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Interview With Gina Martin Adams: Masters in Business (Audio) · Masters in Business

0:03
Speaker 1: This is Masters in Business with Barry Ridholes on Bloomberg Radio.
0:08
Speaker 1: This week on the podcast, I sit down with Gina
0:10
Speaker 1: Martin Adams. She is the head of equity strategy at
0:14
Speaker 1: Wells Fargo, a giant bank here in the United States,
0:19
Speaker 1: and she's really a very very interesting person, a very
0:23
Speaker 1: senior woman in the position of equity strategy. You don't
0:27
Speaker 1: you know, for for most of the past few centuries
0:30
Speaker 1: that has very much been a male dominated position, and
0:33
Speaker 1: it's interesting to see somebody who is so smart and
0:37
Speaker 1: and experienced and articulate about how she approaches the business
0:44
Speaker 1: of dealing with institutional clients who are um looking to
0:50
Speaker 1: deploy their capital a way that makes sense relative to
0:52
Speaker 1: the amount of risk they want to assume. I found
0:55
Speaker 1: her to be quite fascinating and quite knowledgeable, and if
0:59
Speaker 1: you're at all interested in equity investing institutional trading, this
1:05
Speaker 1: is a person that you should probably listen to. So,
1:08
Speaker 1: with no further ado, here is my conversation with Gina
1:13
Speaker 1: Martin Adams. This is Masters in Business with Barry Ridholts
1:21
Speaker 1: on Bloomberg Radio. My guest today is Gina Martin Adams.
1:26
Speaker 1: She is the head of equity strategy for Wells Fargo Security,
1:30
Speaker 1: which is headquartered here in New York, at least the
1:33
Speaker 1: securities half of it. A little background about Gina. She
1:37
Speaker 1: is both a Chartered Financial Analyst and a Chartered market Technician.
1:43
Speaker 1: Not a lot of c f A slash c MT
1:46
Speaker 1: s around uh. She UH is also a member of
1:50
Speaker 1: the Financial Woman's Association and the Association of Professional Technical
1:56
Speaker 1: Analysts and a member of the Institutional Investors all amor
2:00
Speaker 1: A research team. Gina, welcome to Bloomberg. Thank you, thank
2:04
Speaker 1: you for having me, my pleasure. Um. So, you're kind
2:07
Speaker 1: of a unique analyst in the world. Um not only
2:11
Speaker 1: because of the path your your career took in the
2:14
Speaker 1: various places you've worked. But the only other person I
2:17
Speaker 1: know of who's both the cf A and a CMT
2:21
Speaker 1: is Jeff de Graf. Okay, they're I think they're about
2:25
Speaker 1: a hundred of us in the world now, maybe getting
2:27
Speaker 1: closer to and how many are there? Of thousands? Thousands
2:32
Speaker 1: and thousands. So let's jump right into this. Tell us
2:35
Speaker 1: a little bit about your background. How did you work
2:38
Speaker 1: your way into the financial services in Okay? So, I
2:41
Speaker 1: actually joined the company known as First Union right out
2:45
Speaker 1: of college. I went to the University of Florida. I
2:47
Speaker 1: thought I was going to be a marketing major, took
2:50
Speaker 1: my first finance course and literally fell in love. Added
2:53
Speaker 1: that to my UM to my docket. First Union, Now
2:56
Speaker 1: that wasn't isn't Tennessee, is it? No, it was in Charlotte,
2:59
Speaker 1: North Carol Charlotte. Yeah, it was in Charlotte, North Carolina.
3:02
Speaker 1: So they did a big recruiting down at the university.
3:06
Speaker 1: I ended up in a program called the Capital Management
3:10
Speaker 1: Groups Training Program. So where the securities business the investment
3:14
Speaker 1: banks all have their two year training program for bringing
3:17
Speaker 1: analysts into the investment bank. We had one for capital
3:20
Speaker 1: management investment management, and I joined that, rotated around UM,
3:26
Speaker 1: got to know the various divisions of capital management, and
3:28
Speaker 1: ended up on the in the Investments group. Yeah. Very interesting.
3:32
Speaker 1: So you mentioned First Union. I know of them through
3:36
Speaker 1: Wheat First Union, and that eventually down the road got
3:40
Speaker 1: taken over by Wacovia. I don't remember how many steps
3:43
Speaker 1: that were in between, and then many many steps there was,
3:47
Speaker 1: so there were a number of different things. Ultimately, UM,
3:51
Speaker 1: during the Great Recession, Wells Fargo took over. I think
3:56
Speaker 1: that turned out to be a pretty uh a pretty
3:58
Speaker 1: good fit. Yes, So what is a day in the
4:01
Speaker 1: life like for a strategist at at Will's Fargo. I
4:04
Speaker 1: don't think there is any day, to be honest with you,
4:07
Speaker 1: So it's different from day to day. Every day is different. Um,
4:11
Speaker 1: you know, the basics are you break my job into research,
4:16
Speaker 1: so coming up with an idea, researching those ideas, then
4:20
Speaker 1: writing those ideas into a report, and then communicating those
4:23
Speaker 1: ideas to the world. So you think of it in
4:25
Speaker 1: sort of three parts. Researching an idea, writing an idea,
4:28
Speaker 1: and communicating that idea. Getting that idea out is really
4:31
Speaker 1: what we're I'm focused on. So some days are very
4:34
Speaker 1: research intensive, some days are very communications intensive. It sort
4:38
Speaker 1: of depends, but what what sort of clients do you
4:41
Speaker 1: typically work with? So I'm dedicated to the institutional clients,
4:45
Speaker 1: So the portfolio managers of the world, the hedge fund
4:48
Speaker 1: managers of the world, the pension funds of the world
4:51
Speaker 1: as well. Um, professional investors are my audience. And there's
4:55
Speaker 1: been a lot of changes going on in the changes, yes,
4:59
Speaker 1: which must make your work pretty interesting. It does. It's
5:03
Speaker 1: you know, it's not interesting just because of the content,
5:06
Speaker 1: which I think is always interesting. You know, where is
5:08
Speaker 1: the equity market headed and how do we take advantage
5:11
Speaker 1: of different trends um in the macro economy in stocks.
5:14
Speaker 1: But it's also interesting in the client base and the
5:16
Speaker 1: struggles that they've gone through and the changes in the
5:20
Speaker 1: client base have been pretty phenomenal. I've been doing equity
5:22
Speaker 1: strategy now for nine years and my product has changed
5:26
Speaker 1: a lot, but also the client has changed a lot
5:28
Speaker 1: over the last nine years. So so let's work backwards
5:30
Speaker 1: nine years would put us at two thousand and seven. Yes,
5:34
Speaker 1: so you moved into equity strategy did just before just
5:40
Speaker 1: a small crash, small change in the charts. So what
5:44
Speaker 1: was it like starting this new position just as the
5:47
Speaker 1: world was going to help? So in two thousand and
5:50
Speaker 1: seven it was great. I actually worked as an economist
5:53
Speaker 1: for John Sylvia ar chief economist for several years before
5:56
Speaker 1: two thousand seven, and then moved in two thousand seven
5:59
Speaker 1: from Charlotte to New York to start this equity strategy product.
6:03
Speaker 1: Our entire equity trading businesses in New York, so it
6:06
Speaker 1: made a lot of sense for me to be here.
6:07
Speaker 1: So the move to New York was fantastic. You know,
6:10
Speaker 1: a lot of big changes we got. We had about
6:13
Speaker 1: six months to design a product and start putting it out.
6:16
Speaker 1: We were putting it out in two thousand seven to
6:18
Speaker 1: early two thousand and eight when things started to get
6:20
Speaker 1: a bit rocky, and then the summer of two thousand
6:23
Speaker 1: eight hit and we had really just gotten comfortable with
6:26
Speaker 1: getting the product out there, understanding the client base, and
6:29
Speaker 1: then it just went bananas. So what was it like
6:35
Speaker 1: at Wells Fargo when everything was just going or at
6:38
Speaker 1: the time when everything was going crazy? What what was
6:42
Speaker 1: that like? It was tough. You know. I can remember
6:46
Speaker 1: many days, especially over that summer after bear Um, many
6:51
Speaker 1: days of a lot of question marks is to where
6:53
Speaker 1: we were headed. There was one weekends you may recall,
6:55
Speaker 1: when it was who's going to buy Yes, who's going
6:58
Speaker 1: to buy wa Covia or take over Wacovia. Will it
7:01
Speaker 1: be City Bank or Wells Fargo, And it's kind of
7:04
Speaker 1: ironic that City Bank actually thought they could take anybody.
7:08
Speaker 1: They were on the verge of their own billot. It's yeah.
7:12
Speaker 1: In fact, it was a wild time period if memory serves.
7:16
Speaker 1: There was negotiation with the fd i C sort of
7:19
Speaker 1: managing it talking to City and when Wells Fargo stepped up,
7:23
Speaker 1: it was like Hey, thanks for coming by, but now
7:26
Speaker 1: a real buyers. Yeah, I mean I'm not overstating that,
7:29
Speaker 1: am I. Uh, you know, I don't know all the
7:31
Speaker 1: details of everything that happened. I can say internally there
7:35
Speaker 1: was a lot of rooting for Wells Fargo. Because Wells
7:38
Speaker 1: Fargo didn't have an investment bank, there would have been
7:42
Speaker 1: instant department, better capital, all sorts of better adjustments in
7:48
Speaker 1: terms of it was just easier on us. So from
7:50
Speaker 1: a personal perspective, you know, and for my colleagues as well,
7:54
Speaker 1: there weren't any competitors internally within Wells Fargo, so there
7:58
Speaker 1: was a chance that we could survive as opposed to
8:01
Speaker 1: going to somebody. They had. City had Solomon Brothers, they
8:03
Speaker 1: had all these other things. That sounds very big equity
8:06
Speaker 1: business at City. I'm Barry Ridhults. You're listening to Masters
8:10
Speaker 1: in Business on Bloomberg Radio. My special guest today is
8:13
Speaker 1: Gina Martin Adams. She is the equity strategist at Wells Fargo,
8:18
Speaker 1: and let's talk a little bit about what it's like
8:20
Speaker 1: to be a woman working in the world of finance.
8:24
Speaker 1: We've had other women's strategists like Liz Anne Saunders, Kelly
8:28
Speaker 1: Coffee is the head of the private banquet at JP Morgan.
8:32
Speaker 1: But something that Michelle Meyer said, she's one of the
8:35
Speaker 1: economists at Meryl Lynch, really really stayed with me, which was,
8:40
Speaker 1: and this is a quote, the lack of women at
8:44
Speaker 1: the top of the industry serves as a real challenge
8:47
Speaker 1: for women in finance. Do you agree with that? What
8:50
Speaker 1: do you think about that? Uh? You know, the way
8:52
Speaker 1: that I see it is being a woman on Wall
8:54
Speaker 1: Street is both a blessing and a curse. I mean,
8:57
Speaker 1: I think that there are a lot of blessings that
8:59
Speaker 1: come come along with being a woman on Wall Street.
9:02
Speaker 1: You are immediately recognizable right there are off with a
9:07
Speaker 1: white shirt and red tar, right, So you know, on
9:10
Speaker 1: on that hand, it's a blessing. It's a curse because
9:12
Speaker 1: you don't fit in still. But I think, you know,
9:17
Speaker 1: I have to admit there have been remarkable changes just
9:20
Speaker 1: in my career, and I meet a lot more women
9:23
Speaker 1: doing what I do, and a lot more women that
9:25
Speaker 1: sit across the table as clients today than I did
9:28
Speaker 1: even nine years ago when I started any strategy, and
9:31
Speaker 1: certainly more than I did twenty years ago when I
9:33
Speaker 1: started this business. So I started on a trading desk,
9:35
Speaker 1: and I remember the days of the boom boom rooms
9:38
Speaker 1: and the sexism on Wall Street was it was pretty
9:41
Speaker 1: much a frat house. That seems to have really matured dramatically, absolutely,
9:47
Speaker 1: and I had. I didn't see that in my career
9:50
Speaker 1: because I was on the buy side for the first
9:51
Speaker 1: several years of my career, and then I was an economist.
9:53
Speaker 1: So you know, I've only been in the equity business
9:56
Speaker 1: specifically for the last ten and I didn't see that
10:00
Speaker 1: in and certainly don't see that today. Well, it's completely different,
10:03
Speaker 1: it's completely change. What other changes have you seen that
10:06
Speaker 1: have taken place, whether it's on the equity side, I
10:10
Speaker 1: don't just mean as a woman, but what have you
10:12
Speaker 1: seen change over the course of your career. The most
10:16
Speaker 1: dramatic change, I think is the regulatory environment. It's post
10:20
Speaker 1: Dodd Frank, post financial crisis, post financial crisis, but also
10:24
Speaker 1: post tech bubble bursting. You know, I go back to
10:27
Speaker 1: the late nineties, and I did have a few years
10:29
Speaker 1: of experience in the nineties in the absolute boom years,
10:34
Speaker 1: you know, in the years when the investment bank was
10:36
Speaker 1: not entirely separate from the research division. While I was
10:40
Speaker 1: on the BI side and only peripherally noting these things.
10:44
Speaker 1: The changes from two thousand two to two thousand and four,
10:46
Speaker 1: I think we're very profound for the investment banking industry.
10:49
Speaker 1: And now the changes post financial crisis have been very
10:52
Speaker 1: profound for the banking industry at large. So you had
10:55
Speaker 1: to cris post crisis periods of regulatory change, and that's
11:00
Speaker 1: I think been the most profound change the citial services business.
11:03
Speaker 1: Then the analysts um the crisis that we saw on
11:06
Speaker 1: the the end ron Jack Grubman that that whole run
11:11
Speaker 1: of stuff was really those were enormous changes that took
11:15
Speaker 1: place because at one point in time, I think the
11:18
Speaker 1: retail investor thought the analyst community worked for them, and
11:22
Speaker 1: it was kind of a wake up call when they realized, no,
11:24
Speaker 1: it's part of investment banking. They're here to generate m
11:27
Speaker 1: and A and underwriting, not actually tell you what to
11:30
Speaker 1: buy and sell. I think that was a huge shock
11:33
Speaker 1: to people, very very big change. And so tell us
11:37
Speaker 1: about what you've observed firsthand post financial crisis, mostly due
11:43
Speaker 1: to the Dodd Frank changes. Well, you know, the first
11:46
Speaker 1: thing you observe is that the fastest growing divisions of
11:49
Speaker 1: banks are the regulatory and compliance departments. Really that's fascinating,
11:53
Speaker 1: but it's very account budget. Absolutely. Just keeping up with
11:57
Speaker 1: these compliance regulations is a tremendous allane. You also have
12:02
Speaker 1: a level of conservatism, and Wells Fargo has always been
12:05
Speaker 1: a very conservative organization, so I think, you know, there
12:09
Speaker 1: you were certainly unique in that in that aspect, but
12:12
Speaker 1: there's a level of conservatism across banks, and especially in
12:16
Speaker 1: investment banks that maybe didn't exist. The risk taking is
12:19
Speaker 1: not as extreme. Um, you know, there's always risk taking
12:23
Speaker 1: it is an investment bank, but I think the decision
12:25
Speaker 1: process is a little bit different considering the regulatory angle.
12:29
Speaker 1: I mean, obviously that there's been a shift in even
12:32
Speaker 1: the capacity to trade in these divisions is pretty much gone.
12:36
Speaker 1: So I think, you know, there have been a lot
12:38
Speaker 1: of changes, but a lot of them are related to
12:40
Speaker 1: regulatory pressures. The other big change that I see is,
12:44
Speaker 1: you know, there are really two. One is technological advancement
12:47
Speaker 1: is obviously changing the way in which we do business,
12:50
Speaker 1: and that's changed from when I started in this business.
12:53
Speaker 1: To make a trade in a mutual fund, you had
12:55
Speaker 1: to call a company, right, I mean, it wasn't It
12:58
Speaker 1: was very different. End of day trading at four oh
13:01
Speaker 1: one exactly, megaphone callet. Sometimes you wouldn't get a price
13:05
Speaker 1: till four or fifteen exactly. It took a while while
13:07
Speaker 1: we're waiting for some subtly accounts every night. I mean,
13:10
Speaker 1: just a totally different business model. Um. And I was
13:13
Speaker 1: fortunate enough in my rotational training program that we referenced
13:16
Speaker 1: earlier in the program, I was fortunate enough to sit
13:19
Speaker 1: on a desk where we designed the automated trading in
13:23
Speaker 1: mutual funds on the investment side of the business. Yeah,
13:26
Speaker 1: so that was in the late nineties. Um. The technology
13:30
Speaker 1: has been there for a long time. Yes, just building
13:32
Speaker 1: it and implementing right exactly. Think about there was no
13:35
Speaker 1: BlackBerry also right in the late nineties, nobody carried around
13:38
Speaker 1: a BlackBerry until right around two thousands your cell phone
13:41
Speaker 1: was voice exactly, a very big change. You could barely
13:45
Speaker 1: SMS that barely existed short messaging not at all, not
13:48
Speaker 1: at all. So that's just an example of how different
13:52
Speaker 1: it is so technology. And then what was the other
13:54
Speaker 1: thing I think is investor appetite for risk And this
13:58
Speaker 1: sort of speaks to what the retail investor is doing
14:00
Speaker 1: with their capital. You go all the way back to
14:03
Speaker 1: two thousand. That was pretty much the peak of household
14:05
Speaker 1: ownership of equity, right, and we have yet to recover
14:10
Speaker 1: from the two thousand and two thousand bubble. And then
14:12
Speaker 1: on top of that the two thousand two nine crash,
14:16
Speaker 1: and you you have the housing collapse in the middle
14:18
Speaker 1: of that, and then after that you have the commodities call.
14:21
Speaker 1: So that's four major booms that that the individual investor
14:26
Speaker 1: has lived through. And the investors today think very differently
14:29
Speaker 1: than the generation of investors prior to that. If you
14:32
Speaker 1: think about how the baby boomer generation sort of came
14:36
Speaker 1: up um in the workforce, they went through the two
14:40
Speaker 1: thousand biggest bull market, right, it was just incredible environment
14:45
Speaker 1: where obviously you owned stocks for the long haul, and
14:49
Speaker 1: obviously you put money to work in stocks, and you
14:51
Speaker 1: know your pension was clearly going to be there for you.
14:54
Speaker 1: Because the equity market was constantly rising, bonds were in
14:57
Speaker 1: a bull market at the same time. And then in
15:00
Speaker 1: two thousand, really starting in two thousand, those assumptions started
15:03
Speaker 1: to break um. And I think that that's a huge
15:07
Speaker 1: change for the industry at large, is what does the
15:09
Speaker 1: investor want out of us? What do they command out
15:13
Speaker 1: of us, and what is their perception of assets in
15:16
Speaker 1: general and their willingness to tolerate the risk that comes
15:20
Speaker 1: along with ownership. I'm Barry rid Halts. You're listening to
15:23
Speaker 1: Masters in Business on Bloomberg Radio. My special guest today
15:26
Speaker 1: is Gina Martin Adams. She is the head of Equity
15:30
Speaker 1: Strategy for Wills Fargo Security, which is located here in
15:35
Speaker 1: uh New York. In addition to being a member of
15:38
Speaker 1: the Institutional Investors All America Research team, she is both
15:44
Speaker 1: a chartered financial analyst and a chartered market technician, which
15:48
Speaker 1: is a unique and interesting combination. And prior to working
15:53
Speaker 1: at Wells Fargo, she was at Wacovia in the economics department,
15:57
Speaker 1: which was acquired by Will's RGO. During the financial collapse,
16:02
Speaker 1: Let's talk a little bit about that summer, which was
16:05
Speaker 1: a fun period of Wall Street history. Um, even though
16:09
Speaker 1: there was so much um, in hindsight, it's a fascinating era.
16:13
Speaker 1: At the time, it was pretty frightening. People were genuinely
16:17
Speaker 1: afraid that the system itself was going to break the
16:20
Speaker 1: entire financial system. Yeah, it was. It was brutal, to
16:23
Speaker 1: say the least. I mean, what was amazing about that
16:26
Speaker 1: summer is if you look back at what the market
16:28
Speaker 1: did between the Bear Stearns collapse, which was let's call
16:33
Speaker 1: that March spring, the spring of sometime, and then the
16:39
Speaker 1: big moment for us, obviously was the acquisition of Wacovia
16:43
Speaker 1: by Wells Fargo in September from the city. All Right,
16:48
Speaker 1: the markets were actually remarkably stable during that period. They
16:51
Speaker 1: were bouncing up and down, they were bouncing up and down,
16:53
Speaker 1: but they were range bound. And then September happened and
16:56
Speaker 1: it was an absolute crash. But I distinctly recall sitting
17:00
Speaker 1: in my office during that summer and thinking, why is
17:02
Speaker 1: the market so ridiculously stable? What does the market know
17:06
Speaker 1: that I don't know? And you think back to that
17:07
Speaker 1: period and there were a lot of people saying Bear
17:09
Speaker 1: was the big moment, for the big moment, and that
17:12
Speaker 1: was going to be it. And then suddenly you had
17:15
Speaker 1: this just wave of trouble that occurred in the in
17:19
Speaker 1: the fall. So even though that summer we think of
17:21
Speaker 1: it as you know, that was when everything happened, it
17:24
Speaker 1: was really the fall when everything happened, because the summer
17:26
Speaker 1: was a quiet period. It was, oh, you know, things
17:28
Speaker 1: really don't seem stable, but the market seems somewhat stable.
17:31
Speaker 1: What's going on here? And then it just absolutely fell, um,
17:35
Speaker 1: you know, through the floor. People forget if if you're
17:38
Speaker 1: if you're not looking at the charts, if you're not
17:40
Speaker 1: looking at the timeline housing prices. I want to say,
17:44
Speaker 1: housing volumes peaked in OH five, and then prices peaked
17:47
Speaker 1: in and then when housing began to roll over and
17:51
Speaker 1: everything associated with mortgages. So first you have the banks,
17:57
Speaker 1: and then you have the securities firm, and then you
17:58
Speaker 1: have the home builders. As home prices fell, that started
18:02
Speaker 1: a cascade. I've argued that Lehman was just the first
18:07
Speaker 1: trailer to get taken out by the tornado. It didn't
18:10
Speaker 1: cause everything. As home prices were falling, that storm was
18:14
Speaker 1: going to take everything in its path. So so you're
18:17
Speaker 1: at withall Covia. What is it like when when you
18:19
Speaker 1: you're hearing internally, hey we might get brought by city.
18:23
Speaker 1: Here's what's going on? What? What? What did that feel like? Uh?
18:27
Speaker 1: It was pretty awful. I mean, I don't want to
18:29
Speaker 1: say it was debilitating. We still were producing research and
18:31
Speaker 1: kind of wondering what the point was. But nonetheless, week
18:35
Speaker 1: I was in New York. I was in New York
18:38
Speaker 1: and had just for a year been doing equity strategy
18:41
Speaker 1: at that point, So it was it was tricky because
18:43
Speaker 1: you kind of wondered, you know, where are we going
18:45
Speaker 1: to end up? What are the On a daily basis,
18:48
Speaker 1: your color, my colleagues and I would discuss what are
18:52
Speaker 1: what are What's going to happen to us? Right? It
18:54
Speaker 1: was as much as we wanted to do business as usual,
18:57
Speaker 1: so much of your day was dedicated to following what's
19:00
Speaker 1: happening in the financial news, what's happening in the financial stocks?
19:03
Speaker 1: You know who's crashing today? Um, you know where where's
19:08
Speaker 1: the next crisis? And how are we going to survive this? Uh?
19:11
Speaker 1: So it was it was really tough. Is the best
19:15
Speaker 1: the best word that I can can use to describe it,
19:17
Speaker 1: because it was in a lot of ways, because somewhat
19:20
Speaker 1: indescribable because it was such a unique experience. And I
19:22
Speaker 1: recall having conversations with people walking down the streets of
19:26
Speaker 1: Manhattan and saying, you can feel the tension in the
19:30
Speaker 1: as It wasn't just me projecting. There was a genuine
19:34
Speaker 1: angst throughout the entire city, and I imagined throughout any
19:37
Speaker 1: other financial center in the world, right, And so when
19:41
Speaker 1: did you guys find out? Oh, by the way, Wills
19:43
Speaker 1: Fargo was our white night, everything is fantastic. Well, it
19:46
Speaker 1: was a weekend. It happened over a weekend, as all
19:50
Speaker 1: great news does. I remember it was a weekend, and
19:52
Speaker 1: I remember the exact day, but I remember it was
19:54
Speaker 1: a weekend. We knew that Wells Fargo had bought us,
19:56
Speaker 1: but there was still a big question mark in our minds,
19:58
Speaker 1: and that was Wells Fargo historically had not, you know,
20:03
Speaker 1: been interested in taking the risk of having an investment bank.
20:06
Speaker 1: It's a very dedicated, very conservative, large bank, but having
20:13
Speaker 1: an investment bank was not something they historically had been
20:15
Speaker 1: interested in. So in the investment bank, we wondered, you know,
20:19
Speaker 1: are they actually going to be interested in the investment bank.
20:21
Speaker 1: And as much as they told us yes, everything's fine,
20:25
Speaker 1: I don't think anyone felt fine with it really until
20:29
Speaker 1: the end of two thousand eight, early two thousand nine,
20:32
Speaker 1: when we've got much more communication about you know, this
20:35
Speaker 1: is happening, you really are part of this bank. So
20:38
Speaker 1: there was a period of time where, you know, the
20:41
Speaker 1: markets were imploding, and that implosion itself made you question
20:45
Speaker 1: how much risk this giant institution was willing to take
20:47
Speaker 1: on with its investment bank. Um, but I think we really,
20:51
Speaker 1: we all started to feel a lot better late two
20:53
Speaker 1: thousand early two thousand nine that at the very least,
20:55
Speaker 1: what Covia in its former self would survive as a
20:58
Speaker 1: you know what Covia's investment bank would survive as a
21:00
Speaker 1: portion of Wells Fargo. I'm Barry Ridholts. You're listening to
21:03
Speaker 1: Masters in Business on Bloomberg Radio. My special guest today
21:07
Speaker 1: is Gina Martin Adams. She is the head equity strategist
21:12
Speaker 1: at Wells Fargo Securities located here in New York. And
21:17
Speaker 1: let's talk a little bit about your unusual background. Both
21:20
Speaker 1: a Chartered market technician meaning you look at charts, your technician,
21:26
Speaker 1: and a cf A meaning you can do the full
21:29
Speaker 1: fundamental analysis. UM, we had Jeff degraph On. He is
21:33
Speaker 1: really the only other person I know of personally who's
21:37
Speaker 1: both a A, a c MT and a c f A.
21:42
Speaker 1: I think you mentioned there there are a hundred or
21:44
Speaker 1: so of you folks. What motivated you to to go
21:48
Speaker 1: that route and get both designations? Yeah, it's it's a
21:51
Speaker 1: great question. I actually started as a fundamental analyst. UM.
21:55
Speaker 1: I think every university in the country in the if
21:58
Speaker 1: you were taking taking finance courses, you were taught a
22:01
Speaker 1: fundamental way to look at the market right and and
22:03
Speaker 1: ultimately you have to take the three part exam in
22:08
Speaker 1: investment management. It was very promoted, you know, going to
22:11
Speaker 1: do the c f A. It's it's your next step.
22:13
Speaker 1: So I definitely did that and found it very valuable.
22:16
Speaker 1: But when I was working as an economist, UM, we
22:19
Speaker 1: really struggled to explain things like oil prices and where
22:23
Speaker 1: oil prices were going at the time. Remember between two
22:25
Speaker 1: thousand one and two thousand eight, oil prices just soared.
22:30
Speaker 1: We we struggled to explain oil prices where went pretty
22:36
Speaker 1: went out of control, right. And we also really struggled
22:39
Speaker 1: and I think most shops have struggled with forecasting the
22:41
Speaker 1: tenure treasury bund the famous Greenspan's famous conundrum. Why is
22:46
Speaker 1: the tenure treasury staying low despite short rates moving higher?
22:49
Speaker 1: And what's happening here? So I started to develop a
22:52
Speaker 1: lot more respect for what, you know, what the market
22:55
Speaker 1: was actually telling me what and wanted to look at
22:57
Speaker 1: the charts and wanted to explore other options because sometimes
23:03
Speaker 1: the price trend goes beyond the fundament what fundamentals can justify.
23:08
Speaker 1: And so I started looking into the technicians designation. UM
23:12
Speaker 1: went through that process and I didn't take a course.
23:17
Speaker 1: I did it all on my own. Really. Yeah, it's
23:19
Speaker 1: very similar to the CFA where you read, you know,
23:22
Speaker 1: I don't know, eight different textbooks and you get a
23:25
Speaker 1: test at three different tests to pass the test. And
23:28
Speaker 1: so I didn't exactly do a course, but I will
23:31
Speaker 1: say there were some figures that really there's some um,
23:34
Speaker 1: you know, practitioners of technical analysis that really made a
23:37
Speaker 1: big impression on me. And one is John Murphy did
23:42
Speaker 1: a lot of work on inner market analysis, which you know,
23:45
Speaker 1: I think it really speaks to fundamental investors in a
23:49
Speaker 1: lot of way. You know, we all know that there's
23:50
Speaker 1: an economic cycle. It's a very fundamental tenant. But here
23:54
Speaker 1: is a technician talking about how to describe that economic
23:56
Speaker 1: cycle and charts and relative sector performance and the like. UM,
24:00
Speaker 1: here's the technician talking about bonds versus stocks, versus commodities
24:05
Speaker 1: and different cycles that occur through time. There thing, it's
24:09
Speaker 1: a lot of crossover, I think between fundamentals and technicals UM.
24:13
Speaker 1: In some of Mercy's Murphy's work, and I really appreciated that.
24:17
Speaker 1: And then you know, I think on the technicals, there's
24:21
Speaker 1: no better explanation for market sentiment than the price itself. Right,
24:26
Speaker 1: and say that again, there's no better explanation for sentiment
24:30
Speaker 1: than meaning people are affected by whether their portfolios are
24:34
Speaker 1: going up or down exactly. Well, just price is representative
24:37
Speaker 1: of sentiment, right, It's what stocks are doing is in
24:41
Speaker 1: and of itself sentiment. If stocks are rising, you've got
24:45
Speaker 1: buyers willing to bid up prices. If stocks are falling,
24:49
Speaker 1: you've got sellers willing to take less. Right. So there's
24:54
Speaker 1: there's a psychological component that is completely and totally described
24:59
Speaker 1: through price that I absolutely appreciate. So so let's talk
25:03
Speaker 1: about that because I sense a bit of a chicken
25:06
Speaker 1: and egg conundrum. Are buyers bullish and are driving prices higher?
25:12
Speaker 1: Or do buyers having just bought feel bullish, because now
25:17
Speaker 1: that represents I think there's a little bit of both.
25:19
Speaker 1: I think there's a little bit of both, And again
25:22
Speaker 1: it's sentiments, so it's a fuzzy measure, but I do
25:26
Speaker 1: think there's a little bit of both. And what we've done,
25:29
Speaker 1: some of our work is has focused along even describing valuation,
25:33
Speaker 1: which is a fundamental concept in technical terms. So if
25:36
Speaker 1: you look over a long period of history and you
25:39
Speaker 1: look at the market valuation and how it moves. A
25:41
Speaker 1: lot of people look at valuation and they say, okay,
25:43
Speaker 1: relative to a mean, whereas valuation, assuming the valuation is
25:47
Speaker 1: always mean, revert. And that may be true over long
25:49
Speaker 1: periods of time. But if you really look at the
25:51
Speaker 1: chart of the market pe it actually trends. Valuations go
25:55
Speaker 1: through periods of time where they're rising, and they go
25:58
Speaker 1: through periods of time where they're falling. I could not
26:00
Speaker 1: possibly agree more. I've argued that people misunderstand what a
26:04
Speaker 1: bull market is. A bull market isn't just a rise
26:07
Speaker 1: in price. A bull market is an increasing willingness by
26:11
Speaker 1: buyers to pay more for the same share of stock, absolutely,
26:15
Speaker 1: and that's represented in valuations, which ultimately drive prices high. Right,
26:18
Speaker 1: And you see valuations peak at the end of a
26:20
Speaker 1: bull market and bottom at the end of a bear market,
26:23
Speaker 1: more or less. So there's there's a great chart. I'll
26:27
Speaker 1: fold it to you. I'm trying to remember who put
26:29
Speaker 1: it out that literally breaks bull and bear markets into
26:34
Speaker 1: the top half of the charters. Price the bottom half
26:37
Speaker 1: of the charters valuation, and if you look at it,
26:39
Speaker 1: it's pretty clear they trend together and not not a
26:43
Speaker 1: big surprise. So so given that which is more significant
26:48
Speaker 1: for your market calls. Is it the valuation or is
26:52
Speaker 1: it the charts um? It's completely dependent on time period, Okay, right,
26:56
Speaker 1: so we use we use technicals a lot more in
27:00
Speaker 1: describing short term trends in the market right where we're
27:04
Speaker 1: talking about you, where is the market likely to go
27:06
Speaker 1: over the next three to six months? We oftentimes will
27:08
Speaker 1: reference things like what's breath doing, is breath expanding or contracting?
27:12
Speaker 1: What's momentum doing? Is it confirming or diverging from price?
27:15
Speaker 1: And what does that mean for the short term outlook
27:17
Speaker 1: for stocks? I'll use technicals for long term trends. When
27:22
Speaker 1: major crossovers occur in moving averages, then you get a
27:24
Speaker 1: better sense of whether you're in your entering a longer
27:27
Speaker 1: term bear or or exiting a longer term bowl or
27:30
Speaker 1: vice versa. Um. When we look at sort of valuing
27:35
Speaker 1: the market, it's a fundamental concept, right what is a
27:38
Speaker 1: fair value for stocks right now is a completely fundamental concept.
27:43
Speaker 1: And when we look at sort of forward twelve month
27:45
Speaker 1: ideas for where should stocks trade. It's a fundamental concept,
27:49
Speaker 1: but I don't think that they're completely I don't. I
27:52
Speaker 1: don't think you should detach fundamentals from technicals. I think
27:54
Speaker 1: that technicals describe the market and can be incredibly additive
27:58
Speaker 1: to a fundamental process us as well. I mean, there
28:01
Speaker 1: are a lot of fundamental analysts who I call closet technicians.
28:05
Speaker 1: There are a lot of that's for sure, fundamental analysts
28:07
Speaker 1: who don't they they'll tell you they don't believe in technicals.
28:10
Speaker 1: But what fundamental analysts doesn't look at a price chart?
28:13
Speaker 1: You know? Ralph what technicals are? Ralph Akampora, who um
28:17
Speaker 1: pretty much created the Market Technicians Association way back when
28:22
Speaker 1: used to say fundamentals tell you what to buy and
28:25
Speaker 1: technicals tell you when to buy. And I think that's
28:28
Speaker 1: significant for people who are wondering why we talk about
28:31
Speaker 1: charts versus listeners who, maybe hearing well, don't the fundamentals.
28:35
Speaker 1: Isn't that what matters? Yes, but sometimes the stock has
28:38
Speaker 1: already run up and you want to know about that
28:41
Speaker 1: before before you put money to work. So so um,
28:44
Speaker 1: between the two of them, which is the more significant
28:48
Speaker 1: when it comes to making a buy or cell decision. Again,
28:51
Speaker 1: I use technicals more for timing and fundamentals more for
28:55
Speaker 1: long term. But if you look at my model, for instance,
28:57
Speaker 1: for sector selection, which is what we spend the vast
29:01
Speaker 1: majority of our time on his sector and industry selection
29:03
Speaker 1: allocation recommendations, Um, it's equal parts technicals and fundamentals. It's
29:08
Speaker 1: equal parts price momentum, learning through vision momentum as the
29:11
Speaker 1: more technical concepts, and valuation and learning's estimate achievability, which
29:16
Speaker 1: are the more fundamental concepts. So I literally use them
29:19
Speaker 1: in equal parts for the vast majority of my work.
29:22
Speaker 1: So I'm going to ask you the same question, but
29:24
Speaker 1: I asked the inverse of it, between technicals and fundamentals.
29:29
Speaker 1: Which impact of those forces do you get more grief
29:33
Speaker 1: about from from customers? Meaning when you make a technical
29:38
Speaker 1: call and and customers push, what generates more pushback? The
29:42
Speaker 1: technical calls are the fundamental technical real zero on the
29:47
Speaker 1: fund Well, the fundamental side is a narrative, and people
29:51
Speaker 1: can wrap their head around that the technicals are well,
29:53
Speaker 1: this is what the chart says in some people obviously
29:56
Speaker 1: have a hard time. Yeah, well, and somebody very much
30:00
Speaker 1: more brilliant than me, stated Um, you put this idea
30:03
Speaker 1: in my head years ago that one of the sort
30:06
Speaker 1: of you know, more disappointing aspects of our community of
30:10
Speaker 1: investment investment professionals is we have this tendency to water
30:14
Speaker 1: our weeds and pull our flowers, right instead of watering
30:18
Speaker 1: our flowers and pulling our weeds, and technicals help you
30:22
Speaker 1: not to do that. They help you to continue to
30:24
Speaker 1: write a price trend that's still moving higher, even if
30:27
Speaker 1: valuations are getting a bit stretched and every fundamental part
30:30
Speaker 1: of your body is saying, maybe I don't necessarily want
30:33
Speaker 1: to continue to own this stock. The technicals helped help
30:36
Speaker 1: you to stay in that trade. On the other on
30:38
Speaker 1: the other end, if the fundamentals are still great but
30:40
Speaker 1: the price trend is turned, the technicals tell you to
30:42
Speaker 1: get out of that idea. Right. But on in this business,
30:47
Speaker 1: we have this tendency to want to ignore the technicals
30:49
Speaker 1: and really focus on what we truly believe, which is
30:52
Speaker 1: our sort of fundamental basis for why I bought that
30:54
Speaker 1: stock or why I'm selling that stock. And sometimes the
30:57
Speaker 1: technicals tell you that you're wrong, and we need to
30:59
Speaker 1: respect that. The narrative is very reassuring. Look, everybody, whoever
31:03
Speaker 1: started on a trading desk in this business as I did,
31:06
Speaker 1: or pretty much any other part of the of the
31:09
Speaker 1: financial industry is always told uh, cut your losers short
31:13
Speaker 1: and let you winners run. Understanding that and actually doing
31:16
Speaker 1: it are two completely different things. So for listeners who
31:20
Speaker 1: might want to find any of your research or writing,
31:22
Speaker 1: where's the best place for them to go? Well, it's
31:25
Speaker 1: pretty restricted, actually. The I am the institutionally designated equity strategies,
31:30
Speaker 1: so my work is as I send it out on
31:32
Speaker 1: a distribution list, so they can contact me at Gina
31:35
Speaker 1: dot Martin Adams at Wells Fargo dot com and I
31:37
Speaker 1: can get them on the distribution. But generally, if you
31:40
Speaker 1: want to get access to my research, you have to
31:42
Speaker 1: be able to get through to our website, which means
31:44
Speaker 1: you have to be an institutional investor. If you have
31:47
Speaker 1: enjoyed this conversation, be sure and check out our podcast AFTRAS,
31:50
Speaker 1: where we keep the tape rolling and continue chatting about
31:53
Speaker 1: all things equity. Be sure and check out my daily
31:58
Speaker 1: column on Bloomberg View dot com or follow me on
32:01
Speaker 1: Twitter at Rid Halts. We love your comments, feedbacks and suggestions.
32:06
Speaker 1: Be sure and right to us at m IB podcast
32:09
Speaker 1: at Bloomberg dot net. I'm Barry Ridlts. You've been listening
32:14
Speaker 1: to Masters in Business on Bloomberg Radio. Welcome to the podcast.
32:19
Speaker 1: I'm here with Gina Martin Adams, who I keep saying
32:21
Speaker 1: her name faster and faster, and that's why I stopped
32:24
Speaker 1: during the broadcast to say Gina Martin Adams, because Sunday
32:28
Speaker 1: became Gina Martin Adams. UM. So you were talking during
32:33
Speaker 1: the broadcast portion about um the change that technology has
32:38
Speaker 1: wrought to the industry. So I have just it happened
32:42
Speaker 1: today is the only reason why the story is so
32:45
Speaker 1: fresh in my mind. So as is often it's ilk
32:48
Speaker 1: the long On Railroad had had the whole system is
32:52
Speaker 1: closed this morning, not actually not for anything they did wrong.
32:56
Speaker 1: Somebody was struck by a train and anytime there's a
32:59
Speaker 1: you know, one of those events, everything freezes. I don't know,
33:03
Speaker 1: it's it's terrible and I want to go into the details.
33:05
Speaker 1: But so a bunch of people at my train station
33:10
Speaker 1: we all jump in a cab and we head over
33:13
Speaker 1: to Manhasset, which is the adjacent train line, which is
33:17
Speaker 1: unaffected by this because it's where the accident was is
33:21
Speaker 1: bypassed one of the gentlemen um isn't. One of the
33:25
Speaker 1: people in the in the cab is an older gentleman.
33:28
Speaker 1: And we were all talking about, you know, what we
33:30
Speaker 1: were doing, and and he was going in for a
33:33
Speaker 1: board meeting. And he worked in the industry years ago,
33:37
Speaker 1: and he was telling the story that in the nineties,
33:40
Speaker 1: sixties and seventies, clients would come into their office not
33:45
Speaker 1: only with stock certificates, but with cash. And he had
33:50
Speaker 1: to get a carry permit for a handgun because he
33:54
Speaker 1: was the manager of the office. And he had a
33:56
Speaker 1: walk around the block often carrying hundreds of thousands of
34:00
Speaker 1: dollars worth of certificates Bearraman's cash. I'm like, what, what
34:04
Speaker 1: sort of a caveman industry? So I said, so let
34:10
Speaker 1: me And he's been sort of out of the business
34:12
Speaker 1: for a few years. He's on some boards. He's in
34:15
Speaker 1: the city, I guess once a month or something like that.
34:18
Speaker 1: Let me tell you how the technology has changed. We
34:21
Speaker 1: have a scanner for our local bank account, and we
34:24
Speaker 1: have a scanner for our custodian And when checks come in,
34:28
Speaker 1: we don't even take them to the bank. They get scanned,
34:32
Speaker 1: a photo copy gets uploaded to I shouldn't even call
34:35
Speaker 1: it a photo copy. A scan of of the of
34:38
Speaker 1: the check gets uploaded to our cloud, and after we
34:43
Speaker 1: get the confirm thirty seconds later that the deposit has accepted,
34:48
Speaker 1: the check gets shredded. It's not like you even have
34:51
Speaker 1: to walk around the corner to the bank to make
34:54
Speaker 1: a deposit. And this guy's telling stories about having to
34:57
Speaker 1: carry a handgun because New York was not the safest place,
35:00
Speaker 1: and so you you were telling the story about how
35:03
Speaker 1: technology has changed stuff. All I can think of is
35:07
Speaker 1: this poor guy literally is packing heat because he has
35:10
Speaker 1: bonds and sirs, and he said he goes he occasionally
35:13
Speaker 1: would get a big pile of cash, but just for
35:15
Speaker 1: the certificates. And you know, you take a bear of bonds,
35:19
Speaker 1: that's as good as cash if you could take if
35:22
Speaker 1: you're sophisticated enough thief back in the nineteen seventies. So
35:25
Speaker 1: that's how much technology. Imagine you're working in a brokerage
35:28
Speaker 1: from and you have to get a gun so you
35:30
Speaker 1: could deposit client assets. Just just insane. So you talked
35:37
Speaker 1: about technology. One of the things we didn't get to
35:40
Speaker 1: is there's been a bit of a shift. It's it's
35:44
Speaker 1: not everybody but there's a big shift away from active
35:49
Speaker 1: to passive. How does that impact what you do? What
35:52
Speaker 1: do you what do you see from from your perch
35:55
Speaker 1: looking at institutional trading. Um, So it's definitely impacted my
36:01
Speaker 1: client base. I'd say that's the biggest impact is in
36:03
Speaker 1: the client base. How money has managed and the products
36:07
Speaker 1: that they offered at customers are very different. So you know,
36:11
Speaker 1: it doesn't impact my work as much because I'm still
36:15
Speaker 1: making sector and industry allocations, recommendations that's still ultimately is
36:20
Speaker 1: relevant for if I'm going to buy, for instance, if
36:23
Speaker 1: I'm going to go along a healthcare et F or
36:26
Speaker 1: a technology e t F, It's still relevant there. But
36:30
Speaker 1: for clients it's it's changed a lot. Our clients are
36:33
Speaker 1: the institutional investors. What are the products that they're their
36:36
Speaker 1: clients are asking them for. It's passive products in a
36:40
Speaker 1: lot of ways. So you know, my client may want
36:43
Speaker 1: something very different than they would have wanted in the past,
36:46
Speaker 1: and we've all had to adjust as a result of that.
36:50
Speaker 1: So let me double down with the same question that
36:52
Speaker 1: we're doubled down as uh political season is in my head, Um,
36:57
Speaker 1: how does the rise of past of and indexes in etfe.
37:02
Speaker 1: How does that impact the way you do market analysis?
37:05
Speaker 1: Or does it not matter if money is flowing into equities,
37:09
Speaker 1: if it flows into passive indexes, or if it flows
37:11
Speaker 1: into individual stocks or mutual funds. Does that actually have
37:15
Speaker 1: an impact? The reason I ask is there are people
37:17
Speaker 1: who are insisting all this money flowing a passive is bubble.
37:21
Speaker 1: I've heard that phrase, which seems a little curious, and
37:24
Speaker 1: then I've had other people say all this passive investing
37:28
Speaker 1: is impacting my ability to figure out what's going on
37:31
Speaker 1: in the market. I don't think it necessarily has impacted
37:34
Speaker 1: our ability to figure out what's going on in the market.
37:36
Speaker 1: I mean, you know, prices are prices, Earnings are earnings,
37:41
Speaker 1: regardless of who's buying stocks. Somebody's buying stocks at most
37:45
Speaker 1: points in time. What has impacted us in the sort
37:50
Speaker 1: of shift to passive versus active um Part of it
37:54
Speaker 1: is a measurement issue, right, because when you look at
37:58
Speaker 1: mutual fund flows through this cycle and you look at
38:02
Speaker 1: what's gone into the US equity market, we're still actually
38:06
Speaker 1: sitting on net negative inflows to the US equity market
38:09
Speaker 1: from two thousand nine to date. If you look at
38:11
Speaker 1: the official now that's a fascinating data point because the
38:15
Speaker 1: market has done nothing but go up and mine. So
38:18
Speaker 1: how significant our outflows if the market drugs it off
38:21
Speaker 1: and just keeps going, It's hard to imagine. It's hard
38:24
Speaker 1: to tell. So that's what's important. That's what's tricky is
38:27
Speaker 1: maybe something's gone awry in the measurement because the measurement
38:29
Speaker 1: is based on the idea that you have these sort
38:32
Speaker 1: of actively managed funds and they're easily measured, they report
38:35
Speaker 1: their assets right. There's clearly something going on with passive investment.
38:39
Speaker 1: That's where all the dollars have gone so far this cycle,
38:42
Speaker 1: and maybe we're under measuring what's going into the equity market.
38:45
Speaker 1: So if you were basing a methodology and methodology at
38:49
Speaker 1: all on flows, and we dropped sector flows from our
38:53
Speaker 1: methodology years ago because we were not able to prove
38:56
Speaker 1: a relationship between flows into sector based funds and sector
38:59
Speaker 1: per formants. There was a firm trip Tabs years ago
39:04
Speaker 1: that used to track that stuff, and it seems dark
39:06
Speaker 1: pools and and all sorts of other things kind of
39:10
Speaker 1: blinded that flow analysis. I don't know if that's really
39:13
Speaker 1: what what caused it, but the ability to track where
39:17
Speaker 1: money was going seems to have been a little obscure. Yeah,
39:19
Speaker 1: I think it's very very difficult. It also moves so
39:22
Speaker 1: quickly with a high frequency trading and whatnot, So I
39:25
Speaker 1: think it's it's difficult to capture flows to the extent
39:29
Speaker 1: that we used to feel. And maybe part of that
39:31
Speaker 1: is active. Maybe it's maybe I'm just maybe part of
39:33
Speaker 1: that as active versus passive, maybe just finding a scapegoat
39:36
Speaker 1: because it's so difficult now. I don't know, UM, but
39:40
Speaker 1: I think it's it's definitely changed the way that investors
39:44
Speaker 1: approach markets. So the other the other thing I think
39:46
Speaker 1: is that it's done is made access to non domestic stocks,
39:52
Speaker 1: emerging markets, Developed X, North America much easier to do.
39:56
Speaker 1: It's just easier to access and opportunities outside of the US.
40:00
Speaker 1: It used to be if you wanted to invest overseas,
40:02
Speaker 1: you can invest in a mutual fund, but they were
40:05
Speaker 1: very pricy. Yes, they've become very reasonable. Change the dynamic, no,
40:10
Speaker 1: no doubt about that. So you mentioned something during the
40:13
Speaker 1: broadcast portion about um the two thousand dot com crash,
40:19
Speaker 1: the financial crisis, and I brought up housing and commodities crashing.
40:23
Speaker 1: So how important is that psyche psychologically to the shift
40:29
Speaker 1: towards passive. Have people just thrown up their hands and say,
40:32
Speaker 1: you know what, I give up, I'm just gonna index
40:34
Speaker 1: and not even think twice about it. I think that's
40:37
Speaker 1: part of it. I think more importantly it's been investors
40:41
Speaker 1: have just shunned the equity market altogether. And if you
40:45
Speaker 1: look at household ownership of equities, and this comes from
40:48
Speaker 1: this FED survey of consumer finances, which they do every
40:51
Speaker 1: three years, you go back to the financial crisis in
40:54
Speaker 1: two thousand and eight to the most recent survey, which
40:57
Speaker 1: was as believe and three years. Yeah, that's quarterly. But
41:05
Speaker 1: this is uh that does detail. This survey of consumer
41:10
Speaker 1: finances shows that all segments of consumer income classes have
41:13
Speaker 1: actually seen their holdings in equity markets shrink over that
41:17
Speaker 1: even as the market has gone up. Yeah, except for
41:19
Speaker 1: the top five percent. Only the top five percent of
41:21
Speaker 1: income earners are actually still actively investing in the equity market,
41:25
Speaker 1: whether it be active or passive. They're putting money to
41:27
Speaker 1: work in stocks, and the rest of the income groups
41:30
Speaker 1: at least yeah, and I'm gonna guess that's half, maybe
41:34
Speaker 1: even more, of the total equity ownership at least Yeah,
41:37
Speaker 1: so it's always been skewed, but now we're saying it's
41:39
Speaker 1: even more skews. Yeah. So the bottom of income earning
41:44
Speaker 1: households have largely not participated at all in this massive
41:48
Speaker 1: bull run that we've had from percent. So that's the
41:52
Speaker 1: bigger impact. I do think that there is something to
41:54
Speaker 1: be said for you know, investors also moving into passive
41:57
Speaker 1: because and this goes back to the two thousand crisis,
41:59
Speaker 1: like going back there, because I think that's when all
42:01
Speaker 1: of this really shifted. The two thousand eight exacerbated the trouble,
42:05
Speaker 1: But in two thousand and two thousand two there was
42:08
Speaker 1: definitely a shift in investor sentiment towards equities. And a
42:12
Speaker 1: lot of that is all the accounting scandals that came up,
42:14
Speaker 1: the research and banking scandals that were uncovered, um and
42:19
Speaker 1: it investors, yes, exactly lost a lot of faith in
42:24
Speaker 1: the institution of investment itself and the financial markets themselves.
42:29
Speaker 1: UM and I think that started back in the two
42:31
Speaker 1: thousand and two thousand two periods. So you reference price
42:34
Speaker 1: as a key driver of sentiment, let me let me
42:37
Speaker 1: share a little price data with you that confirms what
42:40
Speaker 1: you're saying. Um. When we look at the democrazation of investing.
42:46
Speaker 1: Someone in the eighties put a lot in the nineties,
42:48
Speaker 1: if you look at where the drumbeat of financial television
42:51
Speaker 1: and press was, it was all technology. Yes, I think
42:55
Speaker 1: if you look at the average portfolio, and I've looked
42:57
Speaker 1: at a ton of portfolios over the years of vigial investors,
43:01
Speaker 1: you like, I was at one point I could look
43:05
Speaker 1: at a portfolio two oh three, oh four and say, oh,
43:09
Speaker 1: American line dell, I go through the list. I know, oh,
43:11
Speaker 1: this is a Merrill Lynch portfolio, and this is a
43:14
Speaker 1: Morgan Stanley portfolio, and this is so it's a whole
43:16
Speaker 1: run of different things. Not that they were bad portfolios,
43:20
Speaker 1: but it was a lot of the same names, a lot.
43:23
Speaker 1: And if you think about the technology sector, she'll lacked
43:27
Speaker 1: almost from peak to trough. Hey, if you're holdings are
43:31
Speaker 1: concentrating the technology and that sector gets whacked, that might change.
43:37
Speaker 1: You might take your bowl and go home. You might
43:40
Speaker 1: not be as inclined to play in that same space again.
43:43
Speaker 1: So your comment that price drive sentiment. It might have
43:48
Speaker 1: driven sentiment to the point where people said, okay, I
43:50
Speaker 1: give up. Well, and we saw that, right, I mean
43:52
Speaker 1: you saw technology relative performance really from two thousand into
43:56
Speaker 1: the two thousand seven peak was pretty terrible. I mean,
43:59
Speaker 1: nobody was doing more money to work and tech stocks
44:01
Speaker 1: after that blow up. And it's been the same with financials.
44:04
Speaker 1: I mean, I think financials A lot of what's happened
44:07
Speaker 1: with the financial sector relative performance in the SMP five
44:09
Speaker 1: foundered over this cycle is legacy. What happened in two
44:12
Speaker 1: thou amazing parallel. If you look at the two thousand peak,
44:16
Speaker 1: you broach that peak and the SMP in the TAO
44:21
Speaker 1: two thousand seven or so something like that, you didn't
44:24
Speaker 1: do it back until you know, until you got back over,
44:30
Speaker 1: which is that that's it was even. That was a
44:36
Speaker 1: long long time to wait to get back to break even.
44:39
Speaker 1: Not a whole lot of dividends in that space either.
44:42
Speaker 1: So now the financials, how parallel is the financial sector
44:47
Speaker 1: a key lubricant of economic growth? How how parallel are
44:51
Speaker 1: the financials to technology? Well, the one big difference is
44:55
Speaker 1: the financial stocks never achieved the excessive valuation in this
45:00
Speaker 1: extraordinarily positive market sentiment in the bubble status that tected
45:04
Speaker 1: financials as a share of the economy got very big. Housing,
45:09
Speaker 1: specifically as a share of the economy was double its
45:12
Speaker 1: historical average share by its peak in two thousand six,
45:15
Speaker 1: So it was that again double its historical average share
45:19
Speaker 1: of the economy. Yeah, so some people have called that
45:22
Speaker 1: the financialization of the economy. Other people have used the
45:26
Speaker 1: phrase fire, financial insurance, and real estate yet as real
45:31
Speaker 1: estate obviously so mortgage driven. How much have we normalized
45:35
Speaker 1: finance as an overall part of the economy. It's back
45:38
Speaker 1: to actually just below its historical So is that going
45:42
Speaker 1: to keep going? And I know I never asked for
45:44
Speaker 1: forecast on the show. Is it going to keep getting lower?
45:47
Speaker 1: What is the trend? Is the trend that it's a
45:49
Speaker 1: small increasingly small portion of the overall economy or are
45:53
Speaker 1: we starting to see a bottoming out process. We've started
45:56
Speaker 1: to see a bottoming out process really starting in and
45:59
Speaker 1: how exceller it again, we started to see a bottoming
46:02
Speaker 1: process and now it's growing as a share of the
46:04
Speaker 1: economy again. But we still see the big bank stocks,
46:07
Speaker 1: the big brokerage firms not exactly lighting the world on fire.
46:11
Speaker 1: How much of that is they're still carrying a lot
46:13
Speaker 1: of bit debt and bed paper or is it just
46:16
Speaker 1: people are a little skittish of the entire sector, and
46:18
Speaker 1: it's a sentiment. Then I think a very little of
46:21
Speaker 1: it is bad debt, at least for the US banks.
46:24
Speaker 1: I mean it next to nothing is bad debt. There
46:27
Speaker 1: have been some scares, and this year's scare was the
46:29
Speaker 1: energy complex, and what does that really mean for bank
46:33
Speaker 1: balance sheets? But when you look at energy as a
46:34
Speaker 1: share of the debt on the assets on bank balance sheets,
46:39
Speaker 1: it's tiny. So it's funny you bring that up, because
46:41
Speaker 1: first we heard, oh look they did it again, it's
46:45
Speaker 1: the energy sector. Here comes into the crisis. After that
46:48
Speaker 1: we heard sub primortal, this is the new subprime mortgage,
46:52
Speaker 1: and somewhere in the middle of it is student loans.
46:55
Speaker 1: That's the next thing that's going to destroy us all.
46:57
Speaker 1: But meanwhile, none of these things have turned out to
47:00
Speaker 1: be remotely like subprimary. And that's the big psychological difference
47:03
Speaker 1: between today versus two thousand five to two thousand seven. Right,
47:07
Speaker 1: two thousand five to two thousand seven, you did have
47:10
Speaker 1: some people suggesting subprime is a problem, and everyone was
47:13
Speaker 1: a massively denying this as an underlying issue. Today, anything
47:17
Speaker 1: is a massive problem for the banks. So I think
47:19
Speaker 1: a lot of what's holding financials back is this psychological impediment.
47:22
Speaker 1: It's when's the next crisis coming? You know? Is it
47:25
Speaker 1: going to generate out of Europe? Is it going to
47:27
Speaker 1: come out of China? Is it the energy complex, is
47:29
Speaker 1: its student loan debt. You can name a gazillion things
47:32
Speaker 1: that are going to quote unquote bring the banks under
47:35
Speaker 1: the next So unlikely, but the psychology is set up
47:39
Speaker 1: to expect that. It's classic recency effect. Every general is
47:42
Speaker 1: finding the last war, every investor is thinking about, here
47:45
Speaker 1: comes the next credit crisis. It's never what just happened.
47:49
Speaker 1: It's always something different, which is probably why post tech bubble,
47:54
Speaker 1: when you looked at the home builders, when you looked
47:57
Speaker 1: at banks, when you looked at brokerage firms, there were
47:59
Speaker 1: reason we priced oh five or six o seven, as
48:02
Speaker 1: each of them also had their collapse. Good rule of
48:07
Speaker 1: thumb a sector outside of leather belts and steam engines
48:10
Speaker 1: that drops typically a good a good bye signal. All right,
48:16
Speaker 1: so I know I only have you for another ten
48:18
Speaker 1: fifteen minutes. Let me get to some of my favorite questions,
48:22
Speaker 1: the standard questions I asked all my guests. You told
48:26
Speaker 1: us about your background, tell us a little bit about
48:29
Speaker 1: some of your early mentors. Who are the people who
48:33
Speaker 1: were deeply influential to you? Wow? Um Well, I had
48:37
Speaker 1: a number of really really great colleagues in the first
48:40
Speaker 1: Union Wells Fargo or Wacovia. Early Wells Fargo days, I
48:45
Speaker 1: worked for John Sylvia, who's our chief economy time. He's
48:49
Speaker 1: a fishing boat with mine. He was very influential. Um
48:52
Speaker 1: I worked with By the way, before you move off
48:55
Speaker 1: of John Sylvia, is there like a nicer person on
48:58
Speaker 1: the world now. He's fantastic And he when I was
49:00
Speaker 1: in my late twenties, you know, threw me out into
49:03
Speaker 1: things that I never thought I could do. So he
49:05
Speaker 1: was really sort of pushed me forward to try new
49:08
Speaker 1: things and and really stretch my boundaries. And I will
49:11
Speaker 1: always appreciate that. And he's still a mentor today. And John,
49:14
Speaker 1: if you're listening, you know, we have to get you
49:16
Speaker 1: in here at one of these so we will. He's
49:19
Speaker 1: not in New York, He's in uh, he's in Charlotte.
49:24
Speaker 1: Um So, in the earlier on in my career, I
49:27
Speaker 1: worked with John Lynch, who is a market strategist for
49:31
Speaker 1: Wells Fargo as well, but he's on the buy side
49:33
Speaker 1: of the firm. He had a number of years in
49:35
Speaker 1: New York working with d l J. He's got a
49:38
Speaker 1: lot of you know, great historical understanding of markets and
49:42
Speaker 1: really sorted forming my interest in strategy as a function. Um.
49:47
Speaker 1: Great technicians out there. Charlie Kirkpatrick is a current fantastic
49:51
Speaker 1: mentor of mine. Charlie does a lot of amazing work
49:55
Speaker 1: on price and momentum um and has written a number
49:59
Speaker 1: of books. Uh, and he's he's a fantastic mentor as well.
50:03
Speaker 1: Give his book. Oh it's very technically oriented, so I'll
50:07
Speaker 1: have to look it up for you, but you just
50:08
Speaker 1: search on Charlie Kirkpatrick. He writes with the Julie Daalquist
50:11
Speaker 1: out of Texas um on price and momentum signals and
50:16
Speaker 1: and there I think very very useful and very helpful. Um.
50:20
Speaker 1: He's helped me bring an understanding of sort of back
50:23
Speaker 1: testing and optimization that I didn't really have, you know,
50:26
Speaker 1: five years ago. So you mentioned books. What are some
50:29
Speaker 1: of your favorite books, be they investing books, fiction or nonfiction? Oh? Yeah,
50:33
Speaker 1: so I talked a lot about investing books already with
50:36
Speaker 1: Kirkpatrick and John Murphy. So in terms of you know,
50:40
Speaker 1: personal more fiction oriented books, I'm a huge Steinbeck fan.
50:45
Speaker 1: I don't know where this came from. If it's because
50:48
Speaker 1: we went, yes exactly, which is it sounds so boring,
50:52
Speaker 1: but I think when we went they become classics. It's
50:55
Speaker 1: not just let's randomly pick a Daniel Steele novel. The
51:00
Speaker 1: Steinbeck survives for great lessons as to what a real
51:03
Speaker 1: depression looks like, right, I mean it helps those Does
51:07
Speaker 1: it make you crazy when people say, you know, this
51:09
Speaker 1: isn't a recession, this is a depression. Well not if
51:12
Speaker 1: you look at the data. If you understand what it's
51:14
Speaker 1: like when one in five houses going to foreclosure and
51:17
Speaker 1: the unemployment rate is that's there is no real technical
51:22
Speaker 1: definition of a depression. This was a bad recession. It's
51:25
Speaker 1: kind of hard to say it's it's pretty crazy when
51:28
Speaker 1: you look at our standard of living and you know,
51:31
Speaker 1: I understand that there are still a lot of households
51:33
Speaker 1: that are struggling to make ends meet, But you look
51:35
Speaker 1: at our broad standard of living and you compare that
51:37
Speaker 1: to what happened in the depression, and there's nobody better
51:40
Speaker 1: at doing that than Steinbeck. The look the bottom half
51:44
Speaker 1: of the country is certainly not seeing income gains. The
51:46
Speaker 1: bottom of incomes, but the standard of living. You know,
51:53
Speaker 1: people are not going through what they went through, right,
51:56
Speaker 1: I mean there when you actually look at the data,
51:59
Speaker 1: the Great DEPRESSI is horrifying. Yeah, I mean it's not
52:02
Speaker 1: genus is inconvenient. It's people died. It led to wars,
52:06
Speaker 1: it led to civil unrest. It was really horrific. Yeah.
52:09
Speaker 1: I think I think a lot of people don't realize
52:12
Speaker 1: how bad things got in the late twenties and early thirties. Um.
52:18
Speaker 1: So what other on the nonfiction side, I actually love
52:24
Speaker 1: Milton Friedman's work. I mean I've I've devoured those books
52:28
Speaker 1: over time. Now he's kind of fallen, from which surprised.
52:33
Speaker 1: But if you look at some of his work. He
52:35
Speaker 1: did the Monetary History of the United States, which have
52:38
Speaker 1: all the way back in time, and I've referenced to
52:41
Speaker 1: that piece um on a number of occasions, looking at
52:44
Speaker 1: what banks did, for example, and the Great Depression versus
52:47
Speaker 1: what they're doing today. You can look at some of
52:49
Speaker 1: his work and it shows it has great historical perspective.
52:52
Speaker 1: You can find little nuggets of information and that's so
52:55
Speaker 1: very useful. That ultimately led to Ben Bernanke saying to him, Hey,
53:00
Speaker 1: we messed up last time and we won't do it again.
53:03
Speaker 1: That was pretty Uh, that was pretty interesting. Yeah. Um,
53:07
Speaker 1: have a one nonfiction that's not that's not finance related
53:12
Speaker 1: or not almost impossible. Everything I read in a nonfiction
53:17
Speaker 1: universe is either finance or economics, economics but finance. What
53:21
Speaker 1: what have you read that you like that's that's not
53:23
Speaker 1: finance but economy, no other way around. That's not economics
53:26
Speaker 1: but is just finance. Probably Moneyball, Okay, Yeah, Michael Lewis
53:33
Speaker 1: is pretty fun. He has a book coming out. I
53:35
Speaker 1: think it's December on a kaniment in Travarsity, and I'm
53:39
Speaker 1: sure that's going to be spectum definitely. I'm going away
53:45
Speaker 1: in February and I already have that book tied up. Yeah,
53:48
Speaker 1: it's ready to go. Yeah. For it's not even published yet,
53:51
Speaker 1: and I know I'm reading that on a beach somewhere. Um.
53:54
Speaker 1: All right, so let me get to my um last
53:57
Speaker 1: few questions before I have to send you or have
54:00
Speaker 1: to let you go on your way. Um. So, if
54:04
Speaker 1: you had some millennial or a recent college graduate come
54:07
Speaker 1: to you and say I'm thinking about finance as a career,
54:10
Speaker 1: what sort of advice would you give them? Go for it.
54:13
Speaker 1: I mean, you know, just like that. Yeah, if you
54:16
Speaker 1: love finance, there is a home for you. Um. I
54:19
Speaker 1: think that this generation is very different than past generations
54:24
Speaker 1: in that they have sort of a different standard for
54:28
Speaker 1: what they want out of a work life balance. You know,
54:30
Speaker 1: when I got out of school, the goal was to
54:32
Speaker 1: work a hundred and twenty hours a week for two
54:34
Speaker 1: years so that you could be in an investment bank. Right,
54:37
Speaker 1: So this is a little bit different. But I think
54:39
Speaker 1: that there are a lot of opportunities in finance, within,
54:43
Speaker 1: within and without you do. I think, you know, if
54:48
Speaker 1: you have a passion for this business, you will find
54:50
Speaker 1: a home. But you have to have the passion. And
54:54
Speaker 1: my final question, what is it that you know about
54:56
Speaker 1: investing in equity markets today that you wish you knew
55:00
Speaker 1: when you began twenty years ago? Oh my gosh, I
55:03
Speaker 1: should have looked at this question more carefully. I've warned you.
55:06
Speaker 1: I said, look at sex five. It requires a little Um.
55:10
Speaker 1: What do I know? The price trend matters? Absolutely? When
55:14
Speaker 1: I started out, I was fully fundamentally biased, you know,
55:18
Speaker 1: I had my I had my fundamental hat on and
55:21
Speaker 1: I held to it and I've held to it too.
55:23
Speaker 1: Strongly on a number of occasions. I mean the times
55:26
Speaker 1: that I regret most in my career and in my
55:28
Speaker 1: investing life for the times when I ignored what the
55:30
Speaker 1: market was telling me. Everybody says that, everybody says, you know,
55:34
Speaker 1: I had a story, the price told me something else,
55:36
Speaker 1: ignored the price that listened to story. To my do
55:39
Speaker 1: not get caught in the the idea that you know
55:42
Speaker 1: better than the millions of investors out there that make
55:44
Speaker 1: a market. Gina, thank you so much for for doing this.
55:47
Speaker 1: This has been absolutely fascinating. UH. For those of you
55:51
Speaker 1: listening at home, if you enjoy this conversation, be sure
55:56
Speaker 1: and take a look on Apple iTunes and you could
55:58
Speaker 1: look up an Intra Down an Inch and see any
56:01
Speaker 1: of the other I want to say hundred and three
56:03
Speaker 1: or so episodes that we've done in the past. You
56:07
Speaker 1: can check out my daily column on Bloomberg View dot
56:10
Speaker 1: com and follow me on Twitter at rid Alts. We
56:13
Speaker 1: love your comments, suggestions and feedback. Our email address is
56:18
Speaker 1: am i B, which stands for Masters in Business m
56:22
Speaker 1: I B Podcast at Bloomberg dot net. I would be
56:25
Speaker 1: remiss if I did not thank Michael bat Nick, my
56:29
Speaker 1: head of research Cholie Ulmar a producer, and Tail Riggs
56:31
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56:35
Speaker 1: Bloomberg Radio.