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Wealth Management and the 'Great Normalization' with Lisa Shalett · Masters in Business

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is a Masters
• 0:11
  Speaker 1: in Business with Barry Ritholts on Bloomberg Radio this week.
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  Speaker 2: Really an extra extra special guest. Lisa Shalitt, chief Investment
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  Speaker 2: Officer at Morgan Stanley, has had a number of fascinating
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  Speaker 2: roles in Wall Street, which is kind of amusing considering
• 0:31
  Speaker 2: she had no interest in working on Wall Street and
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  Speaker 2: yet she was CEO and chairman at Sanford Bernstein. She
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  Speaker 2: was CIO at Merrill Lynch Asset Management, and now CIO
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  Speaker 2: at both Morgan Stanley Wealth Management and runs their asset
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  Speaker 2: on location models and their outsourced chief investment Officer model,
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  Speaker 2: So she's seen this industry from all sides. Not only
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  Speaker 2: is CEO running operations running a substantial firm, but as
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  Speaker 2: CIO for Morgan Stanley is over six trillion dollars, she
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  Speaker 2: is directly responsible for one hundred billion dollars. There are
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  Speaker 2: a few people in this industry who understand what it's
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  Speaker 2: like to work with institutions, work with families, work with
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  Speaker 2: individuals as well as work with advisors and brokers the
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  Speaker 2: way Lisa does. She absolutely has a unique background and
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  Speaker 2: a unique perch on wealth management and what's going on
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  Speaker 2: in the world. I found this conversation to be absolutely fascinating,
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  Speaker 2: and I think you will also, with no further ado,
• 1:43
  Speaker 2: my conversation with Morgan Stanley's Lisa Shallion.
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  Speaker 3: Thank you. It's great to be here, Baik.
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  Speaker 2: Great to have you. I've really been looking forward to
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  Speaker 2: this conversation. You have an absolutely bonkers CV. We'll get
• 1:57
  Speaker 2: into that in a little bit. I'm just old better
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  Speaker 2: than the alternative, I like to say it, right, But
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  Speaker 2: let's start with your background in your career Applied mathematics
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  Speaker 2: and economics from Brown and then a Harvard MBA. That
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  Speaker 2: sounds like you were on a career path to a
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  Speaker 2: Wall Street quant from early on. Tell us what what
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  Speaker 2: the career plans were?
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  Speaker 3: Not at all? Right? I in college, I was a
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  Speaker 3: drivetime disc jockey. I you know, abhord the idea of
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  Speaker 3: working on Wall Street. Uh, and so you know, coming
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  Speaker 3: out of school, once I realized that journalists and folks
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  Speaker 3: in radio don't make much money in the long run.
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  Speaker 3: No offense, h this is my side hustle to anyone
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  Speaker 3: around here. You know, I thought I was going to
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  Speaker 3: take the high road and be a management consultant. So
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  Speaker 3: that's what I did for the first job.
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  Speaker 2: So what changed your mind to say, all right, let
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  Speaker 2: me let me go see what these finance bros On
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  Speaker 2: Wall Street are all about.
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  Speaker 3: Yeah. So, you know, I did the consulting thing both
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  Speaker 3: before and after business school, and you know, fundamentally, I
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  Speaker 3: was never home. I was traveling and on an airplane
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  Speaker 3: all the time. I was literally arriving back home Saturday mornings,
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  Speaker 3: leaving Sunday nights. You know, I was starting to hit
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  Speaker 3: that you know those magic numbers in the thirties when
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  Speaker 3: women are like, if I don't get it done now,
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  Speaker 3: it's now or never. So I took the plunge. I quit.
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  Speaker 3: I did not have a job, and I said, Okay,
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  Speaker 3: I'm going to go out there and see what's going on.
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  Speaker 3: I knew that I wanted to work with clients. That
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  Speaker 3: was one of the pieces of the consulting gig that
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  Speaker 3: appealed to me. I wanted to work with super smart
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  Speaker 3: people also, something I had loved in that career, and
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  Speaker 3: I really just you know, wanted to be somewhere where
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  Speaker 3: I was constantly learning and growing. Right, and I'm a
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  Speaker 3: New Yorker, So I was coming home most of the
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  Speaker 3: search people at that time, you know, said to me,
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  Speaker 3: the only place ago if you want to do that,
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  Speaker 3: is Wall Street. I kind of balked, and they said,
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  Speaker 3: but there's just this one place. There's this one place,
• 4:08
  Speaker 3: and the one place for those on Wall Street in
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  Speaker 3: the mid nineties that was very special, was very independent,
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  Speaker 3: was Sanford Bernstein. I walked in the door and I
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  Speaker 3: literally fell in love. I can honestly tell you from
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  Speaker 3: the minute I walked in the door, I knew I
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  Speaker 3: was home, and I always thought I would die there.
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  Speaker 3: But obviously, you know, life is long and stuff happens.
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  Speaker 3: But it was a wonderful, wonderful It was the seminal
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  Speaker 3: chapter in my career.
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  Speaker 2: I'm trying to remember. Did they get rolled up with
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  Speaker 2: Pimcohen from Alliance? Is that right? So Alliance burning?
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  Speaker 3: So Sanford ce Bernstein was independent. When founder mister Bernstein passed,
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  Speaker 3: we needed to settle his estate and a decision was
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  Speaker 3: made to merge with Alliance Capital, which was a growth
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  Speaker 3: shop at the time. We thought it would be synergistic
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  Speaker 3: because the asset management business of Sanford Bernstein, as everyone
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  Speaker 3: I think knows, was a deep value shop, right, and
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  Speaker 3: so that merger happened. I want to say, somewhere in
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  Speaker 3: the in the early two thousands, we became Alliance Spernstein,
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  Speaker 3: and you know then, you know, we kind of wrote
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  Speaker 3: it to till the Great Financial Crisis, and our deep
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  Speaker 3: value exposure to financials kind of helped unwind us quite
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  Speaker 3: a bit. And I think, you know, Alliance Spernstein really
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  Speaker 3: spun for quite a long time. It took, you know,
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  Speaker 3: a long long time to get out of that mess.
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  Speaker 3: I left because I got tired of firing all my friends.
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  Speaker 2: That's tough, Yeah, because you were not just in the
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  Speaker 2: investing side, you were chair and CEO, chief executive officer. Yes,
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  Speaker 2: that's got to be a very difficult experience right in
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  Speaker 2: the teeth of the financial price it.
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  Speaker 3: Was got awful. And really, you know, the trauma was
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  Speaker 3: when lu Sanders, who at the time had been the
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  Speaker 3: storied CEO of the firm, he had been my personal rabbi,
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  Speaker 3: when he was asked to step down, and you know,
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  Speaker 3: therein began I think the unraveling and a little bit
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  Speaker 3: of the the loss of that you know, cultural juice
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  Speaker 3: that had kind of historically made that firm special.
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  Speaker 2: So you leave Sanford Bernstein then, which had really become
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  Speaker 2: Alliance Bernstein end up at Merrill Lynch where eventually your
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  Speaker 2: same role chief investment officer for Bank America Merrill Lynch
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  Speaker 2: Wealth Management. First, was there still remnants of Mother Merrill
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  Speaker 2: when you joined post merger?
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  Speaker 3: There were certainly remnants, So you know, just to reframe,
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  Speaker 3: you know, folks who are Wall Street historians will understand
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  Speaker 3: this chapter. One of the reasons I went to meryll
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  Speaker 3: Is I was recruited by one of my best friends,
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  Speaker 3: who is Sally Crotchek.
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  Speaker 2: Oh.
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  Speaker 3: Really, Sally and I grew up at Sanford Bernstein together
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  Speaker 3: as baby analysts, and at that time she was running
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  Speaker 3: you know, the Merrill Lynch brokerage business for b of A,
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  Speaker 3: and she hired me to come in and be the
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  Speaker 3: chief investment officer at Wealth Management. If you remember, during
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  Speaker 3: this period of time was right after the financial crisis,
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  Speaker 3: the worst of it. It was twenty ten, twenty eleven,
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  Speaker 3: and you know, she had kind of gone to bat
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  Speaker 3: very controversially asking the bank to protect clients on some
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  Speaker 3: of the products that had gone bad, and that didn't
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  Speaker 3: go so well for her, and within four months of
• 7:48
  Speaker 3: my arrival she actually heard that she was fired on TV.
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  Speaker 3: We were together in her office, and there was literally
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  Speaker 3: a cry on on the bus atom of the screen
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  Speaker 3: that says, you know, Crawcheck to leave Bank of America Marylynch.
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  Speaker 2: Well, that was sweet of them to do it that way.
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  Speaker 2: You know, I have a vivid recollection from the people
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  Speaker 2: we were talking, Yeah, Franco and Dave Roseen Kergan. I
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  Speaker 2: know a lot of Rich Barnstein and all these people
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  Speaker 2: I know from the two thousands Yes era Merrill Lynch.
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  Speaker 2: And one of the fascinating things about Sally Kratchek was
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  Speaker 2: her defense of the Merrill Lynch brands Yes post merger,
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  Speaker 2: and she really helped turn around a malaise just a
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  Speaker 2: lack of office morale amongst here. You have this storied
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  Speaker 2: name that was picked up on the cheap during the
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  Speaker 2: financial crisis and was wildly underperforming as an organization. And
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  Speaker 2: full credit to her for really saving Merri Lynch as
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  Speaker 2: a name and turning tens of thousands of people's jobs around.
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  Speaker 2: She really did you's work there, didn't she?
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  Speaker 3: Yes?
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  Speaker 2: Absolutely, So you become chief investment officer for Bank America
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  Speaker 2: Merrill Lynch Wealth Management. What did you take away from that?
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  Speaker 2: You've had this role in several organizations, what was really
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  Speaker 2: unique and special about Bank America Marill Lynch.
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  Speaker 3: Yeah. So what you know, when I was running the
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  Speaker 3: wealth management business, you know, reflecting on my experience with
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  Speaker 3: Sanford Bernstein, Sanford Bernstein was what we call a closed shop, right,
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  Speaker 3: all the clients were getting proprietary Sanford Bernstein asset management product.
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  Speaker 3: And when I arrived at Merrill Lynch, it was really
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  Speaker 3: my first exposure to really entrepreneurial, extremely talented and aggressive
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  Speaker 3: financial advisors who were operating with what we in the
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  Speaker 3: industry call an open architecture platform right where they could
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  Speaker 3: you know, kind of place best of brief product with
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  Speaker 3: their clients. And so that opened a whole new world
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  Speaker 3: for me in thinking about asset allocation and thinking about advice,
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  Speaker 3: and thinking about active and passive constructions together, thinking about alternatives,
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  Speaker 3: and so you know, what made Merrill extraordinarily special were
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  Speaker 3: the financial advisors who were just spectacular to your point,
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  Speaker 3: the Thundering Herd.
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  Speaker 2: Yep, yep, remember those those ads from like the sixties
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  Speaker 2: and sevenss on TV. They were absolutely unique. So culturally
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  Speaker 2: I have to think Sanford Bernstein and Merrill Lynch were
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  Speaker 2: both very different. What did you bring from those two
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  Speaker 2: organizations to your work at Morgan Stanley, either philosophically or cultural.
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  Speaker 3: Yeah. So I think from from my time at San
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  Speaker 3: for Bernstein, I like to think I brought, you know,
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  Speaker 3: kind of my love of original research, my love of
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  Speaker 3: you know, that independent streak, that desire to really you know,
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  Speaker 3: call out conflict of interest and say no, this is
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  Speaker 3: you know, this is what the numbers really tell you.
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  Speaker 3: I like to think I brought that. I think, you know,
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  Speaker 3: from Merrill it was really that appreciation of how do
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  Speaker 3: you work through financial advisor so and you know, as
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  Speaker 3: a chief investment officer, how do you earn the trust
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  Speaker 3: of financial advisors to have influence? Right, because they're what
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  Speaker 3: stand between you and the client. And so, you know,
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  Speaker 3: I think I think I started that process in my
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  Speaker 3: career at Meryl. I think in many ways I still
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  Speaker 3: wake up every day and I think I've got more
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  Speaker 3: to learn in terms of how to be a better
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  Speaker 3: partner to financial advisors today at Morgan Stanley.
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  Speaker 2: And what It's kind of interesting given the open architecture
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  Speaker 2: at Merrill and the proprietary work at Alliance Earnstein, Morgan
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  Speaker 2: Stanley's a little bit of both. You have consilient research
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  Speaker 2: and a number of people running their own funds that
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  Speaker 2: are specific to Morgan Stanley as well as the open architecture.
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  Speaker 2: How do you look at the combination of both closed
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  Speaker 2: and open together.
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  Speaker 3: Yeah, well, look, I think it does a lot of things. First,
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  Speaker 3: it avails me of some of the best colleagues on
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  Speaker 3: the planet, right, so I'm surrounded not only by folks
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  Speaker 3: in the wealth management business, but obviously I'm attached to
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  Speaker 3: one of the best equity in trading franchises globally. And
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  Speaker 3: then to your point, you know, connected to pms that
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  Speaker 3: you know are walking the floors with me. But look,
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  Speaker 3: you know, I want to be really clear when I
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  Speaker 3: think about my clients. We're arm's length, so proprietary product
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  Speaker 3: might be appropriate for them if they're open to it. If,
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  Speaker 3: on the other hand, they say conflicts of interest matter
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  Speaker 3: a lot to me, I want everything to totally transparent.
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  Speaker 3: We have those options as well. So you know, I
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  Speaker 3: think about it as as you know, we we work
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  Speaker 3: with clients. We do what clients are in their best interest.
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  Speaker 3: And I know it sounds a little bit like an advertisement,
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  Speaker 3: but I really believe that.
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  Speaker 2: Well, the next question, the obvious question is who are
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  Speaker 2: the clients? Are they institutions, are they households? Are they
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  Speaker 2: a little bit of both?
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  Speaker 3: Yeah. So, as you may know, Barry, you know, over
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  Speaker 3: the last you know, really decade since since Gorman acquired
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  Speaker 3: Smith Barney, we've been expanding our footprint in terms of
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  Speaker 3: the client segments that we are focused on serving really exponentially.
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  Speaker 3: So while you might once upon a time have thought about,
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  Speaker 3: you know, the Morgan Stanley Financial Advisors as as you know,
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  Speaker 3: serving that ultra high net worth you know, core client,
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  Speaker 3: you know, now we're you know, serving folks in the
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  Speaker 3: mass market through e trade, We're serving family offices, We're
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  Speaker 3: serve institutions. We've done acquisitions in the stock plan businesses
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  Speaker 3: and the retirement businesses. You noted in my bio that
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  Speaker 3: I run help run one of our ocio businesses, our
• 14:15
  Speaker 3: outsource where we're working with foundations and endowments and family offices.
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  Speaker 3: So now we're everywhere, and we're serving every type of
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  Speaker 3: wealth client internationally, domestic, self directed through a brokerage account,
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  Speaker 3: all the way through complete discretionary.
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  Speaker 2: I recall back in the day Morgan Stanley as well,
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  Speaker 2: they're kind of a Goldman Sachs want to bee and
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  Speaker 2: that is no longer the case, it's the best of Goldman,
• 14:43
  Speaker 2: the best of Merril and on. This is really inside
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  Speaker 2: baseball stuff. So I apologize to listeners, but on the
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  Speaker 2: league tables to say who's number one and underwriting, who's
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  Speaker 2: number one? In attracting new wealth management, who's number one
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  Speaker 2: in self directed? Like, you guys are competitive across the board,
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  Speaker 2: and it's not like the old days where Goldman has
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  Speaker 2: a good year and they you know, take the top
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  Speaker 2: spot everywhere. That doesn't seem to happen anymore. It seems
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  Speaker 2: like the industry has become so competitive you want to
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  Speaker 2: be in the top five or top ten. But the
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  Speaker 2: days of you know, taking number one with a bullet
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  Speaker 2: across all these different areas, they really seem to have faded.
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  Speaker 3: Yeah, they have. I mean, I think that ours is
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  Speaker 3: a business in almost every segment that requires a lot
• 15:34
  Speaker 3: of scale, and as you know, developing scale very often
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  Speaker 3: means investing aggressively in tech, investing aggressively in talent, and
• 15:43
  Speaker 3: you've got to pick your spots right. And so you know,
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  Speaker 3: to your point, I think every you know segment today
• 15:50
  Speaker 3: is a little bit of a gunfight. I like to
• 15:53
  Speaker 3: think that you know, in core wealth management, Morgan Stanley,
• 15:58
  Speaker 3: and you know where we've come, you know, first under
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  Speaker 3: James Gorman and now hopefully under Ted Picks. Leadership is
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  Speaker 3: really you know, differentiating us and allowing us to pull
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  Speaker 3: away from the pack at least in wealth management.
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  Speaker 2: And you mentioned the investment in technology and people and
• 16:17
  Speaker 2: the ability to scale at your size, and there's only
• 16:21
  Speaker 2: you know, a dozen or two companies that can make
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  Speaker 2: this claim that flywheel begins to become very self reinforcing,
• 16:30
  Speaker 2: and you have the ability to just continue to add
• 16:33
  Speaker 2: divisions to fill in. Oh we're a little soft here.
• 16:36
  Speaker 2: Let's let's bulk this up a little bit and put
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  Speaker 2: a little muscle on it because we have the ability
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  Speaker 2: to offer these services to all our clients. What's it
• 16:45
  Speaker 2: been like watching the how long have you there?
• 16:48
  Speaker 3: You're there almost thirteen?
• 16:50
  Speaker 2: They're over at dteen. Yeah, so and from twenty twelve
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  Speaker 2: to twenty twenty five, that's a huge run. A lot
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  Speaker 2: of big financial players, Vanguard, black Rock going down the
• 17:01
  Speaker 2: list have really added some heft, So is Morgan Stanley.
• 17:05
  Speaker 2: What's been like watching that over the past decade plus.
• 17:08
  Speaker 3: Yeah, it's been extraordinarily exciting for us. Obviously, you always
• 17:12
  Speaker 3: want to be working in a growth business, and so
• 17:16
  Speaker 3: you know, we've been in a situation where we're hiring people,
• 17:22
  Speaker 3: which is always exciting. We're going after new types of clients,
• 17:26
  Speaker 3: new problems, new situations, which keeps you on your toes
• 17:31
  Speaker 3: and keeps you growing, and you know, really completely new
• 17:36
  Speaker 3: business segments. I mean, I can't tell you how to
• 17:41
  Speaker 3: your point that flywheel between moving up market into institutions
• 17:46
  Speaker 3: feeds your self directed business. I mean, let me just
• 17:49
  Speaker 3: give you an example. Let's assume that we are administering
• 17:54
  Speaker 3: a stock plan for a large corporate client. Now we're
• 18:00
  Speaker 3: going in and we're saying to that corporate client. Instead
• 18:03
  Speaker 3: of you know, having a financial advisor going to the
• 18:07
  Speaker 3: country club on Saturday acquiring a client, mono we mono
• 18:11
  Speaker 3: one at a time, we're now walking into a c
• 18:15
  Speaker 3: suite and saying to that CFO or that chief talent officer, Hey,
• 18:20
  Speaker 3: can we provide all of your employees with a financial
• 18:24
  Speaker 3: wellness program? Can we give every single one of your
• 18:29
  Speaker 3: employees a free financial plan? Can we give every single
• 18:33
  Speaker 3: one of your employees a account or advice you know,
• 18:38
  Speaker 3: to their first you know, purchase in a five twenty
• 18:40
  Speaker 3: nine account. Things like that where suddenly you're acquiring clients
• 18:45
  Speaker 3: at scale.
• 18:46
  Speaker 2: Huh, really really interesting. So let's talk a little bit
• 18:49
  Speaker 2: about Morgan Stanley. We mentioned you a previously at Alliance
• 18:53
  Speaker 2: Bernstein and then you were at Bank America Merrill Lynch.
• 18:57
  Speaker 2: What led you to make the jump to Morgan Stanley.
• 19:01
  Speaker 3: So I had when, as I noted, I'd gone to
• 19:05
  Speaker 3: work at Meryl very much to partner with my very
• 19:10
  Speaker 3: good friend Sally Kratchek, and after she had left, I
• 19:14
  Speaker 3: made the decision that without her there, I kind of
• 19:18
  Speaker 3: felt among the you know, the thundering herd without a rabbi,
• 19:23
  Speaker 3: if you will, And I left it. At that point,
• 19:26
  Speaker 3: I really thought I was going to do my own thing.
• 19:28
  Speaker 3: I thought I was going to do something entrepreneurial. I
• 19:31
  Speaker 3: thought I might join an RIA or form my own
• 19:35
  Speaker 3: RIA at that point, and I just I got a
• 19:38
  Speaker 3: call from Greg Fleming. Greg Fleming was one of the
• 19:43
  Speaker 3: co presidents at Morgan Stanley at the time, and he said, look,
• 19:49
  Speaker 3: you know, I have a lot of contacts over there
• 19:52
  Speaker 3: at Merrill Lynch. The financial advisors really love you, you know,
• 19:56
  Speaker 3: come on in and meet our team. And so I
• 20:00
  Speaker 3: I did, and you know, I had a very similar
• 20:02
  Speaker 3: feeling to that feeling I had when I first went
• 20:04
  Speaker 3: into Bernstein of you know, these are just great people
• 20:07
  Speaker 3: and I would enjoy working with the people. And you know,
• 20:11
  Speaker 3: before I knew it, there I was, you know, sitting
• 20:15
  Speaker 3: next to Mike Wilson, who I know, you know, Mike
• 20:20
  Speaker 3: was taking a stint of rotation through wealth management, and
• 20:24
  Speaker 3: you know I joined I joined him to build the
• 20:27
  Speaker 3: team and and really you know, create the platform that
• 20:31
  Speaker 3: we have today. When when Morgan Stanley and Smith Barney
• 20:35
  Speaker 3: were merging, there was really no centralized CIO office. It
• 20:40
  Speaker 3: was the only place that that that talent was coming
• 20:43
  Speaker 3: from was from Smith Barney, from the Smith Barney side,
• 20:47
  Speaker 3: And so we wanted to recraft a more Morgan Stanley
• 20:51
  Speaker 3: integrated firm offering, and so I joined Mike Wilson to
• 20:55
  Speaker 3: help build that.
• 20:56
  Speaker 2: So, so let's talk a little bit about what goes
• 20:58
  Speaker 2: into managing one hundred plus billion dollars in assets. How
• 21:04
  Speaker 2: do you develop that, how do you think about asset allocation?
• 21:08
  Speaker 2: And how do you think about the end clients? Given
• 21:12
  Speaker 2: how broad your audience and clients are, how do you
• 21:17
  Speaker 2: create a set of options that checks all the boxes
• 21:21
  Speaker 2: that you know you need to check? To do this
• 21:24
  Speaker 2: right but also gives a broad variety of clients what
• 21:27
  Speaker 2: they're looking for.
• 21:28
  Speaker 3: Yeah, so Barry for US asset allocation. All asset allocations
• 21:34
  Speaker 3: starts with financial planning, and all financial planning starts with
• 21:39
  Speaker 3: the client. But you can't do a financial plan without
• 21:42
  Speaker 3: having what we call capital market assumptions. You know, what
• 21:46
  Speaker 3: do we think every asset class is going to do
• 21:49
  Speaker 3: over the next three, five, ten, twenty years. Our customization
• 21:54
  Speaker 3: of asset allocation really starts with financial planning. That is
• 21:59
  Speaker 3: the lynch pin, and we fundamentally believe that you've got
• 22:03
  Speaker 3: to understand a client's cash flow, that the client has
• 22:06
  Speaker 3: to understand their own cash flows. You know. One of
• 22:08
  Speaker 3: the things that I know, you know, having worked with
• 22:11
  Speaker 3: a lot of clients, is very often clients don't know
• 22:14
  Speaker 3: themselves right the the good old fashion, Hey, I'm kind
• 22:18
  Speaker 3: of aggressive, I'm kind of conservative. Those are such non
• 22:22
  Speaker 3: normative terms. You never know, are we talking about politics,
• 22:25
  Speaker 3: are we talking.
• 22:25
  Speaker 2: About you know, how about whatever the market did the
• 22:29
  Speaker 2: past six months?
• 22:31
  Speaker 3: And so so, working through the behavioral pieces, the getting
• 22:36
  Speaker 3: to know your client, the working through a plan with them,
• 22:39
  Speaker 3: really getting into what are their hopes, wishes, dreams, you know,
• 22:43
  Speaker 3: what does money mean to them? Why have they accumulated it?
• 22:47
  Speaker 3: How have they accumulated it? H What do they hope
• 22:51
  Speaker 3: their legacy will be? Does it have to do with
• 22:53
  Speaker 3: a charity, you know, a cause, a family member or
• 22:57
  Speaker 3: members and build a plan from them?
• 23:00
  Speaker 2: Huh? Really really quite interesting. So, since you've joined Morgan Stanley,
• 23:07
  Speaker 2: and I'm going to assume this isn't a coincidence, their
• 23:10
  Speaker 2: focus has increasingly been on the wealth management side of
• 23:14
  Speaker 2: the business, which was a big change to the nineteen
• 23:17
  Speaker 2: nineties and the two thousands, tell us a little bit
• 23:20
  Speaker 2: about why and how this focus shifted and what your role.
• 23:25
  Speaker 3: Is in that. Sure. So look, I think you know
• 23:28
  Speaker 3: this is I think history is going to be extraordinarily
• 23:32
  Speaker 3: kind to James Gorman. I think James I feel so
• 23:37
  Speaker 3: extraordinarily lucky to have served in the firm while he
• 23:42
  Speaker 3: was the CEO. I think, you know, strategically, you know,
• 23:46
  Speaker 3: back during the financial crisis, he developed a vision and
• 23:50
  Speaker 3: that vision was I believe that the wealth management business
• 23:54
  Speaker 3: is a growth oriented business. I believe it needs scale,
• 23:57
  Speaker 3: and I believe that when combined with the more cyclical
• 24:02
  Speaker 3: markets based businesses or the banking based businesses, can add
• 24:07
  Speaker 3: ballast and create shareholder value. And I think that he
• 24:12
  Speaker 3: embraced that vision, and that vision had kind of three
• 24:16
  Speaker 3: chapters to it. The first was, you know, let's buy
• 24:19
  Speaker 3: Smith Barney and get physical scale, right, just the physical
• 24:23
  Speaker 3: scale of a large number of advisors. Let's invest aggressively
• 24:28
  Speaker 3: in technology to support those advisors. I think the second
• 24:34
  Speaker 3: part of that growth was to say, let's transform how
• 24:39
  Speaker 3: we serve our clients and the client segments that we serve.
• 24:44
  Speaker 3: And they started to explore these other acquisitions. First the
• 24:49
  Speaker 3: acquisitions of these stock plan businesses, which are essentially tech businesses,
• 24:55
  Speaker 3: tech platform businesses, but would allow us to go from
• 24:59
  Speaker 3: acquiring clients one at a time to in groups. And
• 25:03
  Speaker 3: then you know, the last piece of the strategy was
• 25:06
  Speaker 3: really you know, let's let's go after E Trade and
• 25:08
  Speaker 3: Eat Advance and acquire those and then we'll have the
• 25:11
  Speaker 3: machinery so that you can, you know, acquire clients at
• 25:17
  Speaker 3: the early stages of their life cycle, allow them to
• 25:20
  Speaker 3: be self directed, and ultimately graduate to advice, so that
• 25:26
  Speaker 3: your financial advisors actually constantly have a source of new clients,
• 25:31
  Speaker 3: of new wealth clients that they don't have to be
• 25:34
  Speaker 3: at the country club every single weekend.
• 25:36
  Speaker 2: So what you're describing is you're starting with clients that
• 25:40
  Speaker 2: have no minimum and they're self directed to d trade.
• 25:44
  Speaker 2: I don't mean this in a negative way. They sort
• 25:48
  Speaker 2: of move up or graduate to a little more full service.
• 25:53
  Speaker 2: They want a financial plan, they want some advice, they
• 25:56
  Speaker 2: want to think about whether it's saving for home or college,
• 25:59
  Speaker 2: or or or retirement. And then the next step up
• 26:03
  Speaker 2: seems to be full on wealth management, where you're dealing
• 26:07
  Speaker 2: with philanthropy, generational wealth transfer, a lot of bells and whistles,
• 26:12
  Speaker 2: including a state planning tax. You guys offer the full
• 26:15
  Speaker 2: suite of.
• 26:16
  Speaker 3: Services, absolutely, and I think one of the things that
• 26:19
  Speaker 3: a lot of folks don't know about us is we're
• 26:21
  Speaker 3: the eight hundred pound gorilla in actually offering alternatives to
• 26:25
  Speaker 3: private wealth clients. You know, we are larger than some
• 26:29
  Speaker 3: of our well known competitors by a factor, and so
• 26:34
  Speaker 3: what that means is we're now in a position we're
• 26:37
  Speaker 3: literally about eighty percent of the alternatives that I would
• 26:41
  Speaker 3: show you as a client are either you know, first look,
• 26:46
  Speaker 3: meaning we're getting the first look or or best price
• 26:50
  Speaker 3: by a lot.
• 26:52
  Speaker 2: So it's funny because you mentioned Gorman taking over from
• 26:57
  Speaker 2: his predecessor. Yeah, John macko Mac, who I've had on
• 27:00
  Speaker 2: the show, who was just delightful. But the Mac era
• 27:04
  Speaker 2: of Morgan Stanley seemed to have more successfully navigated the
• 27:09
  Speaker 2: financial crisis than many of their competitors, And part of
• 27:15
  Speaker 2: me can't help but feel that coming out of the
• 27:18
  Speaker 2: crisis in better shape than so many others really allowed
• 27:23
  Speaker 2: more instantly to blow up over the next fifty when
• 27:27
  Speaker 2: when everybody else had blown up during the financial crisis
• 27:30
  Speaker 2: in the bad way, they really bulked up in the
• 27:33
  Speaker 2: good way. Following that is is that a fair assessment?
• 27:36
  Speaker 3: That that is a fair assessment, Barry, I think I
• 27:39
  Speaker 3: look at it in a very particular way. A host
• 27:42
  Speaker 3: of our competitors were forced quote unquote into the arms
• 27:47
  Speaker 3: of the big banks, right, So the the b of
• 27:51
  Speaker 3: a Meryll situation, right, Jp, Morgan exactly you had you had,
• 27:59
  Speaker 3: you know, city had to make choices around Smith Barney.
• 28:03
  Speaker 3: It was very, very hard what what Mac and James
• 28:07
  Speaker 3: Gorman did to rescue Morgan Stanley. And literally they talk
• 28:11
  Speaker 3: about it as an overnight rescue where half the employees
• 28:15
  Speaker 3: were packing the boxes just like everybody else, uh, and
• 28:18
  Speaker 3: the other half were were on the phone with colleagues
• 28:22
  Speaker 3: in Japan. And as you may recall, what saved Morgan
• 28:25
  Speaker 3: Stanley was a huge equity infusion from MUFG, from Mitsubishi
• 28:31
  Speaker 3: Financial Group. And what was wonderful about that is, not
• 28:35
  Speaker 3: only was it premised on a fantastic, you know, partnership,
• 28:40
  Speaker 3: but it was an arms length partnership that allowed the
• 28:44
  Speaker 3: business to be rescued but not devoured. And I think
• 28:48
  Speaker 3: that for some of our competitors who were suddenly during
• 28:53
  Speaker 3: the Great Financial Crisis inside you know, systemically important banks,
• 28:59
  Speaker 3: their knees right just by sheer dint of size got
• 29:04
  Speaker 3: squashed a little bit because the bank obviously had, you know,
• 29:07
  Speaker 3: the CEOs of City, the CEO of Chase, the CEO
• 29:12
  Speaker 3: at Wells, the CEO at b of A. You know,
• 29:15
  Speaker 3: they're sitting there with the Fed and the SEC every
• 29:18
  Speaker 3: five minutes. Now I'm not saying Morgan Stanley wasn't at
• 29:20
  Speaker 3: those meetings, but the stakes were different because we weren't
• 29:24
  Speaker 3: a commercial bank with a balance sheet the size that
• 29:28
  Speaker 3: those guys have.
• 29:29
  Speaker 2: But even more importantly is you're at Alliance Bernstein. Bernstein
• 29:33
  Speaker 2: gives up control in the merger. You're at Meryl, Meryl
• 29:36
  Speaker 2: gives up control in the merger, third times a charm
• 29:39
  Speaker 2: when you end up at Morgan Stanley. Mitsubishi had a
• 29:42
  Speaker 2: substantial steak, but they didn't take a controlling steak, and
• 29:47
  Speaker 2: the local US based management were able to continue making
• 29:51
  Speaker 2: the choices they made. I have to think that was
• 29:55
  Speaker 2: just a giant home run investment for our MUFG. That
• 30:00
  Speaker 2: has to be just a giant winner for them.
• 30:03
  Speaker 3: And I And you know, I think if again, if
• 30:06
  Speaker 3: you go back and look at it, you know where
• 30:08
  Speaker 3: where are the Morgan Stanley stock bottomed and where we
• 30:12
  Speaker 3: are today? Like I said, I think the history books
• 30:16
  Speaker 3: are going to be quite kind to mister Gorman.
• 30:19
  Speaker 2: And you know, you you talked about some of the
• 30:22
  Speaker 2: acquisitions Smith Barney, Eating Vance. I'm trying to remember the
• 30:26
  Speaker 2: direct indexer you bought. I didn't know if it came
• 30:29
  Speaker 2: through Eaton Vance. Yes, what was that? Parametric?
• 30:33
  Speaker 3: Yes? Yes, so yeah, so fantastic, Uh Memory Barry, because
• 30:39
  Speaker 3: that has been transformational as you know, indexing, tax management, Uh,
• 30:45
  Speaker 3: direct indexing or the ability to customize are you know,
• 30:49
  Speaker 3: all demands and and it's a tech it's a very
• 30:52
  Speaker 3: tech heavy business. So Parametric was buried inside of Eating Vance.
• 30:56
  Speaker 3: It is you know definitely diamonds in the rough that
• 30:59
  Speaker 3: we got and now is a key capability offering within
• 31:05
  Speaker 3: the suite of products.
• 31:06
  Speaker 2: Huh. Really fascinating. So let's talk a little bit about
• 31:09
  Speaker 2: what's going on these days, and I want to start
• 31:12
  Speaker 2: with a quote of yours that I really like. We're
• 31:15
  Speaker 2: all long term investors until the market goes down, and
• 31:19
  Speaker 2: we're recording this in the midst of a pretty healthy
• 31:22
  Speaker 2: sell off in February and March, especially now that the
• 31:29
  Speaker 2: new North American tariffs seem to be taking place. Tell us,
• 31:35
  Speaker 2: what why do we give up our long term perspectives
• 31:38
  Speaker 2: once the market starts heading south.
• 31:40
  Speaker 3: So there's the emotions and then there's the math, right,
• 31:44
  Speaker 3: So what I always say is that you know what
• 31:47
  Speaker 3: the Nobel Prize winners and behavioral economics will tell you
• 31:52
  Speaker 3: is that emotionally, losses hurt four to five times more
• 31:57
  Speaker 3: than gains satisfy. And that's actually intuitively appropriate because typically
• 32:06
  Speaker 3: our wealth, we feel it has taken blood, sweat and
• 32:10
  Speaker 3: tears to acquire or accumulate. And when we experience a loss, right,
• 32:15
  Speaker 3: a fifty percent loss can happen right in a very
• 32:19
  Speaker 3: short period of time, But to round trip and recover
• 32:23
  Speaker 3: our high water mark. We've got to be up one
• 32:26
  Speaker 3: hundred percent, right, which may take us twice the three
• 32:30
  Speaker 3: times as long. And so the math is asymmetric. The
• 32:34
  Speaker 3: emotions are asymmetric, and fear, as we know, just the
• 32:39
  Speaker 3: same way. When things are running hard and you feel
• 32:42
  Speaker 3: like you've got the pomo and the missing out, it's greed.
• 32:46
  Speaker 3: When you know there's a lot of red on the screen,
• 32:49
  Speaker 3: people are you know, your stomach's you know, totally seizing up,
• 32:53
  Speaker 3: and it's about fear. I don't want to experience loss.
• 32:56
  Speaker 3: I don't want to have to make a decision of
• 32:58
  Speaker 3: what do I do here?
• 33:00
  Speaker 2: Yeah, the asymmetries are really fascinating. I am not a
• 33:03
  Speaker 2: fan of Vegas or casinos, but I go there as
• 33:06
  Speaker 2: a sociologist and I always find it amusing that right
• 33:10
  Speaker 2: off the casino floor is a big, beautiful jewelry store
• 33:14
  Speaker 2: filled with lots of expensive watches, and because those gains,
• 33:19
  Speaker 2: it's house money. It's ephemeral, but losses are an existential thread.
• 33:24
  Speaker 2: It currently feels like the world is coming to an end.
• 33:27
  Speaker 2: Exact for get down fifty percent. We're recording this five six,
• 33:31
  Speaker 2: seven percent off the highs and people are talking like
• 33:34
  Speaker 2: it's the end of the world. Let's talk about another
• 33:36
  Speaker 2: one of your quotes, that kind of quote my eye,
• 33:39
  Speaker 2: which was discussing the Great normalization? What is the Great normalization?
• 33:45
  Speaker 3: So, you know, we've been trying to remind clients how
• 33:50
  Speaker 3: extraordinary in financial history the past fifteen years have been.
• 33:56
  Speaker 3: Since the Great Financial Crisis, We've had an unprecedented level
• 34:00
  Speaker 3: of Federal Reserve involvement. We've had markets that have been
• 34:06
  Speaker 3: buttressed by the Federal Reserve balance sheet, that have been
• 34:10
  Speaker 3: buttressed by a disproportioned amount of time having financial repression
• 34:15
  Speaker 3: or low rates, rates being held down. We've had gone
• 34:20
  Speaker 3: through the COVID crisis, which stimulated unprecedented fiscal stimulus. As
• 34:27
  Speaker 3: a share of GDP and performance, what clients have actually
• 34:33
  Speaker 3: experienced If you go back to March of two thousand
• 34:37
  Speaker 3: and nine, right, and you and I remember March of
• 34:40
  Speaker 3: two thousand and nine, the bottom we were probably looking
• 34:44
  Speaker 3: at an S and P five hundred that was trading
• 34:47
  Speaker 3: in the mid six hundred.
• 34:48
  Speaker 2: Sixty six six. I remember the devil's bottom.
• 34:51
  Speaker 3: The devil's bottom, and look at where we are now.
• 34:54
  Speaker 3: Even though we're off, we're still up. During that time
• 34:57
  Speaker 3: nine x nine x over fifteen years. So I tell
• 35:01
  Speaker 3: people what, let's put this in perspective, What that kind
• 35:04
  Speaker 3: of mathematically translates to is we've for fifteen years, we've
• 35:09
  Speaker 3: compounded at about fifteen percent per year. So that's two
• 35:14
  Speaker 3: times normal for a business cycle. Let's call it a
• 35:18
  Speaker 3: you know, where we had two very short recessions, two
• 35:21
  Speaker 3: back to back very long business cycles. Not normal. What
• 35:26
  Speaker 3: was also not normal is during that time the degree
• 35:30
  Speaker 3: to which US exceptionalism and the US outperformed the rest
• 35:35
  Speaker 3: of the world. I mean, we were outperforming every year,
• 35:39
  Speaker 3: year in year out by six hundred and seven hundred
• 35:42
  Speaker 3: basis points per year. And so when we you know,
• 35:45
  Speaker 3: kind of came into January of twenty twenty five, we
• 35:48
  Speaker 3: were starting to talk to folks about, look at where
• 35:51
  Speaker 3: the dollar is versus virtually every other currency, super strong.
• 35:56
  Speaker 3: Look at the share of US equities versus the rest
• 36:01
  Speaker 3: of the world. We're ten percent of the world's population,
• 36:04
  Speaker 3: we're twenty five percent of the world's GDP, we're thirty
• 36:08
  Speaker 3: three percent of global corporate profits, but we were sixty
• 36:12
  Speaker 3: seven percent of all stock market gap just extreme. And
• 36:19
  Speaker 3: so what we were starting to talk to clients about is, look,
• 36:23
  Speaker 3: this is an extraordinary amount of large s, and a
• 36:26
  Speaker 3: lot of it has come from FED accommodation from stimulus.
• 36:31
  Speaker 3: Now we're on the other side of that. We have
• 36:33
  Speaker 3: a very robust economy. We've relevered the economy, if you will.
• 36:38
  Speaker 3: Where the leverage of the private sector, the household sector,
• 36:43
  Speaker 3: the corporate sector that got us into the Great financial
• 36:45
  Speaker 3: crisis that's been healed. Right. We have households that can
• 36:49
  Speaker 3: still carry for the most part, their interest burdens.
• 36:52
  Speaker 2: Very very low historically.
• 36:54
  Speaker 3: Right.
• 36:54
  Speaker 2: It's not the total debt, it's the debt relative to
• 36:57
  Speaker 2: discretionary come exactly exactly.
• 37:00
  Speaker 3: Corporations that still have an extraordinarily relative low locked in
• 37:05
  Speaker 3: cost to capital. And what's become relevered is the federal
• 37:11
  Speaker 3: balance sheet and the government balance sheet. And now here
• 37:14
  Speaker 3: we are in every couple of decades, we have to
• 37:18
  Speaker 3: go through these periods where there's heat in the economy,
• 37:22
  Speaker 3: and inflation is one manifestation of the heat. Real growth
• 37:26
  Speaker 3: and investment is another manifestation of the heat. But the
• 37:29
  Speaker 3: other manifestation is you probably have overdone it on the
• 37:33
  Speaker 3: stimulus and you've got to pull it back and there's
• 37:35
  Speaker 3: going to be some pain. So when we talk about normalization.
• 37:38
  Speaker 3: We say, look, we're not going back to two percent
• 37:41
  Speaker 3: interest rates, normal cost of capital in an economy like
• 37:46
  Speaker 3: Americas that has real fundamental growth of two percent and
• 37:51
  Speaker 3: real inflation or experienced inflation of two and a half
• 37:54
  Speaker 3: to three, which is what we've had for the last
• 37:57
  Speaker 3: eighty years, right, not two percent target that the Fed says. Right.
• 38:02
  Speaker 3: What that tells you is that long term rates used
• 38:06
  Speaker 3: to be normal at five to six percent, right, that's
• 38:10
  Speaker 3: not crazy, right, and yet the market continued to sell
• 38:14
  Speaker 3: it at twenty two times forward multiple. So what we've
• 38:17
  Speaker 3: been saying is part of the great normalization is over
• 38:19
  Speaker 3: the next couple of years, we think long rates start
• 38:24
  Speaker 3: to move towards five to six percent like they were
• 38:27
  Speaker 3: in the aughts, in the two thousands and in the nineties, right,
• 38:31
  Speaker 3: and multiples start mean reverting a little bit to seventeen.
• 38:35
  Speaker 3: And that's the great normalization. Your earnings actually start growing
• 38:39
  Speaker 3: into those multiples.
• 38:40
  Speaker 2: You mentioned the two percent target of the Federal Reserve.
• 38:43
  Speaker 2: Did you work with Roger Ferguson when he was at Meryl. No,
• 38:47
  Speaker 2: I did not, But he eventually became vice chairman of
• 38:51
  Speaker 2: the Federal Reserve. Yes, and put out this delightful research
• 38:55
  Speaker 2: piece that said the two percent inflation target comes from
• 39:01
  Speaker 2: a New Zealand television show in the nineteen eighties and
• 39:04
  Speaker 2: it has nothing whatsoever to do with the modern economy.
• 39:08
  Speaker 2: I'm to this day delighted by that. And I don't
• 39:11
  Speaker 2: understand why the Federal Reserve continues to be so locked
• 39:15
  Speaker 2: in on two percent, which we had in the twenty
• 39:17
  Speaker 2: tens when yes, deflation was at risk. Correct Now that
• 39:21
  Speaker 2: we've moved from a monetary regime to a physical regime,
• 39:26
  Speaker 2: three percent seems to make more sense and we're there,
• 39:29
  Speaker 2: We're there. I don't know why they're stuck on that.
• 39:32
  Speaker 2: I think they're just afraid of making mistake Again. Part
• 39:36
  Speaker 2: of the normalization that, hey, the Fed's a little behind
• 39:40
  Speaker 2: the curve with what's going on in the rest of
• 39:43
  Speaker 2: the economy.
• 39:43
  Speaker 3: No, exactly, And I think one of the things that
• 39:47
  Speaker 3: has the market having to adjust is this idea of
• 39:51
  Speaker 3: a data driven FED. Right in a world where the
• 39:55
  Speaker 3: Fed's the only headline and the FED is giving forward guidance,
• 40:00
  Speaker 3: it's really easy to have low vall and for everyone
• 40:03
  Speaker 3: to just ride momentum. But in a normal world where
• 40:08
  Speaker 3: the FED has to respond to economic data, you and
• 40:12
  Speaker 3: I know economic data is a manifestation of human behavior.
• 40:16
  Speaker 3: It's volatile, right, So the FED is going to be
• 40:19
  Speaker 3: more volatile. Policy is going to be more volatile. It
• 40:23
  Speaker 3: means your interest rate curve, your yield curve, needs to
• 40:27
  Speaker 3: have some term premium in it. Remember that. And that's
• 40:31
  Speaker 3: part of the Great normalization. You know. I do the
• 40:35
  Speaker 3: math when I do some of my chats with the
• 40:38
  Speaker 3: younger folks on the team, and I say, okay, real growth, inflation,
• 40:44
  Speaker 3: term premium, see this thing. It's been zero or negative
• 40:48
  Speaker 3: for the last fifteen years. That's not normal.
• 40:51
  Speaker 2: So wait, you're saying the thirty year bond should pay
• 40:54
  Speaker 2: a higher yield than the ten year bond, higher than
• 40:56
  Speaker 2: the two year. Yes, I'm not familiar with. It's been
• 41:00
  Speaker 2: opposite for me, exactly. It's so hard.
• 41:02
  Speaker 3: Exactly.
• 41:03
  Speaker 2: So another quote of yours, which I assume is related
• 41:07
  Speaker 2: to this, is the era of set it and forget
• 41:11
  Speaker 2: it is over? Is that what we're saying here?
• 41:13
  Speaker 3: Yes, exactly. So you know what comes out of this
• 41:17
  Speaker 3: idea of the Great normalization is it's also an era
• 41:21
  Speaker 3: where we can't just passively close our eyes. By the
• 41:25
  Speaker 3: S and P five hundred market cap weighted index and
• 41:28
  Speaker 3: go to bed. It was a great fifteen year run.
• 41:32
  Speaker 3: But our view is that as cost of capital readjusts
• 41:37
  Speaker 3: as it's actually a positive number. This is where the
• 41:41
  Speaker 3: skill of corporate management starts to differentiate winners and losers.
• 41:45
  Speaker 3: And we move back to a world, right, and you
• 41:48
  Speaker 3: and I grew up in this world, that that fun
• 41:51
  Speaker 3: world where you're actually stock picking, where the research that
• 41:55
  Speaker 3: individual fundamental analysts were doing mattered and you had to say, hey, hey,
• 42:00
  Speaker 3: these guys are going to win because these management teams
• 42:03
  Speaker 3: are taking strategies that can work, and these management teams
• 42:08
  Speaker 3: are dropping the ball.
• 42:09
  Speaker 2: Huh. Really really super interesting given all of these changes
• 42:14
  Speaker 2: that we're witnessing. And again this is something else you've
• 42:17
  Speaker 2: written about, how do you separate the signal from the noise?
• 42:22
  Speaker 2: What's your process for filtering out what's just the noisy
• 42:26
  Speaker 2: data that's within the margin of error or just slightly
• 42:31
  Speaker 2: beyond and genuine important market information.
• 42:35
  Speaker 3: So this is the art, right, This is the art
• 42:37
  Speaker 3: of all of it, is separating the noise in the signal.
• 42:40
  Speaker 3: For us, the signal is always operates ultimately on just
• 42:45
  Speaker 3: two axes. Is what's really going on in terms of
• 42:49
  Speaker 3: the rate of change? In growth and what is going
• 42:52
  Speaker 3: on in terms of the rate of change of inflation,
• 42:55
  Speaker 3: because the rate of change of inflation is going to
• 42:58
  Speaker 3: give you an indication of policy bias, of rate bias.
• 43:02
  Speaker 3: And if you can focus on those two things and
• 43:05
  Speaker 3: every single piece of data you get, you say, what
• 43:07
  Speaker 3: does this mean for growth? What does this mean for inflation?
• 43:10
  Speaker 3: You can try to keep yourself sane at night.
• 43:13
  Speaker 2: Huh So, I'm curious as to February was a tough month.
• 43:19
  Speaker 2: We've seen volatility spike now up to twenty three or so.
• 43:23
  Speaker 2: I haven't even looked at it today with markets off
• 43:26
  Speaker 2: a couple of percent. The questions you're getting from clients,
• 43:31
  Speaker 2: what are you hearing, What are you hearing about tariffs,
• 43:33
  Speaker 2: about the post election regime change, about what's going on
• 43:38
  Speaker 2: in geopolitics, what's lighting your phone up? And what are
• 43:41
  Speaker 2: you telling these folks?
• 43:43
  Speaker 3: You know, obviously we would love to spend the bulk
• 43:45
  Speaker 3: of our time talking about asset allocation as it corresponds
• 43:50
  Speaker 3: to growth and inflation. Unfortunately, exactly to your point, Barry,
• 43:55
  Speaker 3: we're spending a disproportionate amount of time out of our
• 43:58
  Speaker 3: comfort zone being asked to respond to our understanding and
• 44:04
  Speaker 3: our expectations for the economic impacts of policy, and what
• 44:10
  Speaker 3: has complicated things, as you know, is that this administration
• 44:15
  Speaker 3: has chosen to implement policy fast and furious, and in
• 44:20
  Speaker 3: many cases quote unquote in parallel, right. I think that,
• 44:25
  Speaker 3: you know, coming off of the election, coming off of
• 44:28
  Speaker 3: the campaign season, a lot of us were trying, you know,
• 44:33
  Speaker 3: to build models based on well, they're going to sequence
• 44:36
  Speaker 3: things right, They're gonna you know, deliver some of the
• 44:39
  Speaker 3: bad news early and then you know the candy will
• 44:42
  Speaker 3: come at the end. I think what we're experiencing, especially
• 44:46
  Speaker 3: after the last fifteen years of this kind of one
• 44:50
  Speaker 3: or two note market right where it's been, what is
• 44:53
  Speaker 3: the FED saying, oh generative AI looks like good headlines
• 44:58
  Speaker 3: to seventeen lines a day of policy flood the zone.
• 45:04
  Speaker 3: So clients are asking for certainty, they're asking for clarity,
• 45:08
  Speaker 3: and it's hard. I'm going to be honest with you. So, look,
• 45:11
  Speaker 3: we're in the camp and this is a pure economic view.
• 45:14
  Speaker 3: I hope I'm not going to be accused of being political.
• 45:20
  Speaker 3: Pure economists will tell you that tariffs, particularly if implemented
• 45:24
  Speaker 3: over long periods of time and to the extent that
• 45:27
  Speaker 3: they cause trade war reciprocity tend to be destructive to
• 45:33
  Speaker 3: total global trade, and aggregate tend to be a one
• 45:37
  Speaker 3: time inflationary problem and tend you know, to to really
• 45:44
  Speaker 3: you know, kind of hurt the efficiency of markets, and
• 45:47
  Speaker 3: so I think we're seeing some of that. I think
• 45:50
  Speaker 3: it's very hard for CEOs and CFOs today to be
• 45:54
  Speaker 3: making decisions not knowing what the policy duration is going
• 45:59
  Speaker 3: to be. It's one thing to have a policy and say, okay,
• 46:01
  Speaker 3: we're deregulating X, or here's the new tax policy for
• 46:05
  Speaker 3: the next four years. I can work with that. When
• 46:08
  Speaker 3: you tell me we're having twenty five percent tariffs on lumber,
• 46:12
  Speaker 3: well how long, how much? Where aw's it going? You know?
• 46:17
  Speaker 3: I think that's the big question is is the inconsistency
• 46:21
  Speaker 3: of it and the questions of is this a negotiating tactic,
• 46:25
  Speaker 3: what are we negotiating for? How do I model it?
• 46:29
  Speaker 2: That kind of thing, And you know, it's really hard
• 46:32
  Speaker 2: to get a handle on this because let's just use
• 46:36
  Speaker 2: Canada and Mexico. The first tariff was floated and then
• 46:41
  Speaker 2: it was quickly resolved and it felt, oh, this is
• 46:43
  Speaker 2: just a negotiating tactic. The effect of the second twenty
• 46:49
  Speaker 2: five percent tariffs on Mexico and Canada and ten percent
• 46:52
  Speaker 2: tariffs on China. And it's not only surprising that it
• 46:59
  Speaker 2: was done, it's kind of perplexing. What are we getting
• 47:04
  Speaker 2: out of the tariffs with Canada When you look at
• 47:09
  Speaker 2: some of the supposed bases for this. The fentanyl that
• 47:13
  Speaker 2: comes into the United States is mostly brought in by
• 47:17
  Speaker 2: US citizens and smugglers. It's not coming in from either
• 47:22
  Speaker 2: Canadian lumber or oil, or televisions that are being built
• 47:28
  Speaker 2: in Mexico and sent over the border. It's you know,
• 47:32
  Speaker 2: it's kind of odd, especially given the North American Free
• 47:37
  Speaker 2: Trade Agreement that was negotiated to replace NAFTA was Trump's tready.
• 47:44
  Speaker 2: So the whole thing is kind of you know, clients
• 47:48
  Speaker 2: don't like to hear you say I have no idea
• 47:50
  Speaker 2: what's going on, and beware of people who say they do.
• 47:55
  Speaker 2: But it really feels like this is sort of arbitrary
• 47:59
  Speaker 2: and capricious, and we don't really know how this resolves.
• 48:03
  Speaker 2: It's sort of grit your teeth and write it out.
• 48:05
  Speaker 2: Is brace yourself, mauthora. That's what it feels like.
• 48:08
  Speaker 3: Just hold on and the way I always frame things,
• 48:12
  Speaker 3: as I say to people, look what kind of risk
• 48:15
  Speaker 3: premiums are there in the markets? When stocks are very expensive,
• 48:20
  Speaker 3: as they have been for a while, here, it tells
• 48:24
  Speaker 3: you risk premiums are tight. Right, things are quote unquote
• 48:27
  Speaker 3: price for perfection. When credit spreads are tight, it tells
• 48:31
  Speaker 3: you people are not requiring a premium for fear or
• 48:35
  Speaker 3: default or uncertainty. Right when there are no term premiums
• 48:40
  Speaker 3: in the in the United States Treasury curve, it's telling
• 48:43
  Speaker 3: you the same thing. So look, if this were all
• 48:46
  Speaker 3: happening against a backdrop where stocks were selling it fifteen times,
• 48:51
  Speaker 3: where you know we had eight hundred you know, basis points,
• 48:55
  Speaker 3: spreads in high yield, all this kind of stuff, you
• 48:58
  Speaker 3: and I might be saying, Hey, guys, yes there's uncertainty,
• 49:02
  Speaker 3: but this is a buying opportunity. Look, you know things
• 49:05
  Speaker 3: are selling off off of fifteen multiple. Where do you
• 49:07
  Speaker 3: think they're going to land at thirteen? We're going to
• 49:09
  Speaker 3: buy here, but we're not there. Markets hate uncertainty, and
• 49:15
  Speaker 3: they really hate uncertainty. When things are priced for perfection.
• 49:20
  Speaker 2: Does it give you a lot of room for error?
• 49:21
  Speaker 2: So let's talk about something more positive. AI has been
• 49:26
  Speaker 2: the big story for the past couple of years. Let's
• 49:29
  Speaker 2: talk a little bit about that and other emerging technologies
• 49:33
  Speaker 2: or innovations you think might impact the investing landscape over
• 49:38
  Speaker 2: the next decade. What are you looking at?
• 49:40
  Speaker 3: Yeah, so we're looking at at a lot of things.
• 49:43
  Speaker 3: But look, clearly, generative AI is transformative, There's no doubt
• 49:48
  Speaker 3: about it. I think the conundrum for investors is how
• 49:52
  Speaker 3: do you stay ahead of the revolution itself? And what
• 49:58
  Speaker 3: I mean by that is that, you know, technology innovation
• 50:03
  Speaker 3: tends to follow very clear scripts over history, and by that,
• 50:08
  Speaker 3: I mean you tend to get the big infrastructure build,
• 50:13
  Speaker 3: then you get the software applications, and then you get
• 50:17
  Speaker 3: mass economy wide deployment, and in that sequence you get
• 50:24
  Speaker 3: new killer apps and the quote unquote the winners of
• 50:27
  Speaker 3: that era. I'm not entirely sure that all the winners
• 50:32
  Speaker 3: have been identified with regard to generative AI. And while
• 50:36
  Speaker 3: the Magnificent Seven are magnificent on many, many, many financial attributes,
• 50:41
  Speaker 3: on many innovation attributes, you know, I think the market
• 50:46
  Speaker 3: is telling you that maybe they are not the only
• 50:49
  Speaker 3: winners here, and that maybe the growth in the infrastructure
• 50:54
  Speaker 3: build doesn't go on forever. And certainly our experience with
• 50:57
  Speaker 3: the Internet validates that. So you know, what are we
• 51:01
  Speaker 3: super excited about right now? We're we're super excited about
• 51:06
  Speaker 3: some of these AI adopters. We're looking at areas, whether
• 51:11
  Speaker 3: it's document recognition, voice recognition, all these various applications, the agents.
• 51:19
  Speaker 3: You know, how we're going to deploy AI into learning
• 51:23
  Speaker 3: agents to help human beings do things. Almost become the
• 51:28
  Speaker 3: white collar robot, if you will. I think, you know,
• 51:31
  Speaker 3: that's all very interesting, But where AI is likely to
• 51:36
  Speaker 3: have some of its most profound impacts is in healthcare
• 51:39
  Speaker 3: and the extent to which we're going to be able
• 51:42
  Speaker 3: to use large language models just to process data and
• 51:47
  Speaker 3: personalize medicine and personalized diagnostics and solutions, treatment plans so
• 51:54
  Speaker 3: much faster.
• 51:55
  Speaker 2: I saw a fascinating video the other day about AI
• 52:01
  Speaker 2: being used. So when you look at the history of healthcare,
• 52:04
  Speaker 2: it really started out as a little bit of chemistry,
• 52:07
  Speaker 2: and then it became biology, and then it became genomics.
• 52:10
  Speaker 2: And one of the challenges is trying to figure out
• 52:14
  Speaker 2: how protein folds and how different molecules interact with the
• 52:20
  Speaker 2: body's receptors and immune system. And it turned out that
• 52:25
  Speaker 2: like for the prior fifty years, we've identified a few
• 52:29
  Speaker 2: thousand different combinations of molecules and protein foldings, which is
• 52:36
  Speaker 2: key to figuring out what the genetic code operates in
• 52:40
  Speaker 2: actual life. And so they went from like the library
• 52:43
  Speaker 2: of twenty five hundred protein folding protocols to using AI
• 52:49
  Speaker 2: identifying like four hundred things exactly. Like it's an insane
• 52:53
  Speaker 2: order of magnitude, and we've only begun figuring out how
• 52:57
  Speaker 2: do these different proteins work on different parts of the
• 53:00
  Speaker 2: body and response to different diseases, infections, virus. It's like,
• 53:05
  Speaker 2: it's shocking that these aren't headlines yet. Yeah, just academic research,
• 53:11
  Speaker 2: but it seems like when people are talking about longevity,
• 53:16
  Speaker 2: it's not the cold plunge that's right to do it.
• 53:20
  Speaker 2: It's going to be all of these half a million
• 53:23
  Speaker 2: news correct protein designs tell us a little bit about
• 53:26
  Speaker 2: the investment opportunities that exist in the healthcare space.
• 53:29
  Speaker 3: So right now, you know, healthcare is one of the
• 53:33
  Speaker 3: sectors that we have moved over weight. You know, clearly
• 53:37
  Speaker 3: the healthcare sector over the last you know, decade, and
• 53:40
  Speaker 3: much of this bull market in large part has been
• 53:43
  Speaker 3: left behind and valuations have been you know, with the
• 53:47
  Speaker 3: exception of some of the obesity drugs, the pharmaceutical industry
• 53:52
  Speaker 3: has been squashed by by worries about regulation, squashed by
• 53:57
  Speaker 3: the power of the insurance companies, you know, squashed by
• 54:00
  Speaker 3: patent xpery, you know, squashed by a lot a lot
• 54:02
  Speaker 3: of things. But we think that that valuations are there.
• 54:06
  Speaker 3: We think that that's a great place to invest, and
• 54:09
  Speaker 3: you can do it obviously through venture and in the
• 54:12
  Speaker 3: public markets. Other themes that were super super excited about
• 54:17
  Speaker 3: our defense and space and the and the conjoint between
• 54:20
  Speaker 3: those two. You know, this idea that ultimately the way
• 54:26
  Speaker 3: we think about weaponry, the way we think about defense,
• 54:29
  Speaker 3: will be humanless, not unlike you know, some of what
• 54:34
  Speaker 3: you see in the sci fi movies and Star Wars,
• 54:37
  Speaker 3: unmanned vehicles doing the very surgical games of war, if
• 54:42
  Speaker 3: you will. So I think, you know, that's something we're
• 54:46
  Speaker 3: super excited about. Some of the innovations in the energy space,
• 54:50
  Speaker 3: not so much purely around clean tech or powering data center,
• 54:55
  Speaker 3: but really thinking about how do we more creatively use
• 54:59
  Speaker 3: and we're deuced dependency on some of these rare earth
• 55:02
  Speaker 3: materials to create battery autonomous vehicles another one. So all
• 55:09
  Speaker 3: of these areas the very very fascinating time to be
• 55:12
  Speaker 3: an investor in new tech.
• 55:15
  Speaker 2: Yeah, you mentioned autonomous and defense. This giant New York
• 55:20
  Speaker 2: Times article came out about the war in Ukraine and
• 55:24
  Speaker 2: the transition from World War one and two type trench warfare,
• 55:30
  Speaker 2: armored vehicles, tanks. Exactly seventy percent of the casualties inflicted
• 55:36
  Speaker 2: in the war as of recently are being driven by
• 55:41
  Speaker 2: drunk It's absolutely futuristic sci fi. When warfare changes that rapidly,
• 55:47
  Speaker 2: it has to make you raise the question, how do
• 55:49
  Speaker 2: the geopolitical alignments change?
• 55:53
  Speaker 3: Here?
• 55:53
  Speaker 2: We are, how we are? How do the big defense
• 55:56
  Speaker 2: companies like there's a reason Pallanteer has been super hot
• 56:01
  Speaker 2: and not necessarily Luckheyed Martin or Boeing correct, It's really
• 56:06
  Speaker 2: quite fascinating. I have two personal questions yes, to ask
• 56:10
  Speaker 2: you before we get to our favorite questions. All right,
• 56:14
  Speaker 2: starting with you wake up every morning at five oh seven.
• 56:18
  Speaker 2: So first, why five oh seven. It's such a specific
• 56:22
  Speaker 2: number as opposed to just setting the alarm for five
• 56:26
  Speaker 2: or five thirty. And then if you're up at five
• 56:29
  Speaker 2: oh seven, give us a day in the life of Morgan,
• 56:32
  Speaker 2: Stanley's chief investment.
• 56:33
  Speaker 3: Oh jeez, So I'm extraordinarily superstitious about odd numbers.
• 56:39
  Speaker 2: Really, yes, wait, you were applied mathematics undergraduate. Yeap, that doesn't.
• 56:47
  Speaker 3: It's just screams. I guess it's part of my lived
• 56:52
  Speaker 3: experience is that, you know, I always say to people, hey,
• 56:55
  Speaker 3: it's an odd number year, We're good, you know, really,
• 56:59
  Speaker 3: Oh my god, I'm very I'm very so I'm.
• 57:01
  Speaker 2: Trying to remember the Nobel laureate in physics. I'm drawing
• 57:04
  Speaker 2: a blank on his name. Who a grad student visited
• 57:07
  Speaker 2: his house and there's a horseshoe over the doorway. Yeah,
• 57:12
  Speaker 2: And the grad student says, professor, you don't you don't
• 57:15
  Speaker 2: believe in lucky charms and things like that, And the
• 57:19
  Speaker 2: response was maybe it was plank, I'm not sure, but
• 57:22
  Speaker 2: the response was, I'm told it works whether you believe
• 57:25
  Speaker 2: in it or not, which is which is pretty charming.
• 57:28
  Speaker 2: So but I believe in it. Odd numbers.
• 57:32
  Speaker 3: Is really so it's an odd number. So so look,
• 57:35
  Speaker 3: it was something you know, back in the day, one
• 57:39
  Speaker 3: of my jobs was I was a director of research,
• 57:41
  Speaker 3: and so I always had to be at my desk
• 57:43
  Speaker 3: right at six point thirty. So I got into the
• 57:46
  Speaker 3: routine of, you know, up five oh seven, you know,
• 57:48
  Speaker 3: do the quick twenty minutes on the treadmill, grabbed the
• 57:51
  Speaker 3: coffee shower out the door, and so that's you know,
• 57:54
  Speaker 3: still still me. You know, old dogs, new tricks. It's
• 57:57
  Speaker 3: been it's been really hard.
• 57:59
  Speaker 2: And how different and is every day as Cio is like,
• 58:02
  Speaker 2: I like to sometimes ask, what's the day in the
• 58:04
  Speaker 2: life like? But I suspect no two days are the
• 58:07
  Speaker 2: same for you.
• 58:08
  Speaker 3: Now, No two days are the same. But but Barry,
• 58:10
  Speaker 3: let me just tell you. I I wake up at
• 58:14
  Speaker 3: five h seven every day and the very first thing
• 58:17
  Speaker 3: I say is I am blessed that I have the
• 58:19
  Speaker 3: career that I have, that I have the seat that
• 58:22
  Speaker 3: I have at this point in my life because I
• 58:26
  Speaker 3: am learning every day. No two days are the same.
• 58:31
  Speaker 3: I get to hang out with the most amazing people
• 58:34
  Speaker 3: like you, you know, like my colleagues at Morgan Stanley,
• 58:38
  Speaker 3: like my clients, all of whom are you know, so
• 58:41
  Speaker 3: so interesting and successful in different ways. Going to meetings
• 58:46
  Speaker 3: where you get to hear Scott Vaisant speak at the
• 58:49
  Speaker 3: New York Economics Club, and you know, you're just really
• 58:53
  Speaker 3: feel alive, You feel plugged into the world and what's
• 58:57
  Speaker 3: going on. So I feel blessed every day and No,
• 59:01
  Speaker 3: two days are the same.
• 59:03
  Speaker 2: So last last career question. You've been watching the state
• 59:07
  Speaker 2: of the economy, the markets, just what's going on in
• 59:10
  Speaker 2: the world for just about twenty five thirty years. What's
• 59:14
  Speaker 2: been the most significant shift you've observed in wealth management
• 59:20
  Speaker 2: over that period.
• 59:22
  Speaker 3: Wow, that's a fantastic question. Look, I think if there
• 59:28
  Speaker 3: was one theme that I would say over my thirty
• 59:32
  Speaker 3: year career that has characterized everything, it has been the
• 59:37
  Speaker 3: democratization of reasonably sophisticated product. Right, So whether you know,
• 59:45
  Speaker 3: you talk about you know, first coming into the business
• 59:48
  Speaker 3: and the advent of you know, first mutual funds was
• 59:53
  Speaker 3: about democratization of you know, diversified stock investing U and
• 59:58
  Speaker 3: then you know passive asting as a way to get
• 1:00:01
  Speaker 3: access to an index in a you know, more technology
• 1:00:05
  Speaker 3: efficient way. You talk about the original rollout of quote
• 1:00:10
  Speaker 3: unquote liquid alternatives or evergreen type products. Uh, and now
• 1:00:16
  Speaker 3: we're at the point where, you know, we're talking about
• 1:00:19
  Speaker 3: very sophisticated private equity private credit products being contemplated for
• 1:00:25
  Speaker 3: four one K plans and being packaged in these structures
• 1:00:29
  Speaker 3: to give folks periodic liquidity. So democratization of you know,
• 1:00:35
  Speaker 3: sophisticated alpha and beta that that once upon a time,
• 1:00:39
  Speaker 3: I think, you know, when I, you know, started in
• 1:00:41
  Speaker 3: the industry, people would say, well, there's the market and
• 1:00:44
  Speaker 3: then there's the extra stuff, and that's and you've got
• 1:00:47
  Speaker 3: to figure it out. And if you don't like that,
• 1:00:49
  Speaker 3: own some bonds. I think now it's it's the democratization
• 1:00:55
  Speaker 3: of very sophisticated access, of access to sophistic cada products.
• 1:01:00
  Speaker 2: So let's jump to my favorite questions that I ask
• 1:01:04
  Speaker 2: all of my guests, starting with what are you streaming
• 1:01:07
  Speaker 2: these days? What are you watching to relax or on
• 1:01:10
  Speaker 2: the treadmill or just to keep you entertained?
• 1:01:13
  Speaker 3: Love streaming. The most recent thing I finished was something
• 1:01:17
  Speaker 3: called Shrinking Yeah, so yeah, so good. I've been watching
• 1:01:22
  Speaker 3: Prime Targets.
• 1:01:23
  Speaker 2: What are Prime Targets?
• 1:01:25
  Speaker 1: So?
• 1:01:25
  Speaker 3: Prime Target is a show about a mathematician who's working
• 1:01:31
  Speaker 3: in Oxford who is working on a thesis to generate
• 1:01:36
  Speaker 3: prime number combinations and permutations that supposedly, if he's able
• 1:01:43
  Speaker 3: to develop this algorithm as part of his PhD thesis,
• 1:01:47
  Speaker 3: would unlock or give folks the ability to hack almost
• 1:01:52
  Speaker 3: any system. And so of course it becomes a scenario
• 1:01:58
  Speaker 3: where you know, there's the bad guys are chasing him
• 1:02:01
  Speaker 3: to try to get his thing, and of course, you know,
• 1:02:04
  Speaker 3: the national security agencies are trying are chasing him, and
• 1:02:08
  Speaker 3: it's kind of a spy versus spy kind of thing,
• 1:02:11
  Speaker 3: and it's a poor, innocent nerd guy in the middle.
• 1:02:14
  Speaker 2: And what is surface or surfacing?
• 1:02:16
  Speaker 3: So Surface is a is a show also on Apple TV.
• 1:02:22
  Speaker 3: It's in its second season. It's about a woman who
• 1:02:26
  Speaker 3: kind of fakes her death as a way of leaving
• 1:02:29
  Speaker 3: behind her life and going back to England. She'd been
• 1:02:32
  Speaker 3: living in the United States. She was married in a
• 1:02:35
  Speaker 3: marriage that wasn't great, and she fakes her death to
• 1:02:39
  Speaker 3: go back to England to investigate what she thinks was
• 1:02:43
  Speaker 3: her mother's murder when she was a kid.
• 1:02:46
  Speaker 2: Huh really interesting. Let's talk about your early mentors who
• 1:02:50
  Speaker 2: helped shape your career.
• 1:02:52
  Speaker 3: Sure you know Bernstein was that seminal place, So the
• 1:02:56
  Speaker 3: two I would I would speak to one Sanders. Lou
• 1:03:01
  Speaker 3: Sanders was the CEO at Sanford Bernstein. In my humble opinion,
• 1:03:06
  Speaker 3: one of the greatest value investors, uh, certainly that I
• 1:03:10
  Speaker 3: ever met in my career. Just brilliant numbers person, very
• 1:03:16
  Speaker 3: very high integrity. Taught me how to be objective, to
• 1:03:21
  Speaker 3: get the emotions out of it, to build the model,
• 1:03:24
  Speaker 3: and have the discipline to build the model. Sally Crotchek,
• 1:03:27
  Speaker 3: we talked about one of my best friends in the business.
• 1:03:31
  Speaker 3: You know, someone that I care a lot about, someone
• 1:03:34
  Speaker 3: who showed me how to lead. Although we were peers.
• 1:03:38
  Speaker 3: She has a natural charisma and natural instinct for leading people.
• 1:03:45
  Speaker 3: She and I kind of worked side by side through
• 1:03:48
  Speaker 3: the nine to eleven crisis. I learned a lot from
• 1:03:52
  Speaker 3: her in terms of what people need from leaders when
• 1:03:57
  Speaker 3: things are tough. They look to leaders to say the
• 1:04:00
  Speaker 3: right things and do the right things and be strong
• 1:04:03
  Speaker 3: people and not get you know, bogged into headlines or theories,
• 1:04:07
  Speaker 3: but just to say, remember what we're here to do.
• 1:04:11
  Speaker 2: Let's talk about books. What are some of your favorites?
• 1:04:14
  Speaker 2: What are you reading?
• 1:04:14
  Speaker 3: Commons? What am I reading? So now this is going
• 1:04:18
  Speaker 3: to reveal my politics. The last book I finished was
• 1:04:21
  Speaker 3: a book called Prequel by Rachel Maddow, and it's a
• 1:04:25
  Speaker 3: very in the middle of reading, it's fantastic, she said,
• 1:04:30
  Speaker 3: it's captivating, and it's fantastic. And it's captivating and fantastic
• 1:04:34
  Speaker 3: not for good reasons, but it lays out some of
• 1:04:39
  Speaker 3: the dynamics of American history and American political dynamics between
• 1:04:46
  Speaker 3: the wars between World War One and World War Two
• 1:04:50
  Speaker 3: and the First America First movement in the United States
• 1:04:55
  Speaker 3: that was very much against America ever getting into World
• 1:05:00
  Speaker 3: War Two.
• 1:05:01
  Speaker 2: Very isolationists, very anti yes, and.
• 1:05:05
  Speaker 3: It was, and it was in this a way that's
• 1:05:08
  Speaker 3: similar to our current political dynamic. It ended up bringing
• 1:05:12
  Speaker 3: in some very different factions right where you had, interestingly,
• 1:05:17
  Speaker 3: coalitions of people who ended up being a political block
• 1:05:22
  Speaker 3: who came at things from very different points of view.
• 1:05:24
  Speaker 3: So you had kind of the Father Coglin part of
• 1:05:28
  Speaker 3: the movement. Father Coglin, for those who know, was a
• 1:05:32
  Speaker 3: very very famous Sunday radio show Catholic preacher and sacifist. Correct, Yeah,
• 1:05:40
  Speaker 3: but very isolationist. That was one dimension of it. And
• 1:05:44
  Speaker 3: then you had, you know, kind of the anti communist
• 1:05:47
  Speaker 3: and the anti immigrant sides of the party and some
• 1:05:52
  Speaker 3: other other dimensions to it. But it's fascinating book. Prequel
• 1:05:56
  Speaker 3: Rachel Mattow really recommend it.
• 1:05:58
  Speaker 2: Our final two questions, what sort of advice would you
• 1:06:02
  Speaker 2: give to a recent college grad interested in a career
• 1:06:06
  Speaker 2: in either wealth management or finance or anything related to
• 1:06:10
  Speaker 2: your work?
• 1:06:11
  Speaker 3: Yeah, so, and people hate when I say this because
• 1:06:17
  Speaker 3: it belies the path that I took. But I'm a
• 1:06:21
  Speaker 3: big believer in liberal arts education. I don't think that
• 1:06:26
  Speaker 3: to work on Wall Street, to be a great portfolio manager,
• 1:06:30
  Speaker 3: to be a great you know, economist, to be a
• 1:06:33
  Speaker 3: great strategist, that you have to study finance or business
• 1:06:38
  Speaker 3: administration or go to the Wharton School of Business. I
• 1:06:41
  Speaker 3: do not believe that. I believe we live in a
• 1:06:44
  Speaker 3: world where if you know how to read books, if
• 1:06:47
  Speaker 3: you know how to teach yourself things, if you know
• 1:06:49
  Speaker 3: how to learn how to learn, you can have a
• 1:06:52
  Speaker 3: phenomenal career. And it's exactly to your point, Barry, that
• 1:06:56
  Speaker 3: you and I entered the business twenty five thirty years ago.
• 1:07:00
  Speaker 3: Oh nothing's the same. It's all about adapting. And so
• 1:07:03
  Speaker 3: if I tell folks, study what you love, study what
• 1:07:07
  Speaker 3: you're passionate about, learn how to learn, and never lose
• 1:07:11
  Speaker 3: that hunger for knowledge.
• 1:07:12
  Speaker 2: Become an autodidact. Learn how to learn, learn how to
• 1:07:16
  Speaker 2: what's going on? Our final question, what do you know
• 1:07:19
  Speaker 2: about the world of investing today that you wish you
• 1:07:22
  Speaker 2: knew thirty years ago when you were first getting started.
• 1:07:25
  Speaker 2: And I don't mean by Amazon at iwin Apple at one.
• 1:07:29
  Speaker 2: I mean, what broad principle did you learn along the
• 1:07:34
  Speaker 2: way that would have been useful to have found out
• 1:07:36
  Speaker 2: much earlier that.
• 1:07:37
  Speaker 3: Being right is not what matters.
• 1:07:40
  Speaker 2: A you're going to have to expound on that being.
• 1:07:43
  Speaker 3: Right is not what matters. What matters in the long
• 1:07:46
  Speaker 3: run is what Einstein said, you know, decades ago. Remember
• 1:07:52
  Speaker 3: the power of compounding. If you save, if you're disciplined,
• 1:07:57
  Speaker 3: if you just have a consistent plan, you will highly
• 1:08:04
  Speaker 3: likely compound your wealth at at least seven and a
• 1:08:08
  Speaker 3: half to eight percent per year, which means you will
• 1:08:11
  Speaker 3: double your wealth every decade, double your savings. Whatever that
• 1:08:16
  Speaker 3: is for most of us, if we're lucky enough we
• 1:08:19
  Speaker 3: have you know, three four doublings in us. Just do that.
• 1:08:25
  Speaker 3: And it's not to say that what I do all
• 1:08:27
  Speaker 3: day doesn't matter, or what you do all day doesn't matter.
• 1:08:31
  Speaker 3: It's just at the end of the day, we're trying
• 1:08:34
  Speaker 3: to guide people. But as I say to my team,
• 1:08:38
  Speaker 3: I know, the likelihood I'm going to be right on
• 1:08:40
  Speaker 3: any given decision is at best fifty to fifty. What
• 1:08:44
  Speaker 3: matters is do we have a good plan and are
• 1:08:46
  Speaker 3: we being disciplined and consistent about it because compounding is
• 1:08:49
  Speaker 3: your friend.
• 1:08:50
  Speaker 2: Really fascinating stuff, Lisa, thank you for being so generous
• 1:08:54
  Speaker 2: with your time. We have been speaking with Lisa Shallatt.
• 1:08:58
  Speaker 2: She is chief investment officer at Morgan Stanley Wealth Management.
• 1:09:02
  Speaker 2: If you enjoy this conversation, check out any of the
• 1:09:05
  Speaker 2: five hundred previous discussions we've had over the past ten years.
• 1:09:09
  Speaker 2: You can find those at iTunes, Spotify, YouTube, wherever you
• 1:09:14
  Speaker 2: find your favorite podcast. Be sure and check out my
• 1:09:18
  Speaker 2: new book, How Not to Invest The Ideas, numbers and
• 1:09:23
  Speaker 2: Behaviors That Destroy Wealth out everywhere March eighteenth. I would
• 1:09:28
  Speaker 2: be remiss if I did not thank the crack team,
• 1:09:30
  Speaker 2: and I'll just put these conversations together each week. Andrew
• 1:09:34
  Speaker 2: Gavin is my audio engineer, and A Luke is my producer.
• 1:09:38
  Speaker 2: Sage Bauman is a head of podcasts here at Bloomberg.
• 1:09:42
  Speaker 2: Sean Russo is my researcher. I'm Barry Prudhos. You've been
• 1:09:47
  Speaker 2: listening to Masters of Business. Oh, I'm Bloomberg Radio. Y