Quote · My First Million
Brutally honest guide to not losing money in the market
Where this was said
Direct indexing
At 20:55 · chapter starts 18:46
It's the most obvious question in the room, and Sam Parr asks it directly: if you're telling everyone to own index funds, why should anyone pay you? Ritholtz's answer is disarmingly honest — they shouldn't, and the firm has said so publicly from day one. [1] — Barry Ritholtz "Direct indexing — buying the individual components of an index in proportion — lets you harvest tax losses from the 20–40% of stocks that a…" 18:00 Their whole content brand is 'do it yourself, you don't need us.' The clients who actually hired them — about 0.01% of their readership — did so because their financial lives had complexity that required curation: tax issues, estate planning, concentrated positions from founder stock or IPO shares, high capital gains exposure. This is where direct indexing enters the conversation. By owning index components individually rather than through a fund, Ritholtz's team can harvest tax losses from the 20–40% of stocks that are always down in any given year, picking up 75–85 basis points annually — and over 400 basis points in crisis quarters like Q1 2020. The real product, he concludes, is organizational alpha: being the quarterback who minimizes taxes, manages estate complexity, and keeps clients from making bad decisions in volatile markets.
O'Shaughnessy research found that direct indexing harvested over 400 basis points in tax losses during the Q1 2020 market crash, with the portfolio matching index performance when markets recovered.
