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Interview With John Roque: Masters in Business (Audio) · Masters in Business

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  Speaker 1: Brought to you by Bank of America Merrill Lynch, committed
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  Speaker 1: America member f D i C. This is Masters in
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  Speaker 1: Business with Barry Ridholts on Bloomberg Radio this week on
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  Speaker 1: the podcast, I have someone I've actually followed his work
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  Speaker 1: for many many years. His name is John Roke, and
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  Speaker 1: he is a technician extraordinaire. Uh. He is one of
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  Speaker 1: those technical folks that other technicians talk about in hushed
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  Speaker 1: and reverent tones. You will find him to be uh straightforward, humble,
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  Speaker 1: uh blunt and how he describes what he what he does.
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  Speaker 1: If you're looking for somebody who has worked for George
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  Speaker 1: Soros and worked for other storage shops to be arrogant
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  Speaker 1: and uh suffer from a big head, this is not
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  Speaker 1: the guy uh uh that exhibits any of that. He
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  Speaker 1: is uh someone who um not only has worked at
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  Speaker 1: places like uh Lehman Brothers and and Sorrows Funds Management,
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  Speaker 1: but has constantly improved his craft and constantly raised his
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  Speaker 1: own skill level and reputation within the industry UM and
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  Speaker 1: is really insightful and really knowledgeable about just about everything
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  Speaker 1: related to technical analysis. So if you were all interested
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  Speaker 1: in charts, in in investing, in trading, if you want
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  Speaker 1: to know how some of the sausage is made on
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  Speaker 1: the technical side, UH, you can't do much better than
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  Speaker 1: John Rokee. So, with no further ado, my conversation with
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  Speaker 1: John Roke. This is Masters in Business with Barry Ridholtz
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  Speaker 1: on Boomberg Video. My special guest today is John Roke.
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  Speaker 1: He is a technician extraordinaire and spent the first twenty
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  Speaker 1: one years of his career as a south side analyst
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  Speaker 1: before being recruited to the buy side by UH George
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  Speaker 1: Soros UH and his hedge funds UH. He spent five
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  Speaker 1: years at Lehman Brothers, about a decade at the Texas
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  Speaker 1: BLI Schroeder, a few years at w JB Capital before
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  Speaker 1: he ended up with Soros. He is now let's call it,
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  Speaker 1: managing director and chief market strategist at a sorrow seated
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  Speaker 1: hedge fund called Key Square Capital Management. John Roke, Welcome
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  Speaker 1: to Bloomberg. Thanks Barry. Pleasure to be here. So you
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  Speaker 1: and I know each other for for some time. I
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  Speaker 1: was always a fan of getting your research. UM, let's
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  Speaker 1: talk a little bit about what you do and how
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  Speaker 1: you do it. H you were on the South Side
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  Speaker 1: for over twenty years. Most of what I know about
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  Speaker 1: your work is that you were U technician, a chart reader.
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  Speaker 1: Was that always your career? Did you start out as
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  Speaker 1: a technician or or how did you eventually evolved to that.
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  Speaker 1: I finished my NBA fort them University and now called
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  Speaker 1: the Gabelly School. Uh, And like anybody else who probably
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  Speaker 1: graduated either with an undergraduate degree in the mid eighties
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  Speaker 1: or an NBA in the early nineties, you probably wanted
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  Speaker 1: to work on Wall Street. I found it difficult going.
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  Speaker 1: I you know, walked around my resume back then, and
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  Speaker 1: there was very little security in the buildings, so you
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  Speaker 1: were able to go in and deliver just resume want
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  Speaker 1: it was. It was a great time. I got to
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  Speaker 1: meet the Sanford Bernstein just by doing that. Just happenstance.
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  Speaker 1: And there was an ad in the paper. Like guys
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  Speaker 1: of our age used to do. We used to look
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  Speaker 1: at what's in the classified correct and UH, there was
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  Speaker 1: a job for a an analyst position at Sappian Investment
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  Speaker 1: Research and place, New York. That's way back when. Uh.
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  Speaker 1: It certainly is Ken Sappian Uh and his former partner,
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  Speaker 1: Ken Smiling where top analysts on the street in the seventies,
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  Speaker 1: and uh he ran a boutique investment shop. I applied
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  Speaker 1: to him. I sent the resume, a cover letter and
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  Speaker 1: a copy of my thesis paper, and Ken was kind
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  Speaker 1: enough to hire me. So you you come out of
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  Speaker 1: school with an m b A, you start working for
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  Speaker 1: a boutique research firm. How does that morph into a CMT?
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  Speaker 1: How does that morph into technicals? Well, to be honest,
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  Speaker 1: I'm not a CMT, but I'll tell you how it
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  Speaker 1: morphed into technicals. So Ken saffian Um did a ton
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  Speaker 1: of economic work, but he also did a ton of
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  Speaker 1: technical work. In fact, he had a process in the
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  Speaker 1: late sixties seventies called the dual market principle, where he
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  Speaker 1: saw the market as being delineated between growth stocks and
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  Speaker 1: cyclical stocks at different points in an economic cycle. So
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  Speaker 1: he did a lot of cutting edge technical work, and
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  Speaker 1: um he allowed me to join in to maintain and
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  Speaker 1: and create and keep economic UH indicators as well as
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  Speaker 1: technical indicators. And I think it was sort of Um,
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  Speaker 1: you know he opened the kimono for lack of a
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  Speaker 1: better phrase, and I got to see a lot of things.
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  Speaker 1: I became very interested. So so how did that lead
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  Speaker 1: to chart? Well, every single day, I know this will
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  Speaker 1: sound really old school or or dinosaur like, at the
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  Speaker 1: end of the day, I would print out nine D
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  Speaker 1: prices from my bloomberg. There was one Bloomberg in the
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  Speaker 1: whole shop, and I would graph using pencil and a
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  Speaker 1: ruler and graph paper. Uh, the high low enclosing prices
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  Speaker 1: for nineties stocks for every day for four years. You
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  Speaker 1: are you are not the only technician who said that.
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  Speaker 1: We We've had from Jeff to graft to to Luisia Matta,
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  Speaker 1: to Paul Desmond to Ralph Akimpora. It seems that this
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  Speaker 1: generation and the previous generation of people all graft by
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  Speaker 1: hand in the early days. Well that was the only
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  Speaker 1: way to do it when it really came down to it.
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  Speaker 1: The Mansfield chart used to be delivered on a Saturday
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  Speaker 1: morning to your house, but they were through Thursday prices.
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  Speaker 1: Explain what that is? That's people so younguns aren't going
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  Speaker 1: to know. Mansfield was was out of New Jersey. I
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  Speaker 1: think it was Jersey City, and it was a subscription
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  Speaker 1: pricing and you sent in your check and you would
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  Speaker 1: get New York Stock Exchange or nasdac amex charts like
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  Speaker 1: Giant book would show it was Actually it was almost
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  Speaker 1: like loose leap paper that you could you could update stuff.
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  Speaker 1: You would flip through it and they would deliver it on.
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  Speaker 1: You could put it in a binder, but um, I
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  Speaker 1: would end up flipping through it, throwing out the ones
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  Speaker 1: I didn't want, keeping the ones I did, And it
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  Speaker 1: came and sell a fane paper and some guy would
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  Speaker 1: drop it off like your newspaper on a Saturday morning
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  Speaker 1: on your front stoop. If I recall they were located
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  Speaker 1: in Jersey City, so they could get to the New
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  Speaker 1: York City people quickly as opposed to where, you know,
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  Speaker 1: being on the other side of the country. They had
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  Speaker 1: printed and then drop it off in. It was an
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  Speaker 1: excellent service. The charts were easy to read. And uh,
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  Speaker 1: nobody had this sort of stuff at your home, right
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  Speaker 1: bloom By coming into your house was thin. But you
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  Speaker 1: didn't have the Internet, you didn't have the computing patter,
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  Speaker 1: you didn't have anything, right, So and then UH Investors
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  Speaker 1: Business Daily. You could buy chart books from them. They
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  Speaker 1: would also be delivered on a weekly basis. That sort
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  Speaker 1: of took Mansfield and and upgraded a little bit. Uh huh.
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  Speaker 1: But those were the only ways to do it, really,
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  Speaker 1: that was it. So at what point did you say, gee,
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  Speaker 1: I'm a pure technician. I'm not really looking at a
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  Speaker 1: whole lot else besides technicals. Well, when at Saffian Investment Research,
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  Speaker 1: I thought that doing it from a technical point of
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  Speaker 1: view allowed me to see a lot of things pretty
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  Speaker 1: dawn quickly, rather than focusing on one thing and being
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  Speaker 1: in depth. And I like the overview aspect of it.
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  Speaker 1: And at that point, although my thesis paper was on
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  Speaker 1: kind of peripherals and it was using you know, financial
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  Speaker 1: statement analysis, I was sort of wholly technical. And I've
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  Speaker 1: been wholly technical since ever since. So so let's talk
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  Speaker 1: about technicals a little bit. Um. What is it that
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  Speaker 1: charts actually measure and why does that work? I think
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  Speaker 1: charts measure the dynamic between buyers and sellers, supply and demand.
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  Speaker 1: Now you know you're you're you're a long time market participant,
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  Speaker 1: and you might say to me, well, John, for every
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  Speaker 1: buyer there has to be a seller, and I'd say,
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  Speaker 1: I agree, But technical analysis tells us who's more aggressive,
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  Speaker 1: the buyer or the seller. And I think that's a
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  Speaker 1: very important concept. So we might say, yeah, for every buyer,
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  Speaker 1: there's a seller. Yeah. But if I'm the buyer and
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  Speaker 1: I want to pay more for it because I really
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  Speaker 1: think it's going up, that is information that is readily available.
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  Speaker 1: There may not be a buyer seller at every price.
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  Speaker 1: That's correct. So that's what determined. That's correct. I mean,
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  Speaker 1: if you think about it this way, um, you know,
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  Speaker 1: you might say to me that I'm buying this stock
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  Speaker 1: because it's cheap, and and I'll say that's true, But
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  Speaker 1: it doesn't win because it stays cheap, right, It wins
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  Speaker 1: because by definition, it gets momentum and gets less cheap.
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  Speaker 1: And and just just because something is cheap doesn't mean
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  Speaker 1: it's not going to get cheaper. That's correct. I'm Barry Ridults.
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  Speaker 1: You're listening to Master's in Business on Bloomberg Radio. My
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  Speaker 1: special guest today is John Roke. He is the master
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  Speaker 1: technician who previously was working with George Soros. Now he
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  Speaker 1: works at a sorrow specked hedge fund called Key Square Capital.
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  Speaker 1: Let's talk a little bit about technicals, and I'm assuming
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  Speaker 1: the audience is fairly lay person. Explain exactly what technical
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  Speaker 1: analysis is for the lay person. I think technical analysis
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  Speaker 1: is about trend It is not about trading. There are
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  Speaker 1: some people who are really good at trading, but I'm not.
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  Speaker 1: And I think in the advent of machines at hyper
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  Speaker 1: speed um, the less we talk about trading, the the
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  Speaker 1: likely we're going to be more successful at our trend
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  Speaker 1: following discipline. So I think technicals are about trend. Trend
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  Speaker 1: is the most is the trend is the least in
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  Speaker 1: my opinion, understood investment concept, however, because it's very hard
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  Speaker 1: to identify. So let's let's let's go into trends a
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  Speaker 1: little bit. I was always taught a trend is you
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  Speaker 1: you can as if you can draw a straight line
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  Speaker 1: across three points, you have a trend. Is Is that oversimplifying? No,
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  Speaker 1: I don't think it's oversimplifying it at all. And how
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  Speaker 1: many people do you know in a business are willing
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  Speaker 1: to stick with that trend until it's finished, as long
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  Speaker 1: as it's going in the same right direction. Richard Russell
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  Speaker 1: said the most difficult thing in the business is to
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  Speaker 1: stick with the bull market the entire way through, and
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  Speaker 1: the second most difficult thing in the business is to
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  Speaker 1: stay out of a bear market the entire way through.
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  Speaker 1: So I'd say trend following is pretty darned difficult. Richard
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  Speaker 1: Russell was pretty ahead of the game with that one.
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  Speaker 1: So what do you think are some of the bigger
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  Speaker 1: misconceptions about charts and technical analysis. I think the misconceptions
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  Speaker 1: are that technical analysis sees all. It may be that
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  Speaker 1: it does, but no technical analysts sees all that's intriguing.
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  Speaker 1: So explain the difference between everything being there in price
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  Speaker 1: and not being able to recognize that from from the charts. Well,
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  Speaker 1: just to give you an example, when I was at
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  Speaker 1: Sorrows Fund Management, I surveyed, uh, let's call it twelve
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  Speaker 1: technical types every week and I asked them buy, sell,
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  Speaker 1: or neutral on a roster item list, and you'd be
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  Speaker 1: surprised how many people came back with items that were
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  Speaker 1: different from the person who had just responded. So you
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  Speaker 1: could have twelve people responding every week and there would
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  Speaker 1: be no quorum as to what, let's say, item A
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  Speaker 1: is doing. And so my former partner, Steve Schaubin at
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  Speaker 1: Lehmann was fond of saying, it's the singer and not
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  Speaker 1: the song. Hey, so uh. The naturally leads the next question,
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  Speaker 1: how much of this is science and how much of
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  Speaker 1: this is art and and somewhat subjective. I get the
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  Speaker 1: sense you're implying it's a little of both. I think
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  Speaker 1: it's a lot of both. So I'm I'm fond of
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  Speaker 1: this book that was that I read earlier in my career.
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  Speaker 1: It's it's not a it's not an investment book. It's
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  Speaker 1: a poker book. It's called Shut Up and Deal. And
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  Speaker 1: it's written by a guy named Jesse May. Okay, and
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  Speaker 1: I'm gonna paraphrase it, and I'm going to cuff the comment.
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  Speaker 1: But in the book he said, when you play poker,
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  Speaker 1: everybody wants to master the rules, right, when you raise,
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  Speaker 1: when you fold, right, that's important, he said. But but
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  Speaker 1: winning it poker is about mastering the luck. And I
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  Speaker 1: think that's appropriate for our business as well. So so
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  Speaker 1: I would apply that to your question and say, it's
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  Speaker 1: a little bit of science, it's a little bit of uh,
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  Speaker 1: it's a little bit of um poetry, it's it's all
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  Speaker 1: those things put together. So, so how do we master luck?
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  Speaker 1: I always assume luck is to some degree random, although
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  Speaker 1: we've all heard the expression luck is with preparation meets
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  Speaker 1: opportunity or branch Rickey said, luck is the residue of design, right.
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  Speaker 1: I mean, the harder I work, the luckier I get.
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  Speaker 1: All those things are appropriate. I think it is listening
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  Speaker 1: to the message in the charts and not putting your
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  Speaker 1: biases into what you think it's telling you. How hard
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  Speaker 1: is it to keep your biases? I think it's very hard,
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  Speaker 1: which is why sometimes when I was on the cell side,
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  Speaker 1: I would send out charts that I would reports entitled
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  Speaker 1: mystery charts, and I would say, the first person who
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  Speaker 1: gets this question right, I'll buy him lunch next time
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  Speaker 1: I'm in there town. And you'd be prize. How many
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  Speaker 1: people would be quick to respond, and I would put
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  Speaker 1: the chart, I would put the technical characteristics of it,
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  Speaker 1: but I would take the title off of it. Huh.
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  Speaker 1: And I think when people saw it without the title,
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  Speaker 1: they made a more objective decision than when they saw
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  Speaker 1: it with the title. And I think that's a good
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  Speaker 1: way to think about it. So I have a variation
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  Speaker 1: of that, which I call the indicator. That when you
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  Speaker 1: would talk about a name with somebody who is on
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  Speaker 1: the bi side, when you're on the cell side. If
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  Speaker 1: you would bring up the name and three out of
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  Speaker 1: four people go, uh, I can't touch that. That's a
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  Speaker 1: piece of junk. Hey, well guess what if everybody thinks
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  Speaker 1: that it's probably already in the price and it was
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  Speaker 1: a little bit of momentum and you have plenty upside there.
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  Speaker 1: That's that's funny that you you did it by just
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  Speaker 1: pulling the names off. So when you reveal the names,
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  Speaker 1: what was generally the response to people who said, this
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  Speaker 1: chart looks great, I'm excited about this. I think some
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  Speaker 1: people who had the objectivity would say, oh, well, okay,
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  Speaker 1: I don't care what the name is. The dawn chart
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  Speaker 1: looks it must be that the story is pretty good,
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  Speaker 1: and other people might have been a little bit dismissive
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  Speaker 1: of it. Oh yeah, okay, but I'm not interested. But
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  Speaker 1: I think the yeah, and I think the exercise sort
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  Speaker 1: of was a good exercise to allow them to say, hey,
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  Speaker 1: there's something there and if we remove our biases, we
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  Speaker 1: can actually pick up some important information. So tell me
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  Speaker 1: a little bit about your process. When you're on the
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  Speaker 1: cell side. What did your daily research consist of and
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  Speaker 1: how did that change once you moved to the buy side.
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  Speaker 1: So My process includes trying, and I'm going to emphasize
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  Speaker 1: the word of trying to monitor or pay attention to
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  Speaker 1: all sorts of traded prices, bonds, they're corresponding, yields, commodities,
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  Speaker 1: currency sectors, indexes, stocks across all sorts of time zones.
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  Speaker 1: And I built some screening tools, some scoring mechanisms that
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  Speaker 1: helped me do that. And like any other technical person
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  Speaker 1: or any other chart person, I look at it ton
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  Speaker 1: of charts, and I've taken that discipline from the cell
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  Speaker 1: side and I've tried to apply it on the by side.
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  Speaker 1: So now that you're on the by side, is your
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  Speaker 1: process very much different? Other than having to travel for
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  Speaker 1: work and and sell a product? Short of that, is
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  Speaker 1: the research process still the same? I'd say it's pretty
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  Speaker 1: much the same. That's that's really, um quite interesting. One
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  Speaker 1: of the things I loved about when you were on
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  Speaker 1: the seal side, you're written product, you would you would,
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  Speaker 1: similar to Ed Hyman, who's an economist, take a chart
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  Speaker 1: and mark it up by hands. Um. First, where did
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  Speaker 1: that idea come from? Well, well, I mean you you
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  Speaker 1: you prefaced it. I mean Ed Hyman taught us all
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  Speaker 1: that annotating charts simply and clearly really goes a long
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  Speaker 1: way to making your research more palatable to the people
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  Speaker 1: who are paying for it. So he's the he's the
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  Speaker 1: godfather of it. To tell him truth. And you answered
• 15:52
  Speaker 1: the second question, which is what's the purpose of right,
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  Speaker 1: I think it's just so people become familiar with you
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  Speaker 1: and your research. And I think when people become familiar
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  Speaker 1: with you, there's a trust aspect that grows. And uh,
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  Speaker 1: you know when for somebody who was formally selling research.
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  Speaker 1: I think that's a really important concept to building a business.
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  Speaker 1: You have to develop a trust aspect with the people
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  Speaker 1: who are going to pay you commission dollars for your research.
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  Speaker 1: I'm Barry Rihults. You're listening to Masters in Business on
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  Speaker 1: Bloomberg Radio. My special guest today is John Roke. And
• 16:23
  Speaker 1: you have been working UM for the past couple of
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  Speaker 1: years for Soros Fund Management, which is George Soros's hedge
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  Speaker 1: funds UM. What is it like working at such a
• 16:36
  Speaker 1: storied firm like that. I'm going to try to create
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  Speaker 1: a metaphor. I think it was to me it was
• 16:43
  Speaker 1: sort of like being able to play basketball for University
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  Speaker 1: of North Carolina Tar Hills. When Dean Smith was a
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  Speaker 1: coach or playing basketball for the u c l A
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  Speaker 1: Bruins when John Wooden was a coach. It was sort
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  Speaker 1: of PhD macro um across the board. Just a true
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  Speaker 1: honor for me to have been there. So I we
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  Speaker 1: all recall the story I think was told by a
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  Speaker 1: Soros's son that when his back started aching started bothering him,
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  Speaker 1: he basically had to sell something to make the pain
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  Speaker 1: go away. Any truth to that, Well, I read the
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  Speaker 1: same story, but I would probably say that was akin
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  Speaker 1: to a very strong intuition. And um, I think after
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  Speaker 1: being in the business for a long period of time,
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  Speaker 1: we all developed intuitions that we uh listened to, you know,
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  Speaker 1: with with with a very uh, you know, attentive ear.
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  Speaker 1: So he's known as a big macro trader, famously bet
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  Speaker 1: against the pound and a number of other really large
• 17:37
  Speaker 1: macro bets. How does a technician fit into a shop
• 17:41
  Speaker 1: like that that, at least publicly seems to be so
• 17:45
  Speaker 1: macro event driven. I actually think it's a natural that
• 17:50
  Speaker 1: macro and technical analysis are complimentary, uh. In my opinion.
• 17:55
  Speaker 1: One of my favorite books in the business is a
• 17:57
  Speaker 1: book entitled More Money Than God, which is written by
• 18:00
  Speaker 1: Sebastian Mallaby, and in it you read about all of
• 18:05
  Speaker 1: the storied hedge funds and about guys in our business
• 18:08
  Speaker 1: whose faces are on the mount rushmore of investing, and
• 18:11
  Speaker 1: you realize just how important technical analysis is, was, or
• 18:15
  Speaker 1: is to their process. I think it's just a natural
• 18:18
  Speaker 1: and uh, it wasn't a shock to me, not a
• 18:21
  Speaker 1: shock at all. It wasn't a pretty consistent Um. It's
• 18:25
  Speaker 1: funny Malaby just put out the book on Greenspan, which
• 18:28
  Speaker 1: I haven't gotten to, but I have more money than
• 18:31
  Speaker 1: God at home, and it was it's one of those
• 18:33
  Speaker 1: things that's on my short list that I'm that I'm
• 18:35
  Speaker 1: going to get to. UM. So you move from the
• 18:39
  Speaker 1: cell side to the by side. When you were on
• 18:41
  Speaker 1: the cell side, you were very much a public figure,
• 18:44
  Speaker 1: used to do conferences, in television everything. You go to
• 18:47
  Speaker 1: the buy side and its radio silence. What was that
• 18:50
  Speaker 1: transition like? Was it was it relaxing to kind of
• 18:54
  Speaker 1: get out of the public eye or did you miss
• 18:56
  Speaker 1: a little of the back and forth give and take. UM. Well,
• 18:59
  Speaker 1: I I gotta tell you, for twenty years of of
• 19:02
  Speaker 1: doing shows like this with people like you, there are
• 19:05
  Speaker 1: no shows. It's very nice or or traveling to market
• 19:08
  Speaker 1: my product was a was a great thrill being on
• 19:10
  Speaker 1: Wall Street Week with Lewis Ruth Keiser was Uh, you know,
• 19:14
  Speaker 1: one of a bucket list kind of thing to do.
• 19:16
  Speaker 1: But I'm equally happy being on the buy side, and
• 19:19
  Speaker 1: I put all my energy and emphasis into putting out
• 19:22
  Speaker 1: product that I think is going to help Key Square
• 19:24
  Speaker 1: Capital Management. So when you say put out products, I'm
• 19:27
  Speaker 1: assuming there's an investment committee you're participating in that, or
• 19:31
  Speaker 1: there's some dialogue back and forth. How is advising on
• 19:36
  Speaker 1: deploying capital different then selling a commission transaction or or
• 19:42
  Speaker 1: is it not different? I think an idea is an
• 19:45
  Speaker 1: idea irrespective of which side of the business you're on.
• 19:48
  Speaker 1: And I think the person that you're speaking to uh,
• 19:52
  Speaker 1: and I happen to be speaking to a person who
• 19:54
  Speaker 1: is uh intellectually open. His name is Scott Bessant and
• 19:58
  Speaker 1: always willing to listen to an idea. And and because
• 20:01
  Speaker 1: he's like that, it gives me confidence to continue to
• 20:03
  Speaker 1: present those ideas. It's sort of like, uh, when you're
• 20:06
  Speaker 1: on the cell side and you have a client that
• 20:08
  Speaker 1: you get along with really well, you'll call that person
• 20:12
  Speaker 1: all the time and you'll show that person all of
• 20:14
  Speaker 1: your ideas because they're they're willing recipients of those ideas.
• 20:18
  Speaker 1: And some of your clients when you're on when on
• 20:21
  Speaker 1: being on the cell side, were probably less um receptive.
• 20:25
  Speaker 1: Receptive is a good word, and so I'm just I've
• 20:28
  Speaker 1: been lucky that the the gentleman I'm working with now
• 20:30
  Speaker 1: and have worked with over five years is receptive to
• 20:33
  Speaker 1: ideas and intellectually open and uh and willing to listen
• 20:36
  Speaker 1: to my my, my imagination. So, Scott Besson, if the
• 20:39
  Speaker 1: I recall the name correctly formally c I O of
• 20:43
  Speaker 1: Soros Fund Management, is that right? And I also recall
• 20:47
  Speaker 1: you saying he's the person who recruited you to work
• 20:50
  Speaker 1: it with Sorows. That's exactly right. So I have to
• 20:53
  Speaker 1: assume that he is a heavy hitter running Soros is money.
• 20:58
  Speaker 1: That's a fairly substantial. And is it the same sort
• 21:02
  Speaker 1: of investment process at Key Square that it was at
• 21:05
  Speaker 1: Sorrows or is it a little different? You know, soroces
• 21:08
  Speaker 1: now mostly running his own money, if I'm correct, mostly
• 21:13
  Speaker 1: um the family office family office, as opposed to Key Square,
• 21:17
  Speaker 1: whereas it's a lot of outside I think it is
• 21:20
  Speaker 1: a macro focus fund, and from that point of view,
• 21:23
  Speaker 1: UH it has a similar focus. My special guest today
• 21:26
  Speaker 1: is John Roke. He is a technician UH currently working
• 21:31
  Speaker 1: for key Square Capital, which is a hedge fund seated
• 21:34
  Speaker 1: by George Soros. He worked on the sealth side and
• 21:37
  Speaker 1: a number of storied shops, including Lehman Brothers UH for
• 21:41
  Speaker 1: many years before going to work at Soros Fund Management.
• 21:45
  Speaker 1: Let's let's talk a little bit about your approach. You
• 21:49
  Speaker 1: do some things that I find to be really interesting
• 21:52
  Speaker 1: that I don't see a lot of other people doing.
• 21:55
  Speaker 1: For example, I I've noticed how you calculate market up
• 22:00
  Speaker 1: of sector and then put it against the SMP. Tell
• 22:04
  Speaker 1: us what that actually accomplishes and how you began doing
• 22:08
  Speaker 1: that sort of analysis. Okay, so all credit goes to
• 22:12
  Speaker 1: a former client of mine by the name of Bob Rosette,
• 22:14
  Speaker 1: who was at Morgan Stanley as a management at the
• 22:16
  Speaker 1: time Organ Stanley Capital Management and UH. He was a
• 22:20
  Speaker 1: very technically focused guy, although a fundamental guy, but very
• 22:25
  Speaker 1: technically focused. And one day he said to me, you know,
• 22:27
  Speaker 1: I have some data that might be of interest to you,
• 22:29
  Speaker 1: and he shared the data with me, which was sort
• 22:31
  Speaker 1: of like giving me the keys to the Kingdom. How
• 22:34
  Speaker 1: long ago this? Gosh, this was in the nineties. Really, yeah,
• 22:37
  Speaker 1: this was in the mid nineties. So he says, here's
• 22:39
  Speaker 1: the data showing take take the cap of each sector
• 22:42
  Speaker 1: versus the total capitalization, and do it on a relative
• 22:45
  Speaker 1: market cap basis. That's right, as I present to the SMP,
• 22:48
  Speaker 1: and I thought that was I mean, he really opened
• 22:50
  Speaker 1: my eyes to a section of the market that I
• 22:53
  Speaker 1: was formerly not aware of or how to use it
• 22:56
  Speaker 1: in an in an analytical sense, and so I used
• 22:59
  Speaker 1: it to great success s i'll say polite, to some success. Um.
• 23:03
  Speaker 1: In two particular instances after that. One of them was
• 23:07
  Speaker 1: as Tech was making its apotheosis in late and early
• 23:11
  Speaker 1: two thousand and Tech had grown to be about a
• 23:15
  Speaker 1: third of the weight of the SMP five hundred. Really,
• 23:18
  Speaker 1: that's a market relative market cap basis. And when it
• 23:21
  Speaker 1: first cracked, I knew that Icarus had flown too close
• 23:24
  Speaker 1: to the sun, and I knew that we were going
• 23:26
  Speaker 1: to have a very painful bear market and it was
• 23:29
  Speaker 1: going to be more than a flesh wound, to paraphrase
• 23:31
  Speaker 1: the black knife from Monty python Um. And so I
• 23:34
  Speaker 1: thought Tech was going to get destroyed and what's down
• 23:38
  Speaker 1: amongst friends? And then in uh in two thousand and six,
• 23:42
  Speaker 1: the relative market cap of financials grew to be more
• 23:45
  Speaker 1: than of the spire cracked at twenty two and a
• 23:48
  Speaker 1: third at twenty two and a percent, and I thought
• 23:51
  Speaker 1: that that was going to be really bad because the
• 23:52
  Speaker 1: financials not only did they have a big market cap,
• 23:56
  Speaker 1: but even a technical guy would probably tell you how
• 23:58
  Speaker 1: important they are to the economy to say the least.
• 24:00
  Speaker 1: And uh so I used that analysis to tom some
• 24:04
  Speaker 1: success at both of those important So when you're looking
• 24:07
  Speaker 1: at the cap relative to to the broader index, what
• 24:11
  Speaker 1: is that actually informing you other than those instances where
• 24:14
  Speaker 1: you're at wild extremes or is that what you're looking for.
• 24:18
  Speaker 1: I'm looking for wild extremes, but I'm also looking for
• 24:20
  Speaker 1: trends within those relative market caps. Right, Relative market cap
• 24:24
  Speaker 1: is sort of a way of saying relative price. And
• 24:27
  Speaker 1: if relative market cap continues to steadily move higher, then
• 24:30
  Speaker 1: I'm going to figure that the trend for that sector
• 24:33
  Speaker 1: is intact, firm, strong, and advancing, and I should be
• 24:37
  Speaker 1: looking for stocks in that sector that I should be
• 24:41
  Speaker 1: biased towards the upside with. All Right, so let's say
• 24:43
  Speaker 1: you find a particular sector you like, how do you
• 24:46
  Speaker 1: keep drilling down from there? Do you look at subsectors?
• 24:50
  Speaker 1: Do you go right to companies? When you pick a
• 24:53
  Speaker 1: random sector that the trend is long, strong, firm, where
• 24:57
  Speaker 1: do you go from there? I want to find the
• 24:59
  Speaker 1: biggest cap comp and he's in that particular sector. Really,
• 25:01
  Speaker 1: why is that? Because for a fund of some size,
• 25:06
  Speaker 1: it doesn't make much sense to focus on stocks of
• 25:10
  Speaker 1: smaller market capitalizations because it's very difficult to move the needle.
• 25:13
  Speaker 1: So I want to focus on the largest market cap
• 25:16
  Speaker 1: stocks in a sector that is trending, because I think
• 25:19
  Speaker 1: I can get the better longer dated performance from those stocks. Right,
• 25:24
  Speaker 1: you can't get enough of a small cap for a
• 25:26
  Speaker 1: substantial fund to make any sort of difference, That's right.
• 25:29
  Speaker 1: And and the big stocks are always very liquid, and
• 25:31
  Speaker 1: I'm sure you could buy as much of that as
• 25:33
  Speaker 1: you want. And if you need it to take yourself
• 25:36
  Speaker 1: out of a position, you could do it with with
• 25:38
  Speaker 1: with little dislocation. That's very interesting. So of late you've
• 25:42
  Speaker 1: been somewhat barished on the financials um How important our
• 25:46
  Speaker 1: financials to the SMP into the economy. Can we really
• 25:50
  Speaker 1: have a bull market without the financials participating well. So
• 25:54
  Speaker 1: I'm always going through my process and and always going
• 25:57
  Speaker 1: through the Now eleven SMP econom ex sectors, financials are
• 26:01
  Speaker 1: one of the eleven. There were formerly ten SMP broke
• 26:03
  Speaker 1: out reads from the financials. Now they're eleven. And I
• 26:06
  Speaker 1: noticed that during a twenty two month period from December
• 26:09
  Speaker 1: through October, the financials had gone through four important setbacks fourteen,
• 26:16
  Speaker 1: twenty two, and ten and a half, and they had
• 26:18
  Speaker 1: underperformed the SMP during that twenty two month period. So
• 26:22
  Speaker 1: to have them as an underweight or to be cautious
• 26:25
  Speaker 1: on them probably wasn't such a bad idea. In addition,
• 26:27
  Speaker 1: at the same time, European banks and Japanese banks were
• 26:31
  Speaker 1: very poor, right, and the only bank group that was
• 26:34
  Speaker 1: doing pretty well of G seven markets was Canada. So
• 26:38
  Speaker 1: to have avoided financials for that period it wasn't such
• 26:41
  Speaker 1: a bad idea. It was only in the last week
• 26:43
  Speaker 1: where you really had a tremendous performance post election. That's correct,
• 26:47
  Speaker 1: But you know, when you have a geopolitical surprise like that,
• 26:50
  Speaker 1: that isn't necessarily going to be reflected in in analysis beforehand,
• 26:56
  Speaker 1: everybody's playing because it was just so darn sudden right
• 26:59
  Speaker 1: and then and so now how do you look at
• 27:01
  Speaker 1: financials today? Has has the recent move change your mind
• 27:06
  Speaker 1: or does it look like a temporary spasm. So quite
• 27:10
  Speaker 1: recently the uh SMP Diversified Bank Index was above it's
• 27:17
  Speaker 1: above it's two D day moving average. I'd say that's
• 27:20
  Speaker 1: like an athlete who sprinted a long way very quickly
• 27:23
  Speaker 1: in a short period of time. So it's a little
• 27:25
  Speaker 1: ahead of itself. This may need to rest, it couldn't
• 27:27
  Speaker 1: need to pause, but I would say that the pattern
• 27:29
  Speaker 1: that's in there is is a very good technical set up.
• 27:33
  Speaker 1: I'd also say, with respect of the financials during the
• 27:36
  Speaker 1: period when they were underperforming, UH, I would ask myself
• 27:40
  Speaker 1: and my counterparties on the cell side, are we in
• 27:42
  Speaker 1: a bull market? And more often than not you'd hear
• 27:46
  Speaker 1: people say yes. But during that entire time, the SMP
• 27:48
  Speaker 1: was up maybe two or three percent pretty much range. Uh,
• 27:53
  Speaker 1: if you were in the fang stocks, it was a
• 27:54
  Speaker 1: bull market. But I think if you were in the index,
• 27:57
  Speaker 1: you would probably say it wasn't a bull market, but
• 27:59
  Speaker 1: it wasn't a bear market either, So just arranged bound market. Look,
• 28:03
  Speaker 1: we can't from the lows and O nine to let's
• 28:07
  Speaker 1: call it thirteen um market was up two hundred plus percent.
• 28:12
  Speaker 1: That's a lot of motion in a real short period
• 28:14
  Speaker 1: of time. You have to eventually catch your breath and
• 28:17
  Speaker 1: market has to digest those games, I would think so um. So,
• 28:20
  Speaker 1: so let me ask you a broader question, which you
• 28:23
  Speaker 1: just made me think of. A lot of people say
• 28:26
  Speaker 1: this market is long in the tooth because you have
• 28:28
  Speaker 1: a nice run from O nine to sixteen. That's seven years.
• 28:33
  Speaker 1: But I always learned secular bull markets don't begin until
• 28:36
  Speaker 1: you make new highs above the previous highs, and we
• 28:40
  Speaker 1: didn't see that happen until So first, do you look
• 28:45
  Speaker 1: at the current situation as if we're in a secular
• 28:49
  Speaker 1: bull market? And if we are, where would you date
• 28:52
  Speaker 1: that too? So I think we've been. There was a
• 28:55
  Speaker 1: six sixty six low in two thousand and nine, and
• 29:00
  Speaker 1: uh up from oh nine to now. The cumulative return
• 29:03
  Speaker 1: would say time and price, you have been in a
• 29:06
  Speaker 1: bowl market. But you've got most of that through Let's
• 29:10
  Speaker 1: call it the midpoint of two thousand fourteen or the
• 29:13
  Speaker 1: autumn of two thousand fourteen, And from the autumn of
• 29:15
  Speaker 1: two thousand fourteen to now, you've really marked time by
• 29:19
  Speaker 1: going sideways, although it's been difficult and adjective filled. But
• 29:23
  Speaker 1: I tend not to think of things secularly or cyclically.
• 29:27
  Speaker 1: I tend to think of things, Can I make money
• 29:29
  Speaker 1: on the long side? Or can I make money on
• 29:31
  Speaker 1: the short side. That's the way I tend to approach things,
• 29:33
  Speaker 1: because I don't want to be locked into a viewpoint
• 29:36
  Speaker 1: that's really interesting. Over the past two years, has it
• 29:39
  Speaker 1: been easier to make money on the long side or
• 29:41
  Speaker 1: the short side or none of the above? I think
• 29:45
  Speaker 1: it's been. I think it's been equally difficult. I think
• 29:48
  Speaker 1: it's been a very difficult period. The market, in my mind,
• 29:53
  Speaker 1: has been Uh. The market is driven h E t
• 29:58
  Speaker 1: F drive stocks, stocks don't drive t F. And I
• 30:01
  Speaker 1: think the market on any given day can do just
• 30:04
  Speaker 1: about anything because your algal is an aggressive buyer, and
• 30:07
  Speaker 1: then my algal follows your algo, and my algal is
• 30:09
  Speaker 1: an aggressive buyer. Um. But it has been exceedingly difficult,
• 30:13
  Speaker 1: and UM, I think we're not for the FED pinning
• 30:17
  Speaker 1: the FED funds rate where it is. Uh, perhaps the
• 30:21
  Speaker 1: environment might be a little bit different. Can can you
• 30:23
  Speaker 1: find another period in time and history that's comparable to
• 30:26
  Speaker 1: the zero or is this drue unique. I think it's
• 30:30
  Speaker 1: truly unique because of the central bank backdrop. That's my
• 30:33
  Speaker 1: that's my opinion that that changes, that changes everything. Um,
• 30:37
  Speaker 1: we mentioned financials earlier. One of the things I know
• 30:40
  Speaker 1: about your prior work. You use JP Morgan as a
• 30:45
  Speaker 1: proxy for financials. I suspect that's because it goes back
• 30:49
  Speaker 1: in history so long. But why one stock as opposed
• 30:53
  Speaker 1: to a group of stocks. Uh So, My former partner
• 30:55
  Speaker 1: at Lehman Brother, Steve Showben, taught me about the importance
• 30:58
  Speaker 1: of bell Weathers So of time I've tried to find
• 31:02
  Speaker 1: and define sector or market bell weathers Now for a
• 31:05
  Speaker 1: long time. You'll recall this. Uh, people use General motors.
• 31:08
  Speaker 1: As General Motors went, so, so went the market. People
• 31:11
  Speaker 1: used IBM for a long time. We Steve Schouben and
• 31:14
  Speaker 1: I used General Electric. And then as you went into
• 31:17
  Speaker 1: the mid two thousand, City Group was the most important
• 31:19
  Speaker 1: stock in the entire world, not just the most pill
• 31:21
  Speaker 1: stock in the SMP five hundred. Well, that didn't work
• 31:24
  Speaker 1: out too well. Well, it did work out very well
• 31:26
  Speaker 1: because when it peaked then you knew that was correct.
• 31:29
  Speaker 1: So it didn't work out well for City Group shareholders.
• 31:31
  Speaker 1: But if you were paying attention to what City was doing.
• 31:33
  Speaker 1: Told you a lot about city, It told you a
• 31:35
  Speaker 1: lot about the banks, and it told you a lot
• 31:36
  Speaker 1: about the market. So it was an excellent bell weather.
• 31:38
  Speaker 1: When did city pink and the peak? And well, it
• 31:41
  Speaker 1: was peaking in two thousands six seven, right around the
• 31:43
  Speaker 1: time when the financials as a percent of the SMP
• 31:46
  Speaker 1: five hundred got to about on a realtive market cap basis.
• 31:49
  Speaker 1: So when City rolled over, that was short of all
• 31:51
  Speaker 1: she won't And so I use I think JP Morgan
• 31:55
  Speaker 1: is a good bell weather, not only for financials but
• 31:58
  Speaker 1: for the market as a whole. We've been speaking with
• 32:01
  Speaker 1: John Roque. He is the technical strategist at key Square
• 32:05
  Speaker 1: Capital Management, backed by George soros Uh. If you enjoy
• 32:09
  Speaker 1: this conversation, be sure and check out all our podcast
• 32:12
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• 32:15
  Speaker 1: about all things technical. Be sure and check out my
• 32:19
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• 32:23
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• 32:27
  Speaker 1: Be sure to write to us at m IB podcast
• 32:32
  Speaker 1: at Bloomberg dot net. I'm Barry rit Halts. You've been
• 32:36
  Speaker 1: listening to Masters in Business on Bloomberg Radio, brought to
• 32:40
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• 32:43
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• 32:47
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• 32:50
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• 32:55
  Speaker 1: Welcome to the podcast, John, Thank you so much for
• 32:58
  Speaker 1: doing this. I'm right, you know. I been a fan
• 33:00
  Speaker 1: of you as for forever. I've been reading your stuff
• 33:02
  Speaker 1: for a long time, which is not easy to get.
• 33:05
  Speaker 1: Your stuff was always hard to track down. Well, thanks,
• 33:09
  Speaker 1: I was always horse trading with other people. Hey, you
• 33:13
  Speaker 1: get Rokee, get me that. What do you got, I'll
• 33:17
  Speaker 1: give you this, You give me that that. You know
• 33:18
  Speaker 1: what happens on the so that that went on all
• 33:21
  Speaker 1: the time, and it was we were never a client.
• 33:24
  Speaker 1: We were never big enough to play in the pond
• 33:27
  Speaker 1: where you played. Um, there were a couple of questions
• 33:30
  Speaker 1: I didn't get to that I really want to get
• 33:32
  Speaker 1: to before we start our usual podcast stuff. Um, why
• 33:37
  Speaker 1: don't we jump right into the sports analogy since we
• 33:40
  Speaker 1: were just talking about you. You we were off fair.
• 33:43
  Speaker 1: We were talking about um, uh, we're talking about listening
• 33:48
  Speaker 1: to baseball and joining the metaphor between baseball on the
• 33:52
  Speaker 1: radio versus financial television. You use a lot of sports
• 33:56
  Speaker 1: analogies in your research. Now, is that because you're sports junkie?
• 34:01
  Speaker 1: Or is that because there's a metaphorical parallel between sports
• 34:05
  Speaker 1: and investing? Why why all the baseball? In fact, just
• 34:10
  Speaker 1: earlier we were talking about um, you know, sorrows fund
• 34:14
  Speaker 1: like like the Ruins. So I am a sports junkie,
• 34:19
  Speaker 1: but I think that there are metaphorical examples that transfer seamlessly.
• 34:24
  Speaker 1: And I'll give you one. So baseball people will tell
• 34:27
  Speaker 1: you that Ted Williams is the greatest hitter of all time,
• 34:31
  Speaker 1: and uh. He wrote a book entitled The Science of Hitting,
• 34:35
  Speaker 1: and one of the chapters in the book is called
• 34:38
  Speaker 1: hit according to Your Style, And he relates a story
• 34:43
  Speaker 1: that was told to him or or an anecdote that
• 34:45
  Speaker 1: was told to him by Rogers Hornsby Rogers Roger with
• 34:48
  Speaker 1: an s right Rogers Hornsby, who was the greatest right
• 34:51
  Speaker 1: handed hitter of all time. He's the last right handed
• 34:53
  Speaker 1: hitter to hit four hundred, and he actually averaged four
• 34:56
  Speaker 1: hundred over five seasons. Really the only guy, a guy
• 35:00
  Speaker 1: major do that. He said that Williams that the single
• 35:04
  Speaker 1: most important thing for a hitter was to get a
• 35:06
  Speaker 1: good ball to hit, in other words, to swing it strikes.
• 35:10
  Speaker 1: And I think the same thing can be applied to stocks,
• 35:13
  Speaker 1: for a example, you have to hit according to your
• 35:16
  Speaker 1: style and not swing its stocks that are out of
• 35:19
  Speaker 1: your strike zone. And I think that increases your chance
• 35:22
  Speaker 1: of winning. Makes makes perfect sense. You've seen the Buffett
• 35:27
  Speaker 1: um book that he recommended. So Warren Buffett recommended the
• 35:31
  Speaker 1: Ted Williams book. And there's a graphic in the Ted
• 35:35
  Speaker 1: Williams famous of the strike zone, and he somehow figured
• 35:40
  Speaker 1: out so I think it was like seven balls across
• 35:43
  Speaker 1: the top of the strikes because the plate is seventeen
• 35:45
  Speaker 1: inches right, so it's seven withs and sixteen or he
• 35:49
  Speaker 1: was about six three right. So he figured out the
• 35:51
  Speaker 1: exact strike zone and then somehow calculated his hitting percentage
• 35:57
  Speaker 1: of each and every which he was a quant before
• 36:02
  Speaker 1: any money years before money ball was ever conceived. He
• 36:06
  Speaker 1: applied probabilities to hitting. Really, people don't understand how brilliant
• 36:13
  Speaker 1: he was as a mathematical hitter, not just as a
• 36:17
  Speaker 1: big He was cerebral and that's fascinating to me. Yeah,
• 36:23
  Speaker 1: I I read the book when I was a player.
• 36:25
  Speaker 1: I bought the book and tried to help my sons
• 36:28
  Speaker 1: with it when they were players, And um, I tried
• 36:31
  Speaker 1: to use some of his methods when I was coaching.
• 36:34
  Speaker 1: UM and I would just tell my kids, if it's good,
• 36:37
  Speaker 1: you've got to be swinging, and if you're in certain counts,
• 36:41
  Speaker 1: you need to be a hitter. You can't be taken pitches.
• 36:44
  Speaker 1: And I know it's inappropriate or not, it's not the
• 36:48
  Speaker 1: right way to say it, but uh to little league players.
• 36:51
  Speaker 1: But nobody ever went to the Hall of Fame being
• 36:53
  Speaker 1: a good walker. You got there by being a good hitter.
• 36:56
  Speaker 1: So you play where did you play ball? I played
• 36:58
  Speaker 1: in high school, I played a little while in colle
• 37:00
  Speaker 1: leg and I played some semi pro baseballs. Oh really,
• 37:02
  Speaker 1: I was a picturer and I now have the torn
• 37:05
  Speaker 1: rotator cuff. Um, no, not anymore. But um, I was accurate.
• 37:11
  Speaker 1: I was fast. I had no breaking pitch and that's
• 37:13
  Speaker 1: why nothing after high school. Wait, you're supposed to make
• 37:16
  Speaker 1: the bull dry. I don't throw that way. I just
• 37:18
  Speaker 1: throw it as hard as I can. So, um, that's
• 37:21
  Speaker 1: really and I was deadly accurate. That was the yeah,
• 37:24
  Speaker 1: well corner, A little little chin music. Whatever you had
• 37:27
  Speaker 1: to do. Um, So you played a semipro, That's that's great.
• 37:31
  Speaker 1: How How what's amazing at that level? And we'll talk
• 37:35
  Speaker 1: about a little math. Is you get one more hit
• 37:38
  Speaker 1: a week and statistically you're just so far ahead of
• 37:42
  Speaker 1: everybody else. That's correct. The level of competition is really amazing.
• 37:47
  Speaker 1: That's correct. If you strike out one less time a week,
• 37:49
  Speaker 1: it's a big deal, huge, just a huge. Um. Have
• 37:52
  Speaker 1: you read much of Michael Mobison's work on luck and skill? Um? So,
• 37:59
  Speaker 1: I have been. I have been able to sit in
• 38:02
  Speaker 1: on some of his presentations. So the answer to that
• 38:04
  Speaker 1: question is yes. I think he does some really good
• 38:06
  Speaker 1: work about that. The book um The Success Equations, Separating
• 38:11
  Speaker 1: Luck from Skill and Sports Investing in Business. The irony
• 38:15
  Speaker 1: is that the skill level is so high in professional
• 38:18
  Speaker 1: sports that it turns out that luck matters a whole
• 38:21
  Speaker 1: lot more than it does amongst amateurs. Yeah, without a doubt.
• 38:25
  Speaker 1: And and and they're playing a game in their head
• 38:27
  Speaker 1: all the time, right, which is why. And I've said
• 38:30
  Speaker 1: to my son, I said to my son's when during
• 38:32
  Speaker 1: the playoffs in the World Series, if you really watched
• 38:34
  Speaker 1: baseball closely, you'll watch that major League Baseball players swing
• 38:39
  Speaker 1: at pitches, not necessarily at strikes. And by that I
• 38:42
  Speaker 1: mean you'll you'll be watching a game and you'll see
• 38:44
  Speaker 1: a guy take a pitch right down the middle, and
• 38:46
  Speaker 1: you might say to yourself, how could he not swing
• 38:48
  Speaker 1: at that? And the reason he wasn't swinging at is
• 38:50
  Speaker 1: because he wasn't guessing that on that pitch. You know,
• 38:53
  Speaker 1: he got a fastball. He may have been looking for
• 38:55
  Speaker 1: a curveball. He got a curveball. He may have been
• 38:56
  Speaker 1: looking for a fastball. So they're they're guessing right, and
• 38:59
  Speaker 1: they're in a mental game, a calculation game, or a
• 39:02
  Speaker 1: game of probability versus the picture. And that's the reason
• 39:06
  Speaker 1: that you know at that level that sometimes you would say,
• 39:09
  Speaker 1: you're a younger guy, you'd say you have to be
• 39:11
  Speaker 1: swinging in that situation. And sometimes they're not swinging because
• 39:14
  Speaker 1: they're not guessing at that pitch. You know, Um the
• 39:17
  Speaker 1: coach of the Giants, Um who departed a couple of
• 39:21
  Speaker 1: years of right, Tom Coughlin. I'm not a sports book fan,
• 39:26
  Speaker 1: but he wrote a book called Earned the Right to Win,
• 39:30
  Speaker 1: and he talks about in the book the research they
• 39:35
  Speaker 1: were doing. All right, what is this opposition team. What
• 39:37
  Speaker 1: do they do on on you know, second and long?
• 39:41
  Speaker 1: What do they do on third and short? What are
• 39:43
  Speaker 1: they And then every player would have to learn that,
• 39:46
  Speaker 1: and some of the players really um pushed back on it.
• 39:49
  Speaker 1: And I'm trying to remember which was its straight hand
• 39:52
  Speaker 1: it was it was one of their um defensive backs
• 39:56
  Speaker 1: used to complain about it all the time. And then
• 39:59
  Speaker 1: years la he's playing for another team and it's a
• 40:02
  Speaker 1: bowl game situation and it's third and short and he says,
• 40:06
  Speaker 1: all right, what do these guys do on third and short?
• 40:08
  Speaker 1: And he realizes I don't have this information? Oh my god.
• 40:11
  Speaker 1: Cochlin was right. You need to have that prep as
• 40:14
  Speaker 1: big as a pain in the neck. It was as
• 40:15
  Speaker 1: it was. It was a decided advantage. And what you're
• 40:20
  Speaker 1: describing with the batters very similar there. If they know
• 40:23
  Speaker 1: the picture, if they've studied him, they know their tendency,
• 40:27
  Speaker 1: they're making a reasonable guess. All right, with three and
• 40:30
  Speaker 1: third and one. He tends to throw a breaking bowl
• 40:32
  Speaker 1: outside I'm looking for I like to hit those. It's
• 40:36
  Speaker 1: really fascinating the whole And I think the same thing
• 40:38
  Speaker 1: applies to stocks, right, You want to you want to
• 40:40
  Speaker 1: find a stock that fits your style. What's the tendency
• 40:43
  Speaker 1: of a stock to do something after it looks like
• 40:47
  Speaker 1: it looks now? And so over time you you recognize
• 40:52
  Speaker 1: that a pattern looks like it does now and that
• 40:55
  Speaker 1: usually is followed by some reaction. And that's because you
• 41:00
  Speaker 1: tend to understand and you tend to have seen so
• 41:02
  Speaker 1: many of them over time, you you tend to I
• 41:04
  Speaker 1: don't want to say foretell, but expect a certain result.
• 41:07
  Speaker 1: But that's why you look at hundreds of charts tonight.
• 41:09
  Speaker 1: You do that for twenty years, and eventually you really
• 41:12
  Speaker 1: get a feel for Right, I've seen this pattern before,
• 41:14
  Speaker 1: and I know what tends to happen here exactly. What
• 41:18
  Speaker 1: what other sports metaphors apply to markets and invest there.
• 41:22
  Speaker 1: I really think baseball is is about as good as
• 41:24
  Speaker 1: there is. Um we could you know, we could go
• 41:27
  Speaker 1: into uh into basketball too, and I think there are
• 41:30
  Speaker 1: a lot of a lot of basketball metaphors to where
• 41:32
  Speaker 1: and you could see now the teams really want to
• 41:34
  Speaker 1: shoot three pointers. They know that you're getting more per
• 41:38
  Speaker 1: basket made than you would be when you're shooting a
• 41:40
  Speaker 1: two pointer. Right, they want despite the fact that some
• 41:42
  Speaker 1: of them might be low percentage shots. But the reward
• 41:46
  Speaker 1: is so much greater. And but from the corner, it's
• 41:48
  Speaker 1: a really high percentage shots, not that much because it's
• 41:52
  Speaker 1: it's it's a it's a higher percentage shot because it's closer,
• 41:55
  Speaker 1: but conceivably you're seeing less of the basket. It might
• 41:58
  Speaker 1: be thought to be harder when my fall, there was
• 42:00
  Speaker 1: a player, you know, when they still had laces on
• 42:02
  Speaker 1: basketballs that I would have told you that's a poor
• 42:05
  Speaker 1: percentage shot because you're not seeing the entire basketball. You're
• 42:08
  Speaker 1: not getting the same deaths exactly just see the rim
• 42:11
  Speaker 1: floating exactly right. But if you have a touch and
• 42:14
  Speaker 1: if you know where that is, that's your closest three
• 42:18
  Speaker 1: point shot you're gonna make. And you see guys like Curry,
• 42:21
  Speaker 1: they live in those courts without a doubt. And I
• 42:23
  Speaker 1: think as did Michael Jordan when he was shooting and
• 42:25
  Speaker 1: and and I think, uh, you know, sort of an
• 42:27
  Speaker 1: appropriate football metaphor is that, uh Brady and the Patriots
• 42:33
  Speaker 1: is are so successful not because he throws over the
• 42:36
  Speaker 1: top to Gronkowski thirty yards down the field every time,
• 42:38
  Speaker 1: but because he hits Edelman or amend Ola or when
• 42:41
  Speaker 1: they had west Walker, he would hit them in the
• 42:43
  Speaker 1: flat for five or six yards, moved down the field,
• 42:45
  Speaker 1: moved down the field, and then go over the top
• 42:47
  Speaker 1: to Gronkowski, right. But but to set it up so
• 42:50
  Speaker 1: that you're you know, you're taking short gains, short gains
• 42:52
  Speaker 1: that then you have a lead, you know, the the
• 42:56
  Speaker 1: yard is in your favor, and then you could go
• 42:58
  Speaker 1: over the top to try to hit you know, a
• 43:00
  Speaker 1: mixed matter of home run. Right. Well, you know that
• 43:03
  Speaker 1: that's the the interesting thing about football is you're always
• 43:08
  Speaker 1: trying to not just use each play to move the
• 43:12
  Speaker 1: ball downfield, but each play subsequently sets up a lot
• 43:16
  Speaker 1: of play. Are you are Are you throwing long and
• 43:18
  Speaker 1: everybody's sitting back, then they're giving you the shorter over
• 43:22
  Speaker 1: the chess not check it's checkers, not apart me. It's chess,
• 43:25
  Speaker 1: not checkers. As Denzel Washington said to Ethan Hawk in
• 43:29
  Speaker 1: training day, it's multiple steps down the road checkers. You know,
• 43:33
  Speaker 1: there are some players that have the mental game, have
• 43:37
  Speaker 1: the pizzical game, and then have all the tools out
• 43:40
  Speaker 1: there to hit. When you look at New England, I
• 43:42
  Speaker 1: mean that's really just an embarrassment of riches for a
• 43:46
  Speaker 1: quarterback who's smart, who has good field vision and could
• 43:49
  Speaker 1: really right. So it's it's it's not a coincidence that
• 43:54
  Speaker 1: those guys have, um have been winning as much as
• 43:57
  Speaker 1: they have been over the past couple of years. Um,
• 44:01
  Speaker 1: So give me a basketball metaphor. So it's the three
• 44:04
  Speaker 1: pointer and and what else? What else is a good
• 44:07
  Speaker 1: basketball metaphor for investing? You know, I keep coming back.
• 44:10
  Speaker 1: I think a good one is. I think a good
• 44:12
  Speaker 1: one is is that? Uh So, I watch a lot
• 44:15
  Speaker 1: of basketball. I watch a lot of high school basketball.
• 44:17
  Speaker 1: My former c y OH coach is a is a
• 44:19
  Speaker 1: very school basketball. Watch a lot of high school basketball
• 44:22
  Speaker 1: because my former c y O coach is a friend
• 44:23
  Speaker 1: of mine is perhaps too. You know, he's a He's
• 44:27
  Speaker 1: a Westchester County Hall of Fame basketball coach, and he
• 44:30
  Speaker 1: wins about eight percent of his games. And I watched
• 44:33
  Speaker 1: the games a lot, and I sometimes I see how
• 44:37
  Speaker 1: they're playing or how they're winning, and I wonder, you know,
• 44:41
  Speaker 1: whereas sort of hit according to your style style in
• 44:43
  Speaker 1: baseball or swing at strikes would be a kin in
• 44:46
  Speaker 1: basketball to making your free throws right. Often in a
• 44:49
  Speaker 1: high school game, the team that loses is the team
• 44:52
  Speaker 1: that shot more poorly from the free throw line than
• 44:54
  Speaker 1: their opponents. Real, that's interesting. So we can practice, however
• 44:58
  Speaker 1: many offensive se it's our plays that are in my playbook. Um,
• 45:03
  Speaker 1: but if our team doesn't hit our free throws, regardless
• 45:07
  Speaker 1: of how many offensive plays we have, we're probably not
• 45:09
  Speaker 1: going to play that. Well, what do you think about
• 45:11
  Speaker 1: the I don't remember it was the high school the
• 45:14
  Speaker 1: college coach who every fourth down he doesn't care, he goes,
• 45:18
  Speaker 1: he goes. I love the statistics. Yeah, the statistics were great.
• 45:21
  Speaker 1: I remember that. Was that the wall a Wall Street
• 45:23
  Speaker 1: Journal article or a Times article. I can't remember where
• 45:25
  Speaker 1: it was where it was printed, but I did read it,
• 45:27
  Speaker 1: and he said, you know, my odds of success, I
• 45:31
  Speaker 1: got a third more plays than everybody else. Stop and
• 45:34
  Speaker 1: thinking a third more offensive plays if I'm going for
• 45:37
  Speaker 1: an on fourth it's right. I remember that. So the
• 45:40
  Speaker 1: math behind that, the statistics are really quite fascinating. All right,
• 45:44
  Speaker 1: So let's bring this back to UH to technico analysis. UM.
• 45:50
  Speaker 1: I took the course, the the course UM with the
• 45:55
  Speaker 1: Great Ralph at Kumpora, and one of the things I
• 45:59
  Speaker 1: remember from that course was Ralph saying, fundamentals tell you
• 46:04
  Speaker 1: what to buy, Technicals tell you when to buy true false,
• 46:08
  Speaker 1: What do you think of that. I think it's a
• 46:10
  Speaker 1: pretty good tenant. Um. But I'm also very fond of um.
• 46:14
  Speaker 1: A tenant that is that was said by I believe
• 46:17
  Speaker 1: Paul Tutor Jones. Uh. He said something to the effect
• 46:20
  Speaker 1: of price moves first, fundamentals follow, meaning that price moves,
• 46:26
  Speaker 1: and then a narrative develops around the price move. So
• 46:30
  Speaker 1: I'm not dismissing what Ralph said. I think it's right,
• 46:33
  Speaker 1: but I think Paul Tutor Jones is is a little
• 46:35
  Speaker 1: bit has a little bit more um. It's a wry observation, uh,
• 46:39
  Speaker 1: and probably a little bit more cynical. Um. It's sort
• 46:43
  Speaker 1: of you know, stocks moved sharply, especially financials in the
• 46:46
  Speaker 1: last week on the Trump election, and now people are
• 46:51
  Speaker 1: trying to ascribe what will happen going forward. I'll leave
• 46:56
  Speaker 1: those frank, but but it's always an after that. I'll
• 46:59
  Speaker 1: leave those sentence to the fundamental guys. But price moved,
• 47:03
  Speaker 1: and then here's the reason price moved? Right? Well, what
• 47:06
  Speaker 1: good are you doing telling me? Right well? Why weren't
• 47:09
  Speaker 1: you giving me this analysis before? I think Palter to
• 47:12
  Speaker 1: Jones is uh, you know, line is is pretty appropriate.
• 47:14
  Speaker 1: I don't think it's cynical. I think it's human nature.
• 47:17
  Speaker 1: We were just discussing this the other day that before this,
• 47:22
  Speaker 1: so we can talk about the Clinton Trump election. Before
• 47:26
  Speaker 1: Trump won, the story was she has more money, she
• 47:31
  Speaker 1: is a better get out the vote ground game, they
• 47:34
  Speaker 1: have better analytics. The Trump team is kind of just
• 47:37
  Speaker 1: flinging darts and hail Mary's and what have you. And
• 47:40
  Speaker 1: then afterwards the narrative completely changed. Hey, their their narrative,
• 47:45
  Speaker 1: their analytics. Their analytics turned out to be much better. Um,
• 47:50
  Speaker 1: they understood what was going on on the ground in Wisconsin.
• 47:54
  Speaker 1: And all these after the fact rationalizations which to be blunts.
• 47:58
  Speaker 1: This election could have gone either way. They pretty easy.
• 48:01
  Speaker 1: If if the Access Hollywood tape doesn't come out, he
• 48:06
  Speaker 1: steam rolls her. If the Comy letter doesn't take place
• 48:10
  Speaker 1: in October, she probably beats it. Really, this could have
• 48:13
  Speaker 1: easily broken either way, and yet everybody wants to make
• 48:17
  Speaker 1: these broad pronouncements after the fact. It's that same exact process. Oh,
• 48:23
  Speaker 1: now that we know what happens, let's craft a narrative.
• 48:26
  Speaker 1: Let's craft a narrative around that. I find that to
• 48:28
  Speaker 1: be um, absolutely fascinating. Um. So, a couple of other
• 48:34
  Speaker 1: questions I didn't get to during the regular broadcast portion. Uh.
• 48:40
  Speaker 1: We we just touched on on this very lightly when
• 48:43
  Speaker 1: when I asked, you know, what attracted you to the
• 48:45
  Speaker 1: technical side. Was it the rigor of the discipline, was
• 48:50
  Speaker 1: it the did it make sense logically? Um? Was it
• 48:55
  Speaker 1: some evidence or data that supported it? What made you say, Oh,
• 48:59
  Speaker 1: this is really seems to be the way to go,
• 49:01
  Speaker 1: and what I learned as an NBA student may not
• 49:04
  Speaker 1: be the best way to buy and sell stocks. I'm
• 49:07
  Speaker 1: going to try to answer it like this. Let's say
• 49:09
  Speaker 1: that I'm a real estate broker and I call you
• 49:10
  Speaker 1: up and I said, hey, Barry, I got a place
• 49:13
  Speaker 1: i'd like you to see. What's the first thing you
• 49:15
  Speaker 1: say to me? You likely say to me, what does
• 49:18
  Speaker 1: it look like? Where is it? That's probably akin to saying,
• 49:23
  Speaker 1: what is the Can I look at the chart? If? Um?
• 49:27
  Speaker 1: Let's say I had a younger brother and you had
• 49:29
  Speaker 1: a younger sister, and we would like them to sort of,
• 49:32
  Speaker 1: you know, meet, perhaps they can go out at a date,
• 49:35
  Speaker 1: and we introduced the idea to each of them separately.
• 49:38
  Speaker 1: What's the first thing that they would say to us?
• 49:40
  Speaker 1: What does that person look like? I think it's appropriate
• 49:43
  Speaker 1: to think of it the same way with respect to charts.
• 49:45
  Speaker 1: I mean, you have to look at something to be
• 49:48
  Speaker 1: able to have an idea as to what you're talking about.
• 49:52
  Speaker 1: I mean, Billy Bean popularized moneyball, but guys in the
• 49:56
  Speaker 1: business will tell you that you still have to watch
• 49:59
  Speaker 1: baseball players play. That's the reason teams pay scouts to
• 50:03
  Speaker 1: go watch high school and college players. They have to
• 50:06
  Speaker 1: see if they can play. Uh, It's sort of like
• 50:09
  Speaker 1: getting a high school kid or a kid who played
• 50:12
  Speaker 1: in a league that wasn't a strong league and he
• 50:15
  Speaker 1: hits six hundred, Well, is that a legit six hundred
• 50:17
  Speaker 1: versus a kid who may have played in a league
• 50:19
  Speaker 1: that was really tough who hit four and a quarter.
• 50:22
  Speaker 1: I don't know. Maybe you need to see them play
• 50:24
  Speaker 1: to be able to determine who was really the better player.
• 50:26
  Speaker 1: So I think you have to look at what you're
• 50:28
  Speaker 1: thinking about with respect to stocks, index's yields, currencies, commodities
• 50:32
  Speaker 1: across the board. I've asked a number of people if
• 50:35
  Speaker 1: you were only able to look at one thing, would
• 50:38
  Speaker 1: you take a research report? Would you take the chart?
• 50:41
  Speaker 1: And invariably everybody says, even non technicians, I have to
• 50:44
  Speaker 1: see the chart well, I'm glad you said that, because
• 50:47
  Speaker 1: I think charts are the language of Wall Street. No
• 50:50
  Speaker 1: matter who comes in to make a presentation. Uh, it
• 50:53
  Speaker 1: could be uh, an overview analyst from Hong Kong, it
• 50:57
  Speaker 1: could be an overview analyst from Australia, wherever. It could
• 51:01
  Speaker 1: be somebody here in town. One of the I I
• 51:03
  Speaker 1: ranked overview people when they come in their presentation packages
• 51:07
  Speaker 1: are chalk full of charts, and so it may not
• 51:11
  Speaker 1: be that they're technically oriented, but they are chart oriented.
• 51:14
  Speaker 1: And I'm I really believe charts of the language of
• 51:16
  Speaker 1: Wall Street. So, given how much computing power is at
• 51:19
  Speaker 1: everybody's desk or even in your pocket on your phone,
• 51:24
  Speaker 1: how does that change the world of technical analysis when
• 51:28
  Speaker 1: everybody can access a chart anytime, anywhere, What what does
• 51:32
  Speaker 1: that do to the field? I think it's actually made
• 51:35
  Speaker 1: it stronger, right, I think it has made it more
• 51:37
  Speaker 1: rigorous because people can check really quickly by looking at
• 51:43
  Speaker 1: what you're looking at. Again, I'll go back to Steve
• 51:45
  Speaker 1: Schobin's line, it's the singer, not the song, right, It's
• 51:48
  Speaker 1: the interpretation that means more. But I think there's a
• 51:51
  Speaker 1: certain there's a greater degree of rigor with respect to
• 51:54
  Speaker 1: technicals that wasn't there in the past, when it was
• 51:56
  Speaker 1: only I don't want to say control, but but but
• 51:58
  Speaker 1: let's say dominated by a few, because it was so
• 52:02
  Speaker 1: hard to do these disciplines, right, everything was pretty much
• 52:05
  Speaker 1: done by hand. But now it's so widely dispersed that
• 52:10
  Speaker 1: I think everybody has a flavor for it, and I
• 52:12
  Speaker 1: think that's a very good thing for technical analysis. That
• 52:14
  Speaker 1: that's interesting. So you you reference the the impact of
• 52:18
  Speaker 1: the fed earlier um and the impact of al goes.
• 52:22
  Speaker 1: What what is high frequency trading done to the way
• 52:25
  Speaker 1: charts look and feel? Um? I actually think high when
• 52:29
  Speaker 1: when Michael Lewis wrote the book with about bread Fukayama, Um, yeah,
• 52:34
  Speaker 1: I thought that that was the smoke screen. Not that
• 52:36
  Speaker 1: I'm not dismissing the book. I'm not dismissing high frequency trading.
• 52:39
  Speaker 1: But I think high frequency trading was getting the blame
• 52:41
  Speaker 1: for something that it shouldn't be getting the blame from it.
• 52:44
  Speaker 1: I think the real risk to our business is in
• 52:46
  Speaker 1: the e t f uh side of the business. Really explain,
• 52:50
  Speaker 1: So I have a pet theory about bonds, but explain
• 52:54
  Speaker 1: why you think e t fs are are so problematic? Uh?
• 53:00
  Speaker 1: I don't. Well, they're not problematic when we go up,
• 53:02
  Speaker 1: then they may be problematic when we go down. I
• 53:05
  Speaker 1: think because people don't understand them. For example, if you
• 53:08
  Speaker 1: call your broker and say I'm gonna buy an order
• 53:11
  Speaker 1: of spiders, the s P Y you buy spiders, but
• 53:16
  Speaker 1: you've created an unnatural bid for every stock in the
• 53:18
  Speaker 1: SMP five d absolutely, and I think most people who
• 53:21
  Speaker 1: use those E t F don't understand that. And I
• 53:25
  Speaker 1: also think that if you have a portfolio of individual
• 53:28
  Speaker 1: stocks and you add in an e t F let's
• 53:31
  Speaker 1: say the spider, your risk profile has changed because some
• 53:35
  Speaker 1: of the stocks you already own are in the spider.
• 53:38
  Speaker 1: So your risk parameter is not what you thought it was.
• 53:40
  Speaker 1: You've actually created sort of a derivative product and a
• 53:44
  Speaker 1: leverage product by using a simple et S. So so
• 53:47
  Speaker 1: years ago we had the SMP, we had the down industrials,
• 53:51
  Speaker 1: but you couldn't very easily trade them. You could go
• 53:54
  Speaker 1: out and buy each of the components in them, but
• 53:57
  Speaker 1: you couldn't just push a button and say I want
• 54:00
  Speaker 1: us and it was done. So when you say E
• 54:03
  Speaker 1: t f s have have impacted this, it's not the
• 54:07
  Speaker 1: index itself, it's that there's a trading vehicle that's that's
• 54:11
  Speaker 1: really easily accessible. And I don't think a lot of
• 54:14
  Speaker 1: people understand how E t F s are made and unmade.
• 54:18
  Speaker 1: I'm not certain I understand. Well, what little I know
• 54:22
  Speaker 1: about it is normally something like, uh, maybe the SMP
• 54:26
  Speaker 1: the spiders aren't a good example. But you take another
• 54:29
  Speaker 1: E T F UM or g l D for that matter,
• 54:33
  Speaker 1: UM and it has some components, and most of the
• 54:36
  Speaker 1: time when you're buying and selling it, you're just buying
• 54:39
  Speaker 1: and selling that component. There are there are ARBs who
• 54:43
  Speaker 1: will basically identify when it gets out of whack with
• 54:47
  Speaker 1: the underlying holdings and buy this and sell that in
• 54:50
  Speaker 1: order to bring it into into um appropriate balance. But
• 54:56
  Speaker 1: sometimes the underwriter is making more units when the demand
• 55:00
  Speaker 1: is overwhelming. We saw that with g l D on
• 55:03
  Speaker 1: the way up. It wasn't a finite matter of g
• 55:06
  Speaker 1: l D shares. They were actually making more as the
• 55:09
  Speaker 1: demand had blown up from let's call it oh five
• 55:12
  Speaker 1: to and then as that unwinds on the way down,
• 55:17
  Speaker 1: they start taking those units apart and selling the actual
• 55:21
  Speaker 1: gold futures or whatever. Yeah, it's not just this is
• 55:27
  Speaker 1: a closed and fund that's trading based on supplians men.
• 55:30
  Speaker 1: There are components that go into it. Yeah, no doubt,
• 55:33
  Speaker 1: which is why I think it's very hard to understand
• 55:35
  Speaker 1: those things. So it's okay on the upside, it's a problem.
• 55:37
  Speaker 1: On the downside, I think it's that then the the
• 55:40
  Speaker 1: is that the balance of risk. I don't think we
• 55:43
  Speaker 1: I don't think anybody is understands and I'm at the
• 55:46
  Speaker 1: forefront with not understanding what it could mean. On the downside.
• 55:49
  Speaker 1: We haven't seen it, but I do recall, Uh, so
• 55:52
  Speaker 1: it wasn't August fifteen. It would probably have been August
• 55:55
  Speaker 1: where we were down really sharply over a few days. Uh,
• 55:59
  Speaker 1: and there was some dislocation with respect to e t
• 56:01
  Speaker 1: F s and e t F that were sort of
• 56:04
  Speaker 1: supposed to be um more stable were marked down tremendously.
• 56:08
  Speaker 1: Maybe that was you know, sort of uh a preview
• 56:12
  Speaker 1: of what could happen. But again I'm not I don't
• 56:16
  Speaker 1: think I can take a guess as to what it
• 56:19
  Speaker 1: could look like. It might look it might be fine,
• 56:21
  Speaker 1: it might be well contained, it might not be I
• 56:23
  Speaker 1: don't know. I mean, there's still plenty of ETFs, not
• 56:25
  Speaker 1: there was as nearly as much money in them, but oh,
• 56:28
  Speaker 1: eight oh nine, they were, there were the spiders, the cues,
• 56:31
  Speaker 1: the diamonds. Yeah, but but I I think the these
• 56:34
  Speaker 1: trillions more to the active versus passive now is has
• 56:37
  Speaker 1: really you know, the ratio has shifted and and the
• 56:41
  Speaker 1: rate of change for assets going into passive versus assets
• 56:44
  Speaker 1: going into active has really benefits the the the the
• 56:48
  Speaker 1: passive side of the business, of which the e t
• 56:50
  Speaker 1: f s are. Bill mcnap of Vanguard says, we look
• 56:55
  Speaker 1: at this wrong, that it's not active versus passive. It's
• 56:58
  Speaker 1: expensive versus It's fine. That's fine too, Yes, but that's
• 57:02
  Speaker 1: we could characterize it like that too. Yeah, that he's
• 57:05
  Speaker 1: he believes that's what's been driving. Well, sometimes you know,
• 57:08
  Speaker 1: expensive versus cheap, and then cheap becomes expensive. Right that
• 57:13
  Speaker 1: that certainly is a is a possibility assuming there's no
• 57:17
  Speaker 1: risk management in a in a downside and downside move
• 57:20
  Speaker 1: and et f s get she'll act. So there were
• 57:24
  Speaker 1: one or two other questions I wanted to to go over,
• 57:29
  Speaker 1: um and you you implied this, but I want to
• 57:32
  Speaker 1: explore a little more, Um, the advancement of technology. What
• 57:37
  Speaker 1: has this done for technicals? What does this mean? Uh
• 57:40
  Speaker 1: to trading in the market. I think the effect on
• 57:44
  Speaker 1: technical analysis is incalculable. Really, it's I mean, the Bloomberg terminals,
• 57:50
  Speaker 1: what you can do on the Bloomberg terms insane, It's
• 57:52
  Speaker 1: totally insane. We we are office laughs. It's like I
• 57:55
  Speaker 1: feel like we barely scratched. I mean, just to give
• 57:57
  Speaker 1: an idea. So the other day I I did a
• 57:59
  Speaker 1: relic to ratio of the of a group of Macau
• 58:03
  Speaker 1: gaming stocks to Patty Power, which is the Island base
• 58:09
  Speaker 1: London traded online betting. I mean ten years ago. I
• 58:14
  Speaker 1: couldn't have done that twenty years ago. It was inconceivable.
• 58:18
  Speaker 1: And if you did it, you had to you do
• 58:19
  Speaker 1: a calculator if you had one, or a spreadsheet if
• 58:22
  Speaker 1: you had a lotus one to three. Uh, you know too.
• 58:26
  Speaker 1: And then I can do it with with with a
• 58:28
  Speaker 1: handful of keystrokes on Bloomberg. That's it's crazy. Yeah, that's amazing, amazing.
• 58:33
  Speaker 1: So what does this do to the process of learning
• 58:37
  Speaker 1: how to chart and what does it due to the
• 58:39
  Speaker 1: market having all this technical horsepower. Well, it's another reason
• 58:44
  Speaker 1: that I think it's more appropriate for me to try
• 58:46
  Speaker 1: to stick with longer term trends rather than trying to
• 58:49
  Speaker 1: be a trader because I can't figure that I'm going
• 58:51
  Speaker 1: to be any better than any machine. And John Henry, Yeah,
• 58:56
  Speaker 1: I can't figure that I'm going to be any better
• 58:58
  Speaker 1: than somebody who is a trader. I'm not a trader.
• 59:01
  Speaker 1: I'm an analyst, and so I think my strength is
• 59:04
  Speaker 1: trying to stick with trend rather than trying to, uh,
• 59:07
  Speaker 1: you know, be able to trade better than somebody who's
• 59:09
  Speaker 1: doing it every single minute they're in their chair. So
• 59:12
  Speaker 1: you reference trends earlier. Let's let's talk about trend as
• 59:16
  Speaker 1: opposed to patterns and mean reversion. What makes trend so
• 59:21
  Speaker 1: significant because I think when you have the trend right,
• 59:24
  Speaker 1: you're bailed out of your mistakes. When you have the
• 59:27
  Speaker 1: trend right, Well, what are the mistakes when you have
• 59:29
  Speaker 1: the trend right? Sometimes you overthink your positions. I'll use
• 59:33
  Speaker 1: you as my example. Let's say you bought something today.
• 59:37
  Speaker 1: Invariably you come in on Monday morning, you're questioning yourself
• 59:40
  Speaker 1: whether or not you should have bought that. Tuesday, you're
• 59:42
  Speaker 1: doing the same thing, and you do that every single
• 59:44
  Speaker 1: day that you own that item until you get rid
• 59:47
  Speaker 1: of it. But sometimes our best decisions are made stepping
• 59:52
  Speaker 1: away from the screen or the terminal, whatever you want
• 59:55
  Speaker 1: to say, and trying to conceive of that item within
• 59:57
  Speaker 1: its trend. And you might say, Okay, I get it.
• 1:00:01
  Speaker 1: That stock might have some difficulties because I might have
• 1:00:04
  Speaker 1: not had the best entry point, but overall, it is
• 1:00:08
  Speaker 1: in an uptrend, and because it's in an up trend,
• 1:00:10
  Speaker 1: I'm going to give that stock the benefit of the
• 1:00:12
  Speaker 1: doubt on any pullback. Now, you might have to set
• 1:00:17
  Speaker 1: up a risk parameter for yourself that says, Okay, I
• 1:00:20
  Speaker 1: know it's an uptrend, but if it breaks some percentage
• 1:00:24
  Speaker 1: retracement level, I don't care what that trend says, I
• 1:00:27
  Speaker 1: have to reduce my position because it impacts the rest
• 1:00:30
  Speaker 1: of my portfolio. But I think when an item is
• 1:00:34
  Speaker 1: in an up trend and you are along that item,
• 1:00:36
  Speaker 1: it deserves the benefit of the doubt, meaning that you
• 1:00:39
  Speaker 1: know it can get knocked around a little bit, but
• 1:00:41
  Speaker 1: the trend is not broken. And before I get to
• 1:00:44
  Speaker 1: my favorite questions, I would be remiss if I did
• 1:00:47
  Speaker 1: not ask you. You were Lehman Brothers in the middle
• 1:00:50
  Speaker 1: of the nineties, that had to be a hopping place
• 1:00:54
  Speaker 1: at that time. What what was that like? It was
• 1:00:56
  Speaker 1: a great place. I worked with a guy named Steve Schoubin.
• 1:00:58
  Speaker 1: I've mentioned his name a few times today. He's um.
• 1:01:01
  Speaker 1: He was exceedingly patient and kind with me. He answered uh,
• 1:01:06
  Speaker 1: millions of my questions. Uh, he's uh he was. He
• 1:01:09
  Speaker 1: still is one of the quippiest guys in the business. Quippiest, tuippiest.
• 1:01:13
  Speaker 1: I mean, he's never at a loss for a quippy comeback. Uh.
• 1:01:16
  Speaker 1: And you just laughed because he was just so darn
• 1:01:19
  Speaker 1: fast with him. Lehman was a great place. He was
• 1:01:21
  Speaker 1: a great place. I just had a chance to be
• 1:01:24
  Speaker 1: detectical guy at Arnholden splite shorter, and I thought it
• 1:01:27
  Speaker 1: was a chance to you know, sort of be Uh
• 1:01:29
  Speaker 1: that's why you jumped from one of men. It wasn't.
• 1:01:32
  Speaker 1: It wasn't because of any you know, I was um displeased.
• 1:01:35
  Speaker 1: On the other side. I just said, you know, here's
• 1:01:37
  Speaker 1: an opportunity for myself. Um, I asked us Jeff DeGraf
• 1:01:41
  Speaker 1: um reference, who was Lehman's chief techne. He replaced me
• 1:01:45
  Speaker 1: at Lehman. Really, Oh, that's hilarious, he said, he goes,
• 1:01:50
  Speaker 1: he goes. I assure you, it's dumb luck. But he
• 1:01:53
  Speaker 1: handed his resignation in the day of the old time high.
• 1:01:58
  Speaker 1: Pretty good timing. Yeah, so uh to set up ren macro. Um,
• 1:02:03
  Speaker 1: so I go that. That's how you know, guys, a
• 1:02:06
  Speaker 1: good technician is he quits a publicly traded company and
• 1:02:09
  Speaker 1: that marks the high of the day. All right, So
• 1:02:11
  Speaker 1: let's jump to my favorite questions. I asked all my guests. Um,
• 1:02:16
  Speaker 1: you you told us about your background. You said you
• 1:02:18
  Speaker 1: got an m b a from what is now Gibelly
• 1:02:21
  Speaker 1: School of Management, but uh it's at Fordham. Did you
• 1:02:24
  Speaker 1: do anything between school and Wall Street? Or you went
• 1:02:27
  Speaker 1: right from right from college, right from grad school to
• 1:02:31
  Speaker 1: to finance that's right, yeah, right right in Yeah, nothing
• 1:02:34
  Speaker 1: in between. And um, obviously I'm gonna ask you who
• 1:02:38
  Speaker 1: your early mentors are. Steve Schobin is going to be
• 1:02:40
  Speaker 1: one of them. My very first boss was a guy
• 1:02:43
  Speaker 1: named Tom McKee. He was a great boss. He taught
• 1:02:45
  Speaker 1: me how to do my job responsibly. Uh. And then
• 1:02:47
  Speaker 1: I worked for Ken Saffie and Saffie Investment Research, and
• 1:02:50
  Speaker 1: he gave me a lot of freedom to do a
• 1:02:52
  Speaker 1: lot of things for him and it was a great
• 1:02:54
  Speaker 1: learning experience. Steve Schobin, I can't say enough about I
• 1:02:58
  Speaker 1: worked for a guy named Jeff earlier and John arnhold
• 1:03:01
  Speaker 1: Arnholden s Bleischroder and both both were gentlemen to me.
• 1:03:05
  Speaker 1: And while Sorrows Fund Management, I worked for Robert Soros,
• 1:03:09
  Speaker 1: who was a gentleman to me as well, a very
• 1:03:12
  Speaker 1: a guy who was always open to technicals and um
• 1:03:15
  Speaker 1: and looking at markets and charts. And I've been fortunate
• 1:03:18
  Speaker 1: for the last five years to work for a guy
• 1:03:19
  Speaker 1: named Scott Besson who encourages imaginative, imaginative thinking. He's always
• 1:03:24
  Speaker 1: interested in listening to an idea. He's really pragmatic and
• 1:03:28
  Speaker 1: he um. He's instilled confidence because he's allowed me the
• 1:03:32
  Speaker 1: freedom to make a mistake. And I don't want to.
• 1:03:35
  Speaker 1: I don't want to dismiss that point. You know, we
• 1:03:37
  Speaker 1: don't want to make mistakes, but you make them. It's
• 1:03:41
  Speaker 1: the nature of the business. If you're a four hundred
• 1:03:43
  Speaker 1: hit or you're a rock star, right and you're still
• 1:03:45
  Speaker 1: making out six out of ten times. Um so he
• 1:03:48
  Speaker 1: uh he um. He understands the mistake part of the business,
• 1:03:52
  Speaker 1: thankfully for me, and I'm lucky to be a part
• 1:03:54
  Speaker 1: of Key Square and with him. So what other investors
• 1:03:58
  Speaker 1: influenced how you approach uh markets and investing? So I've
• 1:04:03
  Speaker 1: tried to listen to anything UH or read anything that
• 1:04:07
  Speaker 1: these people have said. And some of them I worked
• 1:04:09
  Speaker 1: with and for, so Steve Chabin, Scott Besson, Howard Marks,
• 1:04:12
  Speaker 1: who was a value guy, and anything he's ever written.
• 1:04:16
  Speaker 1: I've tried to read, you know, his memos when they
• 1:04:18
  Speaker 1: are you know, every right, UH, Stan druck and Miller's,
• 1:04:22
  Speaker 1: George Sorrows, Paul Jones, and I really, um, I really
• 1:04:24
  Speaker 1: appreciate anything that seemed to Leb has to say. I
• 1:04:27
  Speaker 1: really like his common sense, sort of contrary approach to UH,
• 1:04:31
  Speaker 1: to the business and to the thinking in the business.
• 1:04:34
  Speaker 1: Very interesting. Let's let you mentioned reading. Let's talk about
• 1:04:37
  Speaker 1: some books. What are some of your favorite books, be
• 1:04:40
  Speaker 1: they fiction, non fiction, investing, or otherwise. Okay, so I
• 1:04:45
  Speaker 1: really liked UH a book about the commanches called the
• 1:04:48
  Speaker 1: The Empire of the Summer Moon, which was really really
• 1:04:52
  Speaker 1: a fantastic book. Really yeah, just great. I really liked
• 1:04:56
  Speaker 1: that a lot. I really liked it a lot. With
• 1:04:58
  Speaker 1: respect to to markets stuff Market Wizards by Jack Swagger,
• 1:05:01
  Speaker 1: I think is is a required reading. More money than God. Um.
• 1:05:05
  Speaker 1: I really liked The Creature from Jekyl Island, which by
• 1:05:08
  Speaker 1: Edward Griffin that was about the start of the Federal Reserve. Uh.
• 1:05:12
  Speaker 1: One of my favorites of all time is The Lords
• 1:05:14
  Speaker 1: of Finance by Ahmed Ahammed, and the subtitle of the
• 1:05:19
  Speaker 1: book is The Bankers Who Broke the World, which I
• 1:05:21
  Speaker 1: think is as good as it gets. Manias, Panics and
• 1:05:25
  Speaker 1: Crashes by Charles Kindleberger Shut Up a Deal by Jesse
• 1:05:28
  Speaker 1: may Um. I'm a big sports sports book guy as well.
• 1:05:31
  Speaker 1: I really I recently read a biography about Thai Cobb
• 1:05:34
  Speaker 1: which sort of changed away people. Um originally thought about Cobb. Um,
• 1:05:40
  Speaker 1: he was supposed to be really hard, charging spikes out,
• 1:05:43
  Speaker 1: no fooling around that he was. He played really hard,
• 1:05:46
  Speaker 1: and uh, I'd say back then it was sort of
• 1:05:49
  Speaker 1: you know, killer be killed in baseball. I know I'm
• 1:05:51
  Speaker 1: making too much of it, but um, there was no fraternizing.
• 1:05:55
  Speaker 1: But he was thought to have been a bad guy.
• 1:05:59
  Speaker 1: I'd necessarily think that he was a bad guy. In
• 1:06:01
  Speaker 1: this new biography, would would would would say that he
• 1:06:05
  Speaker 1: wasn't a newer and gentler ty coon or something like that. Um.
• 1:06:10
  Speaker 1: So since you've joined finance all those years ago, what
• 1:06:14
  Speaker 1: has changed? What do you think is the most significant
• 1:06:18
  Speaker 1: changes in the industry over the past. When we got
• 1:06:21
  Speaker 1: into the business, there was a tremendous broker client component
• 1:06:25
  Speaker 1: of the business, which to a great degree doesn't exist.
• 1:06:28
  Speaker 1: Now there's more of an asset gathering component, whereby then
• 1:06:31
  Speaker 1: it was more transactional. Uh. And I can remember a
• 1:06:35
  Speaker 1: lot of guys that I knew in the business they
• 1:06:36
  Speaker 1: started their career making cold calls. I don't know, is
• 1:06:39
  Speaker 1: it is it better or worse? This? This change is this?
• 1:06:42
  Speaker 1: Is this now? Is that a better structure or do
• 1:06:46
  Speaker 1: you lose something? I think what's changed is that it
• 1:06:50
  Speaker 1: was easier than to come up with some sort of
• 1:06:54
  Speaker 1: sentiment read for the market. I think it's harder now. Uh.
• 1:06:58
  Speaker 1: And with the individual investor or in an asset gather,
• 1:07:01
  Speaker 1: you know, having been asset gathered rather than via the
• 1:07:05
  Speaker 1: old broker method, I think it's harder to figure things
• 1:07:07
  Speaker 1: out in that regard. But it's a natural evolution. I
• 1:07:10
  Speaker 1: think the advent and ubiquity of E t f s,
• 1:07:13
  Speaker 1: the continued involvement of central bankers, the evolution of central
• 1:07:16
  Speaker 1: bankers from behind the scenes, practitioners of the hippocratic oath,
• 1:07:19
  Speaker 1: the virtual financial celebrities, those are all tremendous changes over
• 1:07:23
  Speaker 1: the last twenty financial celebrities. Yeah, that's the way I
• 1:07:26
  Speaker 1: tend to think of them. Is that a bad thing
• 1:07:28
  Speaker 1: or a good thing? Um? Or does it depend on
• 1:07:31
  Speaker 1: the celebrity? I I think UM. I think that there's
• 1:07:37
  Speaker 1: a major shift occurring where investors are moving away from
• 1:07:40
  Speaker 1: the belief of the omniscience of central bankers. In fact,
• 1:07:44
  Speaker 1: in my mind, that has been a bubble in its
• 1:07:46
  Speaker 1: own right, and I think that we are realizing that
• 1:07:49
  Speaker 1: central bankers are far from omniscient. Well, everybody remembers Greenspan
• 1:07:55
  Speaker 1: as the maestro, and he left as chairman, and then
• 1:08:00
  Speaker 1: it didn't take all that long for that reputation to
• 1:08:03
  Speaker 1: really unwind. The financial crisis certainly didn't didn't help his reputation.
• 1:08:09
  Speaker 1: The guy who looked like he was never wrong suddenly,
• 1:08:11
  Speaker 1: Oh maybe this guy was never right. He just got
• 1:08:14
  Speaker 1: a little lucky. And I'm amazed that people put so
• 1:08:18
  Speaker 1: much faith in central bankers after the guy was little.
• 1:08:22
  Speaker 1: I mean, I remember the CNBC briefcase cam like, how
• 1:08:26
  Speaker 1: thick or thin is his briefcase and that's whether he'll
• 1:08:29
  Speaker 1: raise or tighten. That's that's how tightly people track that.
• 1:08:34
  Speaker 1: I don't think anybody holds bankers at least with the
• 1:08:40
  Speaker 1: same you know, belief that they know all the answers.
• 1:08:43
  Speaker 1: They're certainly important, But did did Greenspan break the spell
• 1:08:48
  Speaker 1: for that? I think we're in an environment where people
• 1:08:54
  Speaker 1: are looking at um, for lack of a better phrase,
• 1:08:59
  Speaker 1: the political financial elite in a different light than they
• 1:09:02
  Speaker 1: had in prior cycles. I think so much. So many
• 1:09:06
  Speaker 1: of their missteps are well categorized, uh or delineated, and
• 1:09:12
  Speaker 1: that information is well dispersed, whereby perhaps it may have
• 1:09:16
  Speaker 1: only been in prior cycles. People in our business who
• 1:09:18
  Speaker 1: are aware of who the head of the central bank was,
• 1:09:22
  Speaker 1: the public knows that. Not only does the public know
• 1:09:25
  Speaker 1: who the the head of the central bank is, they
• 1:09:28
  Speaker 1: know there's a central bank. You go back to twenty
• 1:09:30
  Speaker 1: years they had no clue. I mean, every every day
• 1:09:32
  Speaker 1: you turn around, there's another central banker speaking somewhere. Yeah.
• 1:09:38
  Speaker 1: I think that they're ubiquitous, both of their presence and
• 1:09:41
  Speaker 1: their comments. And uh, I think that they're going They'll
• 1:09:45
  Speaker 1: run through their cycle, just like every other item runs
• 1:09:48
  Speaker 1: through a cycle. You mentioned Malaby's more money than God.
• 1:09:51
  Speaker 1: Have you gotten around to his new tone on green Space?
• 1:09:54
  Speaker 1: I have not. I have the book. I haven't even
• 1:09:56
  Speaker 1: cracked it open yet. I'm really curious because, um, my
• 1:10:00
  Speaker 1: head of research, Mike Battnick, like you loved More Money
• 1:10:04
  Speaker 1: than God, And that's another book I haven't gotten. I
• 1:10:07
  Speaker 1: actually started reading it right after I finished reading something else,
• 1:10:11
  Speaker 1: and they were so similar in who they looked at.
• 1:10:14
  Speaker 1: And I said, you're I'm gonna put this aside a
• 1:10:15
  Speaker 1: little bit and come back to it. But I know
• 1:10:17
  Speaker 1: a number of people who just love that book, think
• 1:10:20
  Speaker 1: it's great, really, So I'm gonna move that up in
• 1:10:23
  Speaker 1: my uh up in my queue. So you mentioned you
• 1:10:27
  Speaker 1: played ball in school. What do you do to relax
• 1:10:30
  Speaker 1: outside of the office. What do you do to stay
• 1:10:33
  Speaker 1: mentally and physically fit so you can do your job? Listen,
• 1:10:37
  Speaker 1: Like a lot of guys, I like to go to
• 1:10:38
  Speaker 1: the gym. I like to be active. I like to
• 1:10:39
  Speaker 1: spend a little time walking down at the Bronx Riviera,
• 1:10:42
  Speaker 1: which is otherwise known as Orchard Beach, Um the Bronx Riviera.
• 1:10:46
  Speaker 1: So things like that, How do you are you in
• 1:10:49
  Speaker 1: um Bronxville with you? I'm a Westchester guy, but listen,
• 1:10:53
  Speaker 1: driving down to Orchard Beach from Lower Westchester is an
• 1:10:56
  Speaker 1: easy thing to do, very easy. Thing to do that.
• 1:10:59
  Speaker 1: That's pretty uh, that's pretty interesting. Um, so you've been
• 1:11:03
  Speaker 1: mentored along in your career. What sort of advice would
• 1:11:06
  Speaker 1: you give a recent college grad or a millennial who
• 1:11:10
  Speaker 1: was just starting their career and said, Hey, John, I'm
• 1:11:13
  Speaker 1: thinking about going into technicals. What what would you say
• 1:11:16
  Speaker 1: to them? I'd offer no advice, but I'd offer some suggestions. Okay,
• 1:11:20
  Speaker 1: I'd say, listen intensely, h ask a ton of questions,
• 1:11:26
  Speaker 1: and read everything you can, everything and anything. Listen intensely,
• 1:11:32
  Speaker 1: ask lots of questions, and read just about anything you can,
• 1:11:36
  Speaker 1: not only finance, because I think sometimes your best thinking
• 1:11:39
  Speaker 1: about finance is when you're not thinking about finance. It
• 1:11:43
  Speaker 1: could because you're reading a biography about Billy Martin. It
• 1:11:46
  Speaker 1: could be because you're reading about the Comanches, an empire,
• 1:11:49
  Speaker 1: the Summer Moon. It could be because you're reading Lonesome
• 1:11:52
  Speaker 1: Dub by Larry McMurtry. I don't know, but I think
• 1:11:54
  Speaker 1: you should read as much as you can. That that
• 1:11:56
  Speaker 1: is not an uncommon theme. A number of people who
• 1:11:59
  Speaker 1: have paid through these doors, billionaires, fund managers, Nobel Prize winners,
• 1:12:05
  Speaker 1: have all said the same thing that the two themes
• 1:12:08
  Speaker 1: that come up over and over again reading and you
• 1:12:11
  Speaker 1: gotta you gotta be in a position to get lucky,
• 1:12:13
  Speaker 1: because a little luck goes a long way. And our
• 1:12:16
  Speaker 1: last question, what is it that you know about investing
• 1:12:20
  Speaker 1: in technicals today that you wish you knew years ago? Everything?
• 1:12:25
  Speaker 1: I mean, I wish I knew everything then that I
• 1:12:28
  Speaker 1: know now, and I haven't learned anything I think in
• 1:12:30
  Speaker 1: the last ten years. Why say that again, because I
• 1:12:33
  Speaker 1: think I wish I knew then what I know now.
• 1:12:37
  Speaker 1: But I feel like, even though I've picked up a
• 1:12:39
  Speaker 1: lot in the last ten years, there's still so much
• 1:12:41
  Speaker 1: to learn. And I think every single day you go
• 1:12:44
  Speaker 1: to work, you know, juiced, not only because you want
• 1:12:47
  Speaker 1: to win, but because it's a learning environment. It's an
• 1:12:50
  Speaker 1: active learning environment, and I think that's a lucky environment
• 1:12:53
  Speaker 1: to be in. That that's a really interest answer, John,
• 1:12:57
  Speaker 1: Thank you so much for being so generous with your
• 1:13:00
  Speaker 1: I'm we have been speaking with John Roque. He is
• 1:13:03
  Speaker 1: managing director and technical analyst at Key Square Capital Partners
• 1:13:08
  Speaker 1: is Apple Management key Square Capital Management. If you enjoy
• 1:13:12
  Speaker 1: this conversation, be sure and look up an inch or
• 1:13:14
  Speaker 1: down an inch on Apple iTunes and you could see
• 1:13:17
  Speaker 1: any of the other hundred and let's call it twelve
• 1:13:21
  Speaker 1: previous podcasts we've done. We enjoy your comments and feedback.
• 1:13:26
  Speaker 1: Be sure to write to us at m IB podcast
• 1:13:30
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• 1:13:33
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• 1:13:42
  Speaker 1: research for US. I'm Barry Ridults. You've been listening to
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