of desperation underlying the way in which we’re investing.

Why won’t people panic!?!

Trump! Kim-Jong-Un! Nukes! Border walls! Race riots! Trade agreement demolition! Impeachment proceedings! Sell, goddamn you!

But they won’t sell. Stocks make new highs, volatility completely disappears. Every week a fresh reason to freak out. No reaction from the investor class whatsoever, other than in short, sharp bursts that dissipate within hours.

Why?

Well, if you think Donald Trump’s outbursts on Twitter should be scaring investors, then perhaps you failed to consider the possibility that there is something even scarier out there.

A 45-year-old married father of two with a mortgage and a pair of college educations to fund. The remote yet persistent threat of a nuclear war is not what keeps him up at night. In fact, he might almost see it as a relief should it come. He is a bundle of raw nerves, and each day brings even more dread and foreboding than the day before. What’s frying his nerves and impinging on his amygdala all day long is something far scarier, after all. He, like everyone else, is afraid that he doesn’t have a future.

He is petrified by the idea that the skills he’s managed to build throughout the course of his life are already obsolete.

In Kurt Vonnegut’s 1952 novel Player Piano, we are introduced to a future in which only engineers and managers have gainful employment and meaningful lives. If you’re not one of the engineers and managers, then you’re in the army of nameless people fixing roads and bridges. You live in Homestead, far from the machines that do everything, and are treated throughout your life like a helpless baby. The world no longer has a use for you. Anything you can do a machine can do better, and you are reminded of this all day, every day by society and the single omnipotent industrial corporation that oversees it all.

Vonnegut wrote this 65 years ago. It couldn’t have been more apropos to what we’re witnessing now than if had he written it this morning, right down to the nostalgia-selling demagogue who seizes the opportunity to foment rebellion amongst the displaced and disgruntled. When millions of people start seeing their purpose begin to erode and their dignity being stolen from them, the idea that there’s nothing left to lose starts to creep in.

In the book, the result is a violent rebellion against the machines. In the real world, we’ve resigned ourselves to investing in them instead.

We could be in the midst of the first fear-based investment bubble in American history, with the masses buying in not out of avarice, but from a mentality of abject terror. Robots, software and automation, owned by Capital, are notching new victories over Labor at an ever-accelerating rate. It’s gone parabolic in recent years—every industry, every region of the country, and all over the world. It’s thrilling to be a part of if you’re an owner of the robots, the software and the automation. If you’re a part of the capital side of that equation.

If you’re on the other side, however—the losing side—it’s a horror movie in slow motion.

The only way out? Invest in your own destruction. In this context, the FANG stocks are not a gimmick or a fad, they’re a f***ing life raft. Market commentators rhetorically ask aloud what multiple investors should pay to own the technology giants. That’s the wrong question when people feel like they’re drowning.

What multiple would you pay to survive? Grab a raft.

Here’s the Robotics and Automation ETF from November 2015 to November 2017.

There’s panic in this chart. A much more sustained kind of panic than can be sown by the pronouncements of Trump or the bellicosity of North Korea.

There’s a great joke about an automated car plant in Japan, where the machines work in the dark (no need for light, they don’t have eyes) and there are only two living things authorized to be on the factory floor—a man and a dog.

What’s the man there for?

His job is to feed the dog.

What’s the dog for?

The dog keeps the man from touching any of the machines.

Matt Levine at Bloomberg View has an interesting way of thinking about Bridgewater, a gigantic hedge fund overseeing almost $200 billion in assets:

if you had to describe in two words what Bridgewater’s 1,500 employees do, not investing would be a pretty good fit. They have a computer to do the investing! Bridgewater runs on algorithms, and famously few of its employees have much visibility into how the algorithms actually work. They instead spend their time marketing the firm, doing investor relations, and—crucially—evaluating and critiquing one another. I once explained my theory of Bridgewater: One stylized model for thinking about Bridgewater is that it is run by the computer with absolute logic and efficiency; in this model, the computer’s main problem is keeping the 1,500 human employees busy so that they don’t interfere with its perfect rationality.¹

This heuristic—a room full of geniuses playing mind games with each other while computers keep the profits rolling in—is definitely silly, but Vonnegut would have loved it. And it works really well symbolically, even if it’s a distortion. You don’t get a better educated, more highly pedigreed workforce than the folks at Bridgewater. So the image of them looking for ways to fill their days—even though untrue—could only increase the dread of people working in firms further down in the Knowledge Economy food chain.

Specialize, the displaced workers are being told. Up your education and increase your skills! Move to a different city! Find a niche where technology can’t replace you! Learn to code! They’re trying, but this doesn’t seem to be a long-term solution. We’re in an age where we’re being told AI is about to start writing its own software. Machines are going to be trying legal cases and diagnosing illnesses, writing songs and architecting buildings, giving financial advice and driving our vehicles. Every day more articles about this or that breakthrough. There are no limits, there are no protections. It’s bordering on lawlessness.

No one is immune. Not even the creatives. Netflix users have spent 500 million hours watching Adam Sandler content, so it isn’t far-fetched to imagine its programming algorithm devising an art house film starring Sandler.² Why do we need producers? Why is a monster like Harvey Weinstein even necessary in a near future where software determines what we want to watch and automagically gives us more of it? What would be Weinstein’s role in that, besides grabbing people and running up massive legal and travel bills for the studio?

People have never felt more ill at ease about their own reason for existing. This is manifesting itself in the trillions of dollars being thrown at Facebook, Google, Uber, Nvidia, Apple, Amazon, Alibaba. Yes, these companies create jobs, but they are different jobs that the people being displaced mostly can’t get. When 10,000 sweater-folding department store workers are laid off in 50 different cities on a Friday, it’s not like they can all relocate to Seattle and begin building mobile user interfaces for Amazon the next Monday morning.

Professor Scott Galloway, an expert on the technology giants that now dominate every facet of the economy and our lives:

Uber only has a few thousand employees, and they’re very technically literate. Uber has figured out a way to isolate the lords (4,000 employees) from the serfs (2 million drivers), who average $7.75/hour, so its 4,000 employees can carve up $70 billion vs 2 million on an hourly wage. So, Uber has said to the global workforce, in hushed but clear tones: ‘Thanks, and f*** you.’

Michael Batnick frames this as the price of progress,³ which is becoming a full-blown crisis. We have no answers for this yet. He is hopeful that we come up with some. It’s happening a lot faster than we can adjust to it, even if it’s all eventually for our benefit (and what sort of capitalist would be caught dead arguing otherwise?).

The anarchists in Vonnegut’s book have paid the price of progress. They worry about their sons committing suicide when their IQ test results sort them out for a lifetime of roadwork rather than an invitation into the upper echelons of managers and engineers. They write a letter explaining the destruction they’re about to unleash as payback for all of the progress that’s been inflicted on them:

I deny that there is any natural or divine law requiring that machines, efficiency, and organization should forever increase in scope, power, and complexity. I see these now, rather, as the result of a dangerous lack of law. The time has come to stop the lawlessness.

Without regard for the wishes of men, any machines or techniques or forms of organization that can economically replace men do replace men. Replacement is not necessarily bad, but to do it without regard for the wishes of men is lawlessness.

Without regard for the changes in human life patterns that may result, new machines, new forms of organization, new ways of increasing efficiency, are constantly being introduced. To do this without regard for the effects on life patterns is lawlessness.

Men, by their nature, seemingly, cannot be happy unless engaged in enterprises