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Richard Bernstein on the State of Markets Today · Masters in Business

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
• 0:11
  Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
• 0:16
  Speaker 2: This week on the podcast what Can I Say? Rich Bernstein,
• 0:20
  Speaker 2: rock star, former chief strategist at Merrill Lynch, just an
• 0:24
  Speaker 2: incredibly storied career who has managed to put together such
• 0:29
  Speaker 2: a straightforward and intelligent way to approach asset management Rather
• 0:35
  Speaker 2: than me, Babbel, I'm just gonna say, this is a
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  Speaker 2: fascinating conversation, with no further ado, my discussion with Rich
• 0:43
  Speaker 2: Bernstein Advisors. Rich Bernstein, Thanks.
• 0:46
  Speaker 3: Erry, great to be here, welcome the invitation.
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  Speaker 2: Oh well, I'm thrilled to have you. I thought you
• 0:50
  Speaker 2: would be the perfect person to talk about what's been
• 0:54
  Speaker 2: going on these days. But before we get to that,
• 0:57
  Speaker 2: let's start with Bachelor's and Economic Mixed from Hamilton, MBA
• 1:02
  Speaker 2: from NYU. What was the career plan?
• 1:05
  Speaker 4: So the career plan was was kind of foiled I
• 1:10
  Speaker 4: would say six months after graduation. So oddly enough, when
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  Speaker 4: I graduated Hamilton, I wanted to be a labor economist.
• 1:18
  Speaker 4: And people say, like today they go labor economists, Like,
• 1:21
  Speaker 4: what's that all about?
• 1:22
  Speaker 2: It? That was a big thing.
• 1:23
  Speaker 4: It One boy was a big deal, and so it was.
• 1:25
  Speaker 4: You got to remember, labor unions were very powerful in
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  Speaker 4: the late seventies early eighties. There was rampant inflation, and
• 1:33
  Speaker 4: every company had a labor relations department. It was a
• 1:36
  Speaker 4: growth industry, and so I decided I wanted to be
• 1:39
  Speaker 4: a labor economist and got myself a job with a
• 1:43
  Speaker 4: prestigious economic consulting firm in their labor economics department, doing
• 1:47
  Speaker 4: all kinds of government related work, private sector, but government
• 1:51
  Speaker 4: related work. And we were consultants, which is very critical
• 1:55
  Speaker 4: because consultants bill by the hour and literally the day after.
• 2:00
  Speaker 4: So election day is Tuesday in nineteen eighty November nineteen
• 2:03
  Speaker 4: eighty Wednesday, fifty percent of our business basically went away.
• 2:08
  Speaker 2: Because Reagan took over, and everybody.
• 2:11
  Speaker 4: Called up and said, stop billing, we want to see
• 2:13
  Speaker 4: what's going to happen as with the Reagan administration. Now
• 2:16
  Speaker 4: I wasn't the smartest guy in the room, but it
• 2:19
  Speaker 4: was pretty clear to me that this was no longer
• 2:21
  Speaker 4: a growth industry. I had taught myself Fortran, dating myself
• 2:26
  Speaker 4: here quite a bit. I taught myself Fortran and was
• 2:28
  Speaker 4: a pretty good computer programmer, and a friend of mine
• 2:30
  Speaker 4: who had gotten fired from this economic consulting firm, got
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  Speaker 4: a job at Chase Econometrics. I DC and said, you
• 2:38
  Speaker 4: have to come over here. You're a great programmer. You're
• 2:40
  Speaker 4: going to love this stuff. They had the largest set
• 2:42
  Speaker 4: of economic and financial databases in the world at the time.
• 2:45
  Speaker 4: You have to come here. I said, I what do
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  Speaker 4: I want to go to Wall Street for? I mean, like,
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  Speaker 4: I have no interest in Wall Street. Why I would
• 2:50
  Speaker 4: go to Wall Street? And he said, well, let's be honest.
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  Speaker 4: Here the salary is twice what you're making. I said, well,
• 2:56
  Speaker 4: I'll go for the interview right now. I'll see what happens. Well,
• 2:59
  Speaker 4: I went for the interview the job. My biggest client
• 3:01
  Speaker 4: turned out to be the Merrill Lynch Investment Strategy Group.
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  Speaker 2: Huh.
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  Speaker 4: And that's how I got involved in Wall Street. And
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  Speaker 4: I found through time that I really liked it, went
• 3:10
  Speaker 4: back and got my MBA and after a while, without
• 3:13
  Speaker 4: something stupid about this, I realized I knew more about
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  Speaker 4: this stuff than many of my clients did. And so
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  Speaker 4: I just worked my way through Wall Street and eventually,
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  Speaker 4: you know, but if you had said to me when
• 3:24
  Speaker 4: I graduated at Hamilton that I was going to end
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  Speaker 4: up being the chief investment strategist Meryll Lynch.
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  Speaker 3: I would have said, you're.
• 3:29
  Speaker 2: Crazy, would have laughed. So I have to ask about Fortran.
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  Speaker 2: You're undergraduate, your focus is economics, you get an MBA
• 3:37
  Speaker 2: in finance. Where did the computer programming skills so come from?
• 3:42
  Speaker 3: I am the.
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  Speaker 4: Poster child for the liberal arts education. So I almost
• 3:46
  Speaker 4: double majored in philosophy.
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  Speaker 3: I didn't. I was too lazy to.
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  Speaker 4: Be perfectly frank and didn't want to take one of
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  Speaker 4: the intro courses. But I took like, I don't know,
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  Speaker 4: five six seven philosophy courses.
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  Speaker 3: Something like that.
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  Speaker 4: And for all the philosophy majors out there, I'm sure
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  Speaker 4: they know that a good part of philosophy is symbolic
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  Speaker 4: logic and symbolic logic.
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  Speaker 3: What is computer programming? What's computer language?
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  Speaker 2: Is?
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  Speaker 4: It's just symbolic logic. So when I've got introduced to
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  Speaker 4: Fortram the first day, I realized I could actually read
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  Speaker 4: a lot of the code because it was just symbolic logic.
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  Speaker 2: So it's so funny you say that philosophy is symbolic logic.
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  Speaker 2: Study of law is a lot of symbolic logic. Absolutely,
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  Speaker 2: obviously math, there's a ton of symbolic logic wherever you look,
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  Speaker 2: that classic syllogism. Right, here's the fact pattern, here's the
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  Speaker 2: applicable set of rules, programs, parameters like this seems to
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  Speaker 2: be a very constant threat in a lot of areas.
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  Speaker 2: How surprising was it to you that, Hey, philosophy has
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  Speaker 2: been really helpful on Wall Street.
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  Speaker 4: It's been amazing. In fact, in one of the books
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  Speaker 4: I wrote, many many moons ago, I specifically thanked one
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  Speaker 4: of my philosophy professors for you know, I took symbolic
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  Speaker 4: logic with him. I think I took a course in
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  Speaker 4: relative with him. You know, all these different things which
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  Speaker 4: have definitely been influential in my career without a doubt.
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  Speaker 2: All Right, So you end up at what could be
• 5:08
  Speaker 2: my favorite advertisement, which was the EF Hutton ads back
• 5:14
  Speaker 2: in the with that the nineteen eighties when I.
• 5:17
  Speaker 4: Think it was actually the seventies into the eighties.
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  Speaker 2: When EF Hutton talks people listen like you can find
• 5:23
  Speaker 2: these ads all over YouTube. There's seminos. How did you
• 5:26
  Speaker 2: make your way to? E? F. Hutton from Chase econom Etriss.
• 5:30
  Speaker 4: So what happened was that at the time a lot
• 5:34
  Speaker 4: of people at Chase IDC were very in very high demand.
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  Speaker 3: We were the beginning of the quant.
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  Speaker 4: Movement on Wall Street, right, and so there were a
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  Speaker 4: lot of people were getting hired away. One of my friends,
• 5:46
  Speaker 4: who was more an economist as opposed to a quant guy,
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  Speaker 4: got hired by the chief economist at E. F. Hutton
• 5:53
  Speaker 4: at the time, and there was an opening in the
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  Speaker 4: investment strategy group and he said similar like, why don't
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  Speaker 4: you come and interview?
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  Speaker 2: Come double your salary?
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  Speaker 4: Yeah, well I didn't do that, but but it was.
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  Speaker 4: It was an opportunity, so I grabbed at the opportunity.
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  Speaker 4: I worked at the time with a wonderful guy named
• 6:09
  Speaker 4: Jeff Applegate, who unfortunately passed away recently. But Jeff was
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  Speaker 4: a great role model in terms of how to make
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  Speaker 4: Wall Street understandable to non Wall Street people.
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  Speaker 2: H huh really really interesting. And then we get the
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  Speaker 2: eighty seven crash, right, and then the following year you
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  Speaker 2: join mother Meryll, tell us how you found your way
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  Speaker 2: to Merrill Lynch.
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  Speaker 4: So Meryll, you know, Hutton went out of business and
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  Speaker 4: basically nineteen end of eighty seven, I think it was
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  Speaker 4: December of eighties?
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  Speaker 1: Was that?
• 6:39
  Speaker 2: Did they go out a bit? Wasn't it? Sheerson Leman
• 6:41
  Speaker 2: and Hotton American Express or something.
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  Speaker 4: It was like it was became Sheerson Leman Hutton, the
• 6:45
  Speaker 4: irony of which I once worked at Shearson when they
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  Speaker 4: merged with Lehman Brothers and I lost my job there.
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  Speaker 4: And now Cherson Lehman was merging with Hutton, and I
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  Speaker 4: lost my job again. So I was on the losing
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  Speaker 4: into many many mergers of the nineteen eighties. But it
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  Speaker 4: was getting to Merrill, was you know. I was out
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  Speaker 4: of work for a while after Hutton went out of business.
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  Speaker 4: I had met with a headhunter and the headhunter had
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  Speaker 4: sent me up with an interview at Merrill, and Meryl
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  Speaker 4: kind of passed on me, but then called me back
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  Speaker 4: about four months later.
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  Speaker 2: And so their first choice turned them down. Is that
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  Speaker 2: what actually happened?
• 7:18
  Speaker 3: What actually happened.
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  Speaker 4: I found my personnel file years later. I found my
• 7:22
  Speaker 4: personnel file, and this is actually kind of funny, and
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  Speaker 4: in it was the headhunter letter to the hiring manager,
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  Speaker 4: and it described me as being the cheapest of the
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  Speaker 4: lot with the most potential. That was the way that
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  Speaker 4: g described your value stock.
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  Speaker 3: I was a value stock.
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  Speaker 4: And so I think what happened was the everybody else
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  Speaker 4: they were talking to you wanted too much money, and
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  Speaker 4: they worked their way down and they found they got me.
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  Speaker 2: That's that's UNBLI how did you get access to your personnel?
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  Speaker 4: It was by accident, it was, I was, I was.
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  Speaker 4: It was like switching managers type thing, and somehow it
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  Speaker 4: got it got put into the wrong file, wrong set
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  Speaker 4: of files, and there was mine.
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  Speaker 3: So of course I read it.
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  Speaker 2: So you were at Mayor for twenty years.
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  Speaker 3: Yeah, almost twenty plus.
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  Speaker 2: Yeah, wow, that's amazing. You were there right up into
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  Speaker 2: the financial crisis. I was, what was Merrill Lynch like,
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  Speaker 2: right in the middle of that storm.
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  Speaker 4: So it was, you know, I think it was. It
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  Speaker 4: was an interesting time and you know, I should say,
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  Speaker 4: first of all, the Meryl was a fantastic place to work.
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  Speaker 3: Oh it was.
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  Speaker 4: You know, anybody out there who has worked at Meryll,
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  Speaker 4: you know, knows the feeling that I have for the firm,
• 8:28
  Speaker 4: and because they feel it too, and.
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  Speaker 3: It was a great place to work.
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  Speaker 4: The corporate culture began to change in the few years
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  Speaker 4: before the financial crisis, and we got a little bit
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  Speaker 4: of ways from our roots. You know, our roots were
• 8:41
  Speaker 4: very much as a private client oriented firm that also
• 8:47
  Speaker 4: had great trading and investment banking, everything else, but the
• 8:50
  Speaker 4: heart of the firm was still on the private line.
• 8:52
  Speaker 4: So for any number of strategic reasons, the firm decided
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  Speaker 4: that we wanted to change that emphasis. And I think,
• 8:58
  Speaker 4: you know, it's kind of dangerous to take a lot
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  Speaker 4: risk when you don't really have the experience doing it, sure,
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  Speaker 4: and so I think that's kind of what happened to Meryl.
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  Speaker 2: You know, I mentioned the ef Hutton ads, But for
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  Speaker 2: the people who are listening, who are younger, I want
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  Speaker 2: to say, in the nineteen seventies, maybe even in the
• 9:15
  Speaker 2: nineteen sixties, Merrill Lynch ran a series of television ads
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  Speaker 2: Merrill Lynch is Bullish on America, absolutely with the Thundering
• 9:25
  Speaker 2: Herd and the Big Bull. And it was pretty amazing.
• 9:29
  Speaker 2: When we talk about the democratization of investing that Meryll
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  Speaker 2: is arguably the one of the first companies that absolutely
• 9:37
  Speaker 2: dove into that head first.
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  Speaker 4: Yeah, if I'm not mistaken, Charlie Merrill was. His whole
• 9:42
  Speaker 4: philosophy was bringing Wall Street to main street. I think
• 9:44
  Speaker 4: he actually coined that free.
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  Speaker 2: I think that's right. And later on we had a
• 9:50
  Speaker 2: number of the discount brokers had come out in places
• 9:52
  Speaker 2: like Schwab and Muriel Siebert, but I always felt they
• 9:57
  Speaker 2: had followed Merrill's lead to we're going to push into mainstream. Yeah,
• 10:02
  Speaker 2: so you start out essentially as an analyst, how do
• 10:05
  Speaker 2: you work your way up to market strategists and then
• 10:09
  Speaker 2: chief investment strategists for the thundering hurt?
• 10:12
  Speaker 4: It's you know, it's funny. One of the things I
• 10:14
  Speaker 4: always tell recent graduates of colleges is don't try to
• 10:19
  Speaker 4: plan out your future because when you're twenty one or
• 10:21
  Speaker 4: twenty two, you have no idea what you're going to do.
• 10:23
  Speaker 4: When you're twenty five or twenty seven or thirty, you know,
• 10:25
  Speaker 4: you really don't know. And my example of you know,
• 10:28
  Speaker 4: the changes after the Reagan Carter election are pretty clear
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  Speaker 4: on that one. But the same thing was at Meryl.
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  Speaker 4: You know, I came in as a quant analyst. I
• 10:38
  Speaker 4: was there not for any other reason, to be perfectly frank,
• 10:41
  Speaker 4: and I think the people involved at the time would
• 10:43
  Speaker 4: agree with this that in institutional Investor there was a
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  Speaker 4: quantitative analysis slot. Merrill had nobody who was there. They thought, well,
• 10:50
  Speaker 4: let's get somebody who can maybe run for the slot.
• 10:52
  Speaker 4: We'll get another II vote and we'll see what happens.
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  Speaker 4: And I was their choice to just kind of become
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  Speaker 4: this quant guy.
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  Speaker 3: I don't think they knew what to do with me.
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  Speaker 4: I don't think they were thinking anything else other than like,
• 11:05
  Speaker 4: you know, go do your thing, and you know, hopefully
• 11:07
  Speaker 4: this will all work.
• 11:08
  Speaker 2: It is an empty desk, rich see what you can do.
• 11:10
  Speaker 4: Exactly right, And it was. It was actually kind of funny.
• 11:14
  Speaker 4: I truth be told, now, I can tell this. I
• 11:16
  Speaker 4: lied about my age to get the job.
• 11:18
  Speaker 2: Saying you were younger or saying you were older older because.
• 11:21
  Speaker 4: I was twenty nine when I was interviewing for this position. Yeah,
• 11:25
  Speaker 4: and I knew that and everybody and back then you
• 11:27
  Speaker 4: could ask people how old.
• 11:28
  Speaker 2: You were, right, and they couldn't google you and find out, right.
• 11:32
  Speaker 4: And they couldn't find out So there was all kinds
• 11:34
  Speaker 4: of all kinds of stuff that they could do back
• 11:35
  Speaker 4: then that you can't do network and do.
• 11:37
  Speaker 2: Now, did you really get an MBA from NYU? Did
• 11:40
  Speaker 2: you just pad your resume? No?
• 11:42
  Speaker 4: I'm that's legit, that's one hundred percent legit. But so
• 11:44
  Speaker 4: what was happening was I knew that if I went
• 11:46
  Speaker 4: into these interviews and I told people I was twenty nine, they.
• 11:48
  Speaker 2: Would think I was a kid, but thirty sounds thirty.
• 11:52
  Speaker 4: It's like twenty nine to ninety nine, right, like you
• 11:54
  Speaker 4: just wound up six month fib that's all.
• 11:57
  Speaker 2: It was.
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  Speaker 4: Well, by the time I actually got the job and
• 11:59
  Speaker 4: showed up, but Merril, I was thirty. So I didn't
• 12:02
  Speaker 4: feel I've never felt bad about it because I was
• 12:04
  Speaker 4: asking every single like, why would they ask? They wouldn't
• 12:07
  Speaker 4: ask unless they thought maybe I was too young.
• 12:10
  Speaker 3: That would be the.
• 12:10
  Speaker 4: Impetus for asking. The was gonna ask a question, well,
• 12:13
  Speaker 4: how much.
• 12:13
  Speaker 2: Too much experience in seasoning?
• 12:15
  Speaker 4: I don't think that was the root of the question.
• 12:17
  Speaker 4: And because they had my resume, they knew exactly and
• 12:19
  Speaker 4: so it was really like how old is this guy?
• 12:22
  Speaker 3: You know, can he really do this? And so I lied,
• 12:24
  Speaker 3: So I told everybody I was thirty, and.
• 12:27
  Speaker 2: So that's hilarious.
• 12:29
  Speaker 3: Yeah, it is. It is kind of fun.
• 12:30
  Speaker 2: And nobody ever figured out, don't don't they when you're
• 12:33
  Speaker 2: filling out your paperwork and nobody took the time, nobody cared.
• 12:36
  Speaker 2: Nobody If you're a W two employee, they get your
• 12:40
  Speaker 2: data birth and your Social Security number. It's it's not
• 12:43
  Speaker 2: like the data isn't there.
• 12:44
  Speaker 4: But by the time I got to Merrill, I was thirty,
• 12:47
  Speaker 4: So he thought nobody nobody thought twice about it.
• 12:49
  Speaker 2: Yeah, that's that's really funny. So you're at Merrill for
• 12:53
  Speaker 2: twenty plus years, we have the financial crisis, and you
• 13:00
  Speaker 2: side to launch rich Bernstein Advisors in two thousand and nine.
• 13:05
  Speaker 2: So in hindsight, it turns out to be perfect timing.
• 13:09
  Speaker 2: What sort of pushback did you get when you're like,
• 13:12
  Speaker 2: I think I'm gonna stand up my own chop into
• 13:14
  Speaker 2: this mess.
• 13:15
  Speaker 3: Yeah, you know.
• 13:15
  Speaker 4: I left Meryl because I'd gotten burned out. I mean,
• 13:18
  Speaker 4: one of the things that people don't realize is as
• 13:20
  Speaker 4: a cell side analyst, the better you get at your job,
• 13:24
  Speaker 4: the demands on your time grow exponentially. And so I
• 13:29
  Speaker 4: was traveling all over the world. I was I was
• 13:31
  Speaker 4: non stop writing. I mean it was I had burned
• 13:33
  Speaker 4: out and I tried to leave Merril several years before,
• 13:37
  Speaker 4: and they had they convinced me to stay.
• 13:38
  Speaker 3: They said, you know, like, no, it's.
• 13:40
  Speaker 4: Okay, you know, well, you know, we'll take care of you.
• 13:43
  Speaker 4: Everything will be fine, don't worry about it. But in
• 13:45
  Speaker 4: two thousand and eight and the financial crisis, I turned
• 13:48
  Speaker 4: fifty and so not lying about my age. I actually
• 13:51
  Speaker 4: did turn fifty and.
• 13:54
  Speaker 3: I was pretty burned out.
• 13:56
  Speaker 4: And then the financial crisis hit and I thought, you know,
• 13:59
  Speaker 4: it's a long time leave. It'd be irresponsible for the
• 14:01
  Speaker 4: chief strategist of Merrill Lynch to leave in the midst
• 14:04
  Speaker 4: of a crisis. That's that's just very unfair to our clients,
• 14:07
  Speaker 4: very unfair to the firm. You know, I rose to
• 14:09
  Speaker 4: this level. I have a certain amount of responsibility. I
• 14:11
  Speaker 4: can't be selfish on this. So I stuck it out
• 14:13
  Speaker 4: for a while. And then Bank of America bought Merrill
• 14:17
  Speaker 4: and they were great, and you know, everything was good,
• 14:20
  Speaker 4: but it was clear to me I wasn't going to
• 14:22
  Speaker 4: have more fun right that the burned out nature was
• 14:25
  Speaker 4: going to continue.
• 14:27
  Speaker 3: It was going to get worse.
• 14:28
  Speaker 4: So I just figured, like, why do this? So I
• 14:31
  Speaker 4: de thought it was leaving again. Merrill was fantastic. They
• 14:34
  Speaker 4: encouraged me to stay. I just had none, no, no thanks,
• 14:36
  Speaker 4: but I'm done.
• 14:38
  Speaker 3: You know, stick a fork in me. I'm done.
• 14:39
  Speaker 2: Hey, twenty years is a long time being a road warrior, Yeah, exactly.
• 14:44
  Speaker 4: And so then the question was what was I going
• 14:47
  Speaker 4: to do? I had toyed with the idea of opening
• 14:49
  Speaker 4: an independent research shop and that sort of thing, but
• 14:53
  Speaker 4: that was going to be equal amount of travel all
• 14:55
  Speaker 4: around the world, and I had just done that for
• 14:57
  Speaker 4: twenty years. Didn't sound like a lot of fun. But
• 15:00
  Speaker 4: then the idea came to me, well, maybe we should
• 15:02
  Speaker 4: put some of these things that we've developed through the year,
• 15:05
  Speaker 4: put it into practice and see if we can manage
• 15:08
  Speaker 4: money doing it. And we were kind of forming the firm,
• 15:10
  Speaker 4: and we were like really in its infancy, and then
• 15:13
  Speaker 4: all of a sudden, I remember exactly where I was.
• 15:16
  Speaker 4: I was in our dan Weekly initial jobbas claims had
• 15:21
  Speaker 4: just come out. This is like in July of two
• 15:23
  Speaker 4: thousand and nine, and the number came out and it
• 15:26
  Speaker 4: was a blowout good number. And I said to myself,
• 15:30
  Speaker 4: this is a rogue number. And then I said to myself, well,
• 15:35
  Speaker 4: wait a minute, why is it a rogue number? Maybe
• 15:37
  Speaker 4: things are just getting better, because I was listening to
• 15:40
  Speaker 4: all the talking heads and they were all negative as
• 15:43
  Speaker 4: all get out, and I said.
• 15:45
  Speaker 2: Let me stop you right there, because my next question
• 15:48
  Speaker 2: is I very vividly remember March O nine and saying, hey,
• 15:54
  Speaker 2: US equities down fifty percent usually pretty good entry point.
• 15:58
  Speaker 2: I think we finished down fifty six, and but the bearishness,
• 16:03
  Speaker 2: the negativity persisted, and it felt like people were really
• 16:09
  Speaker 2: suffering from a little post traumatic stress. It's I'm curious
• 16:13
  Speaker 2: exactly how as you were starting to tell us how
• 16:17
  Speaker 2: you were thinking around that, because everybody was so negative,
• 16:22
  Speaker 2: and yet the data was clearly improved.
• 16:25
  Speaker 3: It was definitely improving.
• 16:26
  Speaker 4: And so you know the way I described to people,
• 16:28
  Speaker 4: they said, like, you know, markets don't move on the
• 16:30
  Speaker 4: absolutes of good or bad. Markets move on better or worse.
• 16:34
  Speaker 4: And things were horrible in an absolute sense, but they
• 16:37
  Speaker 4: were getting better.
• 16:38
  Speaker 2: And certainly better than consensus.
• 16:40
  Speaker 4: Felt like I was, absolutely and so you know, I
• 16:44
  Speaker 4: just I remember exactly where I was, and I said, well, gee,
• 16:47
  Speaker 4: you know, this.
• 16:47
  Speaker 3: Could be like a big bull market.
• 16:50
  Speaker 4: And you know, I actually at one point said to
• 16:53
  Speaker 4: potential investors, I thought that we were entering the biggest
• 16:55
  Speaker 4: bull market of our careers, and so we're only.
• 16:59
  Speaker 2: Off by tiny little bit. It was, it was, oh,
• 17:03
  Speaker 2: of our careers, of our careers. Yeah, so if you
• 17:05
  Speaker 2: look at rolling, look at rolling today, Rolling fifteen year
• 17:09
  Speaker 2: periods from nine to four was sixteen percent a year.
• 17:15
  Speaker 2: From the fifteen year period ending in ninety nine was
• 17:19
  Speaker 2: seventeen percent a year, and you go to the fifteen
• 17:22
  Speaker 2: years after World War Two was eighteen a year, but
• 17:26
  Speaker 2: one of the best periods in modern.
• 17:28
  Speaker 3: History for sure.
• 17:28
  Speaker 2: Absolutely, So you're you're like, hey, this is gonna be good.
• 17:31
  Speaker 4: If you're going to start it on, if you're going
• 17:33
  Speaker 4: to start a firm, this is the time to start
• 17:35
  Speaker 4: for sure.
• 17:36
  Speaker 3: So that that's kind.
• 17:37
  Speaker 4: Of how it began, and the you know, I don't
• 17:40
  Speaker 4: want to say that everything went swimmingly at the beginning.
• 17:43
  Speaker 3: No, you're starting a firm.
• 17:44
  Speaker 4: You have you know, like any any startup you have,
• 17:47
  Speaker 4: you have pluses and minuses, and you you him at
• 17:49
  Speaker 4: hall and you do different things. But through time it's
• 17:51
  Speaker 4: worked out pretty well.
• 17:53
  Speaker 2: So what was you know, we stood up a firm
• 17:55
  Speaker 2: in twenty thirteen. I'm curious, and that experience was kind
• 17:59
  Speaker 2: of surprising. I'm curious, what was the most surprising things
• 18:04
  Speaker 2: about launching your own firm? What was like I didn't
• 18:07
  Speaker 2: expect to be doing this.
• 18:09
  Speaker 3: So two things.
• 18:10
  Speaker 4: One was that I was getting into an area that
• 18:13
  Speaker 4: I didn't know and I knew. I didn't know the
• 18:17
  Speaker 4: buyside the way I knew the cell side. I knew that,
• 18:20
  Speaker 4: and what I didn't know was how much I didn't know,
• 18:25
  Speaker 4: and so the early fits and starts were trying to
• 18:29
  Speaker 4: hire the right people. I didn't even know enough to
• 18:31
  Speaker 4: hire the right people. Eventually that did happen and we
• 18:35
  Speaker 4: hired a guy named John MacComb, who's still the president
• 18:37
  Speaker 4: of the firm.
• 18:38
  Speaker 3: But it was kind of, you know, off and on.
• 18:41
  Speaker 4: We were not doing all that well at the beginning
• 18:43
  Speaker 4: because largely because I didn't even know who to hire
• 18:46
  Speaker 4: and who not to hire, because I was so inexperienced
• 18:48
  Speaker 4: on the buyside. So that was surprise number one. Surprise
• 18:51
  Speaker 4: number two was that people would not invest with us
• 18:56
  Speaker 4: at the time because we were too bullish, and.
• 18:59
  Speaker 3: That was.
• 19:01
  Speaker 2: That just makes you more bullish.
• 19:02
  Speaker 3: Oh, it did, without a.
• 19:03
  Speaker 4: Doubt, I mean, but if it was, it was incredible.
• 19:07
  Speaker 4: We were, you know, at the time, people were very
• 19:09
  Speaker 4: cautious on the United States. If they wanted growth, whatever
• 19:12
  Speaker 4: they determined that was, it had to be in the
• 19:14
  Speaker 4: emerging markets. It could not be in the United States.
• 19:16
  Speaker 4: And we were bullish and we wanted to invest in
• 19:18
  Speaker 4: the United States, and people just couldn't deal with that.
• 19:22
  Speaker 2: I'm going to put a little flash on what you're describing.
• 19:24
  Speaker 2: I vividly recall writing a market commentary. I want to
• 19:29
  Speaker 2: say September, but maybe it was October nine and the
• 19:32
  Speaker 2: title was the most hated bull rally in the market history.
• 19:37
  Speaker 2: Same experience, absolutely, it was.
• 19:39
  Speaker 3: It was very frustrating.
• 19:40
  Speaker 4: If you look at our early marketing materials, you will
• 19:44
  Speaker 4: find thing comments about what we called fire extinguishers, right.
• 19:47
  Speaker 4: And fire extinguishers were positions we would take in the
• 19:50
  Speaker 4: portfolio that we could pull off the wall and put
• 19:53
  Speaker 4: out the fire in the portfolio, right, like having you know,
• 19:57
  Speaker 4: cash or gold or all these different things that we
• 19:59
  Speaker 4: would include in our the asset portfolios so that people
• 20:02
  Speaker 4: would feel more confident in what was going on.
• 20:04
  Speaker 3: No, they it worked, but it didn't really work because.
• 20:07
  Speaker 2: It worked in psychologically, but it didn't work performance wise.
• 20:10
  Speaker 3: No, it worked.
• 20:11
  Speaker 4: It worked for us fine, but it didn't get people
• 20:13
  Speaker 4: across the goal line. They would not They they were
• 20:16
  Speaker 4: too scared.
• 20:17
  Speaker 2: How long did it take before people started to say, oh,
• 20:20
  Speaker 2: maybe this Bunston guy is onto something.
• 20:22
  Speaker 4: Yeah, well, you know everybody talks about it being like
• 20:25
  Speaker 4: a hockey stick. You know, the raising assets is sort
• 20:27
  Speaker 4: of like a hockey stick where you're think if as
• 20:29
  Speaker 4: a turbocharger, where you're you're kind of going along and
• 20:31
  Speaker 4: all of a sudden, the turbo charger kicks in and
• 20:33
  Speaker 4: you start really accelerating.
• 20:34
  Speaker 3: That was the experience that we had in the firm.
• 20:36
  Speaker 4: We had we had people who knew us as a
• 20:39
  Speaker 4: group were reasonably willing to invest with us, but to
• 20:44
  Speaker 4: the broader audience, it was it was much more difficult.
• 20:46
  Speaker 4: And then as they got more confident. Yeah, of course,
• 20:48
  Speaker 4: the turbo charger started started revving up.
• 20:51
  Speaker 2: So it was that six months, twelve months.
• 20:54
  Speaker 3: I measure two years. I was measured in years.
• 20:57
  Speaker 2: I really Yeah.
• 20:57
  Speaker 4: I think I don't remember the date of when we
• 21:00
  Speaker 4: hit five billion, but I'm gonna say it probably took
• 21:04
  Speaker 4: us five or six years at least to get to
• 21:06
  Speaker 4: five billion.
• 21:07
  Speaker 2: And now you're over well of a fifteen billion, we're
• 21:09
  Speaker 2: abouts almost sixteen. Wow, So that's amazing. And this is
• 21:13
  Speaker 2: now fifteen years later, correct, right, So it took you
• 21:17
  Speaker 2: fifteen years to get to fifteen billion dollars, so a
• 21:20
  Speaker 2: billion a year, not to shay, right, No, not not
• 21:24
  Speaker 2: bad at all. So we were talking about launching the
• 21:27
  Speaker 2: firm in nine and there's a quote of yours that
• 21:31
  Speaker 2: has always stayed with me, which is quote. When the
• 21:36
  Speaker 2: cell side indicator turns positive, leaving the firm is preferable
• 21:41
  Speaker 2: to going on the call and telling everybody about it.
• 21:46
  Speaker 2: Explain that, because we were talking earlier about the sort
• 21:50
  Speaker 2: of bearish PTSD pushback to anything remotely positive your indicator,
• 21:57
  Speaker 2: this cell side indicator has a pretty long and story
• 22:01
  Speaker 2: track record, Merrill.
• 22:02
  Speaker 3: It does.
• 22:03
  Speaker 2: Hey, this turn positive, you guys have to change your views.
• 22:06
  Speaker 2: That carries no weight.
• 22:08
  Speaker 3: So let me explain what it is.
• 22:09
  Speaker 4: The sell side indicator is a sentiment indicator that's based
• 22:13
  Speaker 4: on Wall Street's consensus recommended asset allocation, so stock SPONNS cash,
• 22:18
  Speaker 4: how much has you put in stocks at any point
• 22:20
  Speaker 4: in time. I started that all the way back at
• 22:23
  Speaker 4: Eve Hutton you mentioned Hutton before, and we continue to
• 22:26
  Speaker 4: through Meryl and Meryl still runs it today. It really
• 22:29
  Speaker 4: just looks at the equity allocation and puts basically standard
• 22:32
  Speaker 4: deviation bands around that. And as you might expect from
• 22:36
  Speaker 4: Wall Street gets really bullish. That's a bearers sign. Wall
• 22:38
  Speaker 4: Street gets really bearish. That's a bullish sign.
• 22:41
  Speaker 2: So when you said this turn positive, it was because
• 22:43
  Speaker 2: the street was the street.
• 22:44
  Speaker 4: Got incredibly negative, incredibly negative. And so from my point
• 22:49
  Speaker 4: of view. And what you're referring to was that do
• 22:51
  Speaker 4: I stay at Meryll and try to convince everybody to
• 22:54
  Speaker 4: be more bullish, or do.
• 22:55
  Speaker 3: I go off and start my own firm.
• 22:56
  Speaker 4: And I just thought it'd be better, given all the
• 22:59
  Speaker 4: other things we discussed, it was better to start my own.
• 23:02
  Speaker 2: Firm, preferable to going on the call and telling it
• 23:06
  Speaker 2: like I could just imagine the sort of pushback Bernstein is.
• 23:12
  Speaker 2: He's now a permeable. He's crazy. How we just during
• 23:15
  Speaker 2: in the middle of this crisis, How on earth can
• 23:18
  Speaker 2: we recommend clients buy inequities. Yeah, that's the sort of stuff.
• 23:21
  Speaker 4: Yeah, And it was the kind of thing where, you know,
• 23:24
  Speaker 4: certainly on the private client side. For those of you
• 23:26
  Speaker 4: to remember, you know, in twentsyd and eight, nine, ten, eleven, twelve,
• 23:30
  Speaker 4: the story was all about bonds, bonds, bonds, bonds, bonds,
• 23:32
  Speaker 4: and nobody wanted the risk of equities. And if you
• 23:35
  Speaker 4: twisted their arm, maybe they would invest in large cap,
• 23:39
  Speaker 4: high quality, dividend paying stocks. But there was no way
• 23:43
  Speaker 4: that they were going to take any kind of beta risk.
• 23:46
  Speaker 2: So no technology, no growth firms, nothing, nothing with any
• 23:50
  Speaker 2: amount of potential volatility.
• 23:52
  Speaker 4: No volatility was terrible risk taking was terrible. They were
• 23:56
  Speaker 4: under their desk in the fetal position.
• 23:58
  Speaker 2: And in hindsight, was there a better time ever to
• 24:00
  Speaker 2: put money into those sort of stocks.
• 24:02
  Speaker 4: I'm not sure in our careers there has been. Maybe
• 24:04
  Speaker 4: maybe eighty two, right, if you think back to right
• 24:07
  Speaker 4: in the beginning, maybe maybe eighty.
• 24:09
  Speaker 3: Two was a time. And I do remember that.
• 24:11
  Speaker 4: I'm old enough where I do remember, you know, what
• 24:15
  Speaker 4: the sentiment was like, and certainly I was. I had
• 24:17
  Speaker 4: very little experience on Wall Street. I know what my
• 24:19
  Speaker 4: sentiment was like in eighty two. I couldn't believe that
• 24:21
  Speaker 4: the market would be going up.
• 24:23
  Speaker 2: And but you just had a sixteen year bear market. Yeah,
• 24:27
  Speaker 2: you finally got over a thousand on the Dow, which
• 24:30
  Speaker 2: I want to say, we first kissed in sixty six
• 24:32
  Speaker 2: something like that, right, and so it's sixteen years later. Again,
• 24:37
  Speaker 2: everybody seems to always be looking backward.
• 24:40
  Speaker 4: It's not absolutely, And so the lesson, the lesson from that,
• 24:43
  Speaker 4: you know, when I was a young pup was you know, gee,
• 24:45
  Speaker 4: I really know what I was talking about, and you know,
• 24:49
  Speaker 4: I learned that from from various people working on Wall Street,
• 24:52
  Speaker 4: and you know, so when it came to nine, I
• 24:56
  Speaker 4: was kind of determined not.
• 24:57
  Speaker 3: To make the same mistake again.
• 24:58
  Speaker 2: So it's funny because another quote of yours kind of
• 25:02
  Speaker 2: cracked me up that I always found this intriguing. You
• 25:06
  Speaker 2: suggest always have a ten percent annual target for the
• 25:09
  Speaker 2: S and P five hundred despite being bearish. I love
• 25:14
  Speaker 2: that that optimism, but how can you maintain that bullishness
• 25:19
  Speaker 2: when you're bare?
• 25:19
  Speaker 4: Yes, so what Barry is as I'm sure you know,
• 25:22
  Speaker 4: the cell site strategists are always pestered for their target.
• 25:26
  Speaker 4: That your target on the S and P. And I
• 25:28
  Speaker 4: used to think that was the most watched, least important
• 25:31
  Speaker 4: thing I ever did right, And so I would never
• 25:34
  Speaker 4: put a number out. I would never give people a
• 25:37
  Speaker 4: firm number, but I would always answer the question by saying, well,
• 25:40
  Speaker 4: we don't really have an official target, but we have
• 25:43
  Speaker 4: a ten percent expected return. And nobody ever noticed that
• 25:47
  Speaker 4: ten percent is roughly the long term return.
• 25:49
  Speaker 2: Of the SMB we dived and reinvest and change two percent.
• 25:53
  Speaker 4: So I used to always say ten percent, and that
• 25:55
  Speaker 4: would make everybody happy. And so regardless whether as bullish
• 25:59
  Speaker 4: or bearish, I always answer the question saying, I don't know,
• 26:02
  Speaker 4: we have a ten percent expective return, and and that
• 26:05
  Speaker 4: kept people satisfied. But I really don't think that the
• 26:08
  Speaker 4: notion of what is your target is an appropriate thing
• 26:11
  Speaker 4: to discuss as an investor.
• 26:13
  Speaker 3: Look, if you want to be.
• 26:14
  Speaker 4: A trader, and you want to, you want to, you know,
• 26:15
  Speaker 4: do a lot of short term trading. I get that,
• 26:17
  Speaker 4: and I understand it. For a true investor, I think
• 26:21
  Speaker 4: it's kind of a silly discussion.
• 26:22
  Speaker 2: Huh really really amusing on your website and elsewhere, I've
• 26:28
  Speaker 2: seen the phrase from you, pactive investment. Yes, define what
• 26:34
  Speaker 2: pactive investment?
• 26:35
  Speaker 3: Right? So pactive, which is a trademark term.
• 26:37
  Speaker 2: So literally my next question. I saw the registered trademark.
• 26:41
  Speaker 3: It is a trademark term.
• 26:43
  Speaker 2: You literally did that. That's why we did that.
• 26:45
  Speaker 4: And uh so pactive stands for the active use of
• 26:49
  Speaker 4: passive investors and investments. And what we're really referring to
• 26:53
  Speaker 4: here are a lot of ETFs And you know, we're
• 26:56
  Speaker 4: a macro firm. We claim to know nothing about coke
• 26:59
  Speaker 4: versus pepsi, but rather, you know, we look at size, style,
• 27:03
  Speaker 4: geography and you know, acid allocation, things like that and
• 27:06
  Speaker 4: ETF's are right in our wheelhouse. It's been a great
• 27:09
  Speaker 4: invention and we're very big users of ETFs. Jack Bogel
• 27:13
  Speaker 4: I met many times when he was alive, and I
• 27:15
  Speaker 4: always thought he was one of the smartest guys I
• 27:17
  Speaker 4: ever met in my career. But one of the things
• 27:20
  Speaker 4: that and Jack would always say, don't talk to an
• 27:22
  Speaker 4: active manager, just go buy an index. Right, okay, fine,
• 27:25
  Speaker 4: But what Jack would and that's an interesting discussion. We
• 27:27
  Speaker 4: can have the discussion all day long as to why
• 27:29
  Speaker 4: that happens or doesn't happen, whether he's right or wrong.
• 27:31
  Speaker 4: But the one thing that Jack would never tell anybody
• 27:33
  Speaker 4: is what index to buy.
• 27:34
  Speaker 3: And when right.
• 27:36
  Speaker 4: And you know, one may say, well, that sounds silly,
• 27:39
  Speaker 4: but there's been many times in the past where if
• 27:41
  Speaker 4: you had bought the wrong index at the wrong time,
• 27:45
  Speaker 4: your portfolio suffered dramatically for an extended period of time.
• 27:49
  Speaker 4: For instance, if you had bought Nasdaq or even the
• 27:52
  Speaker 4: S and P ETF in March of two thousand, for sure, right,
• 27:57
  Speaker 4: you then entered the Lost decade inequities, and your return
• 28:01
  Speaker 4: for a decade was slightly negative. If you had been
• 28:04
  Speaker 4: in other things like emerging markets or energy or you know,
• 28:08
  Speaker 4: all kinds of small caps, all these different things, you
• 28:10
  Speaker 4: would have done fabulously well, you know, if you bought
• 28:14
  Speaker 4: small caps at the peak of the small cap bull
• 28:16
  Speaker 4: market in nineteen eighty three, it took you seventeen years
• 28:20
  Speaker 4: to catch up to the S and P, so you
• 28:22
  Speaker 4: would have been neutral. So you know, everybody says, oh,
• 28:25
  Speaker 4: I'm a I'm a long term investor, I'm just going
• 28:27
  Speaker 4: to buy an index. If you buy the wrong index
• 28:29
  Speaker 4: at the wrong time, it can have a real detrimental effect.
• 28:32
  Speaker 4: And that's what pactive investing is supposed to be all about,
• 28:36
  Speaker 4: is the active decision making around these passive investments.
• 28:40
  Speaker 2: So let's delve into that decision making. How do you
• 28:44
  Speaker 2: decide which index is the one that you want to own?
• 28:48
  Speaker 2: What data are you looking at, how you're crunching numbers
• 28:52
  Speaker 2: for this.
• 28:52
  Speaker 4: So Barry I mentioned that we are macro investors. You know,
• 28:56
  Speaker 4: we're not looking at individual stocks. So everything we do
• 28:59
  Speaker 4: is going to fall there some macro umbrella of one
• 29:01
  Speaker 4: form or another. And the way to think about it is,
• 29:03
  Speaker 4: it's going to fall into three categories. Everything we look
• 29:05
  Speaker 4: at it's going to fall into three categories. Number one
• 29:08
  Speaker 4: would be corporate profits. One of the things that I
• 29:11
  Speaker 4: wrote about extensively even when I was at Maryland through
• 29:13
  Speaker 4: my entire careers. I've argued that equity investors spend too
• 29:16
  Speaker 4: much time worrying about the economy and not enough time
• 29:19
  Speaker 4: worrying about corporate profits. The stock market doesn't really care
• 29:22
  Speaker 4: about GDP. The stock market cares about corporate profits.
• 29:25
  Speaker 2: Because GDP is reflected in profits.
• 29:28
  Speaker 4: If it's right, GDP is going to be a contributor.
• 29:31
  Speaker 4: But a lot of other things contribute right to corporate profits.
• 29:34
  Speaker 4: We're looking at corporate profits and profit cycles, not economic cycles.
• 29:38
  Speaker 4: Number two category is going to be what we call liquidity.
• 29:43
  Speaker 4: And liquidity is going to be anything from central banks,
• 29:46
  Speaker 4: central bank actions, to lending standards from banks, anything that's
• 29:52
  Speaker 4: going to allow more leverage and greater liquidity and investable
• 29:56
  Speaker 4: assets in a stopworker. And then number three is going
• 29:59
  Speaker 4: to be sentiment and valuation. Now, sometimes people say, well,
• 30:04
  Speaker 4: sentiment and valuation, why are they together? And my answer, yeah,
• 30:09
  Speaker 4: My answer is that valuation is a reflection of sentiment. Yeah,
• 30:12
  Speaker 4: you can't have an overvalued asset that people hate or
• 30:15
  Speaker 4: an undervalued asset that people love. That that doesn't make
• 30:18
  Speaker 4: any sense. So valuation is going to reflect sentiment. And
• 30:21
  Speaker 4: so what we're basically looking for if you think about
• 30:24
  Speaker 4: those three categories I just mentioned. We're looking for situations
• 30:27
  Speaker 4: where fundamentals are improving, liquidity is adequate or getting better,
• 30:31
  Speaker 4: and everybody hates it, or vice versa, where fundamentals are deteriorating,
• 30:36
  Speaker 4: liquidity is drawing up and everybody loves it. We're going
• 30:39
  Speaker 4: to try and stay away from that. That's that's maybe
• 30:42
  Speaker 4: a gross simplification of what we do, but but that's
• 30:45
  Speaker 4: kind of what we do.
• 30:46
  Speaker 2: But that's pactive. That's how you're selecting from broad index
• 30:50
  Speaker 2: is just the right index at the right time and
• 30:52
  Speaker 2: avoiding the wrong index at the wrong time.
• 30:54
  Speaker 3: Correct. That's exactly what we're trying to.
• 30:56
  Speaker 2: Really interesting, one of the things that comes up when
• 31:00
  Speaker 2: we're talking about various style investing comes right from one
• 31:05
  Speaker 2: of your books, and it's about media noise. How do
• 31:10
  Speaker 2: you focus on the right index when there's so much
• 31:15
  Speaker 2: noise and so much stuff going on, and it's especially
• 31:18
  Speaker 2: with algorithmic social media, it's just a firehouse nonsense. How
• 31:24
  Speaker 2: do you separate the signal.
• 31:25
  Speaker 3: From the noise?
• 31:26
  Speaker 4: Yeah, so I wrote a book in twenty so twenty
• 31:30
  Speaker 4: five years ago I wrote a book that was called
• 31:32
  Speaker 4: Navigate the Noise. I remember investing in the New age
• 31:35
  Speaker 4: of media and hype. Twenty five years ago, I wrote
• 31:38
  Speaker 4: about the new age of.
• 31:39
  Speaker 2: Media and you were ahead of this.
• 31:41
  Speaker 4: You think it's gotten a bit worse since just twenty
• 31:44
  Speaker 4: five years.
• 31:45
  Speaker 2: So just as a reminder, this is pre Twitter, pre Facebook,
• 31:51
  Speaker 2: pre LinkedIn, forget Instagram, TikTok, Like, this was just like
• 31:56
  Speaker 2: message boards and websites.
• 31:58
  Speaker 4: Yeah, I mean you're just beginning to get websites in depth,
• 32:03
  Speaker 4: but we're really still talking about a period of hard
• 32:06
  Speaker 4: copy research reports and television.
• 32:09
  Speaker 3: Wow, that's really what, you know.
• 32:10
  Speaker 4: The main stay of what people were looking at the
• 32:14
  Speaker 4: point of the book was to say that building wealth
• 32:17
  Speaker 4: for an individual investor is actually not that difficult.
• 32:20
  Speaker 3: Why don't people do it? Why don't people do this
• 32:22
  Speaker 3: is kind of silly, and.
• 32:23
  Speaker 2: Well, wait, when you say it's not that difficult, we
• 32:28
  Speaker 2: intell actually understand. My friend Dave Nadig loves to say
• 32:32
  Speaker 2: investing is a problem that's been solved, but the problem
• 32:35
  Speaker 2: that has been solved is the human behavior around.
• 32:38
  Speaker 4: It, exactly exactly. And so what the book tries to
• 32:42
  Speaker 4: argue is that there's some very sound principles that everybody
• 32:45
  Speaker 4: should be following to build wealth, but yet there's a
• 32:48
  Speaker 4: siren song if you will, if you're into Greek mythology,
• 32:50
  Speaker 4: there's a siren song of things telling you of noise,
• 32:55
  Speaker 4: telling you that there's something newer, better get rich quick,
• 32:58
  Speaker 4: you know, all these kind of things that are going on,
• 33:00
  Speaker 4: and to continue with that.
• 33:02
  Speaker 3: Your portfolio it follows.
• 33:03
  Speaker 4: That sound and crashes on the rocks, if you want
• 33:05
  Speaker 4: to get the mythology example. And so what the book
• 33:09
  Speaker 4: says is the way to solve this problem of this
• 33:13
  Speaker 4: incessant noise is to hardcore follow a process and come
• 33:18
  Speaker 4: hell or high water, you're going to stick to that process.
• 33:21
  Speaker 2: That's the mass. You tie yourself to.
• 33:23
  Speaker 4: That exactly right, and put the wax in your ears,
• 33:26
  Speaker 4: the whole routine right. And and that's that's what we do.
• 33:30
  Speaker 3: As a firm.
• 33:31
  Speaker 4: We have a very hard core process. It's macro driven,
• 33:33
  Speaker 4: but we're going to follow that process, come hell or
• 33:36
  Speaker 4: high water.
• 33:37
  Speaker 2: You know.
• 33:37
  Speaker 3: It's it's funny.
• 33:39
  Speaker 4: People understand that, and they understand what we do, We
• 33:42
  Speaker 4: understand why they do. They understand the notion of the book,
• 33:46
  Speaker 4: but yet they get very angry when we're not following
• 33:49
  Speaker 4: the siren song of what's the newest, baddest, you know.
• 33:52
  Speaker 2: Shiniest object that's out there, so walk us through the process.
• 33:57
  Speaker 2: I know you have a couple of core beliefs in
• 33:59
  Speaker 2: your tell us about it.
• 34:01
  Speaker 4: So I mentioned profit cycles. I think for us that
• 34:04
  Speaker 4: is the most important part of our process. And as
• 34:08
  Speaker 4: I said before, people spend too much time worrying about
• 34:11
  Speaker 4: economic cycles and not enough time worrying about profit cycles.
• 34:14
  Speaker 2: To find profit cycle. And because we are all familiar
• 34:18
  Speaker 2: with the business cycle and the economic cycle, what is
• 34:21
  Speaker 2: a profit cycle?
• 34:22
  Speaker 4: So you know whereas people look at GDP growth or
• 34:25
  Speaker 4: industrial production growth and they say, this is the economic cycle,
• 34:28
  Speaker 4: Well we're looking at is corporate profits growth? Now let's
• 34:30
  Speaker 4: just as an example, we look at profit cycles all
• 34:32
  Speaker 4: around the world. But let's take for example, the S
• 34:35
  Speaker 4: and P five hundred, the US profit cycle. What happens
• 34:39
  Speaker 4: is the difference between an economic cycle and a profit cycle.
• 34:41
  Speaker 4: Number one is that profit cycles tend.
• 34:44
  Speaker 3: To boom and bust.
• 34:45
  Speaker 4: Fortunately, the overall economy does not do that on a
• 34:48
  Speaker 4: regular basis. And secondly, profit cycles have a shorter periodicity,
• 34:52
  Speaker 4: so you can get multiple profit cycles in one economic cycle.
• 34:55
  Speaker 4: Periodicity meaning the amount of time, right, got it right?
• 34:59
  Speaker 4: So where's an economic cycle? Maybe it's going to take
• 35:01
  Speaker 4: four or eight years. You could have multiple profit cycles
• 35:05
  Speaker 4: in that four eight year period.
• 35:07
  Speaker 2: So how do you define the peak and the troth
• 35:09
  Speaker 2: of profit size?
• 35:10
  Speaker 4: So what happens is, you know, if you look at
• 35:12
  Speaker 4: the growth rate of corporate profits, you will see it
• 35:15
  Speaker 4: follows a pretty normal cycle through time, and our challenge
• 35:19
  Speaker 4: as investors is to find indicators that will allow us
• 35:24
  Speaker 4: to effectively forecast that profit cycle. Now, we don't really
• 35:27
  Speaker 4: care whether the profit cycle, whether earning strowth is going
• 35:30
  Speaker 4: to be seven percent or eight percent or ten percent,
• 35:33
  Speaker 4: which is a very common question people get asked, or
• 35:36
  Speaker 4: minus five or minus six or minus seven. We kind
• 35:39
  Speaker 4: of want to know is it getting better or is
• 35:41
  Speaker 4: it getting worse?
• 35:42
  Speaker 2: Scending up exactly?
• 35:43
  Speaker 4: So if profits go thus five percent, what's the probability
• 35:46
  Speaker 4: of going to ten percent as opposed to going to zero.
• 35:50
  Speaker 4: So we spend an awful lot of time with a
• 35:51
  Speaker 4: lot of indicators that look at that. What are the
• 35:54
  Speaker 4: indicators look at?
• 35:55
  Speaker 2: Well?
• 35:56
  Speaker 4: Look, profitability is a pretty simple formula. It's how much
• 36:00
  Speaker 4: what stuff are you selling? And what's your margin per item?
• 36:03
  Speaker 4: I mean, that's really all profitability is.
• 36:05
  Speaker 2: Well, but there's a couple of factors that go in.
• 36:07
  Speaker 2: What is the cost of capital and credit exact inflation rates.
• 36:11
  Speaker 4: But that would be in your margin, right, I mean,
• 36:13
  Speaker 4: and so which affects profits, which affects produits. So all
• 36:16
  Speaker 4: our indicators are either going to try to figure out
• 36:19
  Speaker 4: how much stuff is. Let's take the SMP of one
• 36:22
  Speaker 4: hundred or s and p F one hundred companies going
• 36:24
  Speaker 4: to sell, and what's going to be their margin p products.
• 36:26
  Speaker 4: So margin, as you point out, could be interest rates,
• 36:29
  Speaker 4: it could be labor costs, it could be pricing power
• 36:32
  Speaker 4: because of inflation. People forget inflation isn't bad for a
• 36:35
  Speaker 4: lot of corporate profits, right.
• 36:37
  Speaker 2: But you can currently learn that during the pandemic exactly.
• 36:40
  Speaker 4: So those are the type of things that we're looking
• 36:42
  Speaker 4: at in terms of profitsycle.
• 36:43
  Speaker 3: And as I said, we look at.
• 36:44
  Speaker 4: Profit cycles all around the world. We look at them
• 36:47
  Speaker 4: by region, by country, we look at by sectors. You know,
• 36:51
  Speaker 4: we look at profit cycles for say the tech sector,
• 36:54
  Speaker 4: for the consumer staples sector or something like that as well.
• 36:56
  Speaker 2: So profit cycle is one of the I try, it's
• 37:01
  Speaker 2: the key, all right, what are the other elements that
• 37:04
  Speaker 2: you're considering in addition to the profit side.
• 37:06
  Speaker 4: So next would be liquidity, okay, And liquidity is a
• 37:10
  Speaker 4: function of several different things. It's obviously a function of
• 37:14
  Speaker 4: monetary policy. We follow monetary policy in forty three countries
• 37:19
  Speaker 4: around the world. You know that sounds silly, and obviously
• 37:22
  Speaker 4: in the G seven or G ten you get a
• 37:23
  Speaker 4: lot more information than that would in but you know,
• 37:26
  Speaker 4: some weird emerging market country. But we do follow central
• 37:29
  Speaker 4: bank policy. We follow yield curves, the slope of the
• 37:33
  Speaker 4: yel curves, right, whether you've got a bullish steepening of
• 37:36
  Speaker 4: the curve in other words, or interest rates coming down,
• 37:39
  Speaker 4: but the curve of steepening, interest rates going up, but
• 37:41
  Speaker 4: the curve of steepening, or is the curve inverting. I mean,
• 37:44
  Speaker 4: we look at all these different things. They have different
• 37:46
  Speaker 4: implications for sector rotation and things like that as well.
• 37:50
  Speaker 4: So and then we follow things like bank lending standards.
• 37:53
  Speaker 4: Now that's obviously you can only get that in the
• 37:54
  Speaker 4: most developed countries, right, But that's an important consideration as well,
• 37:58
  Speaker 4: our banks tightening credit or easing credit. People say, well,
• 38:02
  Speaker 4: doesn't doesn't the central bank control that?
• 38:05
  Speaker 3: Well not really.
• 38:07
  Speaker 4: You can kind of lead a horse to water, but
• 38:08
  Speaker 4: you can't make it lend and and so so you
• 38:12
  Speaker 4: want to look at both central bank policies and the
• 38:15
  Speaker 4: willingness of banks to learn.
• 38:16
  Speaker 2: How how does the role of fiscal stimulus and spending
• 38:20
  Speaker 2: play into liquidity issues?
• 38:22
  Speaker 4: Yeah, so to some extent it does, and uh, it's
• 38:26
  Speaker 4: going to affect more. It's going to feed into ours
• 38:28
  Speaker 4: more to the corporate profit side in terms of how
• 38:31
  Speaker 4: much stuff are you going to sell? Right, because fiscal
• 38:34
  Speaker 4: stimulus is trying to stimulate consumption or aggregate demand if
• 38:38
  Speaker 4: you prefer to be a real economist here, it's going
• 38:41
  Speaker 4: to try and stimulate aggregate demand and that'll show up
• 38:45
  Speaker 4: in our stuff type type.
• 38:47
  Speaker 2: All right, So, so we have the profit cycle, we
• 38:50
  Speaker 2: have liquidity, and what's the third.
• 38:52
  Speaker 4: The third is sentiment and valuation, right, Okay, so obviously
• 38:56
  Speaker 4: we want we prefer to look at more under valued situations.
• 39:01
  Speaker 4: Sentiment we're trying to look for, basically, assets that people hate.
• 39:05
  Speaker 4: Valuation will reflect that, you know, if something's really undervalued,
• 39:08
  Speaker 4: something's really cheap, it reflects that people don't like it,
• 39:13
  Speaker 4: you know, And it's just like any other good in
• 39:15
  Speaker 4: any other market. If something's really expensive, it means people
• 39:19
  Speaker 4: like it.
• 39:19
  Speaker 2: So two questions from that. The first is how do
• 39:23
  Speaker 2: you distinguish and I already know the answer to this,
• 39:26
  Speaker 2: But how do you distinguish between a stock that is
• 39:30
  Speaker 2: disliked and cheap and a stock that's cheap because it's
• 39:35
  Speaker 2: in trouble.
• 39:35
  Speaker 4: Yeah, so what you're referring to, you know, we wouldn't
• 39:38
  Speaker 4: do this for individual stock, so we would do it
• 39:39
  Speaker 4: for for regions or sectors or whatever you know commonly
• 39:43
  Speaker 4: called the value trap. Yes, the value trap is something
• 39:45
  Speaker 4: that's cheap for good reason. And so what we do.
• 39:49
  Speaker 4: We have models that try to look at various industry, sectors, countries, whatever,
• 39:54
  Speaker 4: that are trying to look for it not only cheapness,
• 39:56
  Speaker 4: but some acceleration of corporate profits. Right, And and we
• 40:00
  Speaker 4: won't invest anything just because it's cheap. That doesn't mean
• 40:02
  Speaker 4: anything to us.
• 40:03
  Speaker 2: It's cheap plus some other indicators.
• 40:06
  Speaker 3: Correct.
• 40:06
  Speaker 2: And then the other question is consumer sentiment seems to
• 40:12
  Speaker 2: have gone off the rails post pandemic if you look
• 40:16
  Speaker 2: at where and I suspect this is a measurement problem,
• 40:19
  Speaker 2: but I want to get your sense. So if you
• 40:21
  Speaker 2: look at the University of Michigan consumer sentiment data for
• 40:25
  Speaker 2: the better part of the past five years, it's worse
• 40:28
  Speaker 2: than the worst part of the pandemic, worse than the
• 40:31
  Speaker 2: financial crisis, the eighty seven crash, like on and on,
• 40:35
  Speaker 2: it's shocking, worse than nine to eleven in the dot
• 40:38
  Speaker 2: com implosion, Like, wait, things aren't that bad.
• 40:41
  Speaker 3: No, they're not that bad at all.
• 40:42
  Speaker 2: What's going on with that sort of sentiment? And what
• 40:46
  Speaker 2: how do you use sentiment when you're trying to manage
• 40:49
  Speaker 2: around this?
• 40:50
  Speaker 4: You're asking, I think a more complicated question, maybe even
• 40:54
  Speaker 4: you think you're asking. But you know, everybody knows that
• 40:56
  Speaker 4: we're in a very uncertain environment, and I think that
• 41:00
  Speaker 4: those consumer sentiment readings right now reflect that immense uncertainty.
• 41:06
  Speaker 4: If you were to ask normal people, they might not
• 41:09
  Speaker 4: use the word uncertainty. They might use the word chaos,
• 41:11
  Speaker 4: they might use there's all kinds of different words that
• 41:13
  Speaker 4: people would use. I think that's what's being reflected in
• 41:16
  Speaker 4: those consumer sentiment numbers right now, is the uncertainty of
• 41:20
  Speaker 4: the impact that's having. You know, there's other surveys out
• 41:23
  Speaker 4: there that are showing similar type levels of uncertainty or
• 41:27
  Speaker 4: concern that aren't related to consumer but I think it's
• 41:31
  Speaker 4: a reflection of this. It's become a hackneyed word uncertainty.
• 41:35
  Speaker 4: I think that's what you're.
• 41:35
  Speaker 2: Saying I prefer the lack of clarity to uncertainty. But
• 41:39
  Speaker 2: let me bring this back to your book, Navigate the noise.
• 41:43
  Speaker 2: How much of this is a function of algorithmic social media,
• 41:47
  Speaker 2: which there was recently a study I want to say
• 41:51
  Speaker 2: it was Oxford Reuters that said Americans now get more
• 41:54
  Speaker 2: of their news from social media than anywhere else. Ye,
• 41:58
  Speaker 2: big issue. And then secondly, it seems like in the
• 42:03
  Speaker 2: world of clickbait crazy headlines, the media itself, if not
• 42:09
  Speaker 2: the news stories or columns, but the headlines certainly seem
• 42:14
  Speaker 2: to be more and more extreme, unbelievable.
• 42:16
  Speaker 4: So you know, I don't know how to answer that
• 42:19
  Speaker 4: from a societal point of view, but I can answer
• 42:21
  Speaker 4: it from my point of view as sort of a
• 42:24
  Speaker 4: fiduciary and an investor of other people's money. I think
• 42:28
  Speaker 4: it is my obligation to things. Is my obligation number one,
• 42:32
  Speaker 4: to be as dispassionate about my politics as I possibly can.
• 42:36
  Speaker 4: I mean, if you want to go have a beer,
• 42:37
  Speaker 4: we can talk politic that's fine, But I'm saying when
• 42:39
  Speaker 4: I'm investing, you have to be as dispassionate as you
• 42:41
  Speaker 4: can possibly be. And number two, I think it's incumbent
• 42:46
  Speaker 4: of all of us who manage money to search for
• 42:51
  Speaker 4: truly unbiased sources. Not who's going to give us the
• 42:55
  Speaker 4: most frequent news, but who's going to give us news
• 42:58
  Speaker 4: that is unbiased. I think it's incumbent on all of
• 43:01
  Speaker 4: us to do that. And I have found that in
• 43:05
  Speaker 4: the last year or so that my choices of news
• 43:11
  Speaker 4: media and what I read and what I pay attention
• 43:14
  Speaker 4: to has changed.
• 43:15
  Speaker 3: Because of that.
• 43:18
  Speaker 2: Feel free to name names.
• 43:20
  Speaker 4: You know a lot of people. I think one of
• 43:21
  Speaker 4: the questions you would plan to ask me was what
• 43:23
  Speaker 4: are you reading these days? And my answer is I
• 43:24
  Speaker 4: don't read an awful lot of these days because there's
• 43:28
  Speaker 4: so much going on. But what I what I have
• 43:31
  Speaker 4: begun to do is listen to podcasts. Okay, go on,
• 43:37
  Speaker 4: tell me about like this podcast, Like no, I'm buttering
• 43:40
  Speaker 4: you up here, but go on. There's three that I
• 43:45
  Speaker 4: would I would recommend to everybody. One is actually right
• 43:48
  Speaker 4: here at Bloomberg Bloomberg Law. And you'd say, like, why.
• 43:52
  Speaker 2: June Grasso, Yeah, yeah, yeah, why would you listen?
• 43:55
  Speaker 3: Why would you listen to Bloomberg?
• 43:57
  Speaker 2: It's fascinating?
• 43:58
  Speaker 3: And my answer is because everything these days is ending
• 44:02
  Speaker 3: up in the courts.
• 44:03
  Speaker 4: Have we ever had more issues with government in the
• 44:06
  Speaker 4: courts than ever before.
• 44:08
  Speaker 3: So I'm not a lawyer.
• 44:10
  Speaker 4: I don't know squat about you know, constitutional theory and everything,
• 44:15
  Speaker 4: and I'm sure most people don't either, but they're gonna
• 44:17
  Speaker 4: listen to some wack adoodle guy talk about this. I'd
• 44:20
  Speaker 4: rather listen to people who have our well granded opinions
• 44:24
  Speaker 4: and understand the history of law in terms of doing that.
• 44:27
  Speaker 2: So I'm so glad you brought that up because we
• 44:30
  Speaker 2: went through a run starting in twenty twenty where every
• 44:34
  Speaker 2: talking pundit Yahoo. First they were an epidemiologist exactly. Then
• 44:40
  Speaker 2: they were a virologist, then they were a constitutional scholar,
• 44:44
  Speaker 2: then they were a military strategist. You know, when someone
• 44:47
  Speaker 2: asked you was COVID from the wet lab or wet
• 44:52
  Speaker 2: wet market or escape from the lab, It's okay to say,
• 44:55
  Speaker 2: how the hell why I have no expertise in that,
• 44:58
  Speaker 2: why are you asking me?
• 44:59
  Speaker 4: Every But he had an opinion, so it seemed right,
• 45:02
  Speaker 4: exactly exactly.
• 45:03
  Speaker 3: And so yeah.
• 45:05
  Speaker 4: The other thing along with that that I love is
• 45:06
  Speaker 4: a well known epidemiologists or idiots. But the guy down
• 45:10
  Speaker 4: at GNC who sells me protein powder, he's a genius,
• 45:13
  Speaker 4: and he knows my health better than anybody.
• 45:15
  Speaker 3: I mean, it's just like, come on.
• 45:17
  Speaker 2: There was a New Yorker cartoon that I vividly remember,
• 45:20
  Speaker 2: right in the middle of the pandemic. It's the body
• 45:23
  Speaker 2: of an airplane and there's a guy standing up in
• 45:26
  Speaker 2: row seventeen b right, saying, we're tired of these pilots
• 45:31
  Speaker 2: telling us what to do. Who's with me? And it
• 45:34
  Speaker 2: was like that just sort of let the pilots fly
• 45:36
  Speaker 2: the plane, just sit down.
• 45:38
  Speaker 4: So Bloomberg Law is one that I listened to. I'm
• 45:42
  Speaker 4: not gonna say regularly because I don't have the time
• 45:44
  Speaker 4: to listen to every single one all the time. Yeah,
• 45:46
  Speaker 4: I thought, if I get a chance, I listened to it.
• 45:49
  Speaker 2: That's a fascinating show. Like you're you're surprising me because
• 45:52
  Speaker 2: I do the same as you. I listened to a
• 45:55
  Speaker 2: lot of them. Tell us the other two?
• 45:56
  Speaker 4: Yeah, so the other two are actually on in which
• 46:00
  Speaker 4: I realize people now suddenly decided I'm a wide eyed liberally.
• 46:04
  Speaker 2: Can I tell you my wife every time I get
• 46:06
  Speaker 2: into the car and she's been driving my car. It's
• 46:09
  Speaker 2: on NPR on Saturday Light Radio. And I had the
• 46:13
  Speaker 2: same thought until you listen to a few of them,
• 46:16
  Speaker 2: and they're fascinating.
• 46:17
  Speaker 3: They are.
• 46:18
  Speaker 4: And there's two shows in particular that I would recommend.
• 46:20
  Speaker 4: Two podcasts in particular I would recommend from MPR. One
• 46:23
  Speaker 4: is called Left, Right and Center, which is the name
• 46:26
  Speaker 4: implies you have three people talking about issues, one from
• 46:29
  Speaker 4: the left, one to the right, and one from the center.
• 46:31
  Speaker 2: Wait, they're gonna give us all views who could have imagined?
• 46:34
  Speaker 4: Who imagine that exactly? And they pick a topic and
• 46:38
  Speaker 4: sometimes I'm really interested in the topic, sometimes I'm not.
• 46:40
  Speaker 4: But whatever, the fact that you've got Left, Right and
• 46:43
  Speaker 4: Center in the same podcast is extraordinarily rare.
• 46:48
  Speaker 3: You don't get that a lot. So that's number one.
• 46:51
  Speaker 4: And the other one is another MPR podcast called Open
• 46:53
  Speaker 4: to Debate, which is very similar. They pick a topic
• 46:57
  Speaker 4: and this is more like a traditional debate where they
• 47:01
  Speaker 4: have debating.
• 47:01
  Speaker 3: Rules and all kinds of thing.
• 47:02
  Speaker 4: But it's a debate and you're gonna hear two sides
• 47:06
  Speaker 4: of an issue.
• 47:07
  Speaker 3: Now.
• 47:07
  Speaker 4: Look, sometimes the issues you don't care about. Sometimes they're
• 47:10
  Speaker 4: very important. Sometimes they're really cool.
• 47:11
  Speaker 3: Sometimes they're not.
• 47:12
  Speaker 4: I get that, but I think it's incumbent on us
• 47:16
  Speaker 4: as a class of money managers and fiduciaries to search
• 47:21
  Speaker 4: out those kind of shows. I would argue, if you
• 47:25
  Speaker 4: are a fiduciary and you are constantly listening to MSNBC
• 47:29
  Speaker 4: or Fox or Newsmags or whatever right you're you're doing
• 47:33
  Speaker 4: a disservice to your clients for sure.
• 47:36
  Speaker 2: So there are two things I have to share with
• 47:39
  Speaker 2: you because you're right in my favorite space. One is
• 47:45
  Speaker 2: planet money on NPR is something that they take this obscure,
• 47:52
  Speaker 2: fascinating little topic and we'll do a whole like way
• 47:57
  Speaker 2: down the rabbit hole deep dive. I don't know if
• 48:00
  Speaker 2: you recall during the Clinton administration, Hey, we're having problems
• 48:03
  Speaker 2: with wealth inequality, and so we're going to cap how
• 48:06
  Speaker 2: much we can pay CEOs in cash. If you want
• 48:09
  Speaker 2: to give them risky stock options, you can. And the
• 48:12
  Speaker 2: unintended consequences is it tenext the wealth gap and just
• 48:16
  Speaker 2: stories like that that are fascinating. The other thing is
• 48:20
  Speaker 2: you raise a point. I know you're not a lawyer,
• 48:24
  Speaker 2: but I'm a recovering attorney, and the most applicable thing
• 48:29
  Speaker 2: to investing you learn in law school is you have
• 48:33
  Speaker 2: to be able to not just argue your case, you
• 48:37
  Speaker 2: need to know the other site's case. Better than they do.
• 48:40
  Speaker 2: And that translates into equities as you can't be bullish
• 48:45
  Speaker 2: unless you can really state the bearish case and vice versa.
• 48:49
  Speaker 2: Correct you want to be bearish, you better know what
• 48:51
  Speaker 2: what are the best arguments for being bullish here? And
• 48:55
  Speaker 2: I can't tell you how many people fail that test,
• 48:59
  Speaker 2: and I bet you see it back to post nine
• 49:03
  Speaker 2: if you're super bearished. The only question I have for
• 49:06
  Speaker 2: those people, give me what the bulk case is and
• 49:09
  Speaker 2: if they can't even imagine it, well, now I'm going
• 49:12
  Speaker 2: leverage long because that failure of imagination means everybody's too baish.
• 49:18
  Speaker 4: And it's interesting you said that there are times we
• 49:21
  Speaker 4: don't do this regularly, but there are times that where
• 49:22
  Speaker 4: we do point counterpoint in our investment committee meetings exactly for.
• 49:26
  Speaker 2: That reason, just so you're making both so we're being seen.
• 49:31
  Speaker 2: It's one of these things that until you go through
• 49:34
  Speaker 2: the exercise, it like if you have an extreme position
• 49:38
  Speaker 2: and you come out the other side of that discussion
• 49:41
  Speaker 2: and you still have that extreme position. Either someone wasn't
• 49:46
  Speaker 2: making the argument well, or hey, maybe the world really
• 49:50
  Speaker 2: is coming to an end. But most so far that's
• 49:53
  Speaker 2: been losing. The losing bad So, given what's going on
• 49:58
  Speaker 2: with technology and AI and automation and all the latest greatest,
• 50:03
  Speaker 2: newfangled things, is anybody today a better investor than they
• 50:09
  Speaker 2: were ten, twenty, thirty years ago, fifty years ago. Has
• 50:13
  Speaker 2: the bar Since Charles down launched Barons in eighteen ninety,
• 50:19
  Speaker 2: has anything improved for the average investor?
• 50:22
  Speaker 4: I think I think the amount of information that an
• 50:25
  Speaker 4: investor can get obviously has gotten greater, right, I mean
• 50:29
  Speaker 4: even if you think probably.
• 50:30
  Speaker 2: But it's all public, it's reg FD, So does it
• 50:32
  Speaker 2: help them?
• 50:33
  Speaker 3: No? I don't think it does.
• 50:34
  Speaker 4: And I think I think that you know, the notion
• 50:38
  Speaker 4: that somehow we have evolved and we are smarter, better
• 50:42
  Speaker 4: investors than ever before. I think that's hogwash. I think
• 50:45
  Speaker 4: that's complete hogwashed. People are still underperforming like they always did.
• 50:50
  Speaker 2: So it's not it's not the strategies, it's not the vehicles.
• 50:54
  Speaker 2: Although we get great tax and cost benefits with ETFs,
• 50:59
  Speaker 2: how much of this is just simply comes down to
• 51:01
  Speaker 2: human behavior and human nature, and people are still people,
• 51:05
  Speaker 2: and we're still making the same mistakes over and over
• 51:07
  Speaker 2: and over again.
• 51:08
  Speaker 4: Yeah, I mean, there is something to be said for
• 51:09
  Speaker 4: behavioral finance and the biases that we bring to the table.
• 51:13
  Speaker 4: It's pretty hard to not be human.
• 51:16
  Speaker 2: It very much is. So let's bring this back to
• 51:21
  Speaker 2: where we are in the market today and what's going on.
• 51:24
  Speaker 2: We just made new ald time highs in the SMP
• 51:26
  Speaker 2: and in the Nasdaq. I always learned that old time
• 51:30
  Speaker 2: highs are the most bullish thing you can see. Perhaps
• 51:35
  Speaker 2: not the very last one, but the hundred before it
• 51:38
  Speaker 2: are super bullish. How do you look at the market
• 51:41
  Speaker 2: and say, everybody seems to dislike this market, and yet
• 51:45
  Speaker 2: we made fresh old time highs.
• 51:46
  Speaker 4: Yeah, So I think, Barry, I think that we've said
• 51:50
  Speaker 4: a number of times that we think it is a
• 51:53
  Speaker 4: mistake right now. Do you think of the market sort
• 51:57
  Speaker 4: of in quotes that that's what people are very very
• 52:01
  Speaker 4: focused on right now, and we think that's a mistake.
• 52:03
  Speaker 3: Why is it a mistake.
• 52:04
  Speaker 4: Because the market is dominated by seven or ten or
• 52:07
  Speaker 4: fifteen companies and we really have an extraordinarily bifurcated market
• 52:12
  Speaker 4: in that respect. And I'm not saying anything that people
• 52:14
  Speaker 4: don't know. Of course, everybody everybody knows about the Magnificent seven.
• 52:17
  Speaker 2: Who doesn't although they even think that they've the mag
• 52:21
  Speaker 2: seven have been the lag seven for most of this year.
• 52:24
  Speaker 3: Correct.
• 52:25
  Speaker 4: Correct, Now that's where I was going, exactly right. But
• 52:29
  Speaker 4: the enthusiasm surrounding those seven stocks is not changing. And
• 52:35
  Speaker 4: our view has been did okay, you want to go
• 52:37
  Speaker 4: play those seven stocks, go play the seven stocks. You
• 52:39
  Speaker 4: don't need us. We're looking at everything else in the world.
• 52:43
  Speaker 4: And I've just I've said to our investors many times,
• 52:46
  Speaker 4: are there really only seven growth stories in the entire
• 52:49
  Speaker 4: global equity market?
• 52:51
  Speaker 3: Of course not, There's tons of them.
• 52:52
  Speaker 4: And we've shown people how many companies are actually growing
• 52:55
  Speaker 4: earnings twenty five percent or more, and how the MAG
• 52:57
  Speaker 4: seven doesn't really even fit into that group that our
• 53:00
  Speaker 4: companies that are growing, you know, much faster and with
• 53:03
  Speaker 4: with you know, similar consistency. And so I think if
• 53:08
  Speaker 4: you're invested in an S and P index fund, or
• 53:12
  Speaker 4: you were invested solely in the MAG seven, were solely
• 53:16
  Speaker 4: in Nascac, I think the next three, five, ten years
• 53:19
  Speaker 4: might be very disappointing.
• 53:21
  Speaker 3: Huh.
• 53:22
  Speaker 4: I think if you're in everything else and we could
• 53:24
  Speaker 4: define you know, that's I'll leave it to everybody else
• 53:26
  Speaker 4: to define how they define everything else. But but I
• 53:31
  Speaker 4: think if you're in everything else, I think you're gonna
• 53:33
  Speaker 4: do just fine. I think you're gonna have a great time.
• 53:35
  Speaker 2: So let's talk about not everything else, but one of
• 53:40
  Speaker 2: the else things, which has been international stops. When we
• 53:44
  Speaker 2: look at either developed x US or emerging markets, these
• 53:49
  Speaker 2: are areas that have underperformed the US for ten fifteen years, absolutely,
• 53:54
  Speaker 2: and over the past year we've started to see signs that, hey,
• 53:59
  Speaker 2: maybe this under performance isn't it to persist? Persist? X
• 54:03
  Speaker 2: US stocks have been doing much better than US, certainly
• 54:06
  Speaker 2: year to date in twenty twenty five, and we're recording
• 54:09
  Speaker 2: this late June, maybe it's been about a year or more.
• 54:12
  Speaker 2: About performance, How do you look at the world of
• 54:16
  Speaker 2: international stocks? What parts of the world look interesting to you?
• 54:19
  Speaker 4: So I will twist your question a little bit, and
• 54:22
  Speaker 4: I will say that one of the things, one of
• 54:24
  Speaker 4: the aspects, one of the segments of the global equity
• 54:27
  Speaker 4: markets that we are very bullish on is what I
• 54:31
  Speaker 4: will call international quality non US quality stocks. That's not
• 54:34
  Speaker 4: a stocks' well, I'm just saying as opposed to a country, right,
• 54:37
  Speaker 4: something people like to talk about countries.
• 54:39
  Speaker 3: But I think.
• 54:41
  Speaker 4: The reason I say this is that the median projected
• 54:44
  Speaker 4: growth rate among high quality non US stocks is actually
• 54:48
  Speaker 4: equal maybe even a touch higher than the median growth
• 54:51
  Speaker 4: rate among the Magnificent seven, so we'll talk basically similar
• 54:54
  Speaker 4: type growth.
• 54:56
  Speaker 3: They offer dividend.
• 54:57
  Speaker 4: Yields of three four maybe a little pers even four
• 55:00
  Speaker 4: and a half percent, depending on how you look at this,
• 55:02
  Speaker 4: but let's say three to four percent dividend yell and
• 55:06
  Speaker 4: they sell for a third to a half of the
• 55:08
  Speaker 4: valuation of the Magnificent Seven. So the way I describe
• 55:11
  Speaker 4: it to people is if somebody came to you and
• 55:14
  Speaker 4: offered you a Maserati for the price of a Chevy,
• 55:18
  Speaker 4: or to be fair here, if somebody offered you Manolo
• 55:21
  Speaker 4: Bloonnis for the price of hush puppies. I think we
• 55:26
  Speaker 4: would all say, yes, I will do that. By the way,
• 55:28
  Speaker 4: can I have two? But when we get to the
• 55:31
  Speaker 4: stock market, this is like unimportant to people. They don't
• 55:35
  Speaker 4: understand that there's a value assessment made in everything we
• 55:38
  Speaker 4: do all the time, but for some reason stocks it
• 55:41
  Speaker 4: doesn't appear. So the the way I describe it, as
• 55:43
  Speaker 4: you know, the Blonnics and the Maseratis are on sale,
• 55:47
  Speaker 4: we think that's a great thing to do.
• 55:48
  Speaker 3: We'll take two, thank you.
• 55:49
  Speaker 2: So you're naming two Italian I just chose them. But
• 55:57
  Speaker 2: the reason I bring that up is you're not stock pickers.
• 56:02
  Speaker 2: Your geography, sector cor style selectors. So if someone says,
• 56:08
  Speaker 2: hey that Rich Bernstein is onto something, I want exposure
• 56:12
  Speaker 2: to fast growing, high quality, inexpensive companies, what sectors are
• 56:18
  Speaker 2: looking So for us, I.
• 56:20
  Speaker 4: Will I will name the ETF that we hold with
• 56:23
  Speaker 4: all do legal disclaimers here that we hold this CTF,
• 56:28
  Speaker 4: we have held it, we still hold it, blah blah blah.
• 56:30
  Speaker 4: You know, however, I can alert people that we I'm
• 56:33
  Speaker 4: talking my book a little bit here. It's it's the
• 56:38
  Speaker 4: IQLT is the ticker symbol the International Quality ETF, and
• 56:43
  Speaker 4: it's a great way. It's actually I believe EPHA based.
• 56:47
  Speaker 4: So you're getting multiple countries.
• 56:49
  Speaker 2: But that's about Europe in the far far Eastern Asia.
• 56:53
  Speaker 4: Correct, it's probably going to be Australia. It's probably going
• 56:55
  Speaker 4: to be about sixty to seventy percent of Europe. I
• 56:59
  Speaker 4: don't have this stats in front of me, but something
• 57:01
  Speaker 4: like that, so I think, you know, that's that's an
• 57:03
  Speaker 4: area that people aren't thinking about at all.
• 57:06
  Speaker 2: So here's the macro pushback. And I'm not saying this
• 57:08
  Speaker 2: is let me just play Devil's advocate. Europe has structural problems.
• 57:13
  Speaker 2: Brexit is an issue now with the Trump administration, Europe's
• 57:17
  Speaker 2: gonna have to step up and fund more of their
• 57:20
  Speaker 2: own military and defense. Europe is has problems, and they're
• 57:24
  Speaker 2: not going to be clear these for decades.
• 57:27
  Speaker 4: And that could be true or that might not be true.
• 57:29
  Speaker 2: Okay, but is it really?
• 57:31
  Speaker 4: But notice, notice what I said was that they offer
• 57:33
  Speaker 4: earnings growth that is comparable to that of the mag seven.
• 57:38
  Speaker 4: And I think that's the point that I'm trying to
• 57:40
  Speaker 4: make that despite all these problems that everybody is well
• 57:43
  Speaker 4: familiar with, somehow these companies are putting, you know, or
• 57:47
  Speaker 4: have earnings growth projected earnings growth that's roughly similar a
• 57:51
  Speaker 4: little bit more than the Magnificent seven.
• 57:54
  Speaker 2: And these are quality companies and their x us xus
• 57:57
  Speaker 2: W and so if you have a huge home country
• 58:00
  Speaker 2: bias and you want a little diversification, you can look
• 58:03
  Speaker 2: overseas to reasonably priced, quality comp And if you think
• 58:07
  Speaker 2: the dollar is going to weaken, it's right. But we
• 58:09
  Speaker 2: down eight eight and a half percent of year to
• 58:11
  Speaker 2: date something like that. So I know you're not a
• 58:15
  Speaker 2: currency analyst and you don't make those sort of calls.
• 58:19
  Speaker 2: How do you look at what happens post April second
• 58:24
  Speaker 2: Liberation Day and the ongoing weakness and the dollar. Does
• 58:29
  Speaker 2: this come into your calculus or is this just more
• 58:32
  Speaker 2: noise that nobody is.
• 58:33
  Speaker 4: It does not in terms of you know, the short
• 58:37
  Speaker 4: inter media turn the way most people would think. But
• 58:39
  Speaker 4: we think there are structural issues in the United States
• 58:42
  Speaker 4: that transcend the current politics, transcend the current politics, and
• 58:46
  Speaker 4: have been around for longer than people think, and are
• 58:48
  Speaker 4: detrimental to the US economy. And we find that very
• 58:52
  Speaker 4: interesting that. You know, you hear all the time about
• 58:54
  Speaker 4: debt and deficits and there's some day of reckoning coming.
• 58:58
  Speaker 2: My entire adult life, I've been here.
• 59:00
  Speaker 4: Yeah, and I love that because the speaker usually is
• 59:04
  Speaker 4: saying I have some insight and for some reason, the
• 59:07
  Speaker 4: markets don't appreciate my insight. And I love that, Like,
• 59:11
  Speaker 4: you know, we're all so smart and the market's stupid. No,
• 59:14
  Speaker 4: it's actually the other way around. The markets have figured
• 59:17
  Speaker 4: this out over the past ten to fifteen years. And
• 59:19
  Speaker 4: what I'm talking about is if you look at the
• 59:21
  Speaker 4: spread between treasuries and triple A rated sovereign debt through time,
• 59:26
  Speaker 4: what you will find is when the United States was
• 59:28
  Speaker 4: rated triple A, our yields were roughly in line with
• 59:32
  Speaker 4: other triple A rated sovereign debt. Since the initial downgrade
• 59:35
  Speaker 4: in twenty eleven, and since then non stop, we have
• 59:39
  Speaker 4: sold at a risk premium yield. In other words, we're
• 59:42
  Speaker 4: trading more like a lower quality bond relative to triple
• 59:45
  Speaker 4: A rated sovereigns.
• 59:46
  Speaker 2: Meaning all this negativity is in the price.
• 59:50
  Speaker 4: It's there. The markets have been well aware of it.
• 59:52
  Speaker 4: There's no day of reckoning. It's like a slow bleed.
• 59:55
  Speaker 4: And so what's been If you think about how everything
• 59:58
  Speaker 4: in the United States priced off the ten year mortgages, munis,
• 1:00:01
  Speaker 4: corporate bonds, everything's probably off the tenure. The fact that
• 1:00:04
  Speaker 4: we're paying it at you know, right now it's just
• 1:00:07
  Speaker 4: under two hundred basis points of extra yield because of
• 1:00:11
  Speaker 4: our lack of fiscal discipline. That's translating through to higher
• 1:00:14
  Speaker 4: interest costs throughout the entire economy. It's not just the government,
• 1:00:17
  Speaker 4: it's through the entire economy. Why don't people Why aren't
• 1:00:21
  Speaker 4: people aware of this? Well, because over the past five
• 1:00:23
  Speaker 4: to ten years we've had low absolute rates of interest.
• 1:00:29
  Speaker 4: The point I'm trying to make is we've still been
• 1:00:31
  Speaker 4: penalized relative to other countries despite that absolute low rate
• 1:00:35
  Speaker 4: of interest, and people haven't realized that. So we're already
• 1:00:38
  Speaker 4: being penalized. And I think there's there's a real I
• 1:00:42
  Speaker 4: think everybody should be concerned about that. It's clear that
• 1:00:46
  Speaker 4: neither party has a real interest in fiscal discipline right now.
• 1:00:49
  Speaker 4: So we should assume that that that penalty against the
• 1:00:54
  Speaker 4: United States is going to continue to exist, if not expand.
• 1:00:58
  Speaker 2: So let me push back in and play a little
• 1:01:00
  Speaker 2: Devil's advocate about that. Hey, Uncle Sam was borrowing it
• 1:01:05
  Speaker 2: next to nothing. We've been running up deficits for one
• 1:01:08
  Speaker 2: hundred years. COVID happens. Everybody's stuck at home. CARES Act
• 1:01:14
  Speaker 2: one is the biggest fiscal stimulus at least as a
• 1:01:16
  Speaker 2: percentage of GDP since World War Two. Then you add
• 1:01:20
  Speaker 2: the second Cares Act under Trump, the third Kars Act
• 1:01:23
  Speaker 2: under Biden, to say nothing of the other tenure fiscal
• 1:01:27
  Speaker 2: stimulus plans passed under Biden. And that pig working its
• 1:01:31
  Speaker 2: way through the Python caused a giant spike in inflation
• 1:01:36
  Speaker 2: plus supply chains blah blah blah. And now that that's
• 1:01:39
  Speaker 2: come out the other end. So the Fed had to respond.
• 1:01:42
  Speaker 2: Whether whether the FED brought inflation down or it was
• 1:01:46
  Speaker 2: simply unwinding naturally is another debate. But once the FED
• 1:01:52
  Speaker 2: brings rates back down, this penalty will go away. If
• 1:01:56
  Speaker 2: and when the FED finally does that, well.
• 1:01:58
  Speaker 4: That's important because remember in the period i'm talking about,
• 1:02:01
  Speaker 4: which is almost fifteen years now, you've got periods, you've
• 1:02:05
  Speaker 4: got multiple, multiple presidents, you've got multiple FED regimes, and
• 1:02:11
  Speaker 4: the penalty doesn't go away.
• 1:02:13
  Speaker 3: And I think that's so.
• 1:02:14
  Speaker 2: No matter even at zero, we were paying a penalty
• 1:02:16
  Speaker 2: because other countries had negative had negative, so there was
• 1:02:20
  Speaker 2: still the penalty.
• 1:02:20
  Speaker 3: We were still being penalized. It's crazy, and.
• 1:02:23
  Speaker 4: That that, I think is something that's lurking in the
• 1:02:25
  Speaker 4: background that people are not paying attention to. Especially people
• 1:02:28
  Speaker 4: say that a day of reckoning is coming.
• 1:02:31
  Speaker 2: You're saying it came, and it's still here ongoing.
• 1:02:33
  Speaker 3: It's ongoing.
• 1:02:34
  Speaker 4: It's just not big enough for anybody to notice. It's
• 1:02:37
  Speaker 4: it's like it's as I say, it's like water torture.
• 1:02:39
  Speaker 2: Ah, the slow bleed, the slow blade. That's really that's
• 1:02:41
  Speaker 2: really fascinating. Let's jump to our favorite questions, starting with
• 1:02:46
  Speaker 2: you mentioned some of the podcast you're listening to what
• 1:02:49
  Speaker 2: what else are you streaming? What's keeping you entertain these days?
• 1:02:52
  Speaker 4: So streaming, I'm I'm I'm in a little bit of
• 1:02:55
  Speaker 4: a rut instagra right now. Yeah, I'm having everybody, you know,
• 1:02:58
  Speaker 4: like everybody's got their favorite, uh, you know, streaming show
• 1:03:02
  Speaker 4: that they like, and if you ask anybody, people come
• 1:03:04
  Speaker 4: up with like four of them. Oh you gotta watch this,
• 1:03:06
  Speaker 4: you gotta watch this, And all of a sudden, it's
• 1:03:07
  Speaker 4: like it all blends together and you can't keep it together.
• 1:03:10
  Speaker 3: So I'm a touch lost right now.
• 1:03:13
  Speaker 4: In terms of streaming, I won't say give me suggestions
• 1:03:17
  Speaker 4: because I won't remember it.
• 1:03:18
  Speaker 2: It's just like I'm just gonna give you one because
• 1:03:21
  Speaker 2: it's quirky and interesting. Okay, it's called Department Q.
• 1:03:25
  Speaker 3: Department Q.
• 1:03:26
  Speaker 2: Right, So this is a limited nine episode series on Netflix.
• 1:03:34
  Speaker 2: Detective is shot, his partner is injured, the third person
• 1:03:41
  Speaker 2: is killed at the site, and he basically is appointed
• 1:03:48
  Speaker 2: head of the cold case division. Just they're just standing up.
• 1:03:52
  Speaker 4: That's kind of stuff.
• 1:03:53
  Speaker 2: And it's in Scottish and I normally don't love police procedurals. Yeah,
• 1:03:58
  Speaker 2: this is kind of fast name. It's it's it's sort
• 1:04:02
  Speaker 2: of builds slowly over time. Like I could give you
• 1:04:05
  Speaker 2: one hundred others that you wouldn't care about, but I
• 1:04:08
  Speaker 2: kind of know the sort of stuff good you like.
• 1:04:13
  Speaker 2: But it's quirky and weird but really interesting. If the
• 1:04:17
  Speaker 2: if you're going to have any complaint over it, and
• 1:04:19
  Speaker 2: I don't think this is a complaint, but the complaints
• 1:04:22
  Speaker 2: I can imagine are, well, this builds slowly. I'm like, yeah,
• 1:04:26
  Speaker 2: it's not just you know, if you want to open
• 1:04:28
  Speaker 2: with a chasing James Bond and mission impossible, you know
• 1:04:32
  Speaker 2: where to go find. This is a little a little
• 1:04:35
  Speaker 2: more okay. So well, I'm curious to seem Department Q
• 1:04:39
  Speaker 2: such a such an odd Let's talk about mentors. You
• 1:04:42
  Speaker 2: reference one of them, who were the folks who helped
• 1:04:45
  Speaker 2: shape your career?
• 1:04:46
  Speaker 4: So I would say there were there were several. One
• 1:04:49
  Speaker 4: that hand an immense uh impact on me was the
• 1:04:52
  Speaker 4: person who hired me at Merrill, Chuck Clough. Chuck Clough
• 1:04:55
  Speaker 4: at the time was Merrill's chief strategist.
• 1:04:57
  Speaker 2: He's he knows that name from way back when.
• 1:04:59
  Speaker 4: Yeah, yeah, yeah, he was the chief strategist at at
• 1:05:02
  Speaker 4: Merrill from eighty seven to two thousand something like that.
• 1:05:05
  Speaker 3: Wow, And Chuck gave me two.
• 1:05:08
  Speaker 4: Pieces of advice, which he claims he doesn't remember that
• 1:05:12
  Speaker 4: he gave me, but I'm sure he does. The first
• 1:05:15
  Speaker 4: was my first day when I walked in at Merrill
• 1:05:18
  Speaker 4: and I kind of said, like, what do you think
• 1:05:20
  Speaker 4: I should be focusing on? And he said to me,
• 1:05:23
  Speaker 4: I don't really care, just don't make a fool of yourself.
• 1:05:27
  Speaker 2: By the way, that's good advice for anybody, anywhere, anytime.
• 1:05:30
  Speaker 4: It was, And at first I was very put off,
• 1:05:32
  Speaker 4: like this guy doesn't care about me, Like what is
• 1:05:34
  Speaker 4: this all about?
• 1:05:34
  Speaker 2: You know?
• 1:05:35
  Speaker 4: But what he was saying was you're a grown up,
• 1:05:37
  Speaker 4: right right, Like yeah, exactly, you don't need me to
• 1:05:41
  Speaker 4: tell you what you should do, but be aware, don't make.
• 1:05:44
  Speaker 3: A fool of yourself. Don't do stupid things.
• 1:05:47
  Speaker 4: Second thing he told me, which I live by to
• 1:05:50
  Speaker 4: this day and I tell this to people all the time,
• 1:05:52
  Speaker 4: he said, make sure you're a star and not a
• 1:05:55
  Speaker 4: Roman candle. Huh, which I thought, I still think to
• 1:05:59
  Speaker 4: this day is fantastic advice.
• 1:06:01
  Speaker 2: So persistency, not don't just flame out.
• 1:06:04
  Speaker 4: Don't flame out, don't be the ten minute you know thing,
• 1:06:07
  Speaker 4: be be the star. That to be a star is
• 1:06:10
  Speaker 4: harder than you think. And but be a star, don't
• 1:06:13
  Speaker 4: be a Roman candle that I still to my day
• 1:06:16
  Speaker 4: live my professional career that way.
• 1:06:18
  Speaker 2: I think. I think that's great. You said you don't
• 1:06:21
  Speaker 2: read a lot, but you've written several books. I know
• 1:06:24
  Speaker 2: there are books that have influenced you. What are some
• 1:06:28
  Speaker 2: of your favorites? You read anything on vacation.
• 1:06:30
  Speaker 3: So I did what I tend to read.
• 1:06:33
  Speaker 4: I don't have any one book that I would give you,
• 1:06:35
  Speaker 4: but I will tell you I tend to read a
• 1:06:37
  Speaker 4: lot of espionage. Spy and espionage type stuff, okay. And
• 1:06:43
  Speaker 4: the reason why is that as these things progress and
• 1:06:47
  Speaker 4: as the stories progressed, not not like as you said,
• 1:06:49
  Speaker 4: not like James Bond type.
• 1:06:50
  Speaker 3: Stuff, but it's it's almost.
• 1:06:53
  Speaker 4: Like solving a puzzle or or completing you completing a
• 1:06:58
  Speaker 4: puzzle and in some way, and I find that fascinating.
• 1:07:01
  Speaker 4: I find you know, I was always in high school
• 1:07:03
  Speaker 4: my favorite math was was geometry because everything was a
• 1:07:07
  Speaker 4: puzzle to me. There was like we had different tools,
• 1:07:09
  Speaker 4: how do you solve the problem? And that's kind of
• 1:07:11
  Speaker 4: the way I view spies and espionages that there's different tools,
• 1:07:16
  Speaker 4: but how do you.
• 1:07:17
  Speaker 3: Solve the problem?
• 1:07:17
  Speaker 4: And how do you get where you want to go?
• 1:07:19
  Speaker 2: I got I have another recommendation for you.
• 1:07:23
  Speaker 3: This is why I came today.
• 1:07:24
  Speaker 2: It was a charming It was one of these films
• 1:07:27
  Speaker 2: that like, oh, this looks interesting, Netflix recommend let's try this.
• 1:07:31
  Speaker 2: Black Back, also set in the UK, and six husband
• 1:07:35
  Speaker 2: and wife work together, and there's a mole somewhere in
• 1:07:40
  Speaker 2: MI six and people somehow each of them are led.
• 1:07:47
  Speaker 2: I want to say, it's is a Kate Winslet. It's
• 1:07:50
  Speaker 2: one of the Kates, and I forget who's the lead husband,
• 1:07:54
  Speaker 2: the man, the husband, but each of them begin to
• 1:07:58
  Speaker 2: suspect the other. Oh interesting and shockingly interesting, Like normally
• 1:08:05
  Speaker 2: you go into a movie you have no idea about. Yeah,
• 1:08:08
  Speaker 2: let's see how this is. And we both are like, wow,
• 1:08:11
  Speaker 2: this was surprisingly good. So again, I know your wheelhouse,
• 1:08:16
  Speaker 2: black bag, and Department Q. You have now a film,
• 1:08:19
  Speaker 2: a series and a book. I've taken care of your
• 1:08:23
  Speaker 2: summer's entertainment. So anything else you want to mention that
• 1:08:29
  Speaker 2: you're reading?
• 1:08:30
  Speaker 3: No, there's not, you know, I No, I haven't.
• 1:08:33
  Speaker 4: I have been reading a lot recently for fun, I
• 1:08:36
  Speaker 4: have to admit, but what I do read, you know,
• 1:08:39
  Speaker 4: pretty religiously is getting back to the whole issue of
• 1:08:42
  Speaker 4: of being dispassionate. I do read the Financial Times, I
• 1:08:45
  Speaker 4: do read the Economist. To me, that's that's a must
• 1:08:47
  Speaker 4: read for people.
• 1:08:48
  Speaker 2: I have found the British papers generally like what we
• 1:08:53
  Speaker 2: think of as left of center is sort of dead
• 1:08:58
  Speaker 2: middle to them, and they look their right is kind
• 1:09:02
  Speaker 2: of our middle, like it's not like our spectrum feels
• 1:09:06
  Speaker 2: wider our political range, and they everybody seems to be
• 1:09:10
  Speaker 2: clustered somewhere around. It's either center right or center left,
• 1:09:13
  Speaker 2: not extreme right or extreme left.
• 1:09:15
  Speaker 3: And I actually don't.
• 1:09:16
  Speaker 4: I don't care whether people are right or left as
• 1:09:20
  Speaker 4: long as I can figure that out. What I care
• 1:09:22
  Speaker 4: for is factual content right right. Fact fact checking has
• 1:09:26
  Speaker 4: to be has to be good these days.
• 1:09:29
  Speaker 2: So our final two questions, what sort of advice would
• 1:09:32
  Speaker 2: you give to a recent college grad interested in a
• 1:09:34
  Speaker 2: career and either investing or asset management or quantitative strategy.
• 1:09:40
  Speaker 4: So I mentioned this briefly before. The advice I do
• 1:09:43
  Speaker 4: give recent college graduates or or seniors or whatever is
• 1:09:49
  Speaker 4: not to pigeonhole yourself early in your career. Don't say
• 1:09:54
  Speaker 4: this is what I have to do, and this is
• 1:09:57
  Speaker 4: what I'm going to do. You know, if you're a doctor,
• 1:09:59
  Speaker 4: if you want to be a doctor, if you want
• 1:10:00
  Speaker 4: to be a lawyer, you have some of that.
• 1:10:02
  Speaker 3: You have to do.
• 1:10:03
  Speaker 4: I get that, right, But if you want to go
• 1:10:06
  Speaker 4: into the financial services industry in any format you have
• 1:10:10
  Speaker 4: to be you have to enter that with an immense
• 1:10:12
  Speaker 4: amount of flexibility. Our industry changes so dramatically and so
• 1:10:18
  Speaker 4: quickly that what seems super interesting to you as a
• 1:10:22
  Speaker 4: college graduate could be obsolete in two or three years later. Right,
• 1:10:26
  Speaker 4: And you don't want to paint yourself into a corner
• 1:10:28
  Speaker 4: where that's all you know, and that's all you're willing
• 1:10:30
  Speaker 4: to do, when you're willing to do other things or
• 1:10:32
  Speaker 4: willing to learn other things. I think if you're coming
• 1:10:35
  Speaker 4: into financial services, you should. You should be one who
• 1:10:38
  Speaker 4: likes to learn and likes to morph through time.
• 1:10:42
  Speaker 2: Really really interesting. And our final question, what do you
• 1:10:45
  Speaker 2: know about the world of investing today that might have
• 1:10:48
  Speaker 2: been helpful to know forty years or so ago when
• 1:10:50
  Speaker 2: you again it started?
• 1:10:51
  Speaker 4: Oh man, I mean, I will tell you I have
• 1:10:55
  Speaker 4: gone back and rid reports that I wrote twenty years
• 1:10:59
  Speaker 4: ago or twenty five years ago, and I read them
• 1:11:01
  Speaker 4: today and I say, like, what I'm more on, I'm
• 1:11:05
  Speaker 4: amazed at my own stupidity, and and so.
• 1:11:08
  Speaker 2: Let me I'm gonna interrupt you right here to say so.
• 1:11:11
  Speaker 2: Professor David Dunning of University of Michigan, he of the
• 1:11:15
  Speaker 2: famous Dunning Kruger effect, said, if you look at work
• 1:11:19
  Speaker 2: that's five years old and you don't think it's awful,
• 1:11:22
  Speaker 2: you're not progressing. Is that right? I said it right
• 1:11:25
  Speaker 2: right sitting what you were saying, and said, if you're
• 1:11:29
  Speaker 2: not if you don't hate what you did ten years ago,
• 1:11:32
  Speaker 2: you haven't grown it all. Actually, I how fantastic is that?
• 1:11:36
  Speaker 4: I mean, some of the some of the ideas I
• 1:11:38
  Speaker 4: wrote about we still use and there there's still the
• 1:11:40
  Speaker 4: crux of what it. But I'm just saying I look
• 1:11:42
  Speaker 4: at my writing, I look at how I expressed myself.
• 1:11:44
  Speaker 3: I looked at how I thought something was.
• 1:11:46
  Speaker 4: So important that type of thing, and I cringed today,
• 1:11:48
  Speaker 4: I absolutely cringe. And the moral of the story there
• 1:11:51
  Speaker 4: is I've come to grips with the fact that no
• 1:11:54
  Speaker 4: matter how smart I think I am, I'm really not
• 1:11:57
  Speaker 4: very smart. And there's a lot more to learn. And
• 1:12:00
  Speaker 4: so I think as I've gotten older, I've wanted to
• 1:12:04
  Speaker 4: learn more through time, I kind of immerse myself. And
• 1:12:07
  Speaker 4: it's funny because my friends react to me down there,
• 1:12:10
  Speaker 4: You're like, how did you know that? And it's only
• 1:12:12
  Speaker 4: because I'm reading all kinds of different things and doing
• 1:12:14
  Speaker 4: all kinds of different things, and paying attention to different
• 1:12:16
  Speaker 4: thing because I kind of think of myself as a
• 1:12:18
  Speaker 4: perpetual moron. I don't know how else to describe it,
• 1:12:22
  Speaker 4: but that's really how I view myself.
• 1:12:23
  Speaker 2: All I know is that I know nothing. I will
• 1:12:26
  Speaker 2: go back to philosophy. What is that Aristotle? So will
• 1:12:31
  Speaker 2: end where we began. Rich. Thank you for being so
• 1:12:33
  Speaker 2: generous with your time. We have been speaking with Rich Bernstein, Founder,
• 1:12:38
  Speaker 2: chief investment officer of Rich Berstein Associates. If you enjoy
• 1:12:42
  Speaker 2: this conversation, we'll be sure and check out any of
• 1:12:45
  Speaker 2: the five hundred and fifty we've done over the past
• 1:12:49
  Speaker 2: eleven years. You can find those at Bloomberg, iTunes, Spotify, YouTube,
• 1:12:55
  Speaker 2: wherever you feed your podcast fix. Be sure and check
• 1:12:59
  Speaker 2: out my new book How Not to Invest The ideas, numbers,
• 1:13:03
  Speaker 2: and behaviors that destroy wealth and how to avoid them
• 1:13:07
  Speaker 2: How Not to Invest wherever you find your favorite books.
• 1:13:10
  Speaker 2: I would be remiss if I do not thank our
• 1:13:12
  Speaker 2: cracked team that helps put these conversations together each week.
• 1:13:15
  Speaker 2: Anna Luke is my producer. Sage Bauman is the head
• 1:13:19
  Speaker 2: of Podcasts at Bloomberg. Sean Russo is my researcher. Peter
• 1:13:22
  Speaker 2: Nicolino is my engineer. I'm Barry Ridholts. You've been listening
• 1:13:27
  Speaker 2: to Masters in Business on Bloomberg Radio.