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Peter Borish on Lessons From the 1987 Market Crash · Masters in Business

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  Speaker 1: This is Master's in Business with Barry Ridholds on Bloomberg Radio.
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  Speaker 2: This week on the podcast, Oh, I have an extra
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  Speaker 2: special guest, Peter Borsch, founding partner number two at Tutor Investments,
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  Speaker 2: where he worked directly with Pull Tutor Jones, most famously
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  Speaker 2: helping him put on a very aggressive short position heading
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  Speaker 2: into the eighty seven crash and then covering not in
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  Speaker 2: the mayhem of that Monday, but pretty close to the
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  Speaker 2: bottom tick on Tuesday. Really just a fascinating career, a
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  Speaker 2: unique perspective on markets. Not only did he serve on
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  Speaker 2: the Brady Commission looking at the eighty seven crash, but
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  Speaker 2: his history of investing, in trading and public service both
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  Speaker 2: at the FED and the Chicago Board of Trade and
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  Speaker 2: Treasury Department really unparallel, as well as just a pretty
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  Speaker 2: amazing track record as an investor and trader and as
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  Speaker 2: a philanthropist, one of the co founding trustees at Robin Hood.
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  Speaker 2: Really a fascinating character. I found this to be a
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  Speaker 2: master class in a humble approach to markets and being
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  Speaker 2: aware of your own limitations in order to obtain the
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  Speaker 2: best possible results as a trader and investor. Borish is
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  Speaker 2: a legend on Wall Street, and I'm thrilled to have
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  Speaker 2: the opportunity to sit down with him and discuss his
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  Speaker 2: career and his just approach to investing and trading and philanthropy. So,
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  Speaker 2: with no further ado, my conversation with former director of
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  Speaker 2: research at Tutor Investments.
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  Speaker 3: Peter Borish, thank you so much. It just goes to
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  Speaker 3: show I can't hold a job.
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  Speaker 2: That's right. That's right. You are constantly onto the next gig.
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  Speaker 2: So I'm familiar with your work, but I bet a
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  Speaker 2: lot of younger listeners may not know of your infamy
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  Speaker 2: and what took place at the eighty seven crash. We'll
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  Speaker 2: get to that. Let's start out with just your background.
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  Speaker 2: What got you interested in markets and trade?
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  Speaker 1: Well, I guess it's sort of fortuitous.
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  Speaker 3: So when I finished graduate school, I always begin at Michigan,
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  Speaker 3: because I'm a Michigan man. I went there for undergraduate
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  Speaker 3: and graduate school, and I finished graduate school in eighty
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  Speaker 3: two in what was really the real recession under President Reagan,
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  Speaker 3: and I was very fortunate to get a job at
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  Speaker 3: the Federal Reserve Bank of New York doing what so
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  Speaker 3: I was doing at that point. If you recall, it
• 2:44
  Speaker 3: was the LDC right the Mexican crisis, and they were
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  Speaker 3: talking about, well, if Mexico increases a supply of oil,
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  Speaker 3: will get a lot more revenue. I, being stupid, raised
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  Speaker 3: my hand and said, yeah, but if they increased the supply,
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  Speaker 3: isn't that got to put down with pressure on prices?
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  Speaker 3: And they're kind of like, you know, you should be
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  Speaker 3: sort of thinking about research macroeconomic models. And that's really
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  Speaker 3: where it went. And at that point, foreign exchange and
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  Speaker 3: futures and derivatives were just starting. Nineteen eighty two was
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  Speaker 3: a year that SMP futures started. So I went down
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  Speaker 3: into that group and did some research, and being a
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  Speaker 3: little gearheady, I worked on the sort of internal Black
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  Speaker 3: Scholes model for the FED. And that's how I got
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  Speaker 3: fortunate and started my career. As I say, Wall Street
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  Speaker 3: is littered with former FED people, that's a good.
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  Speaker 2: Way of describing it. Littered with former FED people because
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  Speaker 2: the FED is a giant employer of economists and other
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  Speaker 2: technical researchers, and very often they leave the FED and
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  Speaker 2: go to big shops. You didn't go that way after
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  Speaker 2: you left the FED. Tell us about your next career move.
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  Speaker 3: So it's nineteen eighty five. I've been there three years.
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  Speaker 3: It's about the time you start looking for a job.
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  Speaker 3: And I had some job offers from, you know, sort
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  Speaker 3: of white shoe Wall Street firms, and then through a acquaintance,
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  Speaker 3: I met this guy that was coming off the Cotton
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  Speaker 3: Exchange by the name of Paul Tudor Jones, and he
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  Speaker 3: asked me to help him out because he was chairman
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  Speaker 3: of the Financial Exchange, of the subsidiary of the New
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  Speaker 3: York Cotton Exchange, and they wanted to start trading some
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  Speaker 3: futures contracts. And I'm like, look, I'm young, I'm single,
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  Speaker 3: what a dynamic personality, great person. I'm going to give
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  Speaker 3: it a shot. And that's how I started out at Tutor.
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  Speaker 2: So Tutor Investments launches eighty five.
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  Speaker 3: Eighty all started in September of eighty four. I came
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  Speaker 3: on in the beginning of eighty.
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  Speaker 2: So literally number two at the firm is is that what?
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  Speaker 3: Well, there were people and support staff, but sort of
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  Speaker 3: I was the first real sort of research professional.
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  Speaker 2: So tell us a little bit about what you guys
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  Speaker 2: were doing in eighty six eighty seven, what were you
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  Speaker 2: trading and what was he looking at?
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  Speaker 3: So one of the geniuses of Paul, and really understanding
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  Speaker 3: futures markets in general is that most of the innovative
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  Speaker 3: risk management approaches came out of the futures markets because
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  Speaker 3: of the embedded leverage using margin.
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  Speaker 2: There's no room for error. You can't just let's see
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  Speaker 2: if it comes back. It's not how you can trade futures.
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  Speaker 1: No, not at all.
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  Speaker 3: And so with the advent and the development and the
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  Speaker 3: starting of new financial futures markets, he was taking his technique,
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  Speaker 3: his approach, his discipline and applying that to the new
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  Speaker 3: futures markets and his commitment. And this I think people
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  Speaker 3: have to realize because what one can do today, right,
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  Speaker 3: I have the FRED app on my phone. I can
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  Speaker 3: download massive amounts of data in hundreds of a second. Right,
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  Speaker 3: You couldn't do that there. And he had a huge
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  Speaker 3: commitment through me for data. We would hire summer interns
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  Speaker 3: to put data into spreadsheets, build models, work he was
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  Speaker 3: willing to and literally on the weekends we would be
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  Speaker 3: on our hands and knees taking out floppy drives, putting
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  Speaker 3: in hard drives, updating computers, and we were applying all
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  Speaker 3: that to the new markets with the discipline and approach
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  Speaker 3: that he had towards trading.
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  Speaker 2: So that's an interesting difference about pul Tudor Jones regarding
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  Speaker 2: his process. Very quantitative driven, very mathematical, But there's another
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  Speaker 2: side to his approach, which was way ahead of its time,
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  Speaker 2: very behavioral. Tell us a little bit about the psychological
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  Speaker 2: approaches that he brought to both looking at markets but
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  Speaker 2: also managing himself.
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  Speaker 3: So the strength of Paul at that time and even
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  Speaker 3: today still is that because he had always traded on
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  Speaker 3: the floor and understood that most market moves come in
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  Speaker 3: extremes fairly quickly. Market spent a lot of time doing
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  Speaker 3: nothing and then they reprice. So you have to have
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  Speaker 3: that discipline, you have to have that patience, and if
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  Speaker 3: you think it's going to be an acceleration point, then
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  Speaker 3: you try to get larger, but you have to have
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  Speaker 3: a really tight stop. It's such a contradictory approach because
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  Speaker 3: people want to be right all the time, and the
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  Speaker 3: way that you probe and trade is understanding that that's
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  Speaker 3: not the case. And he would always say, Okay, they
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  Speaker 3: got me today, but I'm going to get him back
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  Speaker 3: with one hundred percent interest.
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  Speaker 2: So people also should realize, for those of you who've
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  Speaker 2: never traded futures, It's not like options where essentially you
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  Speaker 2: could put up your losses in advance and all they
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  Speaker 2: could do is go to zero options. You're on the
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  Speaker 2: hook no matter where it goes. It's not like it's
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  Speaker 2: not like, well, we'll just see how this trades. If
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  Speaker 2: it keeps going against you, you're fully responsible, and hence
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  Speaker 2: the commitment to tightstop losses and a discipline approach to
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  Speaker 2: managing the downside.
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  Speaker 3: Yes, and the thing about futures is you must maintain
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  Speaker 3: your discipline. One of the problems I think with rookie
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  Speaker 3: options traders is that because if you're buying them, all
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  Speaker 3: you can do is lose your premium. So if you
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  Speaker 3: have a belief in the market and you buy your
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  Speaker 3: premium and then it starts to go against you, you go, well,
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  Speaker 3: I still believe in it, and I still have premium left.
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  Speaker 3: So a lot of times when you're doing that, you
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  Speaker 3: put the trade on and you're meant to accepting the
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  Speaker 3: fact that you're going to lose all your premium, put
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  Speaker 3: up your losses in it, and in the future's world
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  Speaker 3: that you don't do you don't. You can't lose your
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  Speaker 3: discipline because the market will discipline you regardless.
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  Speaker 2: Yeah, no, it makes it makes a lot of sense.
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  Speaker 2: So you've said, and as long as we're talking about
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  Speaker 2: discipline and management of trades, one of your quotes that
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  Speaker 2: I really like is trading and risk management are inherently
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  Speaker 2: unnatural characteristics. Explain what that means with pleasure.
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  Speaker 3: So, first of all, we always said discipline before vision,
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  Speaker 3: and by that it means we can talk and I
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  Speaker 3: can think, and we can gossip and the market's going here.
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  Speaker 3: You know, it's kind of like gossiping about sports. That's
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  Speaker 3: not really trading. It's a discipline, rigorous approach. And so
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  Speaker 3: when I say it's an unnatural feeling, is because we all,
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  Speaker 3: most of us I'm used to it by now, want
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  Speaker 3: to be liked, and so you want to be there going,
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  Speaker 3: oh you're long apple, I'm long apple. Oh we're all
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  Speaker 3: so smart. But you have to have that discipline to say,
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  Speaker 3: wait a second, it's over the move, is there? So
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  Speaker 3: think about it this way. You've got one hundred people
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  Speaker 3: in a subway car who are all along something. If
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  Speaker 3: I get out and go into the other car where
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  Speaker 3: I'm on the short side, I'm the one person in there.
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  Speaker 3: If I'm disciplined and.
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  Speaker 1: I get stopped out.
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  Speaker 3: You can always squeeze one more back in the subway car.
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  Speaker 3: But when it turns if I'm the only one there
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  Speaker 3: and they all come running out, that's why markets go
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  Speaker 3: down faster than they go up. So it has to
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  Speaker 3: be in a logical sense, the ability to take the
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  Speaker 3: other side of the trade. Now, that doesn't mean you
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  Speaker 3: should be contrarian for contrarian's sake. And that's the difference
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  Speaker 3: in all these different approaches. So there's the trend following,
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  Speaker 3: which is go with the trend. There's the wave strategy,
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  Speaker 3: WHI says we're going to try to find inflection point here.
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  Speaker 3: They're all good strategies, but if you don't have a
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  Speaker 3: disciplined risk management on top of it, you're not going
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  Speaker 3: to make money.
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  Speaker 2: The challenge is the crowd is right most of the time.
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  Speaker 2: If you want to be a contrayon, you have to
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  Speaker 2: capture that two three four percent where the whole crowd
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  Speaker 2: is wrong and get out before everybody heads for the doors.
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  Speaker 3: Yes, you have to be very mindful of inflection points.
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  Speaker 3: And I go through this all the time. People are like, oh,
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  Speaker 3: you know, the market goes up over time and it's
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  Speaker 3: a straight line.
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  Speaker 2: And that's the trading that's investing.
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  Speaker 3: Yes, But even then, and I asked people, I said, well,
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  Speaker 3: you know, you think I look any older today than
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  Speaker 3: I did yesterday?
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  Speaker 1: And they go no.
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  Speaker 3: I go, well, you think I'm going to look any
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  Speaker 3: older tomorrow than I did today?
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  Speaker 1: And they go no. I go great, two points a line.
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  Speaker 3: I'm never going to get old, which is fantastic.
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  Speaker 2: So let's talk a little bit about eighty seven. Market
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  Speaker 2: had a huge run from eighty two through the beginning
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  Speaker 2: of eighty seven. Tell us a little bit of how
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  Speaker 2: you guys were positions heading into that year.
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  Speaker 3: Let's step back for a second, because nothing markets don't
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  Speaker 3: go up in a straight line, right they think about Yes,
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  Speaker 3: the low was in August of eighty two, but there
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  Speaker 3: was a serious correction in eighty four and then even
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  Speaker 3: in nineteen eighty six, there were some really harrowing corrections,
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  Speaker 3: particularly after July fourth, eighty six and the September expiration
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  Speaker 3: of eighty six. So it was really January of eighty
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  Speaker 3: seven when it started to take off. In that first
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  Speaker 3: part of the year.
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  Speaker 2: Now upwards like a strong rally.
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  Speaker 3: An incredibly strong rally. I think by the time we
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  Speaker 3: got to the high in August, right, it was up
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  Speaker 3: over thirty percent on the year. And again going back
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  Speaker 3: to what I just said earlier, Paul gave me the
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  Speaker 3: opportunity to take my sort of creative research imagination and
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  Speaker 3: spend it on some data. And we started being very
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  Speaker 3: early on collecting real time data and also modeling. And
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  Speaker 3: I mentioned that we hired people, so we took people.
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  Speaker 3: And back then there was a book right the Now
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  Speaker 3: from eighteen ninety seven to present, and we had to
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  Speaker 3: type that data in the spreadsheet.
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  Speaker 2: It was very complicating it but well there.
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  Speaker 3: Was You couldn't download it, and you had to check it,
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  Speaker 3: and of course when people are putting in a lot
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  Speaker 3: of numbers, there's typo, so you had to have charts
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  Speaker 3: just to see all those different things. And we started
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  Speaker 3: modeling and thinking given where we were with the new
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  Speaker 3: financial futures markets, and if you think about financial futures
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  Speaker 3: in general or new markets, we always sort of think
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  Speaker 3: about it as if you have a kid and they're
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  Speaker 3: five years six years old. You think you could talk
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  Speaker 3: to them. You can think they're rational, but they're not,
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  Speaker 3: and they do throw tantrums. And that's happened a lot
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  Speaker 3: in derivatives by the time you got to eighty seven,
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  Speaker 3: right the futures were five years old. People thought there
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  Speaker 3: was going to be portfolio insurance, that there's going to
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  Speaker 3: be this massive always liquidity, that you could stay longer
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  Speaker 3: stocks and that you could sell futures against it, and
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  Speaker 3: there was this assumption of continuity of liquidity. So at
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  Speaker 3: the same time, we understand that there's potential technical flaws
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  Speaker 3: underneath the model, underneath the markets, and we're building this
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  Speaker 3: model which is really tracking what happened from the low
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  Speaker 3: of twenty one, which we corresponded sort of to the
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  Speaker 3: low of eighty two, and what was going to happen.
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  Speaker 3: And when I first built this model, I really thought
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  Speaker 3: that the top was going to occur in early eighty
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  Speaker 3: eight rather than August, and the secondary top in October
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  Speaker 3: of eighty seven. But then the technicals came together with
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  Speaker 3: the fundamentals, and Paul, being the great tradery was really
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  Speaker 3: had the opportunity to take advantage of that.
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  Speaker 2: So before we get to Black Monday, around what time
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  Speaker 2: of the year did you start seeing cracks in the
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  Speaker 2: underlying market? At what point were you looking at this
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  Speaker 2: and saying, hey, we have you know, some time to go,
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  Speaker 2: but you could see the beginning of the end was coming.
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  Speaker 3: Up when the market started to pull back in August
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  Speaker 3: and into September expiration. Remember back then there was only
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  Speaker 3: quarterly expirations, so there was a lot more activity around
• 15:41
  Speaker 3: that and when we saw and part of research is
• 15:45
  Speaker 3: being able to replicate things. So you had always you
• 15:49
  Speaker 3: had holidays, and you see that, so you had labor day,
• 15:51
  Speaker 3: you had three day a weekend, so you could line
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  Speaker 3: these things up in terms of price activity, volume, and
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  Speaker 3: the likely And if you go back to the twenty
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  Speaker 3: nine scenario, you also saw what happened post labor Day.
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  Speaker 3: Right the top was September third, twenty nine. Then you
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  Speaker 3: had the correction, then you had the rally. So would
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  Speaker 3: you sort of had the technical lining up with the
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  Speaker 3: fundamentals because of the issues that were taking place globally
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  Speaker 3: at that time. And at the same time, believe it
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  Speaker 3: or not, we had a new chairperson in Greenspan at
• 16:30
  Speaker 3: the FED that had just come in. So here's a rookie.
• 16:35
  Speaker 3: Now you had Volker prior and as I like to say,
• 16:39
  Speaker 3: you know, young guys have all the moves, but old
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  Speaker 3: guys win championships. And so he was in the sense
• 16:45
  Speaker 3: challenged what to do with regard to that, and that
• 16:51
  Speaker 3: was something that we thought post crash, that he was
• 16:55
  Speaker 3: going to be very aggressive in reducing interest rates, which
• 16:58
  Speaker 3: he did.
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  Speaker 2: Well, let's roll back pre crap. So Friday before Black Monday,
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  Speaker 2: how were you positioned? How was Tutor Investment's position heading
• 17:07
  Speaker 2: into that weekend?
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  Speaker 3: So the analog really like, was you know, ringing a
• 17:15
  Speaker 3: red red bell sort of on that Wednesday, right, there
• 17:19
  Speaker 3: was a decline, you got to technical levels, you had
• 17:21
  Speaker 3: a bounce and then and then you failed a.
• 17:24
  Speaker 2: Week bounce that just had no nothing behind it, right.
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  Speaker 3: And then on that Friday, we felt that it was
• 17:31
  Speaker 3: there and and we were short.
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  Speaker 2: A little short, a lot short.
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  Speaker 1: Well, I think.
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  Speaker 3: People have to give perspective. Remember we at that time
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  Speaker 3: were not a particularly large firm, so for us.
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  Speaker 1: We were large short. Uh.
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  Speaker 3: And then over the weekend, with the news that was
• 17:53
  Speaker 3: taking place and also the fact of the sentiment, there
• 17:55
  Speaker 3: were still people that were very sort of bullish and
• 17:58
  Speaker 3: people that felt that they could be protected. And this
• 18:02
  Speaker 3: is where most of these models, right, assume consistency twenty
• 18:07
  Speaker 3: four hour trading, you're gonna be okay, and you can
• 18:10
  Speaker 3: even go to ninety eight right with long term capital
• 18:13
  Speaker 3: where that was also part of their problem. But on
• 18:17
  Speaker 3: weekends that's not the case. So you had a gap situation.
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  Speaker 2: Monday morning market gaps down pretty substantially. There's no bids
• 18:27
  Speaker 2: to be found. There, can't get people on the phone
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  Speaker 2: tell us what that day was like as an actual
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  Speaker 2: trader short a collapsing market.
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  Speaker 3: So, you know, it's a very very interesting perspective because
• 18:44
  Speaker 3: when you think about it, and it's also one of
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  Speaker 3: the advantages of why I say that it's so important
• 18:51
  Speaker 3: to have all these different markets. When you're short something
• 18:54
  Speaker 3: and it goes down, you're a natural buyer, right, So
• 18:59
  Speaker 3: people think shorts are bad.
• 19:00
  Speaker 2: No, they're good throws buyers in any crisis.
• 19:03
  Speaker 1: Yes, yes.
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  Speaker 3: And so then the question is, and as I like
• 19:08
  Speaker 3: to say, here's my definition of a quandary. Do you
• 19:12
  Speaker 3: stay out of a market and watch everyone else make
• 19:16
  Speaker 3: money or get in and thereby cause it to immediately crash.
• 19:21
  Speaker 2: So but you were on the right side.
• 19:23
  Speaker 1: We were on the right side.
• 19:24
  Speaker 3: So there are a lot of people there that are
• 19:26
  Speaker 3: in that quandary position because the market had been so
• 19:29
  Speaker 3: strong and without discipline. The irony of markets as buyers
• 19:34
  Speaker 3: are higher, sellers are lower, right, everybody loved bitcoin at
• 19:37
  Speaker 3: sixty thousand, they all hate it at twenty.
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  Speaker 2: You know, that's just that's human nature.
• 19:42
  Speaker 3: Yes, so in this case, they didn't know what to do,
• 19:45
  Speaker 3: but then panic sets in and they were selling. So
• 19:49
  Speaker 3: we learned from our experience.
• 19:51
  Speaker 2: Tell us about that, because I recall you saying that
• 19:55
  Speaker 2: historically when you've looked at other crashes and the best
• 19:59
  Speaker 2: opportunity to is not the day of the crash, but
• 20:02
  Speaker 2: the next day, tell us that game.
• 20:04
  Speaker 3: That's correct, because when I mentioned earlier about nineteen eighty
• 20:08
  Speaker 3: six and July, in September, we were short actually, and
• 20:13
  Speaker 3: then we covered on that Monday, and the market continued
• 20:16
  Speaker 3: to go down until midday Tuesday. It also did that
• 20:20
  Speaker 3: in September. I think it was September thirteenth. It's a
• 20:22
  Speaker 3: long time.
• 20:23
  Speaker 2: So, but generally speaking, the bad day and people the
• 20:27
  Speaker 2: next day in the morning like just let me yes.
• 20:30
  Speaker 3: And that's changed a little bit now because of twenty
• 20:32
  Speaker 3: four hour trading, and so sometimes the extreme you do
• 20:36
  Speaker 3: close on the low and extreme and there isn't that
• 20:38
  Speaker 3: much follow through the next day, but then there was
• 20:40
  Speaker 3: definitely follow through.
• 20:41
  Speaker 1: So we waited and we were.
• 20:43
  Speaker 3: Patient, and we were one of the buyers on that
• 20:48
  Speaker 3: Tuesday the twentieth, and so we performed a function. I
• 20:54
  Speaker 3: think that exactly what you want in the marketplace, right
• 20:57
  Speaker 3: shorts were covering, were being buyers. I'd like to think
• 21:02
  Speaker 3: that knock on would that maybe you know, some of
• 21:04
  Speaker 3: our buying helped.
• 21:05
  Speaker 1: Put in the low. But what we really did that it.
• 21:08
  Speaker 3: Wasn't just stock index futures. We felt and that the
• 21:13
  Speaker 3: FED and undergreen Span was going to be massively cutting
• 21:16
  Speaker 3: interest rates. Remember the tenure today is what three seventy
• 21:20
  Speaker 3: three seventy just un before yep, and back then it
• 21:23
  Speaker 3: was well over six. I think it was closer to seven,
• 21:26
  Speaker 3: and that historically you know, by the way has thrown
• 21:29
  Speaker 3: in the market today, I think the risk rewards we're
• 21:31
  Speaker 3: going more likely to there then back down to where
• 21:34
  Speaker 3: we are.
• 21:34
  Speaker 2: You're not buying it. We'll talk later about yes, everybody
• 21:37
  Speaker 2: predicting lower rates, We'll circle back to that. But not
• 21:41
  Speaker 2: only were you short equities, what was your income position.
• 21:45
  Speaker 3: We started buying a lot of fixed income futures all
• 21:50
  Speaker 3: across the curve, and particularly at that point one of
• 21:53
  Speaker 3: the most liquid markets was the year dollar futures, and
• 21:56
  Speaker 3: we felt that the FED was going to provide liquidity,
• 21:59
  Speaker 3: which they needed to do, and they did do. And
• 22:03
  Speaker 3: the irony of that whole situation is it was after
• 22:06
  Speaker 3: that crash that we started the Robin Hood Foundation, thinking
• 22:10
  Speaker 3: that the you know, those who were less fortunate in
• 22:13
  Speaker 3: New York were really going to be affected by the
• 22:17
  Speaker 3: downturn in the markets. But the Fed, Yes, the Fed
• 22:21
  Speaker 3: stepped in. They provided liquidity the market. The economy wasn't
• 22:26
  Speaker 3: as dependent on the equity markets as necessarily as it
• 22:30
  Speaker 3: is today as we saw a post or eight, and
• 22:33
  Speaker 3: who knows what's going to happen now.
• 22:35
  Speaker 2: So for those people who may not have seen it,
• 22:39
  Speaker 2: there is a famous documentary I believe it's called The
• 22:43
  Speaker 2: Trader that follows pull Tudor Jones around. If you haven't
• 22:48
  Speaker 2: seen it, it's on YouTube and vimeo and elsewhere. How
• 22:52
  Speaker 2: did he manage the chaos of eighty seven? What was
• 22:56
  Speaker 2: his day like?
• 22:59
  Speaker 3: Well, it was a life changing day really for both
• 23:03
  Speaker 3: of us. And you know, there are good people and
• 23:09
  Speaker 3: there are great people, and Paul is one of the
• 23:12
  Speaker 3: great people in my mind, not just as a trader
• 23:16
  Speaker 3: but as an individual. And why you're so committed to
• 23:18
  Speaker 3: New York City and philanthropy so there's always a little
• 23:24
  Speaker 3: bit of sadness in the sense that when you are
• 23:29
  Speaker 3: short something and it goes down and there are a
• 23:31
  Speaker 3: lot of other people that may be getting hurt. So
• 23:35
  Speaker 3: that's one reason as well. Do you go in and
• 23:39
  Speaker 3: you intellectually think, okay, yeah, maybe we're going to crash
• 23:42
  Speaker 3: and we're going to do something, but emotionally you're like, wow,
• 23:47
  Speaker 3: at some point, that's it. We don't want we're not
• 23:50
  Speaker 3: going to benefit, we don't want to participate. We are
• 23:52
  Speaker 3: not going to be short anything more. After that next day,
• 23:57
  Speaker 3: we're going to wait, we're gonna see and we want
• 23:59
  Speaker 3: to the supportive of the markets and the economic system.
• 24:05
  Speaker 3: And to me, again, we're relatively young, and Paul's five
• 24:09
  Speaker 3: years older than I am. But you know, that's a
• 24:13
  Speaker 3: lot of wisdom and that's something I learned from that for.
• 24:16
  Speaker 2: A thirty year old and for those people who weren't
• 24:20
  Speaker 2: actively trading in eighty seven, the irony is so not
• 24:23
  Speaker 2: only is Black Monday down twenty two percent and change
• 24:27
  Speaker 2: on the Dow, markets finished the year, you know, flat
• 24:30
  Speaker 2: to up one percent. It wasn't a horrible year considering
• 24:34
  Speaker 2: and eighty eight things just kind of took off again.
• 24:39
  Speaker 2: Turns out we were early days of a long bull market.
• 24:44
  Speaker 2: And you've talked that very often. You get that test
• 24:48
  Speaker 2: early in a long secular bull phase. Tell us a
• 24:52
  Speaker 2: little bit about what the thinking was going to be
• 24:56
  Speaker 2: post eighty seven crash, what it looked like a decade out.
• 25:00
  Speaker 3: Well, there was one of the best divergences technical buys
• 25:06
  Speaker 3: in nineteen eighty eight. I think maybe the S and
• 25:12
  Speaker 3: P made new lows or the Dow or the Dow
• 25:14
  Speaker 3: transports and it was unconfirmed, and sentiment was so negative.
• 25:21
  Speaker 3: And this is where you have to be flexible as
• 25:24
  Speaker 3: a trader, because you're like, Okay, the world is coming
• 25:28
  Speaker 3: to an end. And then I think we realized early
• 25:30
  Speaker 3: on that it's probably not coming to an end, or
• 25:35
  Speaker 3: at least not today. And so now you have to
• 25:39
  Speaker 3: look for your opportunities because remember you're managing other people's money.
• 25:43
  Speaker 1: You got to get rid of your own opinion.
• 25:45
  Speaker 3: Get you shake your head out of that you sort
• 25:47
  Speaker 3: of intellectual fog that you're in, and say, here's what
• 25:50
  Speaker 3: the markets are telling me. I need to listen to
• 25:54
  Speaker 3: the markets. And that was nineteen eighty eight and when
• 25:59
  Speaker 3: it really took off. And if you if you think
• 26:03
  Speaker 3: about you know, cycles and period and going into ninety
• 26:08
  Speaker 3: one with what happened in Iraq under Bush one and
• 26:15
  Speaker 3: again the same thing, Oh my god. And and that
• 26:19
  Speaker 3: was also a very interesting lesson because that was the
• 26:23
  Speaker 3: first time in history we had a pre announced date
• 26:26
  Speaker 3: to start a war. So now what do you do
• 26:28
  Speaker 3: with risk management? Right, you've got models, do you trade
• 26:32
  Speaker 3: through it? Do you not think it's going to happen?
• 26:34
  Speaker 3: Do you not have risk on going into that?
• 26:36
  Speaker 2: You're talking about Bush two and the Iraq war in
• 26:39
  Speaker 2: three one, So there was a deadline.
• 26:43
  Speaker 3: And right, and then they he went in and the
• 26:46
  Speaker 3: markets took off after that.
• 26:50
  Speaker 1: You know, there's a lot of.
• 26:53
  Speaker 3: Good supportive you know, material fundamentally technically around that time,
• 27:01
  Speaker 3: because you were still recovering from the eighty seven and
• 27:06
  Speaker 3: people tend to remember the last thing that happened to them.
• 27:10
  Speaker 3: So they're always afraid because they think that the market's
• 27:13
  Speaker 3: going to go down, just as now they're afraid they're
• 27:15
  Speaker 3: going to miss out because the market was up. And
• 27:19
  Speaker 3: I'm not so sure that they should be afraid of
• 27:22
  Speaker 3: missing out.
• 27:23
  Speaker 2: Let's stick with eighty seven. We'll circle back to today's market later,
• 27:26
  Speaker 2: So post more TOM eighty seven you get tapped by
• 27:29
  Speaker 2: the Treasury Department to serve on the US Presidential Task
• 27:33
  Speaker 2: Force on Market Mechanisms head by Brady. It became them
• 27:38
  Speaker 2: as a Brady Commission. What did you find? What was
• 27:41
  Speaker 2: the process like of looking at what caused the eighty
• 27:44
  Speaker 2: seven crash?
• 27:46
  Speaker 3: So, first of all, it was an honor, and of
• 27:48
  Speaker 3: course I was the youngest person there, and I'm still
• 27:50
  Speaker 3: friends with the number of the people that were staffers.
• 27:53
  Speaker 3: But I can just tell you in summary that we
• 27:57
  Speaker 3: Tutor were so far ahead of every other firm on
• 28:00
  Speaker 3: Wall Street we didn't even know. But all the data
• 28:03
  Speaker 3: in the report right there's a chapter on the market break.
• 28:06
  Speaker 3: All that data came from us. None of the other
• 28:08
  Speaker 3: firms had it, whether it was JP, Goldman, m Mess,
• 28:12
  Speaker 3: bear Stearns, you name it. And that's a credit to Paul,
• 28:15
  Speaker 3: as I said, the ability to not only want to
• 28:19
  Speaker 3: do it, but also to spend the capital to invest
• 28:23
  Speaker 3: in data in computing at that time.
• 28:26
  Speaker 1: And the real conclusion.
• 28:28
  Speaker 3: Of that is where we are today, that all these
• 28:30
  Speaker 3: markets are linked. You know, New York wanted to blame Chicago.
• 28:34
  Speaker 3: There was the options markets and they all were sort
• 28:37
  Speaker 3: of disconnected. And that's where the joint task force with
• 28:40
  Speaker 3: the Treasury, the CFTC.
• 28:42
  Speaker 1: And the SEC.
• 28:43
  Speaker 3: And that was also where we put in the circuit breakers,
• 28:47
  Speaker 3: you know, sort of price limits. There was no price
• 28:49
  Speaker 3: limits in eighty seven, so that.
• 28:51
  Speaker 2: When stuff falls, hey, down twenty two percent, that's just
• 28:54
  Speaker 2: the market. Now, what is it seven percent?
• 28:56
  Speaker 3: Yes, there's a three and a half. I think a
• 28:58
  Speaker 3: seven and a fifteen. And the point is there's a
• 29:02
  Speaker 3: timeout because we just mentioned a moment ago about emotion
• 29:05
  Speaker 3: in markets, and you need to step back, and futures
• 29:09
  Speaker 3: markets have always had price limits from.
• 29:12
  Speaker 2: The lost limit down, that's what.
• 29:13
  Speaker 1: We can do.
• 29:14
  Speaker 3: And by the way, sometimes in the short run, right
• 29:19
  Speaker 3: that limit becomes a little bit of a magnet because
• 29:22
  Speaker 3: if the limit and storybeans is thirty five cents and
• 29:24
  Speaker 3: you're down thirty three, do you really want to take
• 29:27
  Speaker 3: a long position home overnight?
• 29:29
  Speaker 2: So you might do it.
• 29:30
  Speaker 3: But now you sit back and you have in the
• 29:32
  Speaker 3: case of the equities, it's just a timeout.
• 29:35
  Speaker 1: Let's get it together.
• 29:37
  Speaker 3: Let's see what's happening there, market makers. And it's been
• 29:41
  Speaker 3: knock on wood effective right even in eight where you
• 29:47
  Speaker 3: reach that.
• 29:49
  Speaker 2: Well, the flash crash in twenty ten and twenty eleven,
• 29:51
  Speaker 2: we had those.
• 29:52
  Speaker 3: Yes, so we time out, we bounced, and now, of
• 29:56
  Speaker 3: course I look at some of those things, and I
• 29:58
  Speaker 3: look at the data as potential interesting technical indicators.
• 30:02
  Speaker 1: But that's for another day.
• 30:04
  Speaker 2: So let's stay with the concept of interrelated markets. I
• 30:09
  Speaker 2: recall reading Tim Metz's book Black Monday, and he talked
• 30:14
  Speaker 2: about how I think it was the New York Stock
• 30:17
  Speaker 2: Exchange put the Chicago Futures Index up on the wall
• 30:23
  Speaker 2: so traders could actually see what was going on in
• 30:28
  Speaker 2: index futures, and it took a while before people realized
• 30:32
  Speaker 2: all the specialists were lowering their bids because they were
• 30:36
  Speaker 2: looking at the index futures. How interrelated are all of
• 30:41
  Speaker 2: these markets.
• 30:43
  Speaker 3: They're completely interrelated because the key for liquidity is the
• 30:47
  Speaker 3: ability to arbitrage. And you had risk managers, so this
• 30:51
  Speaker 3: S and P five hundred stocks, or at that time
• 30:54
  Speaker 3: you had a smaller index, which was about twenty eight
• 30:58
  Speaker 3: of the Dow contract, and so you could buy all
• 31:02
  Speaker 3: the underlying you could sell the futures or vice versa,
• 31:06
  Speaker 3: or you could spin it any way you wanted. If
• 31:09
  Speaker 3: you liked twenty seven of them, you could do that
• 31:12
  Speaker 3: and sell the futures and be implicitly short the one instrument.
• 31:15
  Speaker 1: That's not there.
• 31:17
  Speaker 3: So this stuff is all linked and that is important
• 31:21
  Speaker 3: because to have a successful market you need investors, You
• 31:25
  Speaker 3: need speculators. Of course, you need natural buyers and hedgers,
• 31:29
  Speaker 3: but you need market makers and arbitragers to tighten the
• 31:33
  Speaker 3: market up so that there's plenty of liquidity on both
• 31:36
  Speaker 3: sides of it.
• 31:37
  Speaker 2: So you mentioned a lot of the changes that were
• 31:40
  Speaker 2: put in place post eighty seven. We're still enjoying that.
• 31:46
  Speaker 2: What was the fallout from eight oh nine. Are we
• 31:49
  Speaker 2: still dealing with the aftershocks of that event? I mean,
• 31:53
  Speaker 2: obviously twenty twenty and twenty one and twenty two we're
• 31:57
  Speaker 2: still in the midst of But is there still an
• 32:01
  Speaker 2: echo of eight o nine today?
• 32:05
  Speaker 3: I don't know if I would say it's an echo.
• 32:08
  Speaker 3: There's always a learning process when it comes to markets
• 32:13
  Speaker 3: and liquidity events, and it's always in the short run.
• 32:19
  Speaker 3: All markets moved because of supply and demand for money,
• 32:24
  Speaker 3: and in eight there was issues, needless to say, but
• 32:28
  Speaker 3: there was also some things which have been recently sprung up,
• 32:32
  Speaker 3: for example, regulators saying, oh no, we shouldn't be allowed
• 32:36
  Speaker 3: to short financial institutions. Now, if you remember part of
• 32:40
  Speaker 3: the chaos in eight was associated with that because they
• 32:44
  Speaker 3: banned short selling.
• 32:46
  Speaker 1: Right.
• 32:46
  Speaker 3: It was incredibly smart, I guess on the part of
• 32:49
  Speaker 3: the regulators doing it right before an expiration. So you
• 32:52
  Speaker 3: had this massive covering of eliminating short positions, but then
• 32:58
  Speaker 3: you got rid of the market maker. Some of these
• 33:01
  Speaker 3: financial stocks had you know, ten year ranges in twenty
• 33:05
  Speaker 3: four hours. That's going to eliminate a lot of liquidity, right,
• 33:09
  Speaker 3: and then the market's going to find its own natural level,
• 33:12
  Speaker 3: which at that point was a lot lower.
• 33:15
  Speaker 2: Right. You want people stepping in as buyers to cover
• 33:18
  Speaker 2: those short positions. You don't want whisper campaigns mentioning companies
• 33:23
  Speaker 2: are going out of business when they're not. So that
• 33:26
  Speaker 2: not shorting financial institutions kind of brings us forward to
• 33:30
  Speaker 2: what's been going on in the regional banks in twenty
• 33:32
  Speaker 2: twenty three. How do you look at the first republics
• 33:35
  Speaker 2: in Silicon Valley banks? Are these one offs or is
• 33:39
  Speaker 2: this part of something that's more systemic or is this
• 33:43
  Speaker 2: just the FED raising rates so quickly that they're breaking things?
• 33:48
  Speaker 3: Wow, So that's such an interesting question. So is it systemic?
• 33:55
  Speaker 3: I don't think it's systemic. I think that it has
• 33:57
  Speaker 3: a lot to do with the way that at the
• 34:00
  Speaker 3: management of these companies we're running them. SVB was a
• 34:05
  Speaker 3: particular case because you had this massive inflow of VC
• 34:10
  Speaker 3: capital and the problem is those are always naturally getting
• 34:14
  Speaker 3: taken out because you're investing. At the same time, they
• 34:18
  Speaker 3: decided to go as a FED is embarking on a
• 34:21
  Speaker 3: rate high campaign, not to have a risk manager, so
• 34:26
  Speaker 3: you can.
• 34:26
  Speaker 2: But they did have hedges on in twenty twenty two.
• 34:29
  Speaker 2: They just decided, hey, these are so profitable, we should
• 34:32
  Speaker 2: ring the bell.
• 34:33
  Speaker 3: Well, yeah, that's always if you're hedging, you're hedging for
• 34:38
  Speaker 3: a reason, and are you hedging to trade.
• 34:41
  Speaker 1: There's a difference, right.
• 34:43
  Speaker 2: Well, they're a bank, so one would assume they're hedging
• 34:46
  Speaker 2: interest rate duration risk. They just saw the win and said, hey,
• 34:51
  Speaker 2: let's everybody, right, but everybody's going to get a good bonus.
• 34:53
  Speaker 3: Right, But then they move from hedgeres to speculators, right,
• 34:56
  Speaker 3: and if that's not your professional job, that becomes extraordinarily challenging.
• 35:03
  Speaker 2: As as we we learned.
• 35:05
  Speaker 3: And you know First Republic, which was a different type
• 35:10
  Speaker 3: of institution, and you know they they were basically in
• 35:16
  Speaker 3: think of that in the old days, right, they were
• 35:18
  Speaker 3: giving away the toaster to try to get accounts, and
• 35:22
  Speaker 3: then when rates started to go up. So think about this, right,
• 35:28
  Speaker 3: the tenuere at its low and twenty was, you know,
• 35:33
  Speaker 3: twenty basis points. Now we're at three seven, but historically
• 35:38
  Speaker 3: three seven isn't very high. And it goes back to
• 35:41
  Speaker 3: my earlier statement that people anchor to sort of the
• 35:46
  Speaker 3: high or the low, so they assume it's going back there.
• 35:49
  Speaker 3: That's a big risk management mistake to make that assumption.
• 35:53
  Speaker 2: Let's talk a little bit about computerized trading, helping traders
• 35:59
  Speaker 2: become better at their jobs and hiring traders. Let's start
• 36:03
  Speaker 2: with that. What sort of traits should hedge funds be
• 36:07
  Speaker 2: looking for if they want to hire a successful trader?
• 36:13
  Speaker 3: If you're referring to a discretionary trader, right, so that's
• 36:17
  Speaker 3: one bucket versus sort of a model based quantitative trader
• 36:22
  Speaker 3: where you're looking at at their track records.
• 36:25
  Speaker 2: Tell us about both.
• 36:26
  Speaker 3: Well, So I'm going to start first with the quantitative.
• 36:29
  Speaker 3: It's a little easier. I've never had a quantitrative trader
• 36:33
  Speaker 3: come to me with a bad simulated track.
• 36:37
  Speaker 2: Record, right, Models are always fens.
• 36:39
  Speaker 3: Right, I'm waiting for the guy to come in with
• 36:41
  Speaker 3: a minus two sharp going height.
• 36:43
  Speaker 1: It can only get better.
• 36:45
  Speaker 2: But by the way, what back test ever is best?
• 36:48
  Speaker 1: Yes?
• 36:48
  Speaker 3: Yeah, well I'm super I can predict yesterday perfectly. I'm
• 36:52
  Speaker 3: very good at that. I try to, you know, come
• 36:54
  Speaker 3: on here, I'll tell you what happened, No problem.
• 36:58
  Speaker 2: Who has a better track record than heinz PS Capital, Yeah,
• 37:00
  Speaker 2: they're the best.
• 37:01
  Speaker 3: Yeah, and it's the hedge fund is there. But it's
• 37:04
  Speaker 3: why in seriousness that you know the first line of
• 37:08
  Speaker 3: every disclosure document his past performance is non indicative of
• 37:12
  Speaker 3: future results. But everybody looks at past performance. So on
• 37:16
  Speaker 3: the quant side, you have to look at real time
• 37:20
  Speaker 3: data and you also have to segment it to sort
• 37:24
  Speaker 3: of the it's strategy relative to market. So if you
• 37:29
  Speaker 3: look at last year, a lot of CTAs and trend
• 37:32
  Speaker 3: followers did really well, and you'd have a great real
• 37:36
  Speaker 3: time track record.
• 37:37
  Speaker 2: Because you had a defined move in a specific direction
• 37:40
  Speaker 2: that was sustained.
• 37:41
  Speaker 3: Yes, So there's two things about that. One they'll come
• 37:43
  Speaker 3: to me and to go, oh man, man, we just
• 37:45
  Speaker 3: had the best year since Wait another year where there's
• 37:48
  Speaker 3: a lot of dislocations, and I'm like, man, that's fantastic.
• 37:52
  Speaker 3: Once every fifteen years, do me a favor come back
• 37:55
  Speaker 3: in thirteen. I don't want to be late. But the
• 37:58
  Speaker 3: reality is, if you want to dig deeper in that,
• 38:01
  Speaker 3: then you start looking at, well, what markets did you trade,
• 38:04
  Speaker 3: Why did you do that? Why did you exclude Coco? Well,
• 38:08
  Speaker 3: Coco's not a good trend following market. How do you
• 38:10
  Speaker 3: know that? Well, then you've overoptimized. So you really have
• 38:14
  Speaker 3: to start digging deep, asking very very tough questions. When
• 38:19
  Speaker 3: it comes to these quantitative strategies, frequency of trading, volatility,
• 38:25
  Speaker 3: draw downs's and all. This is more of an art
• 38:29
  Speaker 3: than it is a science. And that also applies on
• 38:32
  Speaker 3: the discretionary trading side. But on the discretionary trading side,
• 38:36
  Speaker 3: you have that other element that you have to put
• 38:39
  Speaker 3: on top of that, which is the emotional.
• 38:43
  Speaker 1: And the psychological.
• 38:45
  Speaker 3: And one of the things I always say is that
• 38:48
  Speaker 3: every successful trader has a near death experience. I just
• 38:52
  Speaker 3: hope they have it before we've allocated to them. And
• 38:56
  Speaker 3: so it's not that they've had it, it's how you
• 38:59
  Speaker 3: recover from it. And so it's one of these things
• 39:03
  Speaker 3: that math works. And so sometimes there's a trader and
• 39:07
  Speaker 3: he'll come into my office and I'll go Pete. I
• 39:09
  Speaker 3: can't believe it. I just had my worst day ever.
• 39:13
  Speaker 3: And I'm like, well, I've got good news and bad
• 39:16
  Speaker 3: news for you, and he.
• 39:18
  Speaker 1: Goes, well, what's the good news?
• 39:20
  Speaker 3: I go, well, you're still within your risk parameters. You
• 39:23
  Speaker 3: didn't violate any of our trading rules, so you still
• 39:26
  Speaker 3: have a job. And they go, well, then what's the
• 39:29
  Speaker 3: bad news? I go, If you're in business long enough,
• 39:31
  Speaker 3: you're going to have a worse trade, because that's just
• 39:34
  Speaker 3: the law of large numbers. Records are made to be broken.
• 39:39
  Speaker 1: If I told you.
• 39:40
  Speaker 3: Twenty years ago that someone was going to break Kareem
• 39:43
  Speaker 3: scoring record in basketball, unbelievable. Are Lebron James did it
• 39:50
  Speaker 3: this year? All the credit in the world for him.
• 39:52
  Speaker 3: But it's a little bit like trading options. So if
• 39:54
  Speaker 3: you continually buy premium thinking a record's going to be broken,
• 39:59
  Speaker 3: you probably run out of money before it does. And
• 40:01
  Speaker 3: if you continually sell premium thinking the records are never
• 40:04
  Speaker 3: going to be broken, you go broke when it is broken.
• 40:07
  Speaker 3: So you have to have that discipline, and it's an
• 40:10
  Speaker 3: extraordinarily tough business.
• 40:12
  Speaker 2: To say the very least. Let's talk about a quote
• 40:15
  Speaker 2: of yours that I havepen to really like fundamentals aren't wrong,
• 40:19
  Speaker 2: you are. Explain what that means.
• 40:23
  Speaker 3: It means that the market is the scoreboard, and if
• 40:28
  Speaker 3: you think you're right and you think the fundamentals are wrong,
• 40:32
  Speaker 3: you're going to take a small loss and turn it
• 40:34
  Speaker 3: into a large loss. Trading works best when the fundamentals
• 40:39
  Speaker 3: and the technicals intersect. Too often, one just looks at
• 40:44
  Speaker 3: either one or the other. So we could say today, well,
• 40:49
  Speaker 3: we think the fundamentals are deteriorating. There's no way the
• 40:52
  Speaker 3: S and P should be at forty two hundred. I'm
• 40:54
  Speaker 3: going to get short, but there's no technical indication in
• 40:58
  Speaker 3: the markets today that you should be short.
• 41:01
  Speaker 2: Right, the number of fifty two glows is falling. The
• 41:03
  Speaker 2: breath is pretty good, and when you look, especially outside
• 41:06
  Speaker 2: of the US, a lot of positive up trends. People
• 41:10
  Speaker 2: have a tendency to ignore that and they're just focused
• 41:12
  Speaker 2: at what's going on. Look at the Russell small cap
• 41:15
  Speaker 2: in the US. It's doing terrible. We're due to crash.
• 41:18
  Speaker 1: That's correct.
• 41:19
  Speaker 3: So what you do for me in that case, I'm
• 41:22
  Speaker 3: looking for if you want to look to sell it
• 41:25
  Speaker 3: and pick a level, then you look for the Russell
• 41:26
  Speaker 3: to start doing better. And reaching key technical levels and
• 41:31
  Speaker 3: then you can probe and you look for divergences all
• 41:35
  Speaker 3: the time. So you look at the transports which have
• 41:38
  Speaker 3: been lagging for today. But these are all signs. They're
• 41:43
  Speaker 3: not things in which you should be taking action. You
• 41:47
  Speaker 3: have to be patient. And a lot of times you
• 41:49
  Speaker 3: talk about traders and discretionary traders in particular, and I'll
• 41:52
  Speaker 3: speak to them not trading is a trade right, and
• 41:58
  Speaker 3: just because you're sitting in front of them screen doesn't
• 42:01
  Speaker 3: mean you have to do something. And that takes tremendous discipline,
• 42:07
  Speaker 3: because particularly if you get paid to share of the
• 42:10
  Speaker 3: profits and you're like, there's nothing going on now. Some
• 42:14
  Speaker 3: of the best traders I know, they'll be like, Okay,
• 42:18
  Speaker 3: I did something. It's ten thirty, I've made some money.
• 42:22
  Speaker 3: I'm out of here for the day. And that's fine.
• 42:26
  Speaker 3: However you do it, however you force your own self discipline.
• 42:31
  Speaker 3: But just trading to trade is a terrible strategy.
• 42:34
  Speaker 2: That's the great Warren Buffett quote. Unlike baseball, there are
• 42:38
  Speaker 2: no Colt strikes and markets. You could sit there with
• 42:41
  Speaker 2: a bat on your shoulder and just wait for your pitch.
• 42:44
  Speaker 1: That's correct.
• 42:45
  Speaker 2: So let's talk a lot.
• 42:46
  Speaker 3: A lot of people are into business because they love
• 42:48
  Speaker 3: the action and sitting.
• 42:50
  Speaker 2: Oh well, we're all junkies. We're all looking for you
• 42:52
  Speaker 2: that dopamine.
• 42:53
  Speaker 3: So sitting with your bat on your shoulder is really
• 42:55
  Speaker 3: tough for somebody.
• 42:56
  Speaker 2: Yeah, yeah, absolutely. If I'm always surprised at traders who
• 43:00
  Speaker 2: are also gamblers, like to go to Vegas, like to
• 43:02
  Speaker 2: play play blackjack. It's like, don't you get enough excitement traders.
• 43:06
  Speaker 3: I don't gamble at all. I don't bet on I'm
• 43:10
  Speaker 3: a fan, right, So I'm a Michigan fan. I'm a
• 43:12
  Speaker 3: nick fan. God, I'm a Jets fan. I'm a Mets fan.
• 43:15
  Speaker 2: So we can you you are a glutton for punishment.
• 43:18
  Speaker 3: Yes, we can have a whole psychological well.
• 43:19
  Speaker 2: At least at least Michigan has been doing. Football has
• 43:23
  Speaker 2: been doing better.
• 43:24
  Speaker 3: Yes, and they had a good run in basketball. But
• 43:28
  Speaker 3: I'm a fan. I enjoy I never bet on sports.
• 43:30
  Speaker 2: Let's talk about betting on natural gas. We have had
• 43:35
  Speaker 2: a kind of wild market and energy over the past
• 43:38
  Speaker 2: couple of years, not just the Russian invasion of Ukraine,
• 43:43
  Speaker 2: but all the things that have been happening in both
• 43:47
  Speaker 2: oil and gasoline and natural gas. You're a natural gas trader,
• 43:52
  Speaker 2: how do you look at what's going on in that
• 43:54
  Speaker 2: market and tell us where the price of energy is
• 43:57
  Speaker 2: going to be in a couple of weeks or months.
• 44:01
  Speaker 3: So for everybody that's listening, whatever I do, do the
• 44:04
  Speaker 3: opposite and you may have a chance of success. So
• 44:10
  Speaker 3: natural gas, in terms of how it's behaved, it's had
• 44:14
  Speaker 3: a round trip. So where the prices today is close
• 44:19
  Speaker 3: to where oil was when it was zero in April
• 44:23
  Speaker 3: of twenty just to give you a sense.
• 44:25
  Speaker 1: So natural gas.
• 44:27
  Speaker 2: Also round trip, and gasoline is almost a round trip, right.
• 44:31
  Speaker 3: But not nearly to the extent. So this again becomes
• 44:35
  Speaker 3: listen to the markets, don't listen to the gossip. And
• 44:40
  Speaker 3: so where we are right now, in my mind in
• 44:44
  Speaker 3: natural gas, which is different than crude, is a little
• 44:48
  Speaker 3: bit counter cyclical. Because we've had warmer than normal weather,
• 44:53
  Speaker 3: we had extra storage and that put downward pressure in winter.
• 44:57
  Speaker 3: Now it looks like that's going to reverse and we're
• 44:59
  Speaker 3: going to have a sort of really hot summer. And
• 45:02
  Speaker 3: you can ascribe that to climate change.
• 45:06
  Speaker 2: Or al Nino and stuff.
• 45:09
  Speaker 3: You know, you can decide whatever you want to call it,
• 45:13
  Speaker 3: but the facts are the facts. Right, If it's hot,
• 45:16
  Speaker 3: and we're going to be burning and you're going to
• 45:17
  Speaker 3: need to be cooling at the same time. A lot
• 45:22
  Speaker 3: of this thought that, you know, natural gas and the
• 45:25
  Speaker 3: economy was going to weaken, and in general, we were
• 45:29
  Speaker 3: taught to try to buy low and sell high. We
• 45:32
  Speaker 3: just talked earlier how most times in the markets, buyers
• 45:35
  Speaker 3: are higher and sellers are lower. So we're sitting there
• 45:39
  Speaker 3: trying to put a position on sort of spreading summer
• 45:44
  Speaker 3: natural gas and hedging it a little bit by being
• 45:47
  Speaker 3: short winter next year.
• 45:49
  Speaker 2: So we're recording this at the end of May twenty
• 45:51
  Speaker 2: twenty three. How do you look at macro events? The
• 45:56
  Speaker 2: Russian invasion of Ukraine just being one example, Does that
• 46:00
  Speaker 2: affect the way you look at what the market is
• 46:03
  Speaker 2: telling you? Or is that just gossip? By the time
• 46:07
  Speaker 2: it's in the newspaper, it's already in the price.
• 46:09
  Speaker 1: No, you have to.
• 46:11
  Speaker 3: Look at all these things, and I think there's an
• 46:12
  Speaker 3: important lesson here. When there's tremendous amount of market uncertainty,
• 46:18
  Speaker 3: you need to trade smaller, right, because that's what kills you.
• 46:23
  Speaker 3: You know, periods of low volatility, which we're in now,
• 46:25
  Speaker 3: then tend to be followed by higher volatility. A lot
• 46:29
  Speaker 3: of models are predicated on looking backwards over recent volatility,
• 46:33
  Speaker 3: and then you're trading too large. And I really want
• 46:37
  Speaker 3: to distinguish because there's people talk all the time about
• 46:41
  Speaker 3: black swans and they go, oh, this black swan could happen,
• 46:44
  Speaker 3: or that black swan could happen, and I'm like, if
• 46:46
  Speaker 3: you're talking about it, it's not a black swan. That's
• 46:50
  Speaker 3: risk management, that's smart. A black swan is when you
• 46:54
  Speaker 3: wake up in the morning and a condo in Florida
• 46:57
  Speaker 3: has collapsed, or you wake up in the morning in
• 46:59
  Speaker 3: Abe's assassinated. These aren't things that you put into your
• 47:03
  Speaker 3: risk management models.
• 47:05
  Speaker 1: But if you.
• 47:06
  Speaker 3: Survive, you win, so you should really probably at these
• 47:09
  Speaker 3: periods of uncertainty, So is there going to be a
• 47:12
  Speaker 3: Ukrainian offensive? What is that going to do? And how
• 47:16
  Speaker 3: is that going to affect the situation with Russia?
• 47:20
  Speaker 1: Are they going to be threatening?
• 47:21
  Speaker 3: They are a nuclear power? Is that just a threat
• 47:25
  Speaker 3: to try to keep them or God forbid, something worse happens.
• 47:30
  Speaker 3: I have no idea. I don't think anybody can have
• 47:34
  Speaker 3: that idea because you can't get into the head of
• 47:36
  Speaker 3: the leaders of Russia decide how they're going to act,
• 47:41
  Speaker 3: But from a trading perspective, I think that you need
• 47:46
  Speaker 3: to trade smaller.
• 47:47
  Speaker 1: Now.
• 47:47
  Speaker 3: One of the things that I find really interesting right
• 47:50
  Speaker 3: now this time of year is that because if there
• 47:53
  Speaker 3: is climate change and you have grain prices that are
• 47:57
  Speaker 3: pre pandemic levels, it could be really fascinating and exciting
• 48:03
  Speaker 3: to have sort of a summer rally in soybeans and corn,
• 48:07
  Speaker 3: and the risk reward of buying them right here is
• 48:11
  Speaker 3: fantastic because you've had a wet period of time. If
• 48:14
  Speaker 3: you get dry and you don't have good growing conditions
• 48:19
  Speaker 3: in the Midwest here. At the same time, you have
• 48:21
  Speaker 3: uncertainty in the Ukraine, which is a large producer of
• 48:26
  Speaker 3: grains basket. So yeah, so this could be And there's
• 48:29
  Speaker 3: nothing more fun than a summer bull market in greens.
• 48:34
  Speaker 2: So I've never quite heard that sentence before, nothing more
• 48:38
  Speaker 2: fun than a bull market in the summer in grains.
• 48:41
  Speaker 2: You've pointed out the psychology and self discipline. How can
• 48:47
  Speaker 2: you teach traders to manage their emotions and to not
• 48:51
  Speaker 2: allow their either their enthusiasm or despair to affect their
• 48:56
  Speaker 2: trading behavior.
• 48:59
  Speaker 3: The best teacher, unfortunately, is failure and how you deal
• 49:07
  Speaker 3: with that failure. So many times people would come into
• 49:11
  Speaker 3: my office after a really bad day. They sit down,
• 49:14
  Speaker 3: they put their hands on their head, and they go, oh,
• 49:17
  Speaker 3: why the hell am I in this business? Now what
• 49:21
  Speaker 3: you can do and we've all done this. If you
• 49:24
  Speaker 3: get out of all your positions, you emotionally cleanse yourself.
• 49:30
  Speaker 3: But are you able to get back in the game.
• 49:33
  Speaker 3: Because you can emotionally cleanse yourself and leave the game
• 49:37
  Speaker 3: and you'll never be able to make your money back.
• 49:39
  Speaker 3: So how do you handle that adversity?
• 49:42
  Speaker 1: Success? Okay, most people enjoy success, but it doesn't teach
• 49:47
  Speaker 1: you anything correct.
• 49:48
  Speaker 3: In the trading business. It's how you deal. What did
• 49:52
  Speaker 3: you do? And you have to really be self aware.
• 49:55
  Speaker 3: Did I hold on to the position too long? Was
• 49:58
  Speaker 3: I too big? Was I gossiping with other people? And
• 50:03
  Speaker 3: I lost my discipline? You really have to break it down.
• 50:08
  Speaker 3: And it all comes back to the fact that you
• 50:11
  Speaker 3: have to admit that it's my fault as the trader.
• 50:17
  Speaker 3: I'm the one that's grewed up.
• 50:19
  Speaker 2: Well, you mean it's not the fed's faults. Because I've
• 50:22
  Speaker 2: spent the past decade listening to managers and economists and
• 50:28
  Speaker 2: traders tell me, well, my P and L would be
• 50:30
  Speaker 2: much better. But this QE and the FED doing this,
• 50:34
  Speaker 2: how can anybody trade in that environment?
• 50:36
  Speaker 3: Yeah, I've as the years have gone on, I've gotten
• 50:41
  Speaker 3: a lot better at taking credit for success and blaming
• 50:44
  Speaker 3: others for my failure. And yeah, it's a good way
• 50:49
  Speaker 3: to go. But you're living in Lola Land if that's
• 50:53
  Speaker 3: how you think you are, what your track record is.
• 50:58
  Speaker 3: And it's the sports scenario. If you're playing baseball and
• 51:03
  Speaker 3: the team gives you a shot and you're batting one
• 51:05
  Speaker 3: fifty and they take you out of the lineup, it's
• 51:10
  Speaker 3: not the manager's fault, it's.
• 51:11
  Speaker 2: The umpire, the umpires calling those outside pitches strikes. How
• 51:15
  Speaker 2: can anybody get a fair shot at the plate with that?
• 51:18
  Speaker 3: That's true, But if he is, just like in the markets,
• 51:20
  Speaker 3: you got to you have to adjust, Yes, you have
• 51:23
  Speaker 3: to adjust.
• 51:23
  Speaker 2: To That's exactly right. So let's talk a little bit
• 51:26
  Speaker 2: about robin Hood. It could be one of the more
• 51:30
  Speaker 2: famous Wall Street based philanthropies in New York, especially giving
• 51:36
  Speaker 2: its longevity. How did the idea come about? How big
• 51:40
  Speaker 2: a factor was the eighty seven crash in the creation
• 51:43
  Speaker 2: of Robinhood.
• 51:46
  Speaker 3: So it's probably of all the things something I'm most
• 51:51
  Speaker 3: proud about being associated with that since the beginning, and
• 51:56
  Speaker 3: again really kudos to Paul for his leadership in doing that.
• 52:03
  Speaker 1: So, as I said.
• 52:04
  Speaker 3: Earlier, we really thought that there could be some economic
• 52:07
  Speaker 3: struggles following eighty seven. And one of the things about
• 52:15
  Speaker 3: trickle down, and I need to fully disclose, yeah, I'm
• 52:19
  Speaker 3: a Democrat that believes in markets, is that when things
• 52:23
  Speaker 3: go bad, it's those at the bottom that get hurt first.
• 52:29
  Speaker 3: And we've seen that repeatedly. And so when we thought
• 52:34
  Speaker 3: about helping New York. Now you have to realize nineteen
• 52:37
  Speaker 3: eighty eight we gave away sixty five thousand.
• 52:41
  Speaker 2: Dollars, not exactly a huge amount of money.
• 52:45
  Speaker 3: No, last year we gave away one hundred and thirty million.
• 52:49
  Speaker 2: That's a chunk of change. Yes, and you guys have
• 52:53
  Speaker 2: been doing this every year for thirty five years.
• 52:55
  Speaker 3: Yes, And the model was different. And why did we
• 52:57
  Speaker 3: start it because Paul's an entrepreneur and the one thing
• 53:01
  Speaker 3: and we're market people, and we said, you know what,
• 53:04
  Speaker 3: if we do a good job, we'll be able to
• 53:06
  Speaker 3: raise the money. And I don't want people to give
• 53:09
  Speaker 3: us money in us not spend it.
• 53:11
  Speaker 1: So we have two rules.
• 53:14
  Speaker 3: One is if you give us a dollar, we're going
• 53:17
  Speaker 3: to put it out the door in the next twelve months.
• 53:20
  Speaker 1: And two we're paying.
• 53:22
  Speaker 3: For the overhead the board. So if you give us
• 53:25
  Speaker 3: a dollar, it's getting paid.
• 53:26
  Speaker 1: It's not being one.
• 53:27
  Speaker 2: Hundred cents on the dollar goes out from donated cash.
• 53:30
  Speaker 1: That's correct.
• 53:32
  Speaker 2: And who are the donors to the robin Hood Foundation.
• 53:35
  Speaker 2: Besides you and Pull Tutor Jones and that original.
• 53:39
  Speaker 3: Crew, there's literally thousands and after nine to eleven and
• 53:44
  Speaker 3: Sandy and during the pandemic, tens of thousands of donors
• 53:50
  Speaker 3: from all different sizes. Now we're sitting here in Bloomberg
• 53:55
  Speaker 3: and Mayor Mike through the Bloomberg Philanthropies is one of
• 53:58
  Speaker 3: the largest donor and supporters of New York. Now Robinhood
• 54:03
  Speaker 3: focuses on sort of the overriding goal is mobility from.
• 54:08
  Speaker 2: Poverty, meaning economic motibility, the ability to pull yourself up
• 54:12
  Speaker 2: from a bad condition.
• 54:14
  Speaker 1: That's correct.
• 54:15
  Speaker 3: And within that, you know, we're we were the first
• 54:19
  Speaker 3: funders of charter schools in New York City. We're the
• 54:21
  Speaker 3: largest funders of food pantries. You have to have a
• 54:25
  Speaker 3: holistic approach, and if you walk around New York and
• 54:28
  Speaker 3: if you love New York City. What are the four
• 54:30
  Speaker 3: issues right you see them. There's homelessness, there's mental health,
• 54:37
  Speaker 3: there's food insecurity, and there's immigration and that together. If
• 54:43
  Speaker 3: you could do that through job training, through education, through
• 54:48
  Speaker 3: support systems, and we do that also we have try
• 54:52
  Speaker 3: to use technology to help that, to put people on
• 54:56
  Speaker 3: a path of a better life. Is it a challenge, absolutely,
• 55:01
  Speaker 3: But we go back about the trading business and talking
• 55:03
  Speaker 3: about how bad a day can be. But the thing
• 55:07
  Speaker 3: that keeps it always in perspective. No matter how bad
• 55:10
  Speaker 3: a day I have, the people that we're helping, their
• 55:15
  Speaker 3: days are far worse. And if you keep that in perspective,
• 55:18
  Speaker 3: you're going to help others who are less fortunate.
• 55:22
  Speaker 2: How do you measure success for a charity? As a trader,
• 55:26
  Speaker 2: you get a P and L. You know exactly whether
• 55:28
  Speaker 2: you're right or wrong. How can you tell the impact
• 55:31
  Speaker 2: of your dollars whether or not they're successful or not.
• 55:36
  Speaker 3: So that's a really outstanding question, and that's something that
• 55:39
  Speaker 3: Robinhood has been particularly innovative in in trying to measure metrics.
• 55:46
  Speaker 3: So if it's a job training program, it's not just
• 55:50
  Speaker 3: a number of people that are in there. For example,
• 55:53
  Speaker 3: how once they graduate, where's their starting salary relative.
• 55:57
  Speaker 1: To where they were beforehand?
• 55:59
  Speaker 3: Do they still have that job a year later? Are
• 56:02
  Speaker 3: they making more money? Are they at some percentage above
• 56:05
  Speaker 3: the poverty level? If you're funding charter schools, where are
• 56:12
  Speaker 3: they are the kids graduating? Are they going to college?
• 56:14
  Speaker 3: Are you tracking them? Are they getting employment? So it's
• 56:19
  Speaker 3: all very data intensive and metric intensive. Now, there are
• 56:24
  Speaker 3: some things right you're if unfortunately, if you're a woman
• 56:30
  Speaker 3: and you've been battered and you have kids, before they
• 56:33
  Speaker 3: can go to job training or education, they need to
• 56:38
  Speaker 3: have a safe place to say. So, we fund shelters
• 56:42
  Speaker 3: and where we are, and we do food support because
• 56:44
  Speaker 3: it has to be a holistic approach, this movement from poverty,
• 56:50
  Speaker 3: and as a parent, just as you're dealing with your
• 56:54
  Speaker 3: own children, that's what you're doing. It's a holistic approach.
• 56:58
  Speaker 3: It's not okay, here's one magic bullet. I wish that
• 57:01
  Speaker 3: were the case, but it isn't. And like any organization,
• 57:06
  Speaker 3: the key is not me, not Paul, not the other
• 57:10
  Speaker 3: board members.
• 57:11
  Speaker 1: It's the quality of the staff.
• 57:13
  Speaker 3: And we have committed, innovative staff that has really pushed
• 57:18
  Speaker 3: robin Hood along the way, and that started you know,
• 57:22
  Speaker 3: with our leaders and president, from David Saltzman to Wes
• 57:26
  Speaker 3: Moore who's now the governor of Maryland, to our newest
• 57:29
  Speaker 3: one rich Bury, and so we're really fortunate to have
• 57:33
  Speaker 3: excellent team.
• 57:34
  Speaker 2: You mentioned charter schools. Tell us a little bit about
• 57:36
  Speaker 2: the Kip charter school in the Bronx and why Robinhood
• 57:40
  Speaker 2: has been so active in promoting and developing charter schools
• 57:46
  Speaker 2: in some of the poorer neighborhoods in New York City.
• 57:51
  Speaker 3: Well, we're markets people, so we think that competition is
• 57:55
  Speaker 3: a good thing. We know that charter schools aren't going
• 57:58
  Speaker 3: to be a replacement for all public schools. But if
• 58:01
  Speaker 3: you think about technology in general, right, it's innovation and change.
• 58:07
  Speaker 3: And if you think about the KITP model, it's really
• 58:12
  Speaker 3: like a parent. So if you have a child and
• 58:15
  Speaker 3: they're not doing well, what do you do? You give
• 58:18
  Speaker 3: them extra resources, You give them extra homework, and so
• 58:23
  Speaker 3: they may come home from school and you're working with them. Now,
• 58:26
  Speaker 3: if you have parents who are working the overnight shift
• 58:30
  Speaker 3: in a hospital, they don't have that ability to give
• 58:34
  Speaker 3: their children that extra time because they're working.
• 58:38
  Speaker 2: So these schools do that and meaning extended hours tutors exactly.
• 58:44
  Speaker 3: They're providing the resources and the opportunities for those students
• 58:48
  Speaker 3: who they wouldn't normally have in a traditional public school model.
• 58:53
  Speaker 2: Let's talk about what you guys do at Robinhood for
• 58:56
  Speaker 2: Public Schools. Tell us about Math for America that seeks
• 59:01
  Speaker 2: to improve math education in US public schools.
• 59:04
  Speaker 3: So Robinhood Foundation of Math for America. Those are the
• 59:06
  Speaker 3: two non for profit boards that I sit on. And
• 59:09
  Speaker 3: I've been blessed really because Math for America was started
• 59:14
  Speaker 3: by Jim Simons, and we all know what a legend
• 59:17
  Speaker 3: Jim science is in the hedgephone world. In the education space,
• 59:20
  Speaker 3: that model was predicated in how do we keep better
• 59:24
  Speaker 3: math and science teachers in public schools? The assumption being
• 59:29
  Speaker 3: which isn't rocket scientists even though he had more, well, yes.
• 59:34
  Speaker 2: Given for the students resources.
• 59:35
  Speaker 3: If you have really good teachers, you're likely to have
• 59:38
  Speaker 3: better outcomes. So how do you keep really good teachers
• 59:41
  Speaker 3: in schools when there's a lot of competition for them?
• 59:44
  Speaker 3: So we've done two things at Math for America. We've
• 59:47
  Speaker 3: established a community of master math science teachers where they
• 59:52
  Speaker 3: can come together and learn and teach. And also we
• 59:57
  Speaker 3: provide them a stipend, so there's an incentive for them
• 1:00:00
  Speaker 3: to stay in their schools. And it's really fascinating because
• 1:00:05
  Speaker 3: even though all the teachers in the schools aren't there,
• 1:00:08
  Speaker 3: a good captain, a good player makes the players around
• 1:00:10
  Speaker 3: them better. And so what they're doing and what they've
• 1:00:13
  Speaker 3: taken back from you know, coming down to math for
• 1:00:16
  Speaker 3: America for these sessions and bringing it back to school,
• 1:00:19
  Speaker 3: I think helps all the teachers, which helps all the students.
• 1:00:23
  Speaker 2: Before we get to our favorite questions, let me throw
• 1:00:26
  Speaker 2: a curveball at you, which I find intriguing. You like
• 1:00:31
  Speaker 2: to quote Captain E. J. Smith who famously said quote
• 1:00:36
  Speaker 2: when anyone asked me how I can best describe my
• 1:00:39
  Speaker 2: experience in nearly forty years at sea, I merely say uneventful.
• 1:00:45
  Speaker 2: Why is that quote so intriguing to you?
• 1:00:49
  Speaker 3: Well, not only did he say that, but he said
• 1:00:51
  Speaker 3: it sort of just before the launching of the Titanic.
• 1:00:55
  Speaker 3: And I think if you've listened at all time, and
• 1:00:57
  Speaker 3: he was the captain of yes, he was the captain
• 1:00:59
  Speaker 3: of the titan If you listen to anything or taking
• 1:01:03
  Speaker 3: anything out of this podcast, is that complacency in anything,
• 1:01:08
  Speaker 3: but particularly in the markets, is extraordinarily dangerous, and one
• 1:01:16
  Speaker 3: should take away from that that bad things can and
• 1:01:20
  Speaker 3: will happen in the markets. So that means trade smaller,
• 1:01:25
  Speaker 3: have really good risk management, and don't believe your success
• 1:01:31
  Speaker 3: when you're trading successfully.
• 1:01:33
  Speaker 2: Let's jump to our favorite questions that we ask all
• 1:01:36
  Speaker 2: of our guests, starting with tell us what you've been
• 1:01:41
  Speaker 2: entertaining yourself with. What are you listening to or watching,
• 1:01:44
  Speaker 2: be it Netflix or podcasts or whatever.
• 1:01:47
  Speaker 3: Ah well, so we have a sort of group consideration
• 1:01:51
  Speaker 3: at home. Of course, we're finishing succession right, there's two
• 1:01:55
  Speaker 3: upright and at the same time, Barry and Ted Lasso.
• 1:01:59
  Speaker 3: So those post Memorial Day, I think we're gonna have
• 1:02:02
  Speaker 3: to find some new things.
• 1:02:04
  Speaker 2: I'll make a recommendation to you. It's only eight episodes
• 1:02:08
  Speaker 2: and I'm only halfway through it. But the Diplomat, Yes,
• 1:02:12
  Speaker 2: that's next, that's next. On our really well done, really
• 1:02:15
  Speaker 2: fascinating characters. I'm really I'm really enjoying it.
• 1:02:18
  Speaker 3: And when I'm sitting around and trying to clear the
• 1:02:20
  Speaker 3: head and reading, I try. I like historical novels.
• 1:02:26
  Speaker 2: Well, we're gonna come up to books in a moment,
• 1:02:28
  Speaker 2: so put a pin in that. Tell us about your
• 1:02:30
  Speaker 2: early mentors who helped shape your career.
• 1:02:34
  Speaker 3: Well, I was very very fortunate, as I said, being
• 1:02:37
  Speaker 3: at at the FED and UH and the research people there,
• 1:02:43
  Speaker 3: and of course there's Paul, who was a mentor, and
• 1:02:48
  Speaker 3: because we're together on the border of the Robin Hood Foundation,
• 1:02:53
  Speaker 3: is still a mentor because I think you can always
• 1:02:59
  Speaker 3: learn different things and and believe it or not, a
• 1:03:04
  Speaker 3: lot of the mentors now are are people I read
• 1:03:06
  Speaker 3: and listen to. And for example, I had the opportunity
• 1:03:10
  Speaker 3: to be here at Bloomberg Philanthropies a few weeks ago
• 1:03:14
  Speaker 3: and listen to Mayor Mike, and I try to take
• 1:03:19
  Speaker 3: away things that I find insightful. And sometimes I run
• 1:03:24
  Speaker 3: into people and I'll say to them, you know, you
• 1:03:27
  Speaker 3: may not remember this because to you it was a
• 1:03:29
  Speaker 3: throwaway line, right, But it had a lot of meaning
• 1:03:33
  Speaker 3: to me. And I probably stole it and didn't give
• 1:03:36
  Speaker 3: attribution to it.
• 1:03:37
  Speaker 1: But I try.
• 1:03:39
  Speaker 3: It doesn't matter who it is across the board, and
• 1:03:42
  Speaker 3: it can be from uh, you know, a ted Lasso,
• 1:03:46
  Speaker 3: It could be from a book, It could be from
• 1:03:49
  Speaker 3: a politician, It could be from anybody.
• 1:03:52
  Speaker 2: Let's talk about books. What are some of your favorites
• 1:03:55
  Speaker 2: and what are you reading right now.
• 1:03:57
  Speaker 3: So, as I mentioned, I read a lot of history
• 1:04:00
  Speaker 3: oracle novels, and there's an author by the name of
• 1:04:04
  Speaker 3: David Liss who writes about England and coffee trading and
• 1:04:11
  Speaker 3: those type of markets in the eighteen hundreds, and that's
• 1:04:14
  Speaker 3: kind of what I'm reading right and now, because the
• 1:04:18
  Speaker 3: psychological aspect even then applies to today.
• 1:04:23
  Speaker 2: What else have you read recently that you enjoyed.
• 1:04:26
  Speaker 1: I'm going to read Michael Lewis's new book of course.
• 1:04:29
  Speaker 2: I'm excited Sam coming out in September October something like that. Yes, yeah,
• 1:04:34
  Speaker 2: that's gonna be that's gonna be great. So our final
• 1:04:37
  Speaker 2: two questions, what sort of advice would you give to
• 1:04:39
  Speaker 2: a recent college grad who was interested in a career
• 1:04:44
  Speaker 2: in either trading or running a fund.
• 1:04:48
  Speaker 3: So I think all college grads, all all young people.
• 1:04:53
  Speaker 3: You have to be willing to pay your dues. But
• 1:04:57
  Speaker 3: the trading aspect the hedge fund asked, It's a lot
• 1:05:01
  Speaker 3: like sports. The chances of being.
• 1:05:04
  Speaker 1: A pro.
• 1:05:06
  Speaker 3: Is a low probability, So you should try and then
• 1:05:11
  Speaker 3: if you have a chance of success, continue, but if not,
• 1:05:15
  Speaker 3: then you need to pivot because what you don't want
• 1:05:18
  Speaker 3: to be doing is, you know, saying, Okay, I'm going
• 1:05:22
  Speaker 3: to be a lifetime player in the Triple Ace and
• 1:05:28
  Speaker 3: so you know, as in the minor leagues. But if
• 1:05:31
  Speaker 3: you want to pursue it, you have to pursue it.
• 1:05:33
  Speaker 3: But do your own work right coming in And I
• 1:05:37
  Speaker 3: do a lot of global macro and risk assulting, and
• 1:05:39
  Speaker 3: I always tell them, I go, you're not paying me
• 1:05:41
  Speaker 3: to read you the Wall Street Journal or from Bloomberg.
• 1:05:45
  Speaker 3: I go, if you want to have story time, it's great.
• 1:05:47
  Speaker 3: I'll pull up all the Bloomberg articles you want and
• 1:05:49
  Speaker 3: I'll read them to you. So don't rehash other things
• 1:05:53
  Speaker 3: that people can easily get and think you're being innovative.
• 1:05:56
  Speaker 3: Do your own work, and you really need to be analytical.
• 1:06:00
  Speaker 2: And our final question, what do you know about the
• 1:06:02
  Speaker 2: world of trading and investing today? You wish you knew
• 1:06:06
  Speaker 2: fifty years or so ago when you were first getting
• 1:06:08
  Speaker 2: started fifty or forty forty year.
• 1:06:13
  Speaker 1: Yeah, let's let's say forty.
• 1:06:14
  Speaker 2: Yeah, I just put a decade on you. So forty
• 1:06:17
  Speaker 2: years ago when you graduated in the eighties, What do
• 1:06:20
  Speaker 2: you wish you knew then that you know now?
• 1:06:23
  Speaker 3: I think it's always the same. I wish we didn't
• 1:06:28
  Speaker 3: go through our own near death experiences. We had that,
• 1:06:34
  Speaker 3: As I said, every successful traders, we had big volatility
• 1:06:37
  Speaker 3: and eighty six a Tutor that I mentioned earlier, I
• 1:06:41
  Speaker 3: wish I knew how difficult it would be running my
• 1:06:46
  Speaker 3: own CTA. So when I left Tutor, they seated me.
• 1:06:49
  Speaker 3: I bought the team of research. It was sort of
• 1:06:50
  Speaker 3: the first quant trading on the street and the whole
• 1:06:55
  Speaker 3: business aspect of raising money compliance. I wish I had
• 1:06:59
  Speaker 3: a better understanding of that because it's just not your
• 1:07:04
  Speaker 3: track record. And that's another big problem for graduate today.
• 1:07:07
  Speaker 3: I think, oh I have a great track record. This
• 1:07:09
  Speaker 3: isn't field the dreams. If you build it, they don't come.
• 1:07:13
  Speaker 3: You need to have a really really important process, and
• 1:07:16
  Speaker 3: I wish I was better at that at that time.
• 1:07:19
  Speaker 2: My colleague Ben Carlson calls that organizational alpha, and I
• 1:07:24
  Speaker 2: love that phrase.
• 1:07:25
  Speaker 1: It is a great phrase.
• 1:07:26
  Speaker 2: Right. Thank you, Peter for being so generous with your time.
• 1:07:30
  Speaker 2: We have been speaking with Peter Borsch, founding trustee at
• 1:07:34
  Speaker 2: robin Hood and formally director of research at Tutor Investments.
• 1:07:39
  Speaker 2: If you enjoy this conversation, well check out any of
• 1:07:43
  Speaker 2: the previous five hundred or so we've done over the
• 1:07:46
  Speaker 2: past eight and a half years. You can find those
• 1:07:49
  Speaker 2: at iTunes, Spotify, YouTube, wherever you find your favorite podcasts.
• 1:07:55
  Speaker 2: Sign up from my daily reading list at Rid Halts
• 1:07:57
  Speaker 2: dot com, Follow me on Twitter at Ridholt's follow all
• 1:08:01
  Speaker 2: of the Bloomberg Fine Family of podcasts at Podcasts, I
• 1:08:05
  Speaker 2: would be remiss if I did not thank the crack
• 1:08:07
  Speaker 2: team who helps put these conversations together each week. Robert
• 1:08:12
  Speaker 2: Bragg is my audio engineer. Attika Vlbroun is our project manager.
• 1:08:16
  Speaker 2: Paris Wald is my producer. Sean Russo is my researcher.
• 1:08:21
  Speaker 2: I'm Barry Ritolts. You've been listening to Masters in Business
• 1:08:25
  Speaker 2: on Bloomberg Radio.