Latest / Masters in Business / Market Cycles and Investment Strategy With Charles Schwab's Liz Ann Sonders

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Market Cycles and Investment Strategy With Charles Schwab's Liz Ann Sonders · Masters in Business

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
• 0:11
  Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
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  Speaker 2: This week on the podcast strap Yourself in for another
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  Speaker 2: great one. Liz Anne Sanders, chief investment strategist at Schwab,
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  Speaker 2: helping to manage eleven trillion dollars in client assets. What
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  Speaker 2: a fascinating career she's had. She's been on all of
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  Speaker 2: the best of lists. She's just really insightful. What she
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  Speaker 2: does is really kind of unique. She combines top down
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  Speaker 2: market analysis with looking at everything from sentiment to economic
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  Speaker 2: data to fun flows to really what the clients of
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  Speaker 2: Schwab are doing. I know Liz for almost twenty five years.
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  Speaker 2: Every time I speak with her, it's always it's great.
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  Speaker 2: This is another conversation that is also fabulous. With no
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  Speaker 2: further ado, my discussion with Liz Anne Sondershwa's.
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  Speaker 3: Great to see you.
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  Speaker 2: I know, it's always I always have so much on
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  Speaker 2: each other for a long time, a long time. It's
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  Speaker 2: always so much fun chatting with you. I want to
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  Speaker 2: talk about what you're doing with the podcast and what
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  Speaker 2: you're doing at SCHWAB, but I have to start with
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  Speaker 2: a little bit of your background undergraduate economics and polisci
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  Speaker 2: at Delaware MBA and finance from Fordham which at the
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  Speaker 2: time you went there, was it called Gabell. No, it's
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  Speaker 2: now called Gabelli School of Was the career plan always
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  Speaker 2: Wall Street? No?
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  Speaker 3: I honestly, I think if you brought me back to
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  Speaker 3: my college days and asked what is your career plan,
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  Speaker 3: if I was honest, I probably would have said not
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  Speaker 3: quite sure. Yet. The decision to do a double major
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  Speaker 3: there was to keep it very open and broad. All
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  Speaker 3: I knew was that I want to live and work
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  Speaker 3: in New York City. So got out of undergrad pounded
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  Speaker 3: the pavement in New York, but across a spectrum of industries,
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  Speaker 3: not all Wall Street. I interviewed at a sports marketing
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  Speaker 3: firm and an ad agency, and I had two interviews
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  Speaker 3: in a row at Zwig Avatar. Did a lot of
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  Speaker 3: research on the company, which, by the way, this was
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  Speaker 3: in nineteen eighty six, So doing research on a company
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  Speaker 3: meant going to the library, pulling up a microfiche machine,
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  Speaker 3: actually cranking the handle, and look at newspaper clippings, and
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  Speaker 3: was fascinated by Marty Swig, the co founder, and enjoyed
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  Speaker 3: the interview process like the people with whom I met,
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  Speaker 3: and I don't know. A little voice just said, this
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  Speaker 3: seems to make sense.
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  Speaker 2: And I recall reading a book Marty's Wyg wrote, I
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  Speaker 2: want to say in the late nineties when I was
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  Speaker 2: on a trading desk winning on walls, late eighties, late eighties. Well, yes,
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  Speaker 2: I got his book when I started around the time
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  Speaker 2: of the Netscape IPO.
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  Speaker 3: He did, you know, newer versions? He did updated versions.
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  Speaker 2: So whatever that version was in ninety six ninety seven,
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  Speaker 2: And I vividly recall that, how did you how did
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  Speaker 2: you get the gig with Marty's Wyg? What was that
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  Speaker 2: like it?
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  Speaker 3: I was a grunt at the outset. I did whatever
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  Speaker 3: they needed me to do. But they were a firm
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  Speaker 3: that believed in promoting from within and educating their young people,
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  Speaker 3: so I saw that as an opportunity. They paid for
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  Speaker 3: grad school one hundred percent, so I made the easy
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  Speaker 3: financial decision to do that at night while still learning
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  Speaker 3: a living and having my education paid for. And so
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  Speaker 3: many things that I learned from Marty, I could consider
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  Speaker 3: him the first mentor, whether he realized it or not.
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  Speaker 2: People, by the way, people don't realize specially the generation
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  Speaker 2: that came of age in two thousand. What a legend.
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  Speaker 3: He was unbelievable.
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  Speaker 2: I think at one point in time he owned the
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  Speaker 2: most expensive apartment in the United States. Is that true?
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  Speaker 3: Yes, it was the top three floors of the Pierre,
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  Speaker 3: which is now owned by the Commerce Secretary.
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  Speaker 2: H that's amazing. And he was always the answer to Hey,
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  Speaker 2: do any of these technicians make any money? And the
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  Speaker 2: answer is yeah, I'm looking at Marty's wife. I mean,
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  Speaker 2: for the younger folks, go look up Marty's wig. He
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  Speaker 2: was absolutely a legend. I remember him from my early
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  Speaker 2: days because he was on Rukeser.
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  Speaker 3: He was one of the originals on the original Wall
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  Speaker 3: Street week YEP.
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  Speaker 2: I mean back in the day when all of financial
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  Speaker 2: media was an hour that was television a week.
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  Speaker 3: And even it was a half hour. That's eight thirty
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  Speaker 3: pm Friday nights on PBS produced by Maryland Public Television.
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  Speaker 3: And Marty was not only one of the original panelists,
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  Speaker 3: he was I think the original elf, as Lou used
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  Speaker 3: to describe them.
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  Speaker 2: The people came back.
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  Speaker 3: And that's another thing that intrigued me about joining the firm.
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  Speaker 3: Is I remember getting a little bit of a kind
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  Speaker 3: of a wink wink, nod nod from an economics professor
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  Speaker 3: that I had not just to me, but to the class.
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  Speaker 3: And he made a funny comment about given that one
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  Speaker 3: of the jobs that we had as students was to
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  Speaker 3: read the Wall Street Journal every day and just keep
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  Speaker 3: up on markets and the economy, and that if you
• 5:32
  Speaker 3: had too many late nights at the Stone Balloon, you
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  Speaker 3: might want to just get a really brilliant thirty minute
• 5:40
  Speaker 3: recap by watching Wall Street Week on Friday night before
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  Speaker 3: you then go out. So I thought, all right, I'll
• 5:45
  Speaker 3: see what this Wall Street Week is all about, and
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  Speaker 3: so I started watching it before I joined the business,
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  Speaker 3: before I started at at zyg Avatar, and then I
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  Speaker 3: joined the show in nineteen ninety seven, which was surreal.
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  Speaker 2: So you were not that far out of school when
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  Speaker 2: you start.
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  Speaker 3: Well, I was. It was eleven years so since you
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  Speaker 3: and I have talked about our first experience together, which
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  Speaker 3: was on TV TV appearance and I went on the
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  Speaker 3: show as a special guest. So I remember getting the little,
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  Speaker 3: you know, pink slip from the receptionist that told you
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  Speaker 3: who had called. There was voicemail at that time.
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  Speaker 2: It said Lewis R.
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  Speaker 3: Rich de Brof the producer of Wall Street Week called,
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  Speaker 3: They'd like you to come on as a guest, and
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  Speaker 3: I thought it was somebody playing a prank on me.
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  Speaker 3: Really yeah, until I called and it was legit and
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  Speaker 3: I went on as a guest, and then shortly after
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  Speaker 3: that they asked me to become a regular panelist, and
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  Speaker 3: it was a thrill.
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  Speaker 2: So you were Zwag for a number of years. Had
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  Speaker 2: you end up thirteen.
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  Speaker 3: Years eighty six to ninety nine?
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  Speaker 2: How did you end up at US Trust?
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  Speaker 3: So that was kind of funny. I so I was
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  Speaker 3: on the Avatar side of the YG Avatar broad set
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  Speaker 3: of companies, which was the institutional money management side. I
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  Speaker 3: was a portfolio manager co ran stock selection, but I
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  Speaker 3: was always much more intrigued by interested in and with
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  Speaker 3: a desire to spend more of my time doing top
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  Speaker 3: down macro research as as a bottom I just the
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  Speaker 3: inner voice said, you don't really love this that much,
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  Speaker 3: and there wasn't really an opportunity, uh for that. It
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  Speaker 3: wasn't that I was pigeonholed, but it was a growing
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  Speaker 3: role as a portfolio manager. So I got recruited over
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  Speaker 3: to US Trust to co run their large cap growth theory,
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  Speaker 3: which which put me yet again in that position, but
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  Speaker 3: felt like the platform was broader and my inclusion on
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  Speaker 3: the Investment Policy Committee. They actually purposely wanted some top
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  Speaker 3: down analysis based on my learnings for working.
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  Speaker 2: Growth means here's a universe, it's it's one hundred of
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  Speaker 2: the S and P five.
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  Speaker 3: And we were a concentrated manager only owning now less
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  Speaker 3: than twenty five typically with a four to five year
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  Speaker 3: holding period.
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  Speaker 2: So not a closet index there now high active ship.
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  Speaker 3: But I also didn't love the pigeonholing aspect of it,
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  Speaker 3: where you know, the mantra had to be large cap growth.
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  Speaker 3: I liked thinking bigger picture and thinking about different parts
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  Speaker 3: of the market cycle and what works. So ten months
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  Speaker 3: after I joined US Trust, Schwab acquired US Trust.
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  Speaker 2: That was two thousands.
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  Speaker 3: That was two thousand, and you've been there since then,
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  Speaker 3: for it'll be twenty six years at the beginning of
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  Speaker 3: next year. And when I realized I did indeed want
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  Speaker 3: to be adopted by the new parent company was when
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  Speaker 3: Chuck Schwab himself came to New York with our CEO
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  Speaker 3: at the time, Dave Patrick, and sat with me and
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  Speaker 3: said we would like to create this role of chief
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  Speaker 3: investment strategist, which didn't exist at Schwab before. This was
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  Speaker 3: the beginning of our entree into actually giving advice as
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  Speaker 3: opposed to just being a platform for traders.
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  Speaker 2: So let's let's dive into that. So I was going
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  Speaker 2: to ask you what the process was like. But they
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  Speaker 2: acquired us trust for the assets and for the platform.
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  Speaker 2: You were a bonus that came along with it.
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  Speaker 3: Well, well, that's kind of you to say, Well, they
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  Speaker 3: did offer me the role. It had not existed before.
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  Speaker 2: That's a big deal.
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  Speaker 3: And I said yes, please, yeah, absolutely, And the rest
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  Speaker 3: is twenty six years of history.
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  Speaker 2: So let's dive into this. What are the let's take
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  Speaker 2: a look at the numbers on the Schwab platform as
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  Speaker 2: a custodian or however Schwab is touching for one, Okay,
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  Speaker 2: how many trillions of dollars are on that platform?
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  Speaker 3: Eleven point two to three trillion.
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  Speaker 2: All right, so keep working at it.
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  Speaker 3: And that is yeah, yet the size of the US economy.
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  Speaker 2: Wow, that's unbelievable. And at the time, what was Schwab
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  Speaker 2: in two thousand.
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  Speaker 3: Oh gosh, you know what, it was less than that?
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  Speaker 3: Because I remember getting this little plexiglass. Well, no, it
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  Speaker 3: was a it was a holder for sticky notes, uh huh,
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  Speaker 3: and it had a star on it and it said,
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  Speaker 3: you know, one trillion in clin essets. But that was
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  Speaker 3: after Uh, that'sition of me.
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  Speaker 2: And so that's an incredible growth. Schwab really is a
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  Speaker 2: platform that are so many things to so many different people.
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  Speaker 2: There's an institutional business, there's a business and full disclosure.
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  Speaker 2: Were custody at our firm, at Schwab, most of our
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  Speaker 2: assets are there, so you custody for ori I, A
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  Speaker 2: S and others, self directed investors, individuals who doesn't Schwab
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  Speaker 2: work with, it's pretty much everybody.
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  Speaker 3: Well institutions. So the way we define institutional when we
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  Speaker 3: talk about it and use that term somewhat generically, we're
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  Speaker 3: actually referring to the part of the business that you're
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  Speaker 3: involved with. So independent wealth management firms rias that that
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  Speaker 3: platform with Schwab via the custody of assets, but a
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  Speaker 3: heck of a lot more than just that. So that's
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  Speaker 3: how we defined institutional of them totally using rounded numbers here,
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  Speaker 3: but of the ten of the eleven and a quarter
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  Speaker 3: trillion is about evenly divided between individual investors on a
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  Speaker 3: platform self directed and well not always. No, we have
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  Speaker 3: we have a whole wealth management arm that all feeds
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  Speaker 3: not just to the individual investor side of what we do,
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  Speaker 3: but to people in our world, so advisors on our platform.
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  Speaker 3: So that's about evenly split. And then the remainder is
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  Speaker 3: workplace services, so stock plans for big companies and for
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  Speaker 3: one k So it's what we but we were dominated
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  Speaker 3: by individual investors, even on the quote institutional side, because
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  Speaker 3: most of the advisors on our platform manage money for individuals.
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  Speaker 2: That's really so that's really we would.
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  Speaker 3: Consider the advisor our client, but we're providing a platform
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  Speaker 3: there for them, you guys, to advise for the most
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  Speaker 3: part individual investment.
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  Speaker 2: And I know I've told you the story before, but
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  Speaker 2: when we launched our WM in twenty thirteen, we launched
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  Speaker 2: with TD years later acquired by Schwab. Hold that aside,
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  Speaker 2: and we were very data driven. We ran a lot
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  Speaker 2: of analytics, and every time we didn't win a prospect,
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  Speaker 2: when we would go through the list of the reasons,
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  Speaker 2: the number one reason is, hey, you guys don't custody
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  Speaker 2: with Schwab and my money is at Schwab and call
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  Speaker 2: us if you ever decide to true, and finally we
• 13:01
  Speaker 2: all looked at each other, Hey, there's no reason not
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  Speaker 2: to open a second custodian, and so we did, and
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  Speaker 2: it caused like a flood of new clients and new
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  Speaker 2: families joining us. Because but the crazy thing is, it's like,
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  Speaker 2: I have never seen a financial institution with that much
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  Speaker 2: brand loyalty from the audience, from the clients. Because think
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  Speaker 2: about it, when you talk to people about Wells Fargo
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  Speaker 2: or City Bank or any large financial traditional bank. Maybe
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  Speaker 2: a little bit at JP Morgan Chase, but for the
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  Speaker 2: most part, no one says, oh, I don't want to
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  Speaker 2: be with you. You are not affiliated with I'm making
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  Speaker 2: up stuff Key Bank. But we just heard it so
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  Speaker 2: many times it's like, all right, they don't have to
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  Speaker 2: hit me in the head so many times before I
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  Speaker 2: realized this.
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  Speaker 3: The power of our reputation is really extraordinary.
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  Speaker 2: And Schwab dates back.
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  Speaker 3: You know, about fifty three years years, that's easy, the
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  Speaker 3: nineteen seventies. And you know, Chuck has has written about
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  Speaker 3: the history of Schwab and his history. His most recent
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  Speaker 3: book was called Invested, and it was essentially a memoir
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  Speaker 3: of his time in this business.
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  Speaker 2: And when you say Chuck Chuck Schwab himself, Chuck Schwab,
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  Speaker 2: who people used to think wasn't a real guy. Oh,
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  Speaker 2: it's a real guy in the commercials is him, is him,
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  Speaker 2: And he's still up and about. You were telling me
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  Speaker 2: he was. He's just won a golf tournament at eighty eight.
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  Speaker 3: Last year he won the nantucka golf club that's a
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  Speaker 3: member member at eighty seven, and he almost wanted again
• 14:37
  Speaker 3: this year at eighty eight. So regularly shoots below his age.
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  Speaker 3: Still a very active chair of the board. But the
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  Speaker 3: culture that he has imbued in Schwab is really second
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  Speaker 3: to none. And you know, our sort of corporate for
• 14:57
  Speaker 3: lack of a better word, tagline is through client size,
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  Speaker 3: and he has fostered this leave, eat and breathe. Everything
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  Speaker 3: you do has to be from the perspective of clients.
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  Speaker 2: So you're really the perfect person to ask a question,
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  Speaker 2: and I'll ask it specifically about Schwab, but it's obviously
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  Speaker 2: true about the entire industry. You've witnessed a shift from
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  Speaker 2: a lot of self directed investors over to the advisor
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  Speaker 2: driven side. What has that process been like at Schwab.
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  Speaker 2: So we're talking just trillions dollars.
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  Speaker 3: Not just the advisor side, but investors at Schwab who
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  Speaker 3: who want guidance, who want advice, whether it's through advisors
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  Speaker 3: on our platform or directly with us on our private
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  Speaker 3: client side of the business. And it's just the natural
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  Speaker 3: evolution of Schwab moving decades ago from a platform and
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  Speaker 3: for the self directed to a behemoth that actually provides
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  Speaker 3: that guidance and advice now both directly through certain channels
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  Speaker 3: and indirectly through the advisor channel.
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  Speaker 2: So true or false? And I love this question because
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  Speaker 2: so many people doubt it. We are today in a
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  Speaker 2: golden age for investing for individuals. How do you answer that?
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  Speaker 3: Can I say yes, yeah, true, just yes No. I
• 16:30
  Speaker 3: didn't say true.
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  Speaker 2: I said yes yes, golden age of investing.
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  Speaker 3: Well, I think it's both true and false, depending on
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  Speaker 3: how you define okay, explain the age of investing. I
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  Speaker 3: think we are as it relates to individual investors that
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  Speaker 3: understand that discipline is such an important part of the
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  Speaker 3: process that they don't think of getting get out as
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  Speaker 3: investing strategies. I fully agree that those are really gambling
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  Speaker 3: on moments in time. You wrote about it brilliantly in
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  Speaker 3: your book The Emotional Side, And so I think it's
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  Speaker 3: true in the sense that a lot of those more
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  Speaker 3: seasoned investors that take that disciplined approach are are more
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  Speaker 3: equipped now and have more access to UH information and guidance,
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  Speaker 3: and when used in the right way, has been to
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  Speaker 3: the great benefit of their success. But then you have
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  Speaker 3: retail traders, which I'm not here to say that they're,
• 17:33
  Speaker 3: you know, the ultimate contrarian indicator, but I think the
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  Speaker 3: perspective there is one of very short time horizons, the
• 17:41
  Speaker 3: you know, by the dip mentality, which you know, to
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  Speaker 3: their credit.
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  Speaker 2: That works in a bull market.
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  Speaker 3: But a lot of the you know, younger retail trader
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  Speaker 3: uh that was born out of the pandemic era. UH.
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  Speaker 3: It's not that they have blinders on to the long
• 17:59
  Speaker 3: term or the big pick, sure, but they've been they've
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  Speaker 3: been I guess so far anyway to your point, properly
• 18:05
  Speaker 3: schooled by virtue of by the tip has worked. But
• 18:09
  Speaker 3: I'm starting to get some anecdotal evidence that they're I'm
• 18:15
  Speaker 3: not sure that there is a full understanding of what
• 18:18
  Speaker 3: a market cycle actually looks like and that there is downside.
• 18:23
  Speaker 3: So I think there's more bifurcation and there's a wider
• 18:28
  Speaker 3: spread in terms of how investors are approaching the market
• 18:32
  Speaker 3: or how traders are approaching the market, and they they're
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  Speaker 3: not in conflict, but they're kind of at different ends
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  Speaker 3: of the spectrum from a what works, what doesn't work?
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  Speaker 3: What are the benefits of taking a long term approach
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  Speaker 3: having those disciplines as opposed to just you know, fomo,
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  Speaker 3: I'm in and you know, buy every dip.
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  Speaker 2: Think about everybody who was born in the nineteen nineties,
• 18:57
  Speaker 2: by the time they come out of college post financial crisis,
• 19:02
  Speaker 2: they've pretty much only known one of the greatest rampaging
• 19:07
  Speaker 2: markets in history.
• 19:08
  Speaker 3: Was brutal from an economic market perspective, but it was
• 19:12
  Speaker 3: five weeks in the case of the market, right mids
• 19:15
  Speaker 3: in the case of the recession.
• 19:17
  Speaker 2: So although people still didn't believe it throughout that summer,
• 19:21
  Speaker 2: as from the March twenty twenty Lowes till the end
• 19:24
  Speaker 2: of the year, I think the SMP five hundred was
• 19:27
  Speaker 2: up sixty nine percent, and people fought it the whole
• 19:29
  Speaker 2: way because their personal experience didn't jibe with what there
• 19:33
  Speaker 2: was exactly inequities, which is fascinating. Coming up, we continue
• 19:39
  Speaker 2: our conversation with Lizanne Saunders discussing her experience as a
• 19:45
  Speaker 2: market strategist. To Chub, I'm buried Ritults. You're listening to
• 19:49
  Speaker 2: Masters and Business on Bloomberg Radio. I'm Barry rut Holts.
• 20:05
  Speaker 2: You're listening to Masters in Business on Bloomberg Radio. My
• 20:09
  Speaker 2: extra special guest this week is liz Anne Sanders. She
• 20:13
  Speaker 2: is the chief market strategist for Schwab, helping to oversee
• 20:17
  Speaker 2: eleven plus trillion dollars in client assets. So Schwab created
• 20:24
  Speaker 2: the market strategist role for you. What does it mean
• 20:29
  Speaker 2: being a market strategist? How does that differ from either
• 20:33
  Speaker 2: a PM on the equity side or an economist more broadly.
• 20:38
  Speaker 3: Well, it's certainly differentiated from a PM in that I
• 20:41
  Speaker 3: am I'm not picking stocks. I'm not a trader. I
• 20:44
  Speaker 3: don't analyze individual stocks. So it's purely top down.
• 20:50
  Speaker 2: Top down meaning markets, economy. Yes, do you look at sectors?
• 20:54
  Speaker 2: Do you look at now?
• 20:57
  Speaker 3: So we have my colleague and co host on our
• 21:01
  Speaker 3: on Investment podcast as Kathy Jones, So she's my counterpart
• 21:04
  Speaker 3: on the fixed income side. She's our chief fixed income strategist.
• 21:08
  Speaker 3: And I say often it sounds like it's jokingly, but
• 21:12
  Speaker 3: it's actually quite serious that I was thrilled when we
• 21:15
  Speaker 3: brought Kathy on because then I was able to stop
• 21:18
  Speaker 3: pretending like I was a deep dive expert on the
• 21:20
  Speaker 3: fixed income side of things. My background is on the
• 21:22
  Speaker 3: equity side of things. But what's unique I think about
• 21:25
  Speaker 3: this role as as it has existed in the almost
• 21:29
  Speaker 3: twenty six years that I've been at SCHWAB and have
• 21:31
  Speaker 3: been in this role, is it it blends the market
• 21:35
  Speaker 3: analysis with the economic analysis, so we don't have these
• 21:39
  Speaker 3: distinct roles of chief economists and chief investment strategists. And
• 21:43
  Speaker 3: that was always pleasing to me because I'm not sure
• 21:50
  Speaker 3: I would either be as effective or enjoy what I
• 21:53
  Speaker 3: do as much if I had to have my market
• 21:57
  Speaker 3: views beholden to economic views that were completely distinct. I
• 22:03
  Speaker 3: think having that overlap and analysis has been a benefit.
• 22:07
  Speaker 3: I also, because our investor base are almost all individual investors,
• 22:13
  Speaker 3: that's a very different audience that if you're one of
• 22:16
  Speaker 3: the big investment banking research wirehouse firms, where a good
• 22:20
  Speaker 3: chunk of your client base that is a consumer of
• 22:26
  Speaker 3: strategists work being institutions. I think it's a very different
• 22:30
  Speaker 3: animal in terms of what is valuable, what makes sense,
• 22:34
  Speaker 3: and maybe importantly again in keeping with your book, thinking
• 22:38
  Speaker 3: about not just what matters, but what doesn't matter, what
• 22:41
  Speaker 3: shouldn't matter. And I remember one of the first things
• 22:44
  Speaker 3: that Chuck talked to me about twenty five years ago
• 22:48
  Speaker 3: was him not being a believer in the whole year
• 22:53
  Speaker 3: end price target, which was music to my ears, because
• 22:57
  Speaker 3: I think, particularly for individual investors, there's really not that
• 23:00
  Speaker 3: much practical value to that. It's sort of one point
• 23:04
  Speaker 3: in time. Every strategist has to adjust those forecasts constantly.
• 23:10
  Speaker 3: It doesn't tell you about how to manage through market cycles.
• 23:14
  Speaker 3: It's just one end point to one end point, and
• 23:17
  Speaker 3: so that is certainly one of the differentiators as well,
• 23:20
  Speaker 3: in addition to having that blended market analysis and economic
• 23:24
  Speaker 3: analysis role, not sort of falling into the trap of
• 23:29
  Speaker 3: the way strategists get pitted against one another.
• 23:32
  Speaker 2: I love that you call it a trap, because it's
• 23:34
  Speaker 2: easy to see what happens when people make a forecast
• 23:38
  Speaker 2: like that and then they tend to marry it regardless
• 23:42
  Speaker 2: of what data comes along. I think it was Ned
• 23:46
  Speaker 2: Davis's book was called Being Right or Making Money, and
• 23:51
  Speaker 2: he explained how frequently people would just get so hung
• 23:55
  Speaker 2: up on admitting error that they would stay position, the
• 24:00
  Speaker 2: wrong posture, the wrong holdings, rather than admit they were
• 24:05
  Speaker 2: wrong and adjust to.
• 24:06
  Speaker 3: Whatever they and the trend. You know, one of Marty's
• 24:09
  Speaker 3: wig was well known for quite quite a bit, but
• 24:12
  Speaker 3: you know, he coined the term don't fight the fed.
• 24:15
  Speaker 3: But he also was known for saying, the trend is
• 24:17
  Speaker 3: your friend, and so staying in gear requires constant thinking
• 24:24
  Speaker 3: and rethinking. In fact, I always use an example of
• 24:27
  Speaker 3: the perils of the year on price Target. If a
• 24:29
  Speaker 3: strategist at the beginning of nineteen eighty seven basically said
• 24:34
  Speaker 3: the market's going to close pretty flat relative to where
• 24:37
  Speaker 3: it ended nineteen eighty six by the end of the year,
• 24:40
  Speaker 3: they were right from a point to point. However, to
• 24:43
  Speaker 3: suggest that the market was just boring and flat all year,
• 24:48
  Speaker 3: does that little hit, Yeah, it was just a tiny
• 24:51
  Speaker 3: little tick. That was September nineteen. It was no October nineteenth.
• 24:55
  Speaker 3: October nineteenth. But there were you know, there were warning sides.
• 24:58
  Speaker 3: And here can I tell you another funny early story.
• 25:01
  Speaker 3: So I started in the summer of eighty six and
• 25:07
  Speaker 3: as and we were Marty's side of the business, which
• 25:10
  Speaker 3: was mutual funds, which was the Zweig Demenna hedge Fund,
• 25:14
  Speaker 3: which is still ongoing under the leadership of Joe Demenna.
• 25:18
  Speaker 3: We would be generically thought of as market timers. We
• 25:21
  Speaker 3: were tactical ass at allocators on the avatar institutional side,
• 25:26
  Speaker 3: much more traditional market timing on the ZWYG side, particularly
• 25:29
  Speaker 3: the hedge fund and coming into eighty seven, we were
• 25:34
  Speaker 3: over the cross of strategies. Cross strategies were essentially fully invested,
• 25:39
  Speaker 3: but started to get much more pessimistic about the market.
• 25:42
  Speaker 3: In August.
• 25:43
  Speaker 2: You had a huge runoff, huge run up until was
• 25:47
  Speaker 2: it like.
• 25:50
  Speaker 3: And so we started to adjust allocations down more extreme
• 25:56
  Speaker 3: on the hedge fund side, where Marty went I think
• 25:58
  Speaker 3: to essentlely a short position.
• 26:02
  Speaker 2: And famously discuss.
• 26:05
  Speaker 3: The Friday night before the crash. He was on you
• 26:09
  Speaker 3: can YouTube it now and Lou asked him or made
• 26:14
  Speaker 3: a comment. He said, Marty, you seem particularly bearish, and
• 26:20
  Speaker 3: and Marty was seen as this perma bear he.
• 26:23
  Speaker 2: Was just but he wasn't.
• 26:25
  Speaker 3: He was just He always was a nervous He always
• 26:28
  Speaker 3: had a little bit of that that angst and that
• 26:30
  Speaker 3: rumble way. So he would at times be nervous when
• 26:34
  Speaker 3: his view on the market was very bullish. But so
• 26:38
  Speaker 3: then Lou concluded the question with do you think we
• 26:41
  Speaker 3: have a bear market ahead of us? And Marty said, well, no,
• 26:47
  Speaker 3: I think it's more likely to be a crash and
• 26:50
  Speaker 3: pretty much it could happen any day. And then he
• 26:53
  Speaker 3: not only said that, but then he laid out and
• 26:56
  Speaker 3: I think it could be really ugly. But then I
• 26:58
  Speaker 3: think we we immediately rally off the low, but then
• 27:01
  Speaker 3: we probably retest the low before we take off again.
• 27:05
  Speaker 3: So here I am less than a year in the business.
• 27:10
  Speaker 3: We had gone from being almost fully invested in equities
• 27:13
  Speaker 3: down to I don't know twenty or twenty five percent
• 27:16
  Speaker 3: invested in equities right into right before the crash. So
• 27:20
  Speaker 3: the little voice in my head is thinking, what's the
• 27:23
  Speaker 3: big deal? Why is everybody freaking out? You just figure
• 27:25
  Speaker 3: out before the crash that there's going to be a crash,
• 27:29
  Speaker 3: You move money out right, and then you take advantage
• 27:32
  Speaker 3: of cheaper price, you put it back in easy easy, right,
• 27:36
  Speaker 3: Little did I know?
• 27:37
  Speaker 2: And to just reflect how accurate ZUIG was Monday down
• 27:43
  Speaker 2: twenty two percent, a rally that failed the next day.
• 27:47
  Speaker 2: You didn't quite get back down to.
• 27:48
  Speaker 3: You you didn't fully retest.
• 27:49
  Speaker 2: But a day is kind of twenty two eight, all right,
• 27:57
  Speaker 2: I'm rousing and and double check those numbers. I could
• 28:02
  Speaker 2: be wrong, but you know, portfolio insurance was a big
• 28:05
  Speaker 2: part of that, probably made what was a ten percent
• 28:09
  Speaker 2: correction more than double. So maybe that's why you didn't readtest.
• 28:13
  Speaker 2: And then it was off to the race to break.
• 28:16
  Speaker 3: And we had started buying after the crash, so ended
• 28:20
  Speaker 3: the year with just off the charts performance. And again,
• 28:24
  Speaker 3: you know, naive young me is thinking, you don't know
• 28:26
  Speaker 3: why everybody's freaking right so much?
• 28:28
  Speaker 2: Why are these people talking about how difficult this is hard?
• 28:31
  Speaker 2: So the obvious question, how significant was Marty to shaping
• 28:36
  Speaker 2: your framework for understanding.
• 28:39
  Speaker 3: Extraordinarily impactful because I think the thing that resonated with
• 28:44
  Speaker 3: me the most, and you wrote about it in your book,
• 28:47
  Speaker 3: and it's the likes of the Sir John Templeton quote
• 28:50
  Speaker 3: about bull markets are born and pessimism the ground, skepticism mature,
• 28:53
  Speaker 3: and optimism die in euphoria. I think that's such a
• 28:55
  Speaker 3: brilliant way to describe a market cycle, in part because
• 28:57
  Speaker 3: the only terms used in there have to do with
• 28:59
  Speaker 3: them exactly. There's nothing in that line about market cycles.
• 29:03
  Speaker 3: It has anything to do with what we all obsess
• 29:05
  Speaker 3: about on a day to day basis, monetary policy, fiscal policy,
• 29:08
  Speaker 3: what the next inflation report is going to be, even
• 29:11
  Speaker 3: earnings and valuation. And Marty understood that too, and so
• 29:15
  Speaker 3: much of the work that he did was steeped in
• 29:18
  Speaker 3: that sentiment analysis.
• 29:19
  Speaker 2: I love that you brought that up, because so I
• 29:23
  Speaker 2: took the technical analysis training course with Ralph Aknpora, and
• 29:28
  Speaker 2: I don't really think of myself as a technician, but
• 29:31
  Speaker 2: I certainly wouldn't buy anything without looking at a chart.
• 29:35
  Speaker 1: Right.
• 29:36
  Speaker 2: I don't need to see an analysts research report, but
• 29:38
  Speaker 2: I have to at least get a sense of is
• 29:40
  Speaker 2: it trend up? Is it trend down? Has this been
• 29:42
  Speaker 2: going sideways for years? And the best technicians I know
• 29:48
  Speaker 2: have always brought in behavioral economics and sentiment before we
• 29:53
  Speaker 2: called it behavioral, absolutely, and Marty certainly was one of them.
• 29:56
  Speaker 3: Absolutely, And so my maybe sort of added focus on
• 30:04
  Speaker 3: the emotional side, the sentiment side of the market very
• 30:07
  Speaker 3: much was borne out of my time working for Marty,
• 30:11
  Speaker 3: and I still think it's extraordinarily important. And one of
• 30:16
  Speaker 3: the messages we always impart to our investors is ideally
• 30:20
  Speaker 3: you don't figure out the hard way whether there's a
• 30:23
  Speaker 3: wider or narrow gap between your financial resk tolerance and
• 30:27
  Speaker 3: your emotional risk tolerance, because those two at times can
• 30:29
  Speaker 3: be completely different. And I always describe financial risk tolerance
• 30:33
  Speaker 3: as kind of what's on the proverbial paper your time
• 30:36
  Speaker 3: arise in. Do you need income? What is this money for?
• 30:40
  Speaker 3: Is it for retirement diversification? Blah blah blah blah blah.
• 30:44
  Speaker 3: But if you are going to, you know, panic and
• 30:47
  Speaker 3: sell everything at the first bear market level declines in
• 30:51
  Speaker 3: your portfolio, you're maybe not as restolerant investor as you thought.
• 30:56
  Speaker 3: And it's just the vast majority of mistakes that we
• 31:00
  Speaker 3: see extreme mistakes purely driven by emotion.
• 31:04
  Speaker 2: You know, there's a line I remember from when I
• 31:06
  Speaker 2: was on a trading desk that I didn't really understand then,
• 31:10
  Speaker 2: but it sums up that gap between your financial risk
• 31:13
  Speaker 2: tolerance and your emotional risk tolerance, which is figure out
• 31:17
  Speaker 2: who you are, because Wall Street is an expensive place
• 31:21
  Speaker 2: to learn exactly right, You don't know who you are.
• 31:23
  Speaker 2: You don't know what your emotional pain allowance is. You
• 31:27
  Speaker 2: don't want to panic out. The word capitulation technically means surrender,
• 31:34
  Speaker 2: so you go to a march O nine. That capitulation
• 31:38
  Speaker 2: meant people just couldn't take the pain anymore. Make it stop,
• 31:42
  Speaker 2: just get me out of everything. And that's how bottoms are.
• 31:44
  Speaker 3: Can I share the March O nine?
• 31:46
  Speaker 2: Oh, we were talking about We were talking about it.
• 31:48
  Speaker 3: But we didn't have microphones in front of us, so
• 31:52
  Speaker 3: it was let's go back to March sixth of two
• 31:56
  Speaker 3: thousand and nine. So I lived in Darien, Connecticut for
• 32:00
  Speaker 3: twenty two years. We raised our kids in dairy Enne
• 32:04
  Speaker 3: and it's one of the hotbeds of Wall Street.
• 32:07
  Speaker 2: In fact, bedroom communities short communitation.
• 32:09
  Speaker 3: Short commune to the city. Our town made the cover
• 32:13
  Speaker 3: of BusinessWeek in two thousand and eight the latter part
• 32:16
  Speaker 3: of two thousand and eight as the town most impacted
• 32:19
  Speaker 3: by the financial crisis in the country, and they did
• 32:22
  Speaker 3: it based on the percentage of the working population that
• 32:25
  Speaker 3: worked either on Wall Street in some capacity or in
• 32:27
  Speaker 3: real estate, and so it was I was surrounded by
• 32:33
  Speaker 3: Wall Street people, not a lot of Wall Street women.
• 32:37
  Speaker 3: It was also a town where most of the women
• 32:41
  Speaker 3: who were raising kids were stay at home, so I
• 32:45
  Speaker 3: was always steeped in conversation about the markets, and in
• 32:48
  Speaker 3: the role that I had, I would always get peppered
• 32:50
  Speaker 3: with questions So my husband and I are at a
• 32:53
  Speaker 3: dinner party in dairy Enne. It was toward the end
• 32:56
  Speaker 3: dinner and dessert had served, maybe about a quarter of
• 32:59
  Speaker 3: the people had left, a smaller crowd just sitting around chatting,
• 33:02
  Speaker 3: and the host of the party, who was at that
• 33:04
  Speaker 3: time a thirty plus year veteran of Wall Street, said, Lezanne,
• 33:09
  Speaker 3: I must say I don't envy you right now. And
• 33:12
  Speaker 3: he was a bit dramatic, and he kind of paused
• 33:14
  Speaker 3: for effect, and I said, oh, what do you mean?
• 33:18
  Speaker 3: And he said, well, I really think that there's no
• 33:21
  Speaker 3: chance that this stock market ever gets to another high.
• 33:24
  Speaker 3: I think there's a decent chance that retail investors will
• 33:27
  Speaker 3: never buy again, never, never, just which makes me question
• 33:32
  Speaker 3: the viability of a company like Schwab. And So I
• 33:36
  Speaker 3: don't even remember what I said. I think I did
• 33:41
  Speaker 3: some generic version. Well I beg to differ, but I didn't.
• 33:44
  Speaker 3: I was also ready to leave. You know, I like
• 33:47
  Speaker 3: a nine handle on my bedtime, So if it's eleven thirty,
• 33:50
  Speaker 3: I'm like, okay, chop chop. So I just I wanted
• 33:54
  Speaker 3: to end the night. We get in the car, unprompted,
• 33:59
  Speaker 3: and I haven't had to a story at all. Before
• 34:02
  Speaker 3: my husband puts the key in the car. He looked
• 34:03
  Speaker 3: to me, he said, did you hear it? And I said,
• 34:06
  Speaker 3: the bell ringing. He said, I knew you were thinking that.
• 34:09
  Speaker 3: So I called my friend the next morning and I said,
• 34:13
  Speaker 3: I am working on a report. And all of my
• 34:16
  Speaker 3: research reports written research reports. I use rock song titles,
• 34:19
  Speaker 3: some rock chick from way back. So I said, I
• 34:22
  Speaker 3: am working on a report that I want a title,
• 34:24
  Speaker 3: Here comes the Sun? Can I share the anecdote?
• 34:27
  Speaker 2: No name, just no name.
• 34:28
  Speaker 3: I said, I'm not going to mention name. He said, sure,
• 34:31
  Speaker 3: I think you're going to regret it. Every time I
• 34:33
  Speaker 3: see him, he does like the fists to the forehead, like,
• 34:37
  Speaker 3: oh my gosh. And that was when the last person
• 34:42
  Speaker 3: is standing has gone down, that is, And I think
• 34:46
  Speaker 3: that's interesting. What's interesting about senema is we know sentiment
• 34:49
  Speaker 3: at extremes serves as a contrarian indicator.
• 34:52
  Speaker 2: Right most of the time, you could pretty much ignore
• 34:54
  Speaker 2: it without middle ring.
• 34:55
  Speaker 3: Without anything resembling precise timing. That said, as we all
• 34:59
  Speaker 3: earned in the late nineteen nineties, extremely optimistic sentiment can
• 35:03
  Speaker 3: last for a really long time. You know. Greenspan made
• 35:06
  Speaker 3: is a rational exuberance common.
• 35:07
  Speaker 2: In ninety December ninety seven.
• 35:09
  Speaker 3: It wasn't until you know, three plus years later that
• 35:11
  Speaker 3: the market top.
• 35:12
  Speaker 2: Down in March two thousand, almost four years.
• 35:14
  Speaker 3: That said, when sentiment gets to such an extreme of despair,
• 35:18
  Speaker 3: it's not a precise contrarian timing, but there's a narrower window.
• 35:23
  Speaker 3: Pay attention, yes, pay more attention to extremes of despair
• 35:28
  Speaker 3: than you do extremes of enthusiasts, because the ladder can
• 35:32
  Speaker 3: last a long time.
• 35:33
  Speaker 2: Tops are a process. Spotttoms are a moment, absolutely, And
• 35:37
  Speaker 2: you know, there are all these old trader cliches and stuff,
• 35:40
  Speaker 2: but they become cliches for a reason. And you know,
• 35:46
  Speaker 2: we all experience the world in a very narrow window
• 35:51
  Speaker 2: of as eight billion people on the planet. Our experiences
• 35:55
  Speaker 2: are maybe tenth of a percent of what the rest
• 35:58
  Speaker 2: of the world is experiencing, and so we tend to
• 36:01
  Speaker 2: extrapolate out to the rest of the world. But very
• 36:04
  Speaker 2: often what's happening in the markets is not reflecting your
• 36:09
  Speaker 2: personal experience. But after you've lived through enough cycles, you
• 36:14
  Speaker 2: start to be able to hear those sort of things
• 36:17
  Speaker 2: I had that was a pure death of equities business
• 36:20
  Speaker 2: we call cover from the late seventies and a year
• 36:24
  Speaker 2: or two later that was it. It was the next
• 36:26
  Speaker 2: thousand per second market. Yeah, absolutely amazing story.
• 36:30
  Speaker 3: I have one other anecdote that's an interesting one to
• 36:33
  Speaker 3: think about how emotions come into play. Was out in
• 36:36
  Speaker 3: Silicon Valley area, maybe about a year ago, a little
• 36:40
  Speaker 3: less than a year ago, and heard from a client
• 36:43
  Speaker 3: that he had finally given in to his financial consultant
• 36:47
  Speaker 3: suggestion that he trimmed just back about ten percent of
• 36:49
  Speaker 3: his n video holdings. He was an ex employee, had
• 36:52
  Speaker 3: a lot just you know, diversification.
• 36:55
  Speaker 2: Right, We're going to leave some money on the table
• 36:57
  Speaker 2: in order to reduce draw down Volatiley.
• 37:00
  Speaker 3: He ended up splitting the difference. He didn't want to
• 37:02
  Speaker 3: trim any He trimmed five percent, and then the stock
• 37:05
  Speaker 3: went up by twenty some odd percent in the short term,
• 37:09
  Speaker 3: and he was mad at the financial consultant that the
• 37:12
  Speaker 3: stock had gone up, and to his our financial consultant's credit, said,
• 37:17
  Speaker 3: would you really be happier if the ninety five percent
• 37:20
  Speaker 3: you still own went down twenty percent?
• 37:22
  Speaker 2: Listen in the beginning of this show, Video psychologists value
• 37:26
  Speaker 2: that he was almost more, and to his credit, he said,
• 37:30
  Speaker 2: you know what, that's the way I should think about it.
• 37:32
  Speaker 3: Was more concerned about the top tick the bottom tick
• 37:35
  Speaker 3: I trimmed it wasn't I brilliant because then the stock
• 37:38
  Speaker 3: went down twenty percent. So our emotions play tricks on
• 37:42
  Speaker 3: us in a lot of different directions.
• 37:44
  Speaker 2: You brought up my book. I try not to talk
• 37:46
  Speaker 2: about it on the show. Well, the regret minimization chapter
• 37:51
  Speaker 2: is all about your role as an individual investor is
• 37:55
  Speaker 2: not to outperform the market or top tick or bottom
• 37:58
  Speaker 2: tick stocks. It's hey, how can you avoid making decisions
• 38:02
  Speaker 2: that you're gonna say ten years later? What an idiot?
• 38:05
  Speaker 2: I was, just as Charlie Munger said, what can you
• 38:08
  Speaker 2: do to be less stupid? And if you know, we
• 38:12
  Speaker 2: see these portfolios that started out as a million or
• 38:15
  Speaker 2: two million dollars, but through either smarts or good luck
• 38:19
  Speaker 2: or some combination, they had a big slug of Nvidia
• 38:23
  Speaker 2: ten years ago and now they have a twenty million
• 38:25
  Speaker 2: dollar portfolio, eighteen million of which is in Vidia. Hey,
• 38:29
  Speaker 2: do you really want to ride this up and down?
• 38:31
  Speaker 3: You've won yet?
• 38:32
  Speaker 2: Me think about what twenty million dollars in long term
• 38:36
  Speaker 2: investing does for you. Do you really want to ride
• 38:39
  Speaker 2: this down when it takes one of its regular drawdowns,
• 38:42
  Speaker 2: and what I want to say it gave up about
• 38:45
  Speaker 2: a trillion dollars in market cap this year before recovering.
• 38:50
  Speaker 3: But can I can I say something else. I'm not
• 38:52
  Speaker 3: an analyst. I don't cover Nvidia, but the whole focus,
• 38:55
  Speaker 3: the uber focus on the Magnificent seven. Let's just use
• 38:57
  Speaker 3: that as an example of a cohort. So we're dealing
• 39:02
  Speaker 3: with cap weighted indexes in the case of the SMP
• 39:05
  Speaker 3: and the NASDAC, and I think one of the messages
• 39:07
  Speaker 3: we impart to individual investors is, don't feel like you
• 39:11
  Speaker 3: have to have the same concentration as what's embedded in
• 39:14
  Speaker 3: these cap weighted indexes. That's an institutional problem. If you're
• 39:16
  Speaker 3: benchmarked against the SMP on a quarterly basis, you are
• 39:19
  Speaker 3: at the mercy of the construction of that index. But
• 39:22
  Speaker 3: as an example of how I describe this, in Vidia
• 39:26
  Speaker 3: is the best performing stock within the mag seven year
• 39:29
  Speaker 3: to date, but it's the forty seventh best performing stock
• 39:32
  Speaker 3: in the S and P five hundred. It's the number
• 39:35
  Speaker 3: one contributor to S and P gains by virtue of
• 39:39
  Speaker 3: the multiplier of the cap size. So there's forty six
• 39:43
  Speaker 3: stocks in the SMP that are outperforming in video this
• 39:47
  Speaker 3: year in Vidias I think ranked number six hundred and
• 39:51
  Speaker 3: thirty something in the NASDAK, meaning there's six hundred and
• 39:54
  Speaker 3: thirty some odd stocks within the NASDAQ that are outperforming
• 39:57
  Speaker 3: the best performing MAG seven. So it's the constant trait.
• 40:01
  Speaker 3: It's the contribution that sometimes gets conflated with the performance.
• 40:07
  Speaker 2: I have a buddy who's a technician who looks at
• 40:10
  Speaker 2: a ratio of the marketcap SMP versus the ecal weight SMP,
• 40:15
  Speaker 2: and what we've been seeing this year is the equal weight.
• 40:20
  Speaker 2: I'm trying to remember where we are now. I haven't
• 40:21
  Speaker 2: looked at it recently, but when it's going up, it's
• 40:23
  Speaker 2: telling you the big caps are faltering. And when the
• 40:26
  Speaker 2: ratio is going down, it's telling you the big caps
• 40:28
  Speaker 2: are doing well. Unless I'm doing that backwards. It depends
• 40:31
  Speaker 2: on which one is the numertor which one is the denominator.
• 40:35
  Speaker 2: But clearly the outsized weight market cap wise is Nvidia
• 40:40
  Speaker 2: number one or two behind Microsoft or Apples.
• 40:43
  Speaker 3: Number one right now, but it's been you know, Meta
• 40:47
  Speaker 3: and Alphabet have actually been kind of battling, and then
• 40:50
  Speaker 3: also Microsoft. Those are the four of the mags seven
• 40:52
  Speaker 3: that are outperforming the S and P or to date,
• 40:54
  Speaker 3: the other three are underperforming. And in fact, a few
• 40:56
  Speaker 3: days ago, because I tracked this on a daily basis,
• 40:59
  Speaker 3: Apple was down I think seven percent year to date.
• 41:02
  Speaker 3: That was its worst year to date performance and it
• 41:06
  Speaker 3: was the five hundred and third ranked contributor to the SMP.
• 41:11
  Speaker 3: So the multiplier of capsize works in the other direction
• 41:14
  Speaker 3: if you're an underperformer as well. A lot of people say, well,
• 41:17
  Speaker 3: what do you mean five hundred and three the SMBs
• 41:19
  Speaker 3: five hundred stock in B shares, But you've got share exactly.
• 41:23
  Speaker 2: So that's a great trivia question. How many companies? How
• 41:26
  Speaker 2: many stocks?
• 41:27
  Speaker 3: How many stocks are in the S and P five
• 41:28
  Speaker 3: hundred and there's also not two thousand in the rust
• 41:30
  Speaker 3: of two thousand?
• 41:31
  Speaker 2: Are the Wilship five thousands like thirty?
• 41:33
  Speaker 3: Well, yeah, the Wilshire five thousand used to be about
• 41:35
  Speaker 3: eight thousand stocks and now there's just fewer stocks.
• 41:39
  Speaker 2: Roughly absolutely coming up, we continue our conversation with Lysanne
• 41:42
  Speaker 2: Sonder's market strategist for Schwab discussing the current environment. I'm
• 41:48
  Speaker 2: Barry Rittalls. You're listening to Masters in Business on Bloomberg Radio.
• 42:05
  Speaker 2: I'm Barry Ridults. You're listening to Master some Business on
• 42:08
  Speaker 2: Bloomberg Radio. My extra special guest this week is les
• 42:12
  Speaker 2: Ane Soanders. She is the chief market strategist at Schwab,
• 42:17
  Speaker 2: helping to oversee eleven trillion dollars in change in client assets.
• 42:23
  Speaker 2: So I went back and looked at my notes. The
• 42:25
  Speaker 2: last time we had a conversation like this was spring
• 42:29
  Speaker 2: of twenty twenty four, was six months before the election.
• 42:33
  Speaker 2: I don't think the election surprised many people. It sort
• 42:36
  Speaker 2: of felt like that was inevitable. Maybe that's a little
• 42:39
  Speaker 2: bit of hindsight bias. How has this year played out
• 42:43
  Speaker 2: since January twentieth relative to expectations?
• 42:47
  Speaker 3: Well, you know, let's focus on not so much the
• 42:51
  Speaker 3: beginning of the year, but the setup going into April second.
• 42:55
  Speaker 3: I think that was a pivotal point because we knew
• 42:59
  Speaker 3: tariffs were coming. But I think there was complacency as
• 43:01
  Speaker 3: to what the announcement would be on April second, an
• 43:04
  Speaker 3: assumption that, okay, ten percent across the board tariffs. It's
• 43:07
  Speaker 3: kind of built into expectations.
• 43:08
  Speaker 2: You call it complacency. I call it a failure of imagination.
• 43:12
  Speaker 3: Because afterwhids failure to imagine the cheesecake factory menu being
• 43:16
  Speaker 3: held up, and reciprocal tariffs of a massive size.
• 43:21
  Speaker 2: Yeah, right, Because you think about it, he talked about tariffs.
• 43:25
  Speaker 2: I called himself tariff man. It's the most beautiful in
• 43:27
  Speaker 2: the dictionary. None of us imagined that he would just and.
• 43:31
  Speaker 3: That reciprocity wasn't about tariffs that other countries had as
• 43:36
  Speaker 3: part of their policy, but reciprocity relative to trade deficits,
• 43:40
  Speaker 3: and the confusion that that brought about when you think
• 43:44
  Speaker 3: about there are many countries, particularly.
• 43:47
  Speaker 2: Smaller Vietnam is the classic using.
• 43:49
  Speaker 3: But also you know the Madagascar and Bangladesh. We're never
• 43:52
  Speaker 3: going to have a trade surplus. They can't afford to
• 43:55
  Speaker 3: buy thirteeny and in the case of you know, a
• 43:59
  Speaker 3: place like Madagascar are they produce most of the vanilla
• 44:01
  Speaker 3: in the world. That gives them literally and figuratively an industry,
• 44:05
  Speaker 3: and they can't afford to buy what we export, which
• 44:08
  Speaker 3: is much more value add So I think that was
• 44:10
  Speaker 3: a big surprise factor.
• 44:13
  Speaker 2: A math effectively a conceptual math error.
• 44:17
  Speaker 3: Yeah, and of course running trade deficits. The other side
• 44:20
  Speaker 3: of that is a capital a count surplus, so we
• 44:23
  Speaker 3: export dollars into the rest of the world, and those
• 44:26
  Speaker 3: dollars have to be put to work, and they get
• 44:28
  Speaker 3: put in some and equities, and so I think that
• 44:33
  Speaker 3: became a significant concern. I also have been really shocked
• 44:38
  Speaker 3: Berry at how the general public doesn't understand literally who
• 44:44
  Speaker 3: pays the tariffs.
• 44:45
  Speaker 2: It's a vat tax, it's evaluated tax.
• 44:47
  Speaker 3: On the first time, I decided, I was speaking to
• 44:50
  Speaker 3: an audience in Naples, Florida in the spring that well
• 44:55
  Speaker 3: to do audience, so assuming they have some investment expertise,
• 44:59
  Speaker 3: but we're we're not deep in the import export business.
• 45:03
  Speaker 3: And I decided, let me just lay out the actual
• 45:05
  Speaker 3: definition of tariffs. I said, notwithstanding the shorthanded headlines of
• 45:09
  Speaker 3: tariffs on China, tariffs on Mexico fill in the blank,
• 45:13
  Speaker 3: tariffs are paid by the US company importing the goods,
• 45:16
  Speaker 3: are not paid by the targeted country. It is not
• 45:20
  Speaker 3: the case that, as I've heard from friends who didn't
• 45:22
  Speaker 3: understand how this work, that in order for China to
• 45:25
  Speaker 3: export goods into the United States, China has to pay
• 45:27
  Speaker 3: a tariff to the United States. Barry, do you know
• 45:29
  Speaker 3: how many people came up to me after that event
• 45:31
  Speaker 3: and said I had no idea, and that's what's a
• 45:35
  Speaker 3: little frustrating because there's still that shorthand and at times
• 45:40
  Speaker 3: when there are comments made by the administration that China
• 45:44
  Speaker 3: again fill in the blank of the country paying us
• 45:46
  Speaker 3: more in tariffs, it's the US company. It's a tax
• 45:49
  Speaker 3: on US companies. Now a valid debate is who ultimately
• 45:55
  Speaker 3: bears the cost and is it the exporters that will
• 45:58
  Speaker 3: lower their price to offset the tariff that the US
• 46:01
  Speaker 3: company has to pay. Very little indication that that is happening.
• 46:04
  Speaker 3: And then of course it's do companies need it in
• 46:06
  Speaker 3: their profit margins or do they pass it on to.
• 46:09
  Speaker 2: But either way, either companies are going to have lower profits,
• 46:12
  Speaker 2: which means the stock market could support a lower pe multiple,
• 46:17
  Speaker 2: or there's only so many dollars it's finite, right if
• 46:21
  Speaker 2: they're so what we saw, we saw this is taking
• 46:23
  Speaker 2: place in three steps in anticipation of the tariffs going
• 46:28
  Speaker 2: into effect, and especially with the ninety eight pason.
• 46:31
  Speaker 3: April well, so that was the thing that has happened.
• 46:34
  Speaker 2: Excess import inventory.
• 46:35
  Speaker 3: Bill one week from April second to the intra day
• 46:39
  Speaker 3: low on April ninth, there was sort of a complete
• 46:42
  Speaker 3: about phase. So what none of US can do is
• 46:45
  Speaker 3: try to gauge what the next social media post is
• 46:49
  Speaker 3: going to be. There's been so many fits and starts
• 46:52
  Speaker 3: from a tariff perspective, whether it's delays, tariffs coming down exceptions.
• 46:58
  Speaker 3: This has been an elongate process. It was certainly wasn't
• 47:01
  Speaker 3: a moment in time kind of thing. But what we
• 47:03
  Speaker 3: can analyze, especially as as a strategist, are the setups.
• 47:07
  Speaker 3: So we already talked about the setup going into April. Second, well,
• 47:11
  Speaker 3: the setup shifted very quickly, so you went from complacent
• 47:16
  Speaker 3: sentiment to despairing sentiment.
• 47:18
  Speaker 2: You had a VIXA in the low teens that spiked
• 47:21
  Speaker 2: up by thirty and I want on the eighth, I
• 47:24
  Speaker 2: wanted to buy, and I'm like, I have no idea,
• 47:27
  Speaker 2: what the hell the next tweet is going to be?
• 47:29
  Speaker 2: Can I really put money in my personal account put
• 47:32
  Speaker 2: money on at risk that could be destroyed by it.
• 47:35
  Speaker 3: But then then you had the market technically oversold, breath
• 47:39
  Speaker 3: and fully washed out. So then you get the really
• 47:42
  Speaker 3: just incrementally positive newsday on April night and off to
• 47:46
  Speaker 3: the races. But then you had the power of the
• 47:49
  Speaker 3: retail trader and that cohort has become unbelievably power powerful,
• 47:53
  Speaker 3: representing somewhere in the twenty to twenty five percent of
• 47:55
  Speaker 3: daily trading volume, and that by the dip mentality was
• 48:00
  Speaker 3: such a fuel for the market. What concerns me a
• 48:02
  Speaker 3: little bit now is if I track a lot of
• 48:05
  Speaker 3: the baskets to track like micro baskets of stocks, Goldman
• 48:09
  Speaker 3: has a lot of them, Ubs has the Meme stock basket.
• 48:12
  Speaker 3: You go back to that inter day low on April ninth,
• 48:15
  Speaker 3: and it's baskets like the Memes, nonprofitable tech, heavily shorted stocks.
• 48:20
  Speaker 3: That is the perfect example of retail traders kind of
• 48:23
  Speaker 3: powering this market higher. And in the heavily shorted piece
• 48:27
  Speaker 3: of that, it's also suggested maybe of retail traders with
• 48:31
  Speaker 3: a little bit of the stiket to the man which
• 48:33
  Speaker 3: which throw the initial Meme stock plays back in twenty
• 48:37
  Speaker 3: twenty one thing. Yeah, and it's it's alive and well again.
• 48:42
  Speaker 3: It actually has forced institutions in some cases to cover shorts,
• 48:47
  Speaker 3: which has added to the fuel. Now, I think as
• 48:50
  Speaker 3: we think about the setup, we're arguably back in a
• 48:53
  Speaker 3: similar pre April second a bit of complacency and which
• 48:59
  Speaker 3: maybe means vulnerability to the extent you get some sort
• 49:02
  Speaker 3: of negative cost.
• 49:03
  Speaker 2: So that's where I wanted to go. Since we're talking
• 49:05
  Speaker 2: about the current environment. It felt like a lot of
• 49:08
  Speaker 2: savvy companies loaded up on inventory in that ninety day
• 49:13
  Speaker 2: pause front run of the tariffs right exactly, and then
• 49:16
  Speaker 2: they were capable until that ran down of not really
• 49:21
  Speaker 2: being affected by tariffs. And then even as the tariffs
• 49:25
  Speaker 2: started to bite, they see it seemed like they were
• 49:29
  Speaker 2: eating the increase and not passing it along. But that
• 49:33
  Speaker 2: can only go on for so long. It feels like
• 49:35
  Speaker 2: the next phase is consumers are going to pay.
• 49:38
  Speaker 3: And to your point, Barry, there there wasn't much of
• 49:42
  Speaker 3: that eating it at the early stages because of that
• 49:45
  Speaker 3: inventory build by front running the tariffs and building inventories
• 49:50
  Speaker 3: at a low cost basis providing some time flexibility around
• 49:55
  Speaker 3: when to make the decision of eating it and the
• 49:57
  Speaker 3: profit margins or passing it on to the consumers. We're
• 50:01
  Speaker 3: now starting to see attempts to pass on to the consumer.
• 50:04
  Speaker 3: But maybe the more interesting thing to consider right now
• 50:07
  Speaker 3: is so much focus on goods that are impacted by tariffs,
• 50:11
  Speaker 3: what's the rate of inflation in those goods? Trying to
• 50:14
  Speaker 3: gauge the tariff impact on the inflation statistics. But what
• 50:18
  Speaker 3: we're also starting to see is demand destruction and switching
• 50:22
  Speaker 3: on the part of consumers. So I think we have
• 50:24
  Speaker 3: to analyze the impact of tariffs in a parallel fashion,
• 50:28
  Speaker 3: not just gauging what the inflation impact is. And you
• 50:31
  Speaker 3: can do that by separating out goods and services within
• 50:34
  Speaker 3: the goods categories of an inflation metric like CPI look
• 50:38
  Speaker 3: at those that are directly impacted by tariffs, not impacted
• 50:41
  Speaker 3: by tariffs, but there's the demands destruction side of things.
• 50:44
  Speaker 3: So we track the weekly consumer spending data, and if
• 50:48
  Speaker 3: you separate that into tariff impacted categories, that's where you're
• 50:52
  Speaker 3: seeing a compression in that spend.
• 50:54
  Speaker 2: So to be fair, when you look at the US
• 50:57
  Speaker 2: as a thirty thirty one trillion dollar economy, when you
• 51:00
  Speaker 2: look at the value of imported and by the way,
• 51:03
  Speaker 2: that economy is much more services than goods oriented, and
• 51:07
  Speaker 2: then you look at the percentage of goods that are imported,
• 51:11
  Speaker 2: it's a trillion or two trillion out of I know
• 51:14
  Speaker 2: it sounds crazy to say, eh, what's a trillion, but
• 51:17
  Speaker 2: it's a trillion out of thirty plus trillion dollars. So
• 51:21
  Speaker 2: the worst case scenario is it takes a quarter or
• 51:24
  Speaker 2: half a point out of GDP but probably doesn't tip
• 51:27
  Speaker 2: us into a recession. Is that a fair way to
• 51:30
  Speaker 2: describe it.
• 51:30
  Speaker 3: Yeah, in and of itself, it probably doesn't. But there's,
• 51:33
  Speaker 3: you know, the feedback loop that happens if company right labor.
• 51:37
  Speaker 3: Where if companies because they don't have that ability to
• 51:41
  Speaker 3: pass most of it onto consumers in part because of
• 51:44
  Speaker 3: the demand destruction that I'm talking about, then there's that
• 51:47
  Speaker 3: eating and profit margins, and then does that feed into
• 51:50
  Speaker 3: the labor market side of things. I think that's why
• 51:52
  Speaker 3: the FED did what it did, the risk, the risk management,
• 51:55
  Speaker 3: the insurance cut to try to stem ay weakness in
• 51:58
  Speaker 3: the labor circuit.
• 51:59
  Speaker 2: So let's talk about the crosscurrents since you do both
• 52:01
  Speaker 2: markets and the economy. We've had a softening labor market,
• 52:05
  Speaker 2: at least in the past few months, and then the
• 52:07
  Speaker 2: whole I don't know if that re statement is precise,
• 52:12
  Speaker 2: but it certainly makes it clear we were too optimistic
• 52:16
  Speaker 2: about the labor market over the past four quarters. Inflation
• 52:21
  Speaker 2: sort of residual, sticky inflation that hasn't come down to
• 52:25
  Speaker 2: the FEDS two percent target. We can argue about whether
• 52:28
  Speaker 2: that really should be a three percent target, but hold
• 52:30
  Speaker 2: that aside. Yet at the same time, we see corporate
• 52:35
  Speaker 2: profits continue to grow and markets making new all times highs,
• 52:39
  Speaker 2: which that combination expanding profits all time price hise tends
• 52:44
  Speaker 2: to be bullish historically. How do you navigate all of
• 52:47
  Speaker 2: these positives and negatives?
• 52:49
  Speaker 3: Well, here's one way to think about the connectivity between
• 52:53
  Speaker 3: the market and the economy. I think it's very circular
• 52:56
  Speaker 3: right now, or maybe chicken and egg. And what does
• 53:00
  Speaker 3: does make me harken back to the late nineteen nineties
• 53:03
  Speaker 3: as a bit of a comp to the current environment.
• 53:05
  Speaker 3: It's not so much is it a bubble? And there's
• 53:07
  Speaker 3: more there there in the AI world.
• 53:10
  Speaker 2: A lot of revenue, a lot of actual.
• 53:11
  Speaker 3: Denominator in the valuation equations, right, Not clicks and eyeballs,
• 53:17
  Speaker 3: not every company just adding dot com, you know, to
• 53:20
  Speaker 3: the end of their name, but the wealth effect. And
• 53:24
  Speaker 3: it's chicken and egg. And what makes me think back
• 53:27
  Speaker 3: to the late nineteen nineties is in that ninety nine
• 53:30
  Speaker 3: blowoff into the peak in two thousand, whether it was
• 53:34
  Speaker 3: valuation metrics like the Buffet model, which looks at total
• 53:37
  Speaker 3: market cap of all US stocks as a share of
• 53:40
  Speaker 3: total GDP.
• 53:41
  Speaker 2: Which is at all time highs which and way.
• 53:44
  Speaker 3: Higher than it was back at the peak in ninety
• 53:46
  Speaker 3: nine or two thousand. At the time, households exposure to
• 53:49
  Speaker 3: equities as a share of their financial assets well at
• 53:52
  Speaker 3: an all time high, significantly higher. So if we remember
• 53:56
  Speaker 3: when the market topped out in March of two thousand
• 54:00
  Speaker 3: and then we started what was a two and a
• 54:01
  Speaker 3: half year bear market, we ended up getting a recession
• 54:04
  Speaker 3: declared in two thousand and one. It was a very
• 54:07
  Speaker 3: mild recession. It was one of the proof points which
• 54:10
  Speaker 3: for what I always say, drives me crazy that people
• 54:13
  Speaker 3: think of recession as traditionally or classically defined as two
• 54:17
  Speaker 3: quarters in a row of GDP. That's never been the
• 54:19
  Speaker 3: definition of recession NB. Well, it drives me crazy. And
• 54:23
  Speaker 3: in fact, one with the benefit of revisions, wasn't two
• 54:27
  Speaker 3: quarters in a row of negative GDP?
• 54:29
  Speaker 2: Same thing? In twenty twenty two people were talking about
• 54:32
  Speaker 2: it the revision.
• 54:33
  Speaker 3: The revision took out that one plus plus.
• 54:36
  Speaker 2: When you have a spike in inflation, it's not that
• 54:40
  Speaker 2: the economy is contracting, it's that we back.
• 54:43
  Speaker 3: Out increase exactly.
• 54:44
  Speaker 2: The economy is so hog that inflation makes it look negative.
• 54:48
  Speaker 2: It's not a contraction, it's just a price problem.
• 54:51
  Speaker 3: But that one recession was actually very mild.
• 54:55
  Speaker 2: Began in March, I think ended in October.
• 54:58
  Speaker 3: Short, it was mild. There was not really a financial
• 55:02
  Speaker 3: system crisis. It wasn't a credit crunch. I think it
• 55:06
  Speaker 3: was the weakness in the stock market caused the economy
• 55:09
  Speaker 3: to contract because of the wealth effect at the time.
• 55:12
  Speaker 2: I'm going to take it just a step further. I
• 55:15
  Speaker 2: have vivid recollections of speaking to people speaking to clients
• 55:19
  Speaker 2: or other people's clients in ninety six, ninety seven, ninety eight,
• 55:23
  Speaker 2: ninety nine, who had been in the market for fifteen
• 55:26
  Speaker 2: twenty years. Hey, we want to trade up to an
• 55:29
  Speaker 2: Isica house. Hey we want to buy a beach house,
• 55:32
  Speaker 2: a lake house, a vacation property. And the person said,
• 55:35
  Speaker 2: I'm not sure if the market's going to go higher
• 55:38
  Speaker 2: from here, but I want to pull half a million
• 55:40
  Speaker 2: out of my account and buy real estate. It's like, Hey,
• 55:44
  Speaker 2: you're going to have that house for the next twenty
• 55:45
  Speaker 2: five to thirty years, even if the market keeps going higher.
• 55:48
  Speaker 2: Who cares? You're sitting on such profits. Why not? And
• 55:53
  Speaker 2: so I kind of got a sense that it wasn't
• 55:56
  Speaker 2: so much the wealth effect as people had heard done
• 56:00
  Speaker 2: the big buys before the market crash, which tends to
• 56:05
  Speaker 2: freeze people in place. So I saw a lot of
• 56:09
  Speaker 2: rotation out of equities just because people were sitting on Look.
• 56:13
  Speaker 2: From eighty two to two thousand, the Dow gained a
• 56:15
  Speaker 2: thousand percent. People were taking a little of the house
• 56:20
  Speaker 2: money off the table and lending the less. The rest ride,
• 56:24
  Speaker 2: and then the dot com implosion, I want to say
• 56:27
  Speaker 2: eighty to eighty three percent peaked a troth on Nasdaq.
• 56:30
  Speaker 2: On the queues, yeah, the S and P. Yeah, And
• 56:36
  Speaker 2: the Dow held up the best because it was least
• 56:38
  Speaker 2: exposed back then before Microsoft and Intel.
• 56:42
  Speaker 3: And price waited not capital right, that's right. So well,
• 56:46
  Speaker 3: I just think we and again it's a bit circular
• 56:49
  Speaker 3: in that, you know, if and when we get another
• 56:52
  Speaker 3: bear market, we essentially had one this year, just missed
• 56:57
  Speaker 3: it on the S and P the index level. But
• 57:00
  Speaker 3: here's here's another set of statistics. The average max the
• 57:05
  Speaker 3: average member maximum draw down for the S and P
• 57:08
  Speaker 3: year to date is twenty four percent. The average member
• 57:11
  Speaker 3: has had a bear market. The average member within the
• 57:14
  Speaker 3: NASDAQS maximum draw down is forty seven percent. Wow, now
• 57:19
  Speaker 3: you want cap weighted, well, the average member just each
• 57:23
  Speaker 3: individual member was there? No, because it's individual members, you
• 57:27
  Speaker 3: just track what each member maximum draw down was at
• 57:31
  Speaker 3: any point and then take an average of that. But
• 57:33
  Speaker 3: here's the maybe more interesting one. In an environment since
• 57:36
  Speaker 3: the April ninth inter day low, we haven't had much
• 57:39
  Speaker 3: any kind of pullback in either the SMP or the Nasdaq,
• 57:42
  Speaker 3: But just since that low, in an environment where the
• 57:44
  Speaker 3: SMP hasn't even had a two percent pullback, the average
• 57:47
  Speaker 3: member within the s and P since the closing low
• 57:51
  Speaker 3: on April eighth, has had a fourteen percent maximum draw
• 57:54
  Speaker 3: down and within the Nasdaq has had a thirty two
• 57:56
  Speaker 3: percent maximum draw down. So there's a lot of rotation
• 57:59
  Speaker 3: in churn under the surf, which you don't pick up
• 58:01
  Speaker 3: if you're only focused on the index level, which has
• 58:06
  Speaker 3: that cat bias to it.
• 58:08
  Speaker 2: That's amazing. So last question before I get to my favorites.
• 58:13
  Speaker 2: We're talking about a lot of things that are in
• 58:15
  Speaker 2: the headlines. What do you think investors are not thinking
• 58:18
  Speaker 2: about or talking about, but perhaps should be what topics, assets,
• 58:24
  Speaker 2: data points?
• 58:25
  Speaker 3: There was one I thought about this morning, and it's
• 58:28
  Speaker 3: not so much what people aren't talking about, so I'm
• 58:30
  Speaker 3: going to answer in a different way. It's what I
• 58:32
  Speaker 3: hear a lot of people talking about. That isn't quite
• 58:36
  Speaker 3: the right way to think about it, And that is
• 58:38
  Speaker 3: the cash on the sidelines argument.
• 58:41
  Speaker 2: So zwy hated that, and I'm not a fan either.
• 58:44
  Speaker 3: But it often the specificity around that has to do
• 58:47
  Speaker 3: with the amount of money.
• 58:48
  Speaker 2: And money market seven.
• 58:51
  Speaker 3: Trillion and change, and that that is sitting there as
• 58:56
  Speaker 3: either if not imminent, but ample fuel. If that money
• 59:00
  Speaker 3: decides to repatriate from money markets into the equity market, boy,
• 59:05
  Speaker 3: we go off to the race.
• 59:06
  Speaker 2: That money mostly come from bonds?
• 59:08
  Speaker 3: It did?
• 59:08
  Speaker 2: You're getting such low yeal in bond so mine.
• 59:11
  Speaker 3: I think a lot of it's sticky.
• 59:12
  Speaker 2: My Schwab money market account last summer. So we bought
• 59:16
  Speaker 2: a house, a beach property in February last summer, I
• 59:20
  Speaker 2: was getting like five three five two in the Schwab
• 59:23
  Speaker 2: What is it? Snock snacks. I don't even remember the symbol.
• 59:26
  Speaker 2: I'm like, why do I need to mess around with
• 59:29
  Speaker 2: ten or twenty year bonds? But getting much better.
• 59:31
  Speaker 3: But here's the other angle to that. If you think
• 59:35
  Speaker 3: of seven trillion dollars as some massive fuel for the market.
• 59:39
  Speaker 3: You need to look at it as a ratio relative
• 59:42
  Speaker 3: to the total market capitalization.
• 59:45
  Speaker 2: And it's gone up less than the stock it's.
• 59:47
  Speaker 3: Only twelve percent all time low. In that the history
• 59:52
  Speaker 3: that we have for that data is eleven percent. To
• 59:54
  Speaker 3: put that in context, in eight oh nine, when money
• 59:58
  Speaker 3: was flying to money markets because it was fleeing the
• 1:00:02
  Speaker 3: equity market, at the peak money market assets relative to
• 1:00:07
  Speaker 3: the size of the stock market was more than sixty percent.
• 1:00:11
  Speaker 3: Now we're only at about twelve percent. So the math
• 1:00:14
  Speaker 3: is such that even if all seven trillion dollars was
• 1:00:18
  Speaker 3: to leave on mass and go into the equity market
• 1:00:21
  Speaker 3: as a fuel at twelve percent of total market cap
• 1:00:25
  Speaker 3: versus say, you know, sixty three percent of total market
• 1:00:28
  Speaker 3: cap in nine, that's a very different Not to mention
• 1:00:32
  Speaker 3: back to our initial point, I think a lot of
• 1:00:34
  Speaker 3: that money is sticky. That was money that was forced
• 1:00:37
  Speaker 3: out the risk spectrum into other categories within the fixed
• 1:00:41
  Speaker 3: income market in order to pick up yield when there
• 1:00:43
  Speaker 3: was none to be had. So I don't think we
• 1:00:46
  Speaker 3: should consider that some sidelines cache that is just itching
• 1:00:50
  Speaker 3: to find its way back into the riskier asset classes.
• 1:00:53
  Speaker 2: Someone once debunked the cash on the sideline argument, and
• 1:00:57
  Speaker 2: it might have even been Marty's wig in winning on
• 1:01:00
  Speaker 2: Wall Street by explaining it this way, Hey, I'm gonna
• 1:01:04
  Speaker 2: buy a million dollars worth of stock. It means I
• 1:01:06
  Speaker 2: have a million dollars worth of cash, but no stock.
• 1:01:09
  Speaker 2: I buy a million of the spy. Now I have
• 1:01:12
  Speaker 2: the spy and they have a million of care.
• 1:01:16
  Speaker 3: Every buyer there's a seller.
• 1:01:18
  Speaker 2: There's no cash on the side line. It just changes
• 1:01:20
  Speaker 2: hands the same dollar amount. So it's been one of
• 1:01:23
  Speaker 2: those things that has persisted forever.
• 1:01:25
  Speaker 3: And they're also the more buyers than sellers. No, no, no, no.
• 1:01:29
  Speaker 2: That you you are tagging all my favorite pure.
• 1:01:33
  Speaker 3: There's maybe more enthusiasm on the buy side versus the enthusiastic,
• 1:01:37
  Speaker 3: but there's no more buyers and sellers vice versa.
• 1:01:40
  Speaker 2: For my head trader used to say, there are more
• 1:01:43
  Speaker 2: buyers than sellers at this level, and now you go
• 1:01:45
  Speaker 2: up to the nice next price level where there are
• 1:01:48
  Speaker 2: a matching number of buyers and sellers and the price
• 1:01:50
  Speaker 2: stabilizes if a price is going up. Okay, at that
• 1:01:54
  Speaker 2: particular at twenty seven to fifty five, there may be
• 1:01:58
  Speaker 2: more buyers than stock for sale, But at twenty seven
• 1:02:01
  Speaker 2: seventy five. Then that's how you end up with price stability.
• 1:02:05
  Speaker 2: So yeah, more buyers and sellers. No, no, they're an
• 1:02:08
  Speaker 2: equal amount of buyers and sellers. That's how the other
• 1:02:11
  Speaker 2: line I love has been trade takes place where there's
• 1:02:15
  Speaker 2: a disagreement about value but an agreement on price. And
• 1:02:19
  Speaker 2: that seems to really explain that. All right, I have
• 1:02:22
  Speaker 2: to get you out to catch your plane, so I
• 1:02:26
  Speaker 2: only have you for a limited amount of time. Let's
• 1:02:29
  Speaker 2: let's speed through our favorite questions, starting with tell us
• 1:02:33
  Speaker 2: about your mentors who have helped shape your career. I'm
• 1:02:35
  Speaker 2: pretty sure I know that too.
• 1:02:37
  Speaker 3: Shocker, Marty Swag, Yeah, Chuck Schwab okay. And in the
• 1:02:41
  Speaker 3: world not too shabby, not too shabby mentors, Yeah, boy
• 1:02:45
  Speaker 3: was I lucky? And I will say in the world
• 1:02:48
  Speaker 3: of media another name we've already touched on Lewis Rukaiser.
• 1:02:51
  Speaker 3: One of the best pieces of advice he gave me
• 1:02:54
  Speaker 3: was was when I was on the show for the
• 1:02:55
  Speaker 3: first time as a guest and he was saying hello
• 1:02:59
  Speaker 3: to me for the first time, welcome me onto the show.
• 1:03:01
  Speaker 3: This was off camera, and he asked me whether my
• 1:03:03
  Speaker 3: parents were still alive and whether they were finance people,
• 1:03:06
  Speaker 3: and I said, nope, far from it. He said, okay,
• 1:03:08
  Speaker 3: when you come out here and do the interview with me,
• 1:03:11
  Speaker 3: get them to understand what you're talking about. And that
• 1:03:14
  Speaker 3: was such a moment of Okay, get people to understand what.
• 1:03:19
  Speaker 2: You're talking that's so funny. My mom was a real
• 1:03:22
  Speaker 2: estate agent, my wife is an art teacher, and it's
• 1:03:25
  Speaker 2: always make them understand it. Don't don't don't clutter it
• 1:03:29
  Speaker 2: up with jargon.
• 1:03:30
  Speaker 3: That's right, make it ndred percent.
• 1:03:31
  Speaker 2: Well, that's interesting that it was. It was Rukaiz who
• 1:03:35
  Speaker 2: said that let's talk about books. I mentions Wyg's winning
• 1:03:38
  Speaker 2: on Wall Street. What are some of your favorites? What
• 1:03:40
  Speaker 2: are you reading right now?
• 1:03:41
  Speaker 3: So my favorite? So I'm not reading a book right now,
• 1:03:43
  Speaker 3: I must say I don't have a lot of time.
• 1:03:45
  Speaker 3: I read constantly. I drink from a fire hose of information,
• 1:03:48
  Speaker 3: but it tends to be you know, like reports, reports
• 1:03:52
  Speaker 3: and deep dive fed research. But my favorite book of
• 1:03:56
  Speaker 3: all time, and it is market related, is Reminiscences of
• 1:03:58
  Speaker 3: a Stop operatorsolute favorite. I tell young people to buy
• 1:04:03
  Speaker 3: it all the time. It still resonates today.
• 1:04:06
  Speaker 2: And your substitute AI for railroads and Telegram exactly. It's
• 1:04:12
  Speaker 2: the same.
• 1:04:12
  Speaker 3: It's the same, it's the same story. But I am
• 1:04:15
  Speaker 3: a big podcast listener. Uh huh. So that's the longer
• 1:04:20
  Speaker 3: form way, including Masters in Business, well that I absorb
• 1:04:24
  Speaker 3: information beyond the traditional drivers that come into my inbox.
• 1:04:29
  Speaker 2: Literally, it's easy when you're traveling, if you're on a plane,
• 1:04:32
  Speaker 2: the car. I just find it's so easy. All right,
• 1:04:34
  Speaker 2: So you told us what you're what What other podcasts
• 1:04:36
  Speaker 2: are you listening to? What are you watching on Netflix?
• 1:04:40
  Speaker 3: I listen to Masters in Business. I love Grant Williams
• 1:04:44
  Speaker 3: series of podcasts. I love them because their long form
• 1:04:48
  Speaker 3: and the big picture and top down, my favorite non
• 1:04:52
  Speaker 3: investing podcast is SmartLess. I just love those.
• 1:04:55
  Speaker 2: Those guys are great.
• 1:04:56
  Speaker 3: They're great, They're they're so fun.
• 1:04:58
  Speaker 2: I'm going to tell you I listened. I've had Michael
• 1:05:02
  Speaker 2: Lewis on the podcast I have.
• 1:05:03
  Speaker 3: I have met and have interviewed Michael Lewis on stage
• 1:05:07
  Speaker 3: at SCHWABS Impact Comfience.
• 1:05:08
  Speaker 2: And the story he told and I'm not even gonna
• 1:05:11
  Speaker 2: mention it, the story he told on SmartLess about a
• 1:05:14
  Speaker 2: family tragedy.
• 1:05:16
  Speaker 3: Was just it was unbelievable. And what his friends said
• 1:05:20
  Speaker 3: to him ers therapist said to him, the reason why
• 1:05:22
  Speaker 3: you're so exhausted after this life's tragedy is in your mind,
• 1:05:26
  Speaker 3: you're rewriting the future without her, without her right And
• 1:05:30
  Speaker 3: that was such a moment of wow. But yeah, that
• 1:05:34
  Speaker 3: was one of the most impactful interviews.
• 1:05:36
  Speaker 2: I've heard that stayed with me for a long time.
• 1:05:38
  Speaker 3: In terms of what I'm watching. Well, Morning Show just
• 1:05:41
  Speaker 3: started back up again.
• 1:05:42
  Speaker 2: So we'll get back into that.
• 1:05:44
  Speaker 3: And I loved Department Q.
• 1:05:47
  Speaker 2: Was it was intense, it was a little slow, but
• 1:05:50
  Speaker 2: they really it really paid off. If you like Department Q.
• 1:05:57
  Speaker 2: There's a movie I want to say it's on Netflix
• 1:05:59
  Speaker 2: call called Black Bag. That's the sort of espionage thing.
• 1:06:05
  Speaker 2: And I walked in on my wife watching Killing Eve,
• 1:06:11
  Speaker 2: which she's like.
• 1:06:12
  Speaker 3: It was great, like a scam. It was great.
• 1:06:15
  Speaker 2: There's there's been a ton of stuff. We just finished
• 1:06:18
  Speaker 2: The Gilded Age, which is which that feels modern.
• 1:06:22
  Speaker 3: I'm obsessed with that era in New York City. I
• 1:06:25
  Speaker 3: have read every book written about it. I'm just so
• 1:06:28
  Speaker 3: so that is so right up my alley.
• 1:06:30
  Speaker 2: So we watched The Crown, but we never watched Dalton
• 1:06:33
  Speaker 2: Abbey and I all said, oh, you like Gilded Age
• 1:06:36
  Speaker 2: in the Crown Abbey, so that's on my uh. And
• 1:06:40
  Speaker 2: during the pandemic, I had never seen a single episode
• 1:06:43
  Speaker 2: of Madmen, and that was mind blind to watch. That
• 1:06:46
  Speaker 2: felt like more like a documentary.
• 1:06:48
  Speaker 3: It's fun to go back and watch some of the
• 1:06:49
  Speaker 3: old shows.
• 1:06:50
  Speaker 2: Absolutely, All right, all last two questions. We'll get you
• 1:06:52
  Speaker 2: out of here on time. A recent college grad is
• 1:06:55
  Speaker 2: interested in the career and investing or doing market strategy,
• 1:06:59
  Speaker 2: what sort of advice would you give that?
• 1:07:01
  Speaker 3: Well, the world you live in and indirectly I live
• 1:07:04
  Speaker 3: in on the advisor side, that's an incredible growth area
• 1:07:08
  Speaker 3: in the broader realm of financial services, independent rias, wealth
• 1:07:13
  Speaker 3: management firms, even the wealth management divisions at the big
• 1:07:16
  Speaker 3: wirehouse firms, because it's essentially a first generation business and
• 1:07:22
  Speaker 3: so there's a lot of succession planning happening right now,
• 1:07:25
  Speaker 3: and I think for young investors that's such a great
• 1:07:28
  Speaker 3: avenue to go in. More generic advice that I give
• 1:07:32
  Speaker 3: young people, especially as they embark on the networking and
• 1:07:34
  Speaker 3: interview part of the process, is be way more focused
• 1:07:38
  Speaker 3: on being interested than being interesting. Don't go in there
• 1:07:43
  Speaker 3: and say, here's all the fabulous things have I done,
• 1:07:45
  Speaker 3: Especially if that's limited to an undergraduate education, but be interested,
• 1:07:50
  Speaker 3: ask questions, be engaged, show the enthusiasm. That way, you're
• 1:07:54
  Speaker 3: not bringing something into the mix by virtue of what
• 1:07:57
  Speaker 3: you know. Econ you know two o eight course took
• 1:08:00
  Speaker 3: that they think, oh god, we have to hire this
• 1:08:02
  Speaker 3: person because we don't know anything about that, so we're
• 1:08:04
  Speaker 3: bringing is be interested?
• 1:08:06
  Speaker 2: Huh? Really interesting? And our final question, what do you
• 1:08:10
  Speaker 2: know about the world of investing today? You wish you
• 1:08:12
  Speaker 2: knew back in the nineteen eighties when you were first
• 1:08:16
  Speaker 2: getting started.
• 1:08:18
  Speaker 3: It seemed to be a little bit easier to analyze
• 1:08:20
  Speaker 3: markets in that day using kind of traditional stuff models.
• 1:08:27
  Speaker 3: To think now about how much more of an influence
• 1:08:30
  Speaker 3: there is of geopolitics and macro and how much more
• 1:08:34
  Speaker 3: complicated an ecosystem, not to mention the channels of information
• 1:08:39
  Speaker 3: that occur through social media. I kind of wish it
• 1:08:42
  Speaker 3: was back to what at the time didn't feel terribly simple,
• 1:08:47
  Speaker 3: but I think then was a little bit more simple
• 1:08:50
  Speaker 3: and more concrete in terms of what drives markets. I
• 1:08:54
  Speaker 3: think there's more psychology now with a wider band of
• 1:08:58
  Speaker 3: what that means and what that represents months, and it
• 1:09:01
  Speaker 3: would have been interesting to kind of know that in advance,
• 1:09:04
  Speaker 3: the little birdie landing on your shoulder, saying, Here's what
• 1:09:08
  Speaker 3: I don't know if I would have believed that forty
• 1:09:10
  Speaker 3: years from that point, I'd still be doing this. But
• 1:09:13
  Speaker 3: just how much more complex an ecosystem that the markets
• 1:09:18
  Speaker 3: live in these days?
• 1:09:19
  Speaker 2: Huh? Really interesting? Lizanne as always delightful. Thank you so
• 1:09:23
  Speaker 2: much for with your time' always really really interesting. We
• 1:09:28
  Speaker 2: have been speaking with liz Ane Saunders. She is the
• 1:09:31
  Speaker 2: chief investment strategist at Schwab, helping to oversee eleven trillion
• 1:09:37
  Speaker 2: dollars in client funds. If you enjoy this conversation, well
• 1:09:41
  Speaker 2: check out any of the five hundred and sixty four
• 1:09:44
  Speaker 2: we've done over the past eleven and a half years.
• 1:09:47
  Speaker 2: You can find those at YouTube, Spotify, Bloomberg, iTunes, wherever
• 1:09:53
  Speaker 2: you get your favorite podcasts. Be sure to check out
• 1:09:56
  Speaker 2: my new book How Not to Invest The ideas, numbers
• 1:09:59
  Speaker 2: and behavior that destroyed wealth and How to Avoid Them
• 1:10:03
  Speaker 2: at your favorite bookstore. Now, I would be remiss if
• 1:10:07
  Speaker 2: I did not thank the Crack staff that helps put
• 1:10:09
  Speaker 2: these conversations together each week. Alexis Noriega is my video producer.
• 1:10:15
  Speaker 2: Anna Luke is the podcast producer. Sage Bauman is the
• 1:10:19
  Speaker 2: head of podcasts here at Bloomberg. Sean Russo is my researcher.
• 1:10:24
  Speaker 2: I'm Barry Ritolts. You've been listening to Masters in Business
• 1:10:28
  Speaker 2: on Bloomberg Radio.