It's time for work quite well watch -- Christopher man's life. Partner and founder of worst point so we'll see. Tired of the same sales pitches disguised as financial advice Christopher is a certified financial -- we'll give you the real facts about investments. Next play at this stage play. Good afternoon off and -- very excited beauty today we have a very special guest Weston Wellington. From dimensional funds. Who will be chatting with them -- bit. Weston has a very unique take on the investment markets enough. -- really added a lot to. Our careers I think his advisors helping us talk about what we do to turn. I'm also joined by Morgan spent the Scott O'Brien filler on. Good afternoon Austin, Texas and say -- questions. Hello everyone glad to be here. Are. So I think we like to thirty showed little news item Scott. We know how we like to talk about how. Register investment advisors are held to a fiduciary standard and that we really think really think neverland. Who calls themselves a financial advisor or financial planner. Power uses similar title should be held that same fiduciary standard. In terms of their duty to the client. And a fiduciary standard is that they but given legal responsibility to. It. I keep the client's best interest in mind. Send news item. This is a sort of a news item because it is a recent article. India investment news. And there is it. But highlights the problem. In the in the first quarter and I know this sounds old but in the first quarter of 2014. Interest group lobbying. Spending helps explain the lack of success and in this area and in changing the regulations. To the higher standard of duty to the client. So let's look at the money spent on lobbying. So the money spent on a lobbying by organizations supporting advises. Are currently held to the fiduciary standard was 80000 dollars. But some like it doesn't play one think dinner -- -- But the money spent by or by a commission based financial services firms. 2982453. Dollars on 37 to one. Garcia hooked up so money talks folks while I I can't imagine that the fiduciary forces are likely to win that's. This battle apparently we don't have enough money behind us to change that regulation we're gonna keep the yeah so. To -- just in nursing that there is a lot of push back against putting -- well first let me just say to our audience. If you are concerned with this -- if you like an advisor haven't put your best interest first. I'm Libby should lecture -- congress people when senators know that that's important. Well maybe maybe we're not as exciting. And -- our personalities are that we don't have it's nice break Chinese. Jim Cramer I don't funny how funny like a clown and you knew exactly -- -- like yeah like act like Kramer. But he's a stock picker is your very your personal. We arguably have the anti Jim Cramer. On our show today yeah we're gonna we're gonna talk reason and so I I don't know maybe we need to get a little more extra mystery moment -- -- Let's let's get right into it with with the west and Wellington. Weston can give us a little bit of your background and how you ended up I have been hearing you speak for I don't know fifteen or twenty years. Some I'm familiar with you and what you talk about how you like to talk about it but our audiences. So tell us a little bit about how you arrived at where you are today in which your career. I've been in the investment business who -- just shy of forty years now. -- divided roughly into two week will have its first twenty years I worked for a variety of brokerage firms money management firms. Doing what I would call the conventional way you listen to wall to Wall Street analysts you read their research reports U. Tune into the Monday morning Squawk Box calls for the analyst revises his forecast for this or that company and never miss an episode Kramer well that's exactly and at least at that a fascination on trying to. Get ahead of the next guy or gal and figure out what the next terrific ideas going to be. And then I was introduced to doing some research on a variety of money management companies I sort of stumbled across. This company in California Dimensional. Fund Advisors. This is back in my 1990 yourself. And they had an entirely different approach. To developing. Optimal investment solutions and it wasn't based on predicting anything. It was based on very careful with search by some of the world's leading economists on. Not just what we think will happen in the markets to more importantly. How -- markets work in a very funny and very fundamental level how should we expect them to work. And how should we behavior as investors to develop an optimal strategy. And the conclusion of all the through asserts that -- the window here don't have time is that. Essentially. You want to remove yourself from the forecasting treadmill. And just diversify. As broadly as possible -- huge basket of securities. Typically thousands of different stocks. And then essentially stopped reading the newspaper and just accept the market rate of return. And certainly to people like me brought up in the whole. Aura of Wall Street -- the idea you could just. Do know research at all. Own a diversified court set it and forget it and do better. Than most people just seem completely backwards. And yet. If you're intellectually curious and you study the data you study the record of professional money managers and professional analyst. The evidence is just overwhelming. That you're going to do better what's your colleagues think when you want to work for this or this. They were a bit baffled. Command some of them were -- sort of partly a bit irritated you know how how could you do this how could you. Go over to the other side so -- the reservation exactly exactly it's not it's not an appealing message to. The rest of the industry which essentially is -- judge. Thriving off a river of commissions and fees. That are associated with this endless search for the next great idea. You know I was who we bring up this idea of the forecasting and crystal balls and you know that's really hard to extract if you value out of that -- why do. How was it that you came to the point where you realized that was an important part of this whole picture because. Everyone there's a lot of people out there that think rich people have a secret key to unlock the door to find those guys who who know how to predict the future. Well I certainly would have counted myself in that camp. And it's hard to pinpoint any single. Then two or bit of data that persuaded me but. Here's one thing to push me along -- path. I became a director for search for brokerage firm and one of my jobs is to develop a model portfolio. Of recommended mutual funds for all of the firm's representatives. And like most people in my position a few of -- can't be too hard I'm a Smart guy can study all the record of all these money managers and I'll figure out the best ones. And so I called it the dream team approach we have the very best growth stock manager. The very best international manager of the very best fixed income manager are gonna put them all together into one team for you declined. Well I begin to keep track of my recommendation I think I had very similar -- And unfortunately what I discovered was. He had eight or ten managers and your team and you know four -- five of them do pretty well run two or three do sort of middling and then one -- -- just released stink up the joint that year. And your results are no better. Then if you just bought every stock in America and done no research at all didn't bother hiring any extra so. There really wasn't dream team date the only worked in your dream Dillon worked in my head I think canal at Morgan the important thing is to understand how. How you respond to that and I guess the industry's divided into two. Try it. And fail and say I'm just gonna keep trying harder. You know column princess socialist in approach to and then and then and and just keep trying to matter how many times you fail -- Brothers. Should I have expected this. And then when you start diving into the academic research there's it's as they suggest this overwhelming body of evidence suggesting. No this is what you should expect to happen doesn't mean the world is broken doesn't mean you're doing something wrong it means. This is what the outcome you would have expected to see more often than not that you can choose. How you react to that uncomfortable information. I'll keep doing it the old way and continue to do poorly most likely or I can find a better way to do this. Aren't all that -- we're gonna take a break ladies and gentlemen come right back and west of dwellings and the goods and. -- -- Apple is man. Between -- government spending in uncertainty about our economic future most Texans are having doubts about their own financial future. Are you ready to take a serious look at your financial goals using the experience the only certified financial planner practitioner is it worth point. Would you like a second opinion on your current advisor who may be selling you investments and insurance for commissions -- worth -- radio dot com to make an appointment or call 8885447760. That's -- point radio dot com 8885447768. Welcome back to worst point wealth watch giving you an unbiased people under the hood of wealth management. Investment and financial planning. Once again here's Christopher advance look. Welcome back off -- before -- -- let me remind you that you can find us on Linkedin FaceBook and Twitter by searching worth point for many. Would love to hear from you there like us had us connect to us tweet to us. All that stuff. You'll also find his work point radio dot com that's where point with a -- Morgan McCracken up -- -- -- tweet me. We really didn't happen. So we're talking with the west and -- and Wellington about his. Realization. That the dream team he would put together in the brokerage industry. Might not be working that great. And so now he's made the transition into working in the world's. Which we call actor -- best -- our. Factor based investing or empirical unless staying or whatever you wanna call it what you call. I like to call it either evidence based investing or equilibrium investing and when you see the word equilibrium known as any idea what that easily get a chance to explain what you mean by equilibrium what do you mean by that. My way into yeah. Just like water. Is constantly seeking its own level doesn't matter how much you roiled up in the bathtub and always wants to level out. Securities markets or in many respects similar incident that this overall. View point. Prices for securities are constantly seeking. Equilibrium. To expect grasshopper. Where those value of any company is a proper reflection of both the positive. Attributes it may have and the negative. That means that some companies will sell for much higher prices and others because they're much better companies but investors know this and they put the right price tag on each company. So what is an investor do. An investor wants to capture the market rate of return. Offered by the capital markets. And the sound dissuade the least risky way to do that. Is to effectively by all the securities available in the capital markets at the expense. Actually it's extremely inexpensive these days in the world very low cost broadly diversified. Mutual funds much less expensive than doing it. The conventional way of hiring a squadron of analysts who were supposed to study all these companies and they charge you fees to do that. Now the the sticking point for most investors certainly for me and that this is that the -- you just have to get over and so hardest thing I think to achieve. This why do you wanna own all the securities and meet gosh it's obvious that some companies are. Growing much faster the better manage they have better products you know apple or cooler. Exxon -- you pick your favorite companies and there are some mediocre companies. Poorly managed companies. Financially challenged companies. Why not just diversify -- just a good companies. This is where it's helpful to -- -- to rub elbows with the economists. He columnists don't get to explain just how part of the world works they have to explain how all the world works. Who's gonna wind up owning shears. In the mediocre company. The suckers that's the well that's one interpretation is the soccer's. But let's put that -- that the brain -- for a moment. Why is the soccer is gonna keep owning a lousy companies overly overly because he doesn't want every minute. It's just it's hard to not -- -- could -- It's hard to come up with a little tradition all the yardage -- hard to -- over the world where people are systematically stupid and they never ever learn from the mistake. Especially investors that when we know that big money is mostly controlled by institutions funds and pension. A large majority of the dollars in the market is not controlled by -- example that these -- all basically Smart piece of hard to believe that Smart people are being -- -- -- all -- Smart people are competing. With each other. Look at this way they're roughly 2000 companies today in the entire New York Stock Exchange how many investors do we have out there. Hundreds of thousands millions of investors all over the world they're all flipping through that listed 2000 companies trying to find the very best opportunities. Obviously some companies are better than others what's gonna happen to the prices of those companies we could get bit up. By investors who were aware of their better prospects. But this whole equilibrium thing comes back into play. Let me use of of a football analogy try to explain -- -- bit better perhaps this is often. I'm doing this well -- to -- and probably football -- -- -- had to apologize to everybody -- a solid second. And a -- memory now this is December 2011. Baltimore Ravens are beating up with the Indianapolis Colts. The ravens come the stadium that they would be very good record they've won nine they've lost three so far this season the colts. Dismal they've lost every single game this season. Question number one which team is more likely to win that day and this is not a trick question. The ravens are more likely to win right. And they did. Now suppose you're trying to make money. From that -- -- odds again reflect now you know let's see what happens if you go in the ravens are you know I don't win much money as well as a matter of fact you lost the bet you the ravens won that day. You lost today because the ravens won by fourteen points. In your book he told -- the point spread was seventeen points. Why is your point spread who's gonna bet on the colts the obvious losers. Unless there's some sort of equilibrium in the gambling market at a slower that it works exactly the same way you have to balance the book otherwise the bookings are out of business. You know I let you go back to a point that you made earlier. About clients. But they want this market returns and I'm sure you've heard this we hear this a lot class a look at you go -- -- I wanna do a lot better than in the market because I think I've been getting market returns and -- -- -- doing really. Poorly -- I don't think that. The bit it's hard for investors are wrapped her arms around what doctor got the full part -- -- and he beats the market every year can't help but he told -- so yeah. And we rob banks -- Did -- mention that had. Most people don't know what the market rate of return has been. And but probably more alarmingly I'm sure you can confirm this most people don't even know what their own return not in -- and they don't know how to compute them the brokerage firms are very little help. They're not interested in telling you what your return was for the most part plus they don't -- brokerage firm there were two copies of the statements. One of seriously there were two -- there was the customer version. In the -- a broker version and the only difference was a broker version told you the commissions generated on the count -- today. There was on neither statement was there any. Come computation of what your performance that didn't he -- number and you didn't know whether we'll in my doing better than this so compared to what you don't know. But in plus -- times -- that the clients are taking a whole lot more risk for the returns are getting so if they and actually know whatever the return uses they direct to take a lot more risk to get the returns that they're getting. Mr. an idea that risk adjustment -- -- -- in the congress needed but it'll likely they don't know to returns are good. So. West you have. I'm trying to think how would I describe your contribution. To our way of looking at the investment world. You know it. I'll play how I describe it yeah. What -- I'm a history major her and not a finance guys I don't have a CFA degree no economics Ph.D. -- fit right here -- We honey I am I am in the room listening to the last twenty years some of the world's smartest and most renowned economist people like. Professor pharma who was done. A legendary professor at the university Chicago for fifty years more than fifty years now was awarded the Nobel prize in economics. Last fall. And you listen these people you reader academic papers what I try to do is distilled the conclusions they skip the math now. I skipped the math but I zero I don't play allusion to say how can I explain this perhaps in more everyday language that people like me can understand. Coming through the brokerage world we -- Wall Street Journal Forbes business week had a way. Take the conclusions of much more rigorous academic research and explain in a way that is compelling. Compelling enough to other people that bill perhaps change the way you think about investing. There and I think that's you've really helped advisors like us because that's really -- -- I mean there's there's a lot of you know rocket science math that the behind all this stuff and it's it's very academically based. How to translate two families. So they can understand and you can see the value and in would be better off financially. So Jack -- rent take a break now but when we come back I won the most effective things that Weston does this heat. Takes a look at articles in the media and books and popular. Financial media and helps bring us all down back down to earth by by showing us some of the inaccuracy. -- -- -- -- -- -- -- -- -- OK. Then. Between ramping government spending in uncertainty about our economic future most Texans are having doubts about their own financial future. Are you ready to take a serious look at your financial goals using the experience the only certified financial planner practitioner is it worth point. Would you like a second opinion under current advisor who may be selling you investments and insurance for commissions visit worth forty radio dot com to make an appointment or call 8885447. 760. That's worth point radio dot com 8885447768. Welcome back to -- point wealth watch giving you an unbiased people under the hood of wealth management. Investment and financial planning. Once again here's Christopher dance -- Welcome back Austin we're. Discussing. Unique perspective on the financial investment world with the west Wellington. Boston's own Dimensional Fund Advisors. I remember when I first moved here few years ago and my friends some my clients. Knew that we worked closely with that the FA said well how convenient that they heard you're moving here and them move their headquarters. Yeah that's an apple look awfully. -- definitely worth mentioning with congressional fund advisors to it's that not everything you can't just. Now look at what down to or blog on the treat me and invited -- -- funds. No you can't that they started on the institutional world and you have to work through kind of -- advisors and it's proven to be here are really -- model I think it's you you felt advisors. Brought added some value to their clients and your way Europe around 300 billion and in little over 300 billion of them right. What's a billion here was to finish. And I think it's. It's worth commenting on because. We have a different way of developing an investment solution. But I think just as importantly we have spent a lot of effort developing a different way of communicating this approach to investors. And it's helping them understand the nature of risk and return in the markets that. Markets have always been volatile and they always will be volatile does not much we can do about it is just the nature but to trust -- would expect markets to behave -- risky assets. And you need to understand. The nature of those risks and understand your own reaction to those risks to be able to be as successful investor and we've we're very proud. Of the close partnership we have with various financial advisors around the country. And the very very significant changes they have been able to the fact among. -- thousands upon thousands of families out there giving them a more satisfying investment experience. Yes I agree it's it's really there the reason it's a big deal to us to have -- here is that we've got this challenge you know we're out in the field. Talking to real life human beings about their money in about their team their their futures. In a way that's very hard to do. But I think -- I'm not a bad communicators and I have to say that. It is always a struggle to talk about this when you are faced with somebody -- frame of reference. Comes from decades and decades. Education in the popular media is an onset time guys secret. Hot deal for now -- I'm saying you know I'm gonna make this really boring. Victoria secret is there is -- yeah particulars there's no secret of those secret sauce so anyway. Before the break I was mentioning sort of cure. Unique way of talking about it Weston in 11 thing you do is that you -- you open the newspaper -- be -- magazines and and you see. The way the media reports that the facts in the way quote experts. Comment on this and you sort of make life. And this is it in a world of very academic world it's virtually used to be devoid of humor. You brought a lot of humor at the table which really helped us so. So where did you feel when did you first start doing network with some of the early observations unit into how. Was doing this before I joined dimensional images like 25 years ago with I would. Used to work for brokerage firm we had these annual conferences and they have some. Allegedly. Brilliant economist -- investment strategist type and you get what I would call the forecast what's gonna happen for the year ahead. This is what's gonna happen the economy retail sales are gonna do this interest rates would do that the Fed will do this. And put that altogether to here's what you wanna do your money I was a history major. So I would write down these forecasts and then I keep them a heck what he's got his first of all nobody ever remembers what these people sent. Fifteen minutes after the it speeches over there on the golf course a million a month goes by you don't you forgot what they said. The same guy would come back the next year with a new forecast and -- look at my old forecast even the previous year to see how do you do you have got to be kidding and that's not what could it wasn't just that how dare you forecasts were all firm. Wrong many times the forecast for various economic variables. -- right. But the prediction about what to do about it in terms of an investment strategy was wrong or just not very helpful. And I begins -- -- zero win on this. This idea that he may -- these experts there's there's still bright they're brighter than most of us but it doesn't give them any. Natural vanished DC near future you know anybody else -- You bring up a really great point and you see this kind of -- no greater example is interest rates. Let's say you forecast interest rates or inflation or any other macro -- micro economic indicator. And you're right. Do you use does that also predict how the markets react again usually you're in many times and it doesn't so. That's a critical thing that I think clients don't understand. Well I I argued that most professionals don't understand. The way we look at this which I consider to be the fact basically look at it. You know I read a story the other day on appearances most western. Said that the Japan pension fund apparently a rather unlike us they've taken their Social Security money and actually put it aside and an account. And it's invested in some to call the Japan penchant. And they made an now five years after the bowl. The bull market they've decided increased their allocation to equities. I was just like wow so so nations. Chase returns cash just like people with 50000 dollar iris. I was stunned to read it is just ten guys in the office -- suit just like Larry I don't know how they. They're not deities -- and with the same thing. This is an -- week that by the way -- Just like are you kidding me. They're gonna chase returns back so I don't see any. I hate to pick on an individual investors although there as though they're the ones that don't get this. You know there are big institutions that don't get this. It's astounding to me -- absolutely it's certain. That. Our clients most of them get better advice and have better after tax risk adjusted returns than most institutions. Because they that -- not difficult to document that's that's that's the case. Yeah and I and I'm not ready and I'm just saying. You don't with the tools we have available to us I just think the outcomes better and I also read about what they do you can -- most -- have to file publicly. What they're doing now I'm just laughing well. I think a lot of times for AM in the -- analogy is is where -- -- university endowments. When you look at some of the portfolios solutions that dimensional. And and that's work on verses. You know but an office full of suits what you're doing you're is your kind of if you're putting their job security at risk and then up into a pretzel Lotta resistance there well of course if that's what. Those guys are saying is true what are we gonna do that's. The way you can imagine that's a problem Padgett made the pension consultants -- and say you know can they have these pitching. -- have consultants goodness it will lead to higher than a new advisor to discuss lagging thinkers they bring in the guys who just recently did wells who word. Next in line not to do well has the as the market changes and so you get this. He hire the guy who just did well and of course he's in line to probably not do well next couple years and say they keep higher and the guy who just call that process of systematically buying the dogs. You don't work for that it's unfortunately human nature. That's why they awarded the Nobel Prize for economics in 2002. To a gentleman who never taken a course in economics and the psychology professor. Dan economy with -- -- end all of his body of her search and he and his colleagues. Demonstrated that even very Smart people exhibit persisted behavioral biases. And among them. Chief defender is overconfident. You think you could predict the future that's -- you think he could identify the winners you can't. And then when you were presented with the evidence you still ignore and that's why it's a behavioral box. It's a common fighter pilot. You looked -- they end up in the drink yeah. It's so well what -- listen -- it we've had this bull run. And we've ever remember -- -- to you when we are looking back when he holed that because -- coming back next immediately and you can pick up right there where you left off. Thank you for being with us ladies gentlemen we'll see you next week with -- in Wellington -- we're gonna talk more about. Markets and how they work in his unique perspective. On the investment world. Next. Thank you.