Latest / Masters in Business / David Nadig Discusses the Future of ETFs (Podcast)

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David Nadig Discusses the Future of ETFs (Podcast) · Masters in Business

• 0:02
  Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
• 0:10
  Speaker 1: This week on the podcast, I have an extra special guest.
• 0:13
  Speaker 1: His name is Dave Natig. And really, if you were
• 0:17
  Speaker 1: at all interested in how e t F s are
• 0:21
  Speaker 1: researched and put together and assembled and manufactured and regulated
• 0:26
  Speaker 1: and traded and retired, well, really, I don't know any
• 0:31
  Speaker 1: single person with a greater body of knowledge from more
• 0:34
  Speaker 1: aspects of the finance industry about e t F than Dave.
• 0:40
  Speaker 1: He was at Barclays in the early days when the
• 0:44
  Speaker 1: predecessor to I Shares came about. He spent time working
• 0:48
  Speaker 1: with a number of consultants as a consultant early on
• 0:51
  Speaker 1: in the e t F industry, and he has been
• 0:54
  Speaker 1: working at et F dot com, which is probably the
• 0:58
  Speaker 1: leading media public at about e t F s UH
• 1:03
  Speaker 1: pretty much since the beginning of of the world's understanding
• 1:07
  Speaker 1: that e t F s were significant. Previously as UH
• 1:12
  Speaker 1: Chief Investment Officers, subsequently when it became part of fact
• 1:15
  Speaker 1: Set as a head of Analytics, and now as CEO
• 1:19
  Speaker 1: slash Managing director since cebo bod e TF dot Com
• 1:24
  Speaker 1: The Chicago Board of Options Exchange Global Markets is now
• 1:28
  Speaker 1: the owner of ETF dot Com. So, with no further ado,
• 1:32
  Speaker 1: here is my conversation with David Natick. When it comes
• 1:40
  Speaker 1: to e t F s. My guest today is probably
• 1:43
  Speaker 1: the single most knowledgeable person in the world. Dave Nati
• 1:47
  Speaker 1: is a Managing director at et F dot Com, which
• 1:50
  Speaker 1: is a subsidiary of cbo E Global Markets. Dave was
• 1:55
  Speaker 1: e t F dot COM's Chief investment Officer, and he
• 1:58
  Speaker 1: returned to et F dot Com as CEO in November
• 2:04
  Speaker 1: uh He was previously Managing director at Barclay's Global Investors,
• 2:09
  Speaker 1: where he helped to design some of the world's first ETFs,
• 2:14
  Speaker 1: including the development and marketing of the World Equity Benchmark
• 2:18
  Speaker 1: ETF series. You probably know that by its current name
• 2:22
  Speaker 1: I Shares. He's conducted some of the earliest research on
• 2:26
  Speaker 1: the only financial advisors and the rise of indexing. He
• 2:30
  Speaker 1: is the co author of the Definitive Book on E
• 2:32
  Speaker 1: t F s, a Comprehensive Guide to exchange traded Funds,
• 2:37
  Speaker 1: published by the cf A Institute. Dave nadd Welcome to Bloomberg.
• 2:41
  Speaker 1: Thanks for having me. So. You and I know each
• 2:44
  Speaker 1: other for a long time, and I'm familiar with your
• 2:46
  Speaker 1: career path. Will come back to that a little later,
• 2:50
  Speaker 1: let's talk about this whole E t F thing. Is
• 2:53
  Speaker 1: this gonna be big one day? Just a temporary thing.
• 2:57
  Speaker 1: So so the key that comes up all the time,
• 3:02
  Speaker 1: what is the underlying advantage of E t F s
• 3:06
  Speaker 1: versus mutual funds. Well, if you think about it, mutual
• 3:08
  Speaker 1: funds are actually one of the most ridiculous financial inventions
• 3:11
  Speaker 1: in history. If I went to you and said, hey,
• 3:14
  Speaker 1: I'm gonna sell you a car, and you're gonna give
• 3:17
  Speaker 1: me a whole bunch of money right now, but I'm
• 3:19
  Speaker 1: not gonna tell you exactly how much the car cost,
• 3:22
  Speaker 1: will trew it up later. You'd never buy that car,
• 3:26
  Speaker 1: right You'd never say it could be thirty, it could
• 3:29
  Speaker 1: be forty. We'll tell you at four o'clock. And that's
• 3:32
  Speaker 1: how mutual funds work. It's literally the only financial product
• 3:35
  Speaker 1: that has forward based pricing, which is kind of ridiculous.
• 3:39
  Speaker 1: And there have been innumerable cases over the last forty
• 3:43
  Speaker 1: years in which you know, that's been abused or misused.
• 3:46
  Speaker 1: We had examples in the eighties, we had front running
• 3:49
  Speaker 1: issues and so yeah, exactly, I mean over and over again,
• 3:53
  Speaker 1: this happens anytime you create that you know, intense lengthy
• 3:57
  Speaker 1: time arbitrage between nine thirty in the morning four o'clock,
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  Speaker 1: somebody's going to figure out how to game it. And
• 4:03
  Speaker 1: e t S in part one of the things they
• 4:05
  Speaker 1: do is they solve that problem because they allow that
• 4:07
  Speaker 1: pricing to be negotiated. Uh and I think that's meaning
• 4:11
  Speaker 1: they trade intra day and you can see the price
• 4:13
  Speaker 1: that's on the screen is literally the price it is
• 4:15
  Speaker 1: exactly and you can decide as an investor whether you
• 4:17
  Speaker 1: want to pay that price. Now, there's some costs to that,
• 4:21
  Speaker 1: and there's some benefits to that. If we're talking about
• 4:23
  Speaker 1: US equities, we're trading you know, sp Y, which is
• 4:26
  Speaker 1: the biggest ETF trade, the SMP five hundred. Anybody can
• 4:29
  Speaker 1: tally up all the stocks in the SMP five hundred
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  Speaker 1: and a spreadsheet and come up with what the right
• 4:34
  Speaker 1: prices for that based on the last trade of price
• 4:36
  Speaker 1: of the stocks. A little tougher if you're trying to
• 4:38
  Speaker 1: trade Japan at two o'clock in the afternoon New York,
• 4:41
  Speaker 1: because what are all those stocks actually worth? Well, that's
• 4:44
  Speaker 1: a negotiation, that's price discovery. So e t f s
• 4:47
  Speaker 1: not only give you access to those markets that are
• 4:50
  Speaker 1: closed or less liquid, but they give you another price
• 4:53
  Speaker 1: discovery mechanism to go along with it. So in other words,
• 4:56
  Speaker 1: even though we don't know the true arbitrage price of
• 4:58
  Speaker 1: Japan two pm New York time, you get at least
• 5:02
  Speaker 1: a rough wisdom of the crowd estimate in how that
• 5:05
  Speaker 1: e t F is trading, assuming it's liquid, because, as
• 5:08
  Speaker 1: we'll discuss later, some et f seem to trade by
• 5:12
  Speaker 1: appointment only. Yeah, if you're lucky, if you can even
• 5:14
  Speaker 1: get an appointment. Yeah, it is definitely some haves and
• 5:16
  Speaker 1: have not in the et F space. I mean, there's
• 5:18
  Speaker 1: just there's so many of them at this point. So
• 5:21
  Speaker 1: one of the things that comes up all the time
• 5:22
  Speaker 1: when we're comparing mutual funds in ETFs is in a
• 5:26
  Speaker 1: non qualified portfolio, meaning a fully taxable account, you could
• 5:31
  Speaker 1: have a mutual fund that doesn't show any gains for
• 5:34
  Speaker 1: the year, and yet you get hit with capital gains taxes.
• 5:38
  Speaker 1: That doesn't really seem to happen with you. Yeah, there's
• 5:40
  Speaker 1: a fairness issue and that and that's and I think
• 5:42
  Speaker 1: that's the other big advantage of e t F in
• 5:44
  Speaker 1: a taxable environment because the way e t F shares
• 5:48
  Speaker 1: are created and redeemed um which is done through market
• 5:52
  Speaker 1: makers big authorized participants. They're able to wash out any
• 5:55
  Speaker 1: gains from internal trading. So if you know, even in
• 5:58
  Speaker 1: the SMP, if you know stock X goes out and
• 6:00
  Speaker 1: stock Y comes in and stock X had an embedded gain,
• 6:04
  Speaker 1: that creates a taxable gain in the portfolio. Even if
• 6:07
  Speaker 1: at the end of the year the SMP is down,
• 6:09
  Speaker 1: they still have to distribute that taxable gain. E t
• 6:12
  Speaker 1: F s get away from that by allowing them to
• 6:14
  Speaker 1: wash out that gain by effectively handing low base of
• 6:17
  Speaker 1: shares out to the street. So the e t F loophole,
• 6:21
  Speaker 1: what what does that cover? Well, from a tax perspective,
• 6:24
  Speaker 1: it covers anything that you can do in kind transactions
• 6:27
  Speaker 1: with and and technically mutual funds could do this too,
• 6:30
  Speaker 1: but they don't because it's complicated and it requires a
• 6:34
  Speaker 1: lot of coordination with the street. You have to have
• 6:37
  Speaker 1: a partner on the street technically called an authorized participant
• 6:41
  Speaker 1: that's willing to do those in kind creations and redemptions
• 6:44
  Speaker 1: to share. So complicated that you do profit distributions even
• 6:48
  Speaker 1: on a losing or flat year, it's not worth it.
• 6:51
  Speaker 1: That just seems like that is a huge disadvantage for
• 6:54
  Speaker 1: mutual funds relative to well. One of the challenges in
• 6:58
  Speaker 1: a traditional mutual fund environment is for you, as an
• 7:01
  Speaker 1: authorized participant, to agree to do those in kind trades,
• 7:04
  Speaker 1: you need to know what's in the basket, Like what
• 7:06
  Speaker 1: are you going to get? What do I have to deliver?
• 7:08
  Speaker 1: If you're gonna know, then there's got to be some transparency.
• 7:11
  Speaker 1: Most mutual funds don't want to tell you what's under
• 7:13
  Speaker 1: the hood, right. Most mutual funds are still actively managed
• 7:16
  Speaker 1: by assets, and most active managers don't want to tell
• 7:20
  Speaker 1: you what they're doing on a day to day basis,
• 7:22
  Speaker 1: and that makes that arbitrage process really difficult. But it's
• 7:25
  Speaker 1: baked into how E t f s work. That in
• 7:27
  Speaker 1: kind creation redemption is sort of a core of how
• 7:30
  Speaker 1: E t f s work, and so that doesn't make
• 7:32
  Speaker 1: much of a difference in terms of the capital gains
• 7:35
  Speaker 1: distribution or does the loophole cover that? No, the loophole
• 7:39
  Speaker 1: I mean, and loophole is as I think of an
• 7:43
  Speaker 1: aggressive word. But really what we're talking about here is
• 7:46
  Speaker 1: part of the I r S approach rate how the
• 7:49
  Speaker 1: I r S treats et s. It allows in kind
• 7:52
  Speaker 1: transactions to be untaxed, right, and that tax basis then
• 7:56
  Speaker 1: can get washed out, so that covers really any kind
• 7:59
  Speaker 1: of et F, any kind of investment that you want
• 8:01
  Speaker 1: to make, whether it's bonds, whether it's you know, equities. Uh,
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  Speaker 1: you know, you can get away with that in kind
• 8:07
  Speaker 1: creation redemption to wash out those capital gains. So for
• 8:09
  Speaker 1: taxable accounts, ETFs have really caught on. Uh even for
• 8:13
  Speaker 1: non taxable accounts. The fact that you can trade it
• 8:16
  Speaker 1: in traday with some price certainty I think has been
• 8:19
  Speaker 1: the other major issue. Let's talk a little bit about
• 8:22
  Speaker 1: some of the issues that are surrounding ETFs today. We
• 8:27
  Speaker 1: have a little bit of a fat head long tail
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  Speaker 1: problem in that in that e t F issue, ince
• 8:36
  Speaker 1: and underwriting is very top. Have you have Vanguard, black
• 8:39
  Speaker 1: Rock and State Street dominating. I mean that's the vast
• 8:44
  Speaker 1: major assets assets not necessarily what is there twenty one? Yeah,
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  Speaker 1: it's over two thousand ETFs right now. Um and by number, sure,
• 8:54
  Speaker 1: black Rock in particular has a large number. I think
• 8:56
  Speaker 1: it's fourts in the in the stable. Yeah. To put
• 9:00
  Speaker 1: that in perspective, you know, back into the two thousands
• 9:03
  Speaker 1: or early two thousands, there were a hundred and fiftyf
• 9:06
  Speaker 1: So there's been really fifteen years of phenomenal asset and
• 9:10
  Speaker 1: product growth, really now covering virtually every corner of the
• 9:14
  Speaker 1: investment market, from physical gold to junk bonds. So why those?
• 9:19
  Speaker 1: First of all, why the three biggest dominating? And then
• 9:21
  Speaker 1: the next question is why those three but I kind
• 9:24
  Speaker 1: of have a sneaking space and why those well, so,
• 9:27
  Speaker 1: why just why is it so dominated by these giant phones. Well,
• 9:30
  Speaker 1: because the economies of scale here are dramatic, and one
• 9:34
  Speaker 1: of the sort of accidental advantages of ets it wasn't
• 9:38
  Speaker 1: designed for this is that they have become incredibly cheap,
• 9:41
  Speaker 1: and we're in the midst of a price war that's
• 9:43
  Speaker 1: driving them down towards the price of zero. They can
• 9:46
  Speaker 1: be that cheap because running an incremental dollar in the
• 9:50
  Speaker 1: SMP five hundred costs literally no money. Right if if
• 9:54
  Speaker 1: if Black Rock, which manages I don't know idea trillion dollars,
• 9:58
  Speaker 1: probably a trillion dollars of that is tie to large
• 10:00
  Speaker 1: capus equity for them, probably more for them to manage
• 10:03
  Speaker 1: an additional dollar literally doesn't cost them anything. And so
• 10:07
  Speaker 1: the marginal cost of production in big index shops is
• 10:11
  Speaker 1: so low they can price these products at three four
• 10:13
  Speaker 1: or five eight basis points and still eventually make enough
• 10:16
  Speaker 1: money to survive. Very tough for Ritholt's Wealth Management to
• 10:21
  Speaker 1: get into the et F game at three basis points
• 10:24
  Speaker 1: and ever make a dime to launch an e t F,
• 10:27
  Speaker 1: and we I explored this last summer. I looked at
• 10:30
  Speaker 1: a couple of interesting ideas. It's a couple of hundred
• 10:33
  Speaker 1: thousand dollars to half a million to launch by the
• 10:36
  Speaker 1: time you get done with record keeping and custodian ships
• 10:39
  Speaker 1: and two BIPs here and three BIPs there and five bps.
• 10:42
  Speaker 1: There's a lot of expenses that go into it that
• 10:44
  Speaker 1: it's not like, hey, here's an idea, let's launch an
• 10:47
  Speaker 1: e t F. It's a complicated legal accounting underwriting issue
• 10:54
  Speaker 1: for a small shop. But for van go to black
• 10:56
  Speaker 1: rockwer State Street if they want to crank out a
• 10:58
  Speaker 1: different ETF every day. How hard is It's not hard
• 11:02
  Speaker 1: at all, and it is getting easier. There's a big
• 11:04
  Speaker 1: new set of rulemaking out of the SEC that's actually
• 11:07
  Speaker 1: in common period right now that would clean up that
• 11:10
  Speaker 1: process and maybe drive the cost for a new issue
• 11:12
  Speaker 1: where down from that couple hundred thousand to maybe a
• 11:15
  Speaker 1: hundred thousand. Uh, you know, it will have become less
• 11:18
  Speaker 1: of an exception to the rule and more of an
• 11:20
  Speaker 1: approved activity. But there's still work that's got to get
• 11:23
  Speaker 1: done and you have to establish all those relationships. So
• 11:26
  Speaker 1: those big players have that entrenched economy of scale that
• 11:30
  Speaker 1: I think is really tough to compete with, and that's
• 11:32
  Speaker 1: why you've seen very few upstarts. If you will, really
• 11:37
  Speaker 1: get a lot of traction. So we've been spending a
• 11:39
  Speaker 1: lot of time talking about equities, let's talk about bonds
• 11:42
  Speaker 1: for a minute. There are lots and lots of dollars
• 11:45
  Speaker 1: allocated to bond ETFs, so much so that it's had
• 11:50
  Speaker 1: a giant impact on how bonds are traded and what
• 11:55
  Speaker 1: Wall Street bond desks look like today. You're the first
• 11:58
  Speaker 1: person who brought this to my attention. Explain what what
• 12:02
  Speaker 1: has been taking place over the past decades. Well, we
• 12:04
  Speaker 1: have two things going on at the same time. One is,
• 12:07
  Speaker 1: because of regulation, we no longer have banks having giant
• 12:10
  Speaker 1: bond desk. Right, they had to basically get out of
• 12:12
  Speaker 1: that business. Was it regulations or was it zero interest rates?
• 12:15
  Speaker 1: And they weren't making any money both, right, So the
• 12:17
  Speaker 1: hoops you had to jump through to to run an
• 12:19
  Speaker 1: eight style bond desk were significant, and the capital a
• 12:23
  Speaker 1: location was no longer making all that much money. They
• 12:26
  Speaker 1: are better things for them to do with that risk capital.
• 12:28
  Speaker 1: So you had that sort of abandonment of the bond
• 12:31
  Speaker 1: market by traditional players, But at the same time you
• 12:34
  Speaker 1: had lots of folks that still wanted to invest in bonds.
• 12:37
  Speaker 1: Investing in individual bonds, I'm sure you know, is kind
• 12:40
  Speaker 1: of a pain in the neck, right, even even if
• 12:42
  Speaker 1: you're just trying to buy treasury. Sure you can go
• 12:44
  Speaker 1: to Treasury dot gov and and go do it all direct.
• 12:46
  Speaker 1: You want to do a laddered bond portfolio, or you
• 12:50
  Speaker 1: want a portfolio of munies that are high quality in
• 12:53
  Speaker 1: this if you're in a high tax state, it's not easy.
• 12:55
  Speaker 1: It's not easy to do. And even as a professional investor,
• 12:58
  Speaker 1: you're going to pay significant basis point spreads getting in
• 13:03
  Speaker 1: and out of these positions to say nothing. If if
• 13:06
  Speaker 1: you wait, you can cut those eight bit spreads down
• 13:09
  Speaker 1: to like sixty. There you go. You could. You could
• 13:12
  Speaker 1: find something in the middle. But it's a valid point.
• 13:15
  Speaker 1: It's not easy to to execute these treas but it's
• 13:17
  Speaker 1: an as a class most investors should be in. And
• 13:20
  Speaker 1: so that's why we've had bond mutual funds. Okay, bond
• 13:22
  Speaker 1: mutual funds are fine, but again you have all these
• 13:25
  Speaker 1: pricing issues. You've got these embedded tax issues, which are
• 13:28
  Speaker 1: even worse than most bond portfolios because most people in
• 13:31
  Speaker 1: their bond portfolios want to hold a certain maturity, like
• 13:34
  Speaker 1: I want to hold your five years my target duration
• 13:36
  Speaker 1: or something like that. To hold that, it means you
• 13:38
  Speaker 1: have to constantly be selling something and buying something else
• 13:41
  Speaker 1: in order to hold that duration of that maturity um.
• 13:44
  Speaker 1: And that creates taxes when you do that, particularly if
• 13:46
  Speaker 1: you're in a bond market with rising prices and declining rates.
• 13:50
  Speaker 1: So let me, let's just delve into that. When you
• 13:52
  Speaker 1: say people have to sell stuff to hold the same duration,
• 13:54
  Speaker 1: it's as time goes by, Hey, suddenly things that were
• 13:58
  Speaker 1: four and a half years become five years. You duration
• 14:01
  Speaker 1: that's out, and you have to add other stuff to
• 14:03
  Speaker 1: make exactly. And so if you're in a you know,
• 14:05
  Speaker 1: an I shared bond fund that says that this is
• 14:08
  Speaker 1: a five year muni fund or whatever, um, as that
• 14:11
  Speaker 1: five year becomes four, you have to sell it. And
• 14:13
  Speaker 1: as that seven year became five, you have to buy it.
• 14:16
  Speaker 1: And if you're an environment where the prices of those
• 14:19
  Speaker 1: bonds have been going up, which has been where we've
• 14:21
  Speaker 1: been for a long time. Then you've got those capital
• 14:24
  Speaker 1: gains from that sales process, and the e t F
• 14:26
  Speaker 1: helps you get rid of some of that. So the
• 14:30
  Speaker 1: thing that I find fascinating is that the bond desks
• 14:33
  Speaker 1: have essentially been replaced by black Rock. Now when people
• 14:38
  Speaker 1: want to do a big bond allocation, they don't call
• 14:40
  Speaker 1: Goldman or Morgan Stanley necessarily or you by S or
• 14:43
  Speaker 1: Credit Swiss. They called black Rock. Is that a fair assessment? Yeah,
• 14:48
  Speaker 1: it's black Rock. And really it's also folks like PIMCO, right,
• 14:51
  Speaker 1: And you know PIMCO, I think is mostly known as
• 14:53
  Speaker 1: being the sort of Bill Gross's old big shop for
• 14:56
  Speaker 1: actively managed mutual funds. They have a huge et F
• 14:59
  Speaker 1: present it's now they're actually the largest actively managed et
• 15:02
  Speaker 1: F provider. And yeah, they have become the bond desk
• 15:06
  Speaker 1: for the world. If Mexico wants to float a new issue,
• 15:09
  Speaker 1: they call Blackrock, and or they called Pimco and they
• 15:12
  Speaker 1: asked them if they'll take down the whole thing, and
• 15:14
  Speaker 1: that may never trade, you may never actually see it
• 15:16
  Speaker 1: go across. Wow, that's absolutely fascinating. Let's let's talk about
• 15:21
  Speaker 1: your long and wacky career. You began as an accountant
• 15:26
  Speaker 1: slash screenwriter. How the hell does that act? Well? I,
• 15:29
  Speaker 1: I you know, I think like a lot of people,
• 15:31
  Speaker 1: I went to college having no idea what I wanted
• 15:33
  Speaker 1: to do, and I've got a creative writing degree and
• 15:35
  Speaker 1: then headed to Hollywood to write the Great American screenplay,
• 15:38
  Speaker 1: uh and instead end up writing the Great American payroll Check. Uh.
• 15:41
  Speaker 1: And uh, you know I went to Hollywood, I I
• 15:44
  Speaker 1: ended up locked into a production company just because I
• 15:47
  Speaker 1: needed work, hoping that I'd be able to write for
• 15:49
  Speaker 1: a living, and actually found that I was more fascinated
• 15:53
  Speaker 1: by the process of producing television than anything else, and um,
• 15:58
  Speaker 1: and got really interested in the big nos itself. And
• 16:01
  Speaker 1: that led me to think I should go back and
• 16:02
  Speaker 1: get a business degree, which is what I did. Uh,
• 16:05
  Speaker 1: and then sort of fell in love with investing from there. So,
• 16:08
  Speaker 1: so you go to Boston University for an NBA. Is
• 16:10
  Speaker 1: that right? And then how do you then move sideways
• 16:14
  Speaker 1: into finance? So? What what lad you? You were at
• 16:17
  Speaker 1: Surly Associates. Yeah, So when I was at BU, I
• 16:20
  Speaker 1: was studying with v Body relatively well known professor there
• 16:23
  Speaker 1: on investments, and really he sort of sparked a lot
• 16:26
  Speaker 1: of my interest in investing. UH. And one of my
• 16:29
  Speaker 1: classmates was the then wife of Kurt Ceruli, and he
• 16:33
  Speaker 1: and I started really associates to do really sort of
• 16:36
  Speaker 1: consulting work and mostly advisor survey type work for big
• 16:41
  Speaker 1: asset managers. Because at that time, this was very early nineties,
• 16:45
  Speaker 1: just coming out of the late eighties. UH, we were
• 16:47
  Speaker 1: in this phase shift from the traditional brokerage commission model
• 16:51
  Speaker 1: to true independent fee only financial advisors, and that really
• 16:55
  Speaker 1: was changing the game for asset managers. That that was
• 16:58
  Speaker 1: early nineties. That was way way early in the process.
• 17:02
  Speaker 1: I mean Ken Fisher was doing this gig then and
• 17:05
  Speaker 1: other people had started back then, but it was still
• 17:07
  Speaker 1: a tiny percentage overall. What made you say, oh, this
• 17:10
  Speaker 1: is the future because that's where consulting clients wanted to pass.
• 17:15
  Speaker 1: So we had from right marketing for it, says. We
• 17:17
  Speaker 1: had firms like Fidelity and what was then Wells Fargo,
• 17:20
  Speaker 1: Nico Investment Advisors which became Barklay's Global Investors, and State
• 17:24
  Speaker 1: Street UM and and actually one of my first clients
• 17:27
  Speaker 1: was Jean vanak Here in the city of k and uh,
• 17:30
  Speaker 1: and they were all trying to figure out how this shift,
• 17:33
  Speaker 1: both in the defined contribution space, which was really kicking
• 17:36
  Speaker 1: off hard in the early nineties UH, and in the
• 17:39
  Speaker 1: field only financial advisor business, how that was going to
• 17:41
  Speaker 1: change their investment management practices from a product structure standpoint,
• 17:45
  Speaker 1: from how do I sell to these people if I'm
• 17:47
  Speaker 1: not giving them trips to Hawaii or paying them you know,
• 17:50
  Speaker 1: back end loads or all of those horrible ways of
• 17:53
  Speaker 1: selling products so exactly and so so you know, at
• 17:58
  Speaker 1: that point, as a really wet behind the years early twenties, kid,
• 18:02
  Speaker 1: I was making phone calls to financial advisors and asking
• 18:05
  Speaker 1: about their practices and and that really, you know, it
• 18:08
  Speaker 1: was it was an exciting place to be because it
• 18:09
  Speaker 1: was very new. When when was the big move from
• 18:12
  Speaker 1: define benefits to define contributions slash four oh one K
• 18:16
  Speaker 1: When when did that really ramp up? Right about that?
• 18:19
  Speaker 1: I mean it was it was sort of towards the
• 18:21
  Speaker 1: end and certainly coming out of the financial well what
• 18:23
  Speaker 1: was what we called then the financial crisis in seven
• 18:27
  Speaker 1: UM that was a little minor, minor hiccup. Then back
• 18:31
  Speaker 1: in the days of Glass Stiegel, a one day collapse
• 18:34
  Speaker 1: in the market doesn't spill over today. It's a little different,
• 18:37
  Speaker 1: a little different, little different. That was the first time
• 18:38
  Speaker 1: I lost a lot of money was in UM. But
• 18:41
  Speaker 1: the uh, you know, that was really the hockey stick
• 18:45
  Speaker 1: of the takeoff in four oh one K. It's when
• 18:46
  Speaker 1: Vanguard really got into that business. It's when Fidelity got
• 18:49
  Speaker 1: into that business. Uh. And you know, the assets really
• 18:52
  Speaker 1: started flowing in, and it implied getting rid of all
• 18:56
  Speaker 1: these costs in the system, all these loads, everything else.
• 18:58
  Speaker 1: You can't put any of that into a four o
• 18:59
  Speaker 1: one risk. It doesn't let you, right. So I sometimes
• 19:02
  Speaker 1: describe you as there at the beginning when ETFs were created,
• 19:07
  Speaker 1: and you pushed back on that all the time. What
• 19:09
  Speaker 1: was your role in in the early days of e ts. Yeah,
• 19:13
  Speaker 1: so you're the early days of ets which is really
• 19:15
  Speaker 1: ninety three was spy uh. Slightly before that with the
• 19:19
  Speaker 1: Toronto Index participation, securities, tips UM and then the webs
• 19:23
  Speaker 1: products that I worked on was ninety four and five.
• 19:26
  Speaker 1: I think they finally launched in ninety five. UM when
• 19:29
  Speaker 1: did the cues launch? It was not much after that.
• 19:31
  Speaker 1: It was in all in the same window. UM. I
• 19:34
  Speaker 1: think the cues might have been a little bit later,
• 19:36
  Speaker 1: like it might have been ninety eight. Um. But the
• 19:39
  Speaker 1: the reason I pushed back is because this is a
• 19:42
  Speaker 1: classic success has a thousand fathers problem. Um. You know
• 19:45
  Speaker 1: Jim Ross, you know who you've had on the show
• 19:47
  Speaker 1: from State Street, who's great, Um, you know he he
• 19:50
  Speaker 1: often sort of tells the story of like, yeah, I
• 19:52
  Speaker 1: was in the room when Spy was created. I was
• 19:54
  Speaker 1: getting coffee, right, And I think the other way the
• 19:57
  Speaker 1: other guy who started as an accountant and could crunch
• 19:59
  Speaker 1: the numbers, And I said, we better keep Jim around.
• 20:01
  Speaker 1: He seems he seems to understand the plumbing. Yeah. Um,
• 20:04
  Speaker 1: And I think that that's very true. I was very young.
• 20:06
  Speaker 1: There were, you know, the people who were really the
• 20:09
  Speaker 1: intellect behind this, which really required a lot of thinking
• 20:12
  Speaker 1: through the market mechanics and regulatory issues. Were folks like
• 20:17
  Speaker 1: Nate Most at the Amax, or even Patty dunne It
• 20:19
  Speaker 1: well as far Unico, both of them have passed away.
• 20:22
  Speaker 1: I mean, it is a generation ago of some very
• 20:26
  Speaker 1: bright thinkers that really drove the foundation of this and
• 20:29
  Speaker 1: a bunch of Yahoo kids that were sitting there trying
• 20:32
  Speaker 1: to figure out how to sell this to people. Quite
• 20:34
  Speaker 1: fascinating Uh, you know, there's a little background. You were
• 20:38
  Speaker 1: c I O at et F dot com right back
• 20:41
  Speaker 1: in the day, and then you leave and you run
• 20:43
  Speaker 1: the t F department at fact Set. Yeah. So originally
• 20:47
  Speaker 1: E t F to confounded by a guy named Jim Wyant.
• 20:50
  Speaker 1: He brought a bunch of us in to sort of
• 20:51
  Speaker 1: build that business in the I've been to Jim's confis
• 20:55
  Speaker 1: events in Spain, which was quite fascinating. Yeah, and he
• 20:58
  Speaker 1: had the vision of building this bis this you know,
• 21:00
  Speaker 1: a decade ago. And really there were three legs at
• 21:03
  Speaker 1: that stool. There was sort of the media business, which
• 21:05
  Speaker 1: we now know as et F dot Com. We published
• 21:07
  Speaker 1: a magazine, the et F Report, which we've been publishing
• 21:09
  Speaker 1: for twelve years or something like that. Now. Um, there
• 21:12
  Speaker 1: was a conference business which became inside et S. Go
• 21:15
  Speaker 1: to that event. That's a fantastic event. Thousands of advisors
• 21:19
  Speaker 1: to literally two thousand people. That's the bit that may
• 21:21
  Speaker 1: be the biggest single room. I ever stood at a
• 21:24
  Speaker 1: podium and looked out at it was. It just goes.
• 21:29
  Speaker 1: And then the third leg of the stool was a
• 21:30
  Speaker 1: data and analytics business, which was the part that I
• 21:32
  Speaker 1: came into build. UM and we were a venture capital
• 21:36
  Speaker 1: backed start up at that point, and we sold the
• 21:39
  Speaker 1: pieces off, you know, over the course of a couple
• 21:41
  Speaker 1: of years. The in the conference business was sold to Informa,
• 21:44
  Speaker 1: which is a huge conference company based in London. The
• 21:48
  Speaker 1: data and analytics business that I was running was sold
• 21:50
  Speaker 1: the fact Set and I went with it to fact
• 21:52
  Speaker 1: Set for a year. Uh. And then the media business
• 21:55
  Speaker 1: was sold to what was then BATS and then became
• 21:57
  Speaker 1: CBOG Global Markets uh, and then they brought me back
• 22:01
  Speaker 1: in to run it. So you're you're hired as CEO. Tip,
• 22:04
  Speaker 1: what is this managing directed? Well, they can't can't have
• 22:07
  Speaker 1: too many CEOs and the publicly traded company, so that
• 22:11
  Speaker 1: makes a lot of sense. So so let's you're the
• 22:14
  Speaker 1: perfect person to ask this question. I've discussed how e
• 22:18
  Speaker 1: t f s come to be. Someone has an idea
• 22:21
  Speaker 1: and they run through a bunch of machinery and then
• 22:23
  Speaker 1: out of the other end of that factory comes some
• 22:26
  Speaker 1: e t F. But I don't think people really understand
• 22:29
  Speaker 1: how e t f s are actually put together. Walk
• 22:33
  Speaker 1: us through what an e t F launch is like
• 22:36
  Speaker 1: from from conception to trading. Well, in the current environment,
• 22:41
  Speaker 1: right with the current regulatory structure, you know, you're actually
• 22:44
  Speaker 1: a classic case of a large successful are a believes
• 22:47
  Speaker 1: they have a bit of a better mouse trap, whatever
• 22:49
  Speaker 1: that is. They're actively managed equity strategy, they've got a
• 22:52
  Speaker 1: great stock picker, we have a fantastic bitcoin hedge. We're
• 22:56
  Speaker 1: there turning into an ET right. So you so what
• 23:00
  Speaker 1: you do, You've really got two options. One is you
• 23:02
  Speaker 1: go down this path entirely on your own, and effectively
• 23:06
  Speaker 1: what you're doing is launching a mutual fund. So it's
• 23:08
  Speaker 1: a Forty Act mutual fund. You have to get a board,
• 23:10
  Speaker 1: you have to get a fund account, and you gotta
• 23:12
  Speaker 1: get all that stuff in place. And then after you've
• 23:15
  Speaker 1: done all of that work, you have to go to
• 23:16
  Speaker 1: the SEC and have this big mother may I conversation.
• 23:20
  Speaker 1: But whether or not you can break all of the
• 23:22
  Speaker 1: rules that are in the forty Act, and it's called
• 23:24
  Speaker 1: the Exemptive Release Relief process. You're asking for exemptions and
• 23:29
  Speaker 1: they let you do things like treat authorized participants differently
• 23:32
  Speaker 1: than common shareholders and allowing it to trade on an exchange,
• 23:36
  Speaker 1: which a normal mutual fund can't. So there's all these
• 23:39
  Speaker 1: rules that you have to break to be an e
• 23:41
  Speaker 1: t F. That's changing, hopefully, what's what's the new system?
• 23:45
  Speaker 1: The new system is going to be very straightforward. They'll
• 23:48
  Speaker 1: just basically be the same set of forms you fill
• 23:50
  Speaker 1: out for a mutual fund and you'll check a box
• 23:53
  Speaker 1: for et F instead, and all of those distinctions about
• 23:56
  Speaker 1: like being able to trade on exchange will just come
• 23:58
  Speaker 1: baked in. So you need a special privilege, You'll just
• 24:02
  Speaker 1: be part of an existing piece of regulation. Is that
• 24:05
  Speaker 1: likely to Yeah, so this is going to happen. This
• 24:09
  Speaker 1: is going to happen. We're in the comment period for
• 24:11
  Speaker 1: it now. It's called the e t F rule, is
• 24:13
  Speaker 1: what it's being called. And it's literally just a new
• 24:15
  Speaker 1: piece of text that's going into to allow e t
• 24:19
  Speaker 1: F to happen, and it should compress the time to market.
• 24:22
  Speaker 1: Right now, it's maybe six months for an easy e
• 24:24
  Speaker 1: t F to come to market. We can probably get
• 24:26
  Speaker 1: that down to two months um and the cost will
• 24:29
  Speaker 1: go from, like you said, a couple hundred thousand bucks
• 24:31
  Speaker 1: to maybe fifty thousand if it's really simple and you
• 24:34
  Speaker 1: have those existing mutual fund relationships in place. So you
• 24:37
  Speaker 1: specifically said to me earlier, there are over two thousand
• 24:41
  Speaker 1: ETF Once we make it faster, cheaper, easier, to launch
• 24:44
  Speaker 1: these what's that number gonna go? We're gonna have ten?
• 24:48
  Speaker 1: Will there'll be more e t F than the eleven
• 24:50
  Speaker 1: thousand hedge funds that are out or that eight thousand
• 24:53
  Speaker 1: mutual funds um. You know, I think there is a
• 24:56
  Speaker 1: natural diminishing set of returns on that. I don't think
• 25:00
  Speaker 1: we're gonna end up with eight thousand like we have
• 25:01
  Speaker 1: in mutual funds UM, largely because I think they won't
• 25:04
  Speaker 1: be successful in gathering assets and there are some fixed
• 25:07
  Speaker 1: costs to running an e t F, So I think
• 25:09
  Speaker 1: that will it'll slow down a little bit. Where we
• 25:13
  Speaker 1: haven't seen the big entrance yet is frankly, the big
• 25:16
  Speaker 1: active managers, right, there's no Growth Fund of America e
• 25:19
  Speaker 1: t F. Right, Putnam isn't in this space. They're all
• 25:22
  Speaker 1: sorts of people who are not in the e t
• 25:24
  Speaker 1: F space. And even the big traditional asset managers like
• 25:27
  Speaker 1: Fidelity really just stuck their toes in the water with
• 25:31
  Speaker 1: a couple of index products. There's no contra fund et F,
• 25:33
  Speaker 1: there's no Magellan e t F, and I think until
• 25:36
  Speaker 1: that shoe drops, we're not going to see massive inflows there.
• 25:41
  Speaker 1: So you you you reference the ability to gather assets,
• 25:45
  Speaker 1: you need a certain critical mass. The number I've heard
• 25:47
  Speaker 1: kicked about is fifty millions. Some people have said a
• 25:49
  Speaker 1: hundred million or something like that. What what is it
• 25:52
  Speaker 1: that precludes an e t F from gathering that mass?
• 25:57
  Speaker 1: I remember a couple of years ago when the UM
• 26:00
  Speaker 1: hack e t F came out, the cybersecurity that just
• 26:05
  Speaker 1: came out, and then suddenly there was the Sony hack
• 26:08
  Speaker 1: in the North Korean Act and that exploded. That became
• 26:10
  Speaker 1: a billion dollars almost overnight. The biggest issue with e
• 26:15
  Speaker 1: t F is there the classic bought not sold product.
• 26:18
  Speaker 1: I mean, you make this et F, you put it
• 26:20
  Speaker 1: out there on the exchange pretty much literally anybody who
• 26:23
  Speaker 1: can get access to the to a US equity exchange
• 26:26
  Speaker 1: will be able to buy it. But then how do
• 26:29
  Speaker 1: you convince anybody that they should buy it? And it's
• 26:32
  Speaker 1: a it's just classic push marketing. They have to you
• 26:34
  Speaker 1: have to put out ads, or you have to get
• 26:35
  Speaker 1: a wholesaler to go call on your office and try
• 26:38
  Speaker 1: to convince you to switch out of this other et
• 26:40
  Speaker 1: F into this new et F. That's just hard, and
• 26:44
  Speaker 1: it requires substantial capital if you don't have an entrenched
• 26:47
  Speaker 1: distribution system So if your fidelity and you've got you know,
• 26:51
  Speaker 1: hundreds of wholesalers that are out there talking to people
• 26:54
  Speaker 1: all the time, tossing ETFs in the bag isn't a
• 26:56
  Speaker 1: big deal. If you're an r A building something from scratch,
• 27:00
  Speaker 1: not in the business of distribution, that's not what you do.
• 27:02
  Speaker 1: You're in r A A. So figuring out how to
• 27:05
  Speaker 1: catch lightning in a bottle and get all these other
• 27:08
  Speaker 1: people to start participating in your big idea, it's not obvious,
• 27:12
  Speaker 1: and I think we've seen a lot of people come
• 27:14
  Speaker 1: to market with some pretty interesting ideas that never get
• 27:17
  Speaker 1: that traction. I remember she when she first came out
• 27:21
  Speaker 1: between the stock symbol, which there have been studies that
• 27:25
  Speaker 1: shown symbols make a difference to the whole controversy of
• 27:31
  Speaker 1: the girl facing off with the bull down and lower
• 27:35
  Speaker 1: Broadway right near Wall Street. Uh to is it? Calsters
• 27:38
  Speaker 1: was the one who funded the original couple of hundred couple,
• 27:41
  Speaker 1: which is kind of still where it is. How has
• 27:43
  Speaker 1: that not caught on? I'm kind of shot, Well, you know,
• 27:47
  Speaker 1: who knows what catches and what doesn't write that? That
• 27:50
  Speaker 1: is a classic first mover into the E S G
• 27:53
  Speaker 1: space and the women in governance is the core behind
• 27:56
  Speaker 1: that product, and it has definitely resonated with a certain
• 27:59
  Speaker 1: institutional audience, but it hasn't resonated with mom and pop investors,
• 28:04
  Speaker 1: It hasn't resonated with a raft of financial advisors. Um.
• 28:08
  Speaker 1: You know, I have some theories on that it is
• 28:10
  Speaker 1: a one off product. It's not part of a suite
• 28:13
  Speaker 1: of E s G products. I think that can be
• 28:15
  Speaker 1: tough to sell a one off product because what are
• 28:17
  Speaker 1: you gonna do take up billboards that just talked about
• 28:20
  Speaker 1: s A across you know, the marketing spend that would
• 28:24
  Speaker 1: be required would be enormous. What what about? Um there's
• 28:27
  Speaker 1: been a new potty t F floated. I think it
• 28:30
  Speaker 1: should go with the symbol weed. Of course it should,
• 28:32
  Speaker 1: but every but I don't know if that's available, if
• 28:35
  Speaker 1: someone else has it, or if it's two in your face.
• 28:37
  Speaker 1: It's probably two in your for the sec if it's
• 28:40
  Speaker 1: a medical Maril, well, the other one is m J
• 28:42
  Speaker 1: which is pretty close, right, which is Mary Jane? I mean,
• 28:45
  Speaker 1: how is that? Well they could say it stands from marijuana,
• 28:47
  Speaker 1: but we know what. Um So, so what are your
• 28:50
  Speaker 1: thoughts on these real niche specialty E t F? I
• 28:54
  Speaker 1: think they have a place, right. I mean, niche products
• 28:57
  Speaker 1: in the financial market are not something new. They're tiny,
• 29:00
  Speaker 1: little knitche mutual funds that are covering a lot of
• 29:03
  Speaker 1: the same spaces. Um, I think they have a place
• 29:05
  Speaker 1: in the market for folks that are speculating on those
• 29:08
  Speaker 1: narrow themes. The danger is because these are bought, not sold,
• 29:14
  Speaker 1: you can create a story about how, you know, my
• 29:17
  Speaker 1: mom ends up reading something you know, or seeing something
• 29:20
  Speaker 1: on TV and gets all excited about it, and it
• 29:23
  Speaker 1: turns out that it's triple leveraged oil or something like that,
• 29:27
  Speaker 1: which she has no business investing in. And because et
• 29:29
  Speaker 1: f are this sort of great democratizing flatten er of
• 29:32
  Speaker 1: investment assets, really almost anything you could want to do
• 29:37
  Speaker 1: you can do in an e t F, whether that's
• 29:39
  Speaker 1: a good idea or not. And so I think there
• 29:42
  Speaker 1: are some issues around that. But um, you know, I
• 29:44
  Speaker 1: tend to be a little bit of a libertarian on
• 29:46
  Speaker 1: these things. I think we shouldn't stop we shouldn't keep
• 29:49
  Speaker 1: people from making these products because we're concerned they're missus,
• 29:51
  Speaker 1: they'll be misused. We should focus on investor education so
• 29:55
  Speaker 1: eventually there'll be a Darwinian competition. And when there's whatever
• 30:00
  Speaker 1: e thousand, ten thousand e t fs. Some will catch
• 30:03
  Speaker 1: a little bit of lightning the bottle, as you mentioned,
• 30:06
  Speaker 1: others won't. Is this just gonna eventually winnow down to
• 30:11
  Speaker 1: a core thout or is it going to be like
• 30:13
  Speaker 1: the mutual fund world where there's tens of if you
• 30:16
  Speaker 1: include all the share classes, is like twenty. Well, the
• 30:20
  Speaker 1: one thing that ets have going for them in this
• 30:22
  Speaker 1: regard is that it actually is expensive and problematic to
• 30:26
  Speaker 1: let a tiny little e t F you know, million
• 30:29
  Speaker 1: dollar et F that never trades. That thing eventually will
• 30:33
  Speaker 1: get delisted, right, these things are listed on exchanges. Exchanges
• 30:36
  Speaker 1: don't want to have their you know, product list just
• 30:40
  Speaker 1: filled up with this cruft junk, So these products will
• 30:43
  Speaker 1: eventually get delisted. There are sort of ongoing maintenance costs.
• 30:46
  Speaker 1: You have to have a board meeting for this darn
• 30:48
  Speaker 1: thing in the year, right, they're hard costs associated with it.
• 30:51
  Speaker 1: So we do see e t f s closed with
• 30:54
  Speaker 1: I think a higher frequency than mutual funds. That's a
• 30:57
  Speaker 1: good thing. So you know, last year, I think we
• 30:59
  Speaker 1: had a DRETF launch, we had a coupletfs closed. We
• 31:02
  Speaker 1: ended up positive by maybe a hundred new ETFs. That's
• 31:05
  Speaker 1: all it was. I think that's a very healthy thing.
• 31:08
  Speaker 1: We have been speaking with Dave Natick. He is the
• 31:12
  Speaker 1: managing director at et F dot com. If you enjoy
• 31:15
  Speaker 1: this conversation, be sure and come back for the podcast extras,
• 31:19
  Speaker 1: where we keep the tape rolling and continue discussing all
• 31:22
  Speaker 1: things E t F related. You can find that at iTunes, Overcast, Stitcher,
• 31:29
  Speaker 1: Bloomberg dot com, wherever final podcasts are sold. We love
• 31:33
  Speaker 1: your comments, feedback and suggestions right to us at m
• 31:37
  Speaker 1: IB podcast at Bloomberg dot net. You can check out
• 31:40
  Speaker 1: my daily column at the Opinion section of Bloomberg dot com.
• 31:44
  Speaker 1: Follow me on Twitter at Rid Halts. I'm Barry Riholts.
• 31:48
  Speaker 1: You're listening to Masters in Business on Bloomberg Radio. Welcome
• 32:06
  Speaker 1: to the podcast, Dave. Thank you so much for doing this.
• 32:08
  Speaker 1: I've been I've been thinking about having you here for forever,
• 32:11
  Speaker 1: and I know you are kind of mobile these days,
• 32:15
  Speaker 1: talking forth between Boston and New York. Usually we do
• 32:18
  Speaker 1: this over dinner, so it's that that is actually true.
• 32:20
  Speaker 1: And every time I finished, I'm like, I gotta get
• 32:23
  Speaker 1: that guy in the studio. He really knows these E
• 32:26
  Speaker 1: t F things. One one day one day they're going
• 32:29
  Speaker 1: to catch on. So, um, there's a bunch of stuff
• 32:33
  Speaker 1: we didn't get to. Let me, let me go through
• 32:35
  Speaker 1: some of the questions we missed, although you really touched on.
• 32:40
  Speaker 1: So we talked about the new regulations. We talked about
• 32:43
  Speaker 1: the number of ETFs winking in and out of existence.
• 32:47
  Speaker 1: You have a bird's eye view. What what's the biggest
• 32:49
  Speaker 1: mistake people who are developing new ETFs make in the
• 32:54
  Speaker 1: process from conception to launch. Oh, it's I think it's
• 32:58
  Speaker 1: absolutely distribution, right, it's it's it's a distribution. If you
• 33:02
  Speaker 1: look at the folks that come in and are successful now,
• 33:05
  Speaker 1: not ten years ago, but now they come in at
• 33:08
  Speaker 1: your your colleague here a Bloomberg, Eric Beltuna says, you know,
• 33:11
  Speaker 1: bring your own assets b y O A. Right, And
• 33:14
  Speaker 1: you know we've recently seen JP Morrigan just basically decide
• 33:17
  Speaker 1: to get into the space. They decided by moving a
• 33:20
  Speaker 1: bunch of internal assets out of other funds, maybe separate accounts,
• 33:24
  Speaker 1: maybe institutional clients, and just rolling that into et s
• 33:27
  Speaker 1: Boom their multibillion dollar complex. How do you how do
• 33:30
  Speaker 1: you do that? Hey? The that s m A you
• 33:32
  Speaker 1: have congratulations is now in EF But that's what we've seen, right.
• 33:36
  Speaker 1: So Goldman did this when they launched g SLC, which
• 33:38
  Speaker 1: is the Golden Sacks Large Cap is what it stands for,
• 33:41
  Speaker 1: and it's a smart beta fund. They launched at nine
• 33:43
  Speaker 1: basis points and everybody was like, oh, smart beta and
• 33:45
  Speaker 1: nine basis points, you know, that's really smart of them.
• 33:48
  Speaker 1: I was like, no, that's probably what the s m
• 33:50
  Speaker 1: A was charging, and that's the only way they could
• 33:52
  Speaker 1: map that in, right, So that's just rolling it from
• 33:55
  Speaker 1: A to B. And and you know, there may be
• 33:57
  Speaker 1: you know, depending on the kind of investor, maybe there's
• 34:00
  Speaker 1: tax implications to keep you from doing that. But for
• 34:03
  Speaker 1: the most part, if your mapping institutional money in, their
• 34:06
  Speaker 1: taxes are not an issue. So what I've been hearing
• 34:08
  Speaker 1: from you is that the et F space, now dominated
• 34:12
  Speaker 1: by three giants um and a whole lot of small
• 34:15
  Speaker 1: little guppies nipping at their heels, is going to be
• 34:18
  Speaker 1: dominated by three giants plus a hundred other really big
• 34:21
  Speaker 1: companies and a handful of guppies still nipping at everybody. Yeah,
• 34:25
  Speaker 1: I think we're gonna see a healthy middle tier right
• 34:28
  Speaker 1: below that third and I would actually, which doesn't exist now.
• 34:30
  Speaker 1: It's a Barbell. Well, it's a there is a there
• 34:33
  Speaker 1: is a healthy middle tier. It is firms like Goldman
• 34:36
  Speaker 1: and JP Morgan and Schwab. Right, I don't think anybody's
• 34:38
  Speaker 1: gonna worry about Swab being a guppy in this space, right,
• 34:41
  Speaker 1: gilling in tens of billions of dollars in the space, Now,
• 34:44
  Speaker 1: that's not a lot compared to the six trillion black
• 34:47
  Speaker 1: Rock runs or whatever it is today. But they're they're
• 34:51
  Speaker 1: healthy in it for the long haul players. And then
• 34:54
  Speaker 1: there's a tier of folks that have been in this
• 34:56
  Speaker 1: business for a long time and aren't going anywhere. Wisdom Tree,
• 34:59
  Speaker 1: Van neck On, Himer, folks like that. You know, they're
• 35:02
  Speaker 1: in this for the long haul and they're doing just fine,
• 35:04
  Speaker 1: Thank you very much. We're going to see more and
• 35:07
  Speaker 1: more new players. Some of those new players are going
• 35:09
  Speaker 1: to have big old names, and some of they're gonna
• 35:11
  Speaker 1: be people we never heard of. You mentioned your mom
• 35:14
  Speaker 1: is in a three X leveraged oil oil et F.
• 35:18
  Speaker 1: What explain the mechanism why all these leveraged e t
• 35:21
  Speaker 1: F s have such dramatic slippage due to the cost
• 35:25
  Speaker 1: of their their carriage. Yeah, well, it comes down to
• 35:28
  Speaker 1: compounding math and math is always great for radio, right
• 35:31
  Speaker 1: where you can illustrate it. But but but it really
• 35:33
  Speaker 1: comes down to the fact that when you go up
• 35:35
  Speaker 1: ten per cent and then you come down ten percent,
• 35:37
  Speaker 1: you don't know nep where you started. Right. If you
• 35:38
  Speaker 1: have a hundred dollars and you go up ten percent,
• 35:41
  Speaker 1: you're a hundred and ten a hundred and ten, you
• 35:43
  Speaker 1: go down ten percent, you don't go back down to
• 35:45
  Speaker 1: a hundred, right, you go down eleven dollars. You're right
• 35:48
  Speaker 1: that compounding math up and down is exactly what messes
• 35:53
  Speaker 1: up most of these daily reset, leveraged or inverse products
• 35:57
  Speaker 1: because they reset their exposure every single gold day, and
• 36:00
  Speaker 1: they're using futures and other products that are not cheap.
• 36:03
  Speaker 1: It's usually swaps, and most of these things the cost
• 36:06
  Speaker 1: of carry every day. There's usually a cost embedded in
• 36:09
  Speaker 1: those swaps, which is less transparent than I would like.
• 36:11
  Speaker 1: I'd love to see explicit swap pricing out there, but
• 36:15
  Speaker 1: as I'm sure you know, swap pricing tends to get
• 36:17
  Speaker 1: buried in the total return of the swap. It doesn't
• 36:19
  Speaker 1: explicitly get called out all the time. Um, and so
• 36:22
  Speaker 1: that's problematic. But most of these products work with a
• 36:25
  Speaker 1: giant cash balance, which is the technically what they own
• 36:29
  Speaker 1: quote unquote is this giant cash balance, which is why
• 36:31
  Speaker 1: they're allowed to do it. And then they have this
• 36:33
  Speaker 1: notional overnight settled swap for whatever the pattern of returns is.
• 36:37
  Speaker 1: They want triple leveraged oil inverse SMP, you name it.
• 36:41
  Speaker 1: And um, we didn't get to the bitcoin U E
• 36:45
  Speaker 1: t F that's supposedly coming out. Before we do that,
• 36:49
  Speaker 1: I have to touch on g LD, the gold E
• 36:52
  Speaker 1: t F. There was a wonderful wool Street Journal column
• 36:56
  Speaker 1: on how g l D was created by the World's
• 37:00
  Speaker 1: Old Council that had a problem with all this gold
• 37:02
  Speaker 1: piling up in warehouses in what was that early two
• 37:06
  Speaker 1: thousand's and g l D is launched and it just
• 37:10
  Speaker 1: becomes the timing was just fortuitous. It becomes briefly bigger
• 37:15
  Speaker 1: than the spiders at one point. Um, are we gonna
• 37:19
  Speaker 1: see so it made trading golds. You don't have to
• 37:22
  Speaker 1: buy physical gold, you don't have to buy gold futures,
• 37:25
  Speaker 1: and the hell with the junior miners, which have always
• 37:28
  Speaker 1: been problematic. You could buy g LD. Are we going
• 37:31
  Speaker 1: to see something similar with the bitcoin ETL I think
• 37:35
  Speaker 1: we are eventually. Right now, I'm not I'm not involved
• 37:38
  Speaker 1: in the regulatory process. You know. I see ABU Global
• 37:41
  Speaker 1: Markets has a group that's working on some of this stuff,
• 37:43
  Speaker 1: so you know, it is sort of out there in
• 37:45
  Speaker 1: the sphere around me. But I think, ultimately I think
• 37:49
  Speaker 1: about bitcoin as being a digital gold variant. Um. You know,
• 37:54
  Speaker 1: some people have argued the rise of bitcoin is why gold,
• 37:57
  Speaker 1: despite all of the craziness and the political world hasn't
• 38:00
  Speaker 1: rocked it. Right, this should be a good environment for gold,
• 38:02
  Speaker 1: but it's not. Low inflation of saw it. In the
• 38:05
  Speaker 1: end of the problem I have with with bitcoin is
• 38:09
  Speaker 1: the same problem I have with gold in these structures,
• 38:11
  Speaker 1: which is, if you were buying it from sort of
• 38:13
  Speaker 1: a guns and butter fear perspective, you know, you can't
• 38:17
  Speaker 1: go get a bitcoin out of a vault and do
• 38:19
  Speaker 1: anything with it anymore than you can get gold out
• 38:21
  Speaker 1: of a vault and do something with it if what
• 38:23
  Speaker 1: you did was buy it on an exchange somewhere. Now
• 38:26
  Speaker 1: you're living with the custody issues that are inherent in that. Now.
• 38:29
  Speaker 1: I'm not worried about that. I'm not a guns and
• 38:31
  Speaker 1: butter investor, but guns and bottled water in them there
• 38:34
  Speaker 1: you go more more accurately. But by the way, the
• 38:38
  Speaker 1: bitcoin question I didn't ask you during the broadcast portion.
• 38:41
  Speaker 1: Was bitcoin a fraud or merely just a scam? But
• 38:46
  Speaker 1: the reason I didn't ask is because I didn't want
• 38:48
  Speaker 1: the email to light up. And I don't believe it's
• 38:51
  Speaker 1: a full on scam. I I suspect North Korea is involved,
• 38:54
  Speaker 1: and I suspect I ran as busy mining bitcoins um
• 38:59
  Speaker 1: and there are a lot of other unsavory characters. When
• 39:01
  Speaker 1: when I have people killed, I do it paid for
• 39:04
  Speaker 1: it with bitcoin? But modern assassin isn't Isn't that some
• 39:10
  Speaker 1: of the issues that the SEC has to be considering
• 39:14
  Speaker 1: When gee, it's such an unregulated currency, we have no
• 39:17
  Speaker 1: idea what's going on with it? Is it legitimately used
• 39:20
  Speaker 1: for money laundering, for drug trafficking, for whatever? How can
• 39:24
  Speaker 1: the SEC approve that? If the I R S and
• 39:27
  Speaker 1: the Treasury Department is finding their own war against bitcoin people,
• 39:31
  Speaker 1: does that enter the calculus? Well, so, I have no
• 39:33
  Speaker 1: idea what's going on in the regulators had It's not
• 39:35
  Speaker 1: my job, But I would say people made this argument
• 39:38
  Speaker 1: about gold for a long time, really right, People made
• 39:41
  Speaker 1: this argument in the sixties and seventies and eighties about
• 39:43
  Speaker 1: crew grands, right. And I remember one of my very
• 39:46
  Speaker 1: first jobs before, like while I was in college, was
• 39:49
  Speaker 1: helping somebody at a treasure in a treasurer's office at
• 39:52
  Speaker 1: a global manufacturer. They made water treatment. I never heard that.
• 39:55
  Speaker 1: And and they actually transacted in some kind trees where
• 40:00
  Speaker 1: we had hyper inflation like that. Transactions were literally getting
• 40:05
  Speaker 1: done in stacks of crew grants. And there were real
• 40:08
  Speaker 1: concerns about like, well, gold has become in this post
• 40:11
  Speaker 1: Breton Woods environment effectively the currency of criminals. Right, That's
• 40:15
  Speaker 1: the exact same set of arguments, right now. That's something
• 40:18
  Speaker 1: you know I used to speak at the The Agora
• 40:22
  Speaker 1: Group used to do this wonderful conference, annual conference in
• 40:26
  Speaker 1: Vancouver every AUGUSTUM around the time we're recording this, and
• 40:30
  Speaker 1: it was another giant event. And if you've ever spent
• 40:33
  Speaker 1: any time in Vancouver, it's a fanta love, love love Vancouver,
• 40:38
  Speaker 1: fantastic food. Everybody in the city is beautiful. It's like
• 40:41
  Speaker 1: it's such a like exactly right. So, um, I remember
• 40:48
  Speaker 1: they would do this Whiskey Bar, which was a panel
• 40:52
  Speaker 1: where the audience would throw questions at people and um,
• 40:56
  Speaker 1: this was one ten eleven, and I remember being one
• 40:59
  Speaker 1: of the only stock bulls. They're not exactly Especially in eleven,
• 41:05
  Speaker 1: I talked about why how gold will end. It's run
• 41:08
  Speaker 1: not with a whimper, but with a spike and a collapse.
• 41:11
  Speaker 1: And and the fascinating thing was someone asked the question,
• 41:15
  Speaker 1: don't you want to have some some bars of gold
• 41:18
  Speaker 1: in case you have to up and and flee? And
• 41:22
  Speaker 1: I'm like, well, listen, dudes, you know every all you
• 41:25
  Speaker 1: folks up here. I don't see a whole lot of
• 41:27
  Speaker 1: fellow tribesmen here, and and Jews have learned always have
• 41:31
  Speaker 1: a bag packed by the front door, by the back door,
• 41:34
  Speaker 1: because you never know when there's gonna be a knock
• 41:36
  Speaker 1: and you have to flee. And gold is heavy. You
• 41:40
  Speaker 1: can't take a lot of gold, but you can carry
• 41:42
  Speaker 1: a lot of bitcoin with you. You can carry all
• 41:44
  Speaker 1: the bitcoin you want, or a bag of diamonds. But
• 41:46
  Speaker 1: to to flee with any sizable amount of gold is
• 41:49
  Speaker 1: just not not gonna happen. And it was said in jest,
• 41:52
  Speaker 1: but the people who are claiming you could do these
• 41:55
  Speaker 1: giant gold trans that you can't move millions of dollars
• 42:00
  Speaker 1: worth of gold as easily as you can do that
• 42:02
  Speaker 1: with bitcoin. And I you know, I tend to be
• 42:05
  Speaker 1: I'm a bit of a bitcoin skeptic, not because I
• 42:07
  Speaker 1: think I think the underlying technology is super interesting, and
• 42:09
  Speaker 1: I actually think that there's, you know, something like there
• 42:13
  Speaker 1: there will be something that the blockchain ends up driving
• 42:17
  Speaker 1: that will change the way we think about financial transactions.
• 42:20
  Speaker 1: I just think probably I think we're in the MySpace era.
• 42:23
  Speaker 1: I don't think we're in the Facebook era, bit pile
• 42:26
  Speaker 1: and alta vistas. I call blockchain and bitcoin Linux for libertarians.
• 42:32
  Speaker 1: There you go, So I think I think that works. UM, So,
• 42:36
  Speaker 1: so send your angry emails to UM Dave at cbo
• 42:41
  Speaker 1: E dot com and he'll he'll be happy to respond
• 42:44
  Speaker 1: to any of your your bitcoin questions. You know I
• 42:48
  Speaker 1: left I left out a question about your background that
• 42:51
  Speaker 1: I want to get to UM. In the late nineties,
• 42:54
  Speaker 1: you were running an experimental or co running and experimental funds.
• 43:00
  Speaker 1: Tell us about that. Yeah. So, after the after Barkley's
• 43:03
  Speaker 1: bought the indexing business and became b G, I myself
• 43:07
  Speaker 1: and my then partner Don Leskin. I'm sorry, Don Leskin,
• 43:11
  Speaker 1: I know one of your favorite people. Uh, I've crossed
• 43:16
  Speaker 1: swords with him. I I used to do cud loan Kramer.
• 43:19
  Speaker 1: He was my my foil and heading into the financial crisis.
• 43:25
  Speaker 1: He seems to think I like actively dislike him. I don't.
• 43:29
  Speaker 1: He just could not have been more bullish and more
• 43:31
  Speaker 1: wrong in oh seven and oh eight, and I feel
• 43:35
  Speaker 1: on an obligation to call people that when they're wrong.
• 43:37
  Speaker 1: I read something the other day where he thinks I'm
• 43:39
  Speaker 1: like after him or hate him until you mentioned to
• 43:44
  Speaker 1: me that you were working way back when, which I
• 43:46
  Speaker 1: was stunned to learn. I I harbored, no animus. I
• 43:51
  Speaker 1: just think, dude, you're whatever your methodology was, it was
• 43:55
  Speaker 1: he missed the worst financial Don wrote a piece was
• 44:00
  Speaker 1: the Washington Post piece. I don't know, so I believe
• 44:04
  Speaker 1: there was a piece that was written. I don't remember
• 44:06
  Speaker 1: who wrote it. Maybe it wasn't him. Somebody wrote a
• 44:08
  Speaker 1: piece on the in the Washington Post, an opinion piece
• 44:12
  Speaker 1: um on the Saturday saying, you know, the economy is
• 44:15
  Speaker 1: find everything is great, and then Sunday lemen quoted and
• 44:19
  Speaker 1: those things always happen. And I mean, but the timing
• 44:22
  Speaker 1: could not have possibly been any well. We we did
• 44:25
  Speaker 1: really well on the timing of our venture two because
• 44:27
  Speaker 1: we launched a tech fund pretty much at the tail
• 44:31
  Speaker 1: end of the hockey stick in the tech boom late nineties,
• 44:36
  Speaker 1: and uh and we did. We raised a bunch of
• 44:39
  Speaker 1: venture capital money. We launched an actively managed tech fund
• 44:42
  Speaker 1: called open Fund, which now, but that was the most
• 44:44
  Speaker 1: interesting part of what you guys did. You were the
• 44:47
  Speaker 1: first totally transparent mutual funds. Yeah, and even more transparent
• 44:52
  Speaker 1: than ETFs. We actually had a camera on our treating
• 44:54
  Speaker 1: floor and broadcast our tickets like ticket by ticket, so
• 44:58
  Speaker 1: you couldn't have been short a whole lot of stuff. No,
• 45:00
  Speaker 1: but we you know, we mostly we did very very
• 45:03
  Speaker 1: well in our first like six months. We were we'd
• 45:06
  Speaker 1: beat if you remember the under net net fund. We
• 45:08
  Speaker 1: absolutely we beat that one. For the first six months.
• 45:10
  Speaker 1: We skyrocketed, raised a bunch of money, and then somewhere
• 45:15
  Speaker 1: crazily down the other end of this, you know, we
• 45:18
  Speaker 1: we just roller coastered that thing. Because we know the
• 45:21
  Speaker 1: timing was awful. If we'd launched two years earlier, I
• 45:24
  Speaker 1: probably wouldn't be sitting here talking about ETFs UM. But
• 45:27
  Speaker 1: it was. It was a humbling experience in that I think,
• 45:31
  Speaker 1: until you've sat in the chair of an active manager
• 45:33
  Speaker 1: on a trading desk. You don't quite understand what it's
• 45:38
  Speaker 1: like to lose a lot of somebody else's money. Oh,
• 45:40
  Speaker 1: it's it's horrific. It is a even if you were
• 45:43
  Speaker 1: if you were in a retail brokerage shop, if you
• 45:45
  Speaker 1: are trading a house account. Anytime you do anything like
• 45:49
  Speaker 1: that where it's someone else's money and market forces going,
• 45:53
  Speaker 1: it's you. It's nauseating. You want to throw up. No,
• 45:57
  Speaker 1: and we I had plenty of folks actually throw up
• 45:59
  Speaker 1: off my trading during during the worst of it, and
• 46:02
  Speaker 1: it was, you know, it was a lot of fun. Sure,
• 46:04
  Speaker 1: we raised a bunch of money. We you know, were
• 46:06
  Speaker 1: mastered in Universe for a short period of time. Um,
• 46:10
  Speaker 1: but it was I think that experience of losing other
• 46:13
  Speaker 1: people's money and my own obviously because we were you know,
• 46:16
  Speaker 1: all of my money was in this fun So two
• 46:19
  Speaker 1: th hurdle left the mark also, Yeah, that one. That
• 46:21
  Speaker 1: one hurt a lot too. And that was you know,
• 46:24
  Speaker 1: it was to some extent humiliating. You don't love it
• 46:26
  Speaker 1: when your ideas go that bad. Well, but it wasn't
• 46:29
  Speaker 1: the idea that was bad. It was just the timing. Well,
• 46:33
  Speaker 1: the idea of transparency in in investing transactions and not
• 46:39
  Speaker 1: hiding what you're doing, although you always run into the
• 46:41
  Speaker 1: issue of front running another questions. So if you were
• 46:45
  Speaker 1: transparent on a thirty day delay or even a week delay,
• 46:48
  Speaker 1: that pretty much covers a lot of that issue well.
• 46:50
  Speaker 1: And a lot of what we were doing was not
• 46:53
  Speaker 1: particularly chastable because what, to be blunt, what we were
• 46:56
  Speaker 1: doing was flipping I p O s. Right, We were
• 46:58
  Speaker 1: getting good I p O alakey asans from the bear
• 47:00
  Speaker 1: Sterns of the world, etcetera in the midst of the
• 47:03
  Speaker 1: dot com boom, and we rode those things and then
• 47:05
  Speaker 1: we flipped them. And that's basically a core of the
• 47:08
  Speaker 1: strategy was new tech. That's what we did with new technology.
• 47:12
  Speaker 1: UM and so we day traded new technology, which looking
• 47:16
  Speaker 1: back on it is like the most ridiculous sentence that
• 47:19
  Speaker 1: had you kept those insuances, how would you have done? Uh?
• 47:23
  Speaker 1: Not so well because you know, if you think back
• 47:25
  Speaker 1: on those that ere it's it's Juniper and j D S,
• 47:29
  Speaker 1: Uniphase and UM and you know, there was a lot
• 47:34
  Speaker 1: of garbage in there and we were all drinking the
• 47:37
  Speaker 1: cool aid of the new economy. Man. This time was
• 47:39
  Speaker 1: different so so Mark and Reason apology for the name drop,
• 47:43
  Speaker 1: But Mark and Reason says, there's no bad ideas, just
• 47:46
  Speaker 1: early ideas. And pets dot com was a disaster, but
• 47:49
  Speaker 1: Chiwi is now a giant, uh success story, and it's
• 47:53
  Speaker 1: a set effectively. Pets dot com well, and I'm sure
• 47:55
  Speaker 1: Amazon is probably the largest seller of pet food in
• 47:58
  Speaker 1: the country. You know, I I don't even do anything.
• 48:02
  Speaker 1: It's just on a regular subscribe and save and all
• 48:05
  Speaker 1: the little dog treats, they all show up every month.
• 48:08
  Speaker 1: I think if I if I look back and say,
• 48:10
  Speaker 1: there was one thing that I got most wrong about
• 48:13
  Speaker 1: my sense of the economy in it wasn't that the
• 48:18
  Speaker 1: you know, the rise of the Internet was going to
• 48:20
  Speaker 1: change how everything worked. It was that it would be
• 48:22
  Speaker 1: concentrated in so few winners. Like looking at it now,
• 48:26
  Speaker 1: there actually were so few winners from that era, just
• 48:30
  Speaker 1: just handfuls um and yet there were hundreds of companies
• 48:34
  Speaker 1: that we were all excited about back then. I remember
• 48:38
  Speaker 1: when um Wall Street Week with Lewis Ruckiser, the irrational
• 48:45
  Speaker 1: Suberant speech happened. The general recognition that hey, these tech
• 48:49
  Speaker 1: stocks have become unmoored from normal valuations, and a lot
• 48:54
  Speaker 1: of these companies have no you know, Netscape went public
• 48:57
  Speaker 1: and then and was success. That was a giant hunger
• 49:01
  Speaker 1: and a demand for these companies. And it was five
• 49:04
  Speaker 1: more years before the and that's pretty much it. But
• 49:11
  Speaker 1: you know, if you followed traditional metrics, you missed it.
• 49:15
  Speaker 1: You drum up. So even though there were a handful
• 49:17
  Speaker 1: of all right, Amazon survived, Apple survived, Microsoft clearly survived
• 49:22
  Speaker 1: all these company Google came out afterwards, but all these
• 49:25
  Speaker 1: companies had giant draw down. I remember post dot com,
• 49:30
  Speaker 1: you could have bought Amazon for eight yucks. Well, all
• 49:34
  Speaker 1: I did was turned me into a passive investor again.
• 49:36
  Speaker 1: You know, I started my career in the indexing space.
• 49:39
  Speaker 1: I had this brief, you know, dalliance with ridiculously active
• 49:43
  Speaker 1: management literally day trading tech stocks. And then I sort
• 49:46
  Speaker 1: of you know, came back to religion if you will.
• 49:49
  Speaker 1: So you you briefly, uh, we're eating trade, and then
• 49:52
  Speaker 1: you went right back to uh, I got it. I
• 49:55
  Speaker 1: understand how that works. Um that that's interesting. So that
• 49:59
  Speaker 1: we pretty much went through most of the questions I
• 50:02
  Speaker 1: prepped on the way here. Is there any e t
• 50:06
  Speaker 1: F thing that you want to talk about? That's a
• 50:08
  Speaker 1: technical radio term by the way E t F than
• 50:10
  Speaker 1: a t F than is there is there anything I
• 50:12
  Speaker 1: didn't ask that you think is important that should the
• 50:15
  Speaker 1: listeners should be aware. Yeah. I think that it's reasonable
• 50:18
  Speaker 1: to ask questions about this concentration of assets we have
• 50:21
  Speaker 1: at the top. I think that was a good question, um.
• 50:24
  Speaker 1: And when we look at the black rocks and state
• 50:25
  Speaker 1: streets and vanguards to the world and their ownership of equities,
• 50:30
  Speaker 1: it is intense right they they combined, between all of them,
• 50:34
  Speaker 1: if they all got together as a block to decide
• 50:36
  Speaker 1: how they wanted to vote Apple shares, would have substantial
• 50:40
  Speaker 1: influence on what Apple's board did. That's the pushback to
• 50:44
  Speaker 1: passive is all these guys, they what they can do.
• 50:47
  Speaker 1: They can't sell the shares, so what do I care
• 50:49
  Speaker 1: what they have to say, But they can vote the
• 50:51
  Speaker 1: shares exactly. And I think what determines how an E
• 50:55
  Speaker 1: t F manager votes their shares, well, they have a
• 50:57
  Speaker 1: proxy department, and I think there's been a lot of
• 51:00
  Speaker 1: discussion about this, and there have been. I had I
• 51:03
  Speaker 1: had lunch yesterday with a mutual friend, Jan Vannack from
• 51:06
  Speaker 1: chick and he we had a great conversation, Um, But
• 51:11
  Speaker 1: we had this conversation about corporate governance, and he's a
• 51:13
  Speaker 1: proponent of actually limiting the a votability of the shares
• 51:17
  Speaker 1: held by pass managers, which to me is a bridge
• 51:20
  Speaker 1: too far, precisely for the reason you're doing what you're saying,
• 51:23
  Speaker 1: which is that, well, if they just hold the shares
• 51:24
  Speaker 1: forever and they're never gonna sell, then effectively they're just
• 51:27
  Speaker 1: gonna be rubber stamps from management forever and they sort
• 51:29
  Speaker 1: of block and well, and that this is my counter,
• 51:33
  Speaker 1: which is that I think if you look at, for instance,
• 51:35
  Speaker 1: just the SMP five three huge e t fs, one
• 51:39
  Speaker 1: from Vanguard, one from State Street, one from black Rock,
• 51:42
  Speaker 1: I think in ten years, when you go to decide
• 51:44
  Speaker 1: which SMP E t F you want to buy, you're
• 51:48
  Speaker 1: not gonna care much about costs. They're all effectively going
• 51:50
  Speaker 1: to be free, They're all going to be well managed,
• 51:52
  Speaker 1: They're the performance is going to be with the basis
• 51:54
  Speaker 1: point of each other. But what will be different is, well,
• 51:57
  Speaker 1: how does black Rock vote their shares? How does van
• 52:00
  Speaker 1: Car vote their shares? And I think that transparency about
• 52:04
  Speaker 1: what is important in corporate governance is going to start
• 52:07
  Speaker 1: being much more transparent and much more important to investors,
• 52:10
  Speaker 1: not just at the institutional level where it is now.
• 52:12
  Speaker 1: So we haven't really talked about E s G, and
• 52:16
  Speaker 1: that's really a whole another conversation, but even non E
• 52:20
  Speaker 1: s G holdings like the SMP five hundred could have
• 52:23
  Speaker 1: an E s G differentiator depending on how black Rock
• 52:27
  Speaker 1: van Good State Street. State Street has been. State Street
• 52:29
  Speaker 1: has been really upfront with this with their sort of
• 52:31
  Speaker 1: pushed on women in diversity. You know, they actually were
• 52:34
  Speaker 1: very vocal and said, hey, we actually just voted against
• 52:36
  Speaker 1: management on four hundred board seat elections in large cap
• 52:40
  Speaker 1: US companies because we wanted to increase the diversity on
• 52:43
  Speaker 1: their boards. That's a pretty bold move. And we've seen,
• 52:46
  Speaker 1: you know, a letter from Larry fankat black Rock that
• 52:48
  Speaker 1: was a big Wall Street total up ed piece about
• 52:51
  Speaker 1: you get your acts together. Yeah, and and so there's
• 52:54
  Speaker 1: a lot of discussion going on around this, and some
• 52:56
  Speaker 1: of this is a reaction to demands from the institutional
• 52:59
  Speaker 1: and alman community, which often has strictures in their investment
• 53:03
  Speaker 1: guidelines that says, you know, we won't invest in fossil
• 53:06
  Speaker 1: fuels or something like that. Um, they're the ones who
• 53:09
  Speaker 1: are pushing this, but I think it's going to become
• 53:11
  Speaker 1: a marketing issue in the next ten years. I think
• 53:14
  Speaker 1: that's really cool. Larry Fink is another one. I have
• 53:16
  Speaker 1: to get in here. He's on my He's on my list.
• 53:19
  Speaker 1: If you can make it intro, I would, I would
• 53:20
  Speaker 1: appreciate what I can. All right, I don't have you
• 53:23
  Speaker 1: all day, so I want to get to some of
• 53:25
  Speaker 1: my favorite questions. Um. These are the questions I asked
• 53:29
  Speaker 1: all of our guests, and they often are revealing. And
• 53:35
  Speaker 1: let's start with what's the most important thing that most
• 53:38
  Speaker 1: people don't know about you? Um? You know, I think
• 53:41
  Speaker 1: you know. We hit briefly on sort of my initial
• 53:44
  Speaker 1: foray into into screenwriting, into trying to be a creative writer. UM.
• 53:49
  Speaker 1: I tend to actually think about myself first informist being
• 53:52
  Speaker 1: a writer. Right. I happen to have ended up in
• 53:55
  Speaker 1: finance for most of my career. I happen to have
• 53:57
  Speaker 1: been locked into passive investing in ets for the last
• 53:59
  Speaker 1: twin of years. But ultimately I think of myself as
• 54:02
  Speaker 1: a writer and a communicator and an educator. Um, and
• 54:05
  Speaker 1: it really does come back. I mean, if I had
• 54:07
  Speaker 1: to go back and change one thing in my career,
• 54:09
  Speaker 1: it would not be getting a creative writing degree from
• 54:11
  Speaker 1: the University of Massachusetts. I would hold on to that forever.
• 54:14
  Speaker 1: I might give up the business degree. Really that that's interesting.
• 54:16
  Speaker 1: There were some parallels there that I didn't realize that.
• 54:20
  Speaker 1: That's quite quite fascinating. Who are some of your early mentors? Uh?
• 54:26
  Speaker 1: You know, I would say I went to Hollywood with
• 54:29
  Speaker 1: some pretty grand ambitions and the woman that I ended
• 54:32
  Speaker 1: up working for was a woman named Tara Sandler. And
• 54:35
  Speaker 1: she wouldn't recognize me, probably in retrospect at all, but
• 54:39
  Speaker 1: she was the producer for this live TV reality show
• 54:43
  Speaker 1: that we were doing every day in ninety minutes live
• 54:45
  Speaker 1: TV called Home. And she was an unbelievable force in
• 54:51
  Speaker 1: that business, you know, very male dominated culture, very young culture.
• 54:55
  Speaker 1: And she sort of showed me that you can be
• 54:58
  Speaker 1: both compassionate and a hardass at the same time. UM,
• 55:01
  Speaker 1: and was both of those things to me and sort
• 55:04
  Speaker 1: of whipped me into shape in a way that I
• 55:06
  Speaker 1: think I desperately needed at the age of twenty or
• 55:08
  Speaker 1: whatever it was when I ended up in Hollywood for uh.
• 55:11
  Speaker 1: And so she's gone on to produce literally hundreds of
• 55:15
  Speaker 1: reality TV shows since then, House Hunters and things like that,
• 55:20
  Speaker 1: and UH, and has had a hugely successful career. But
• 55:23
  Speaker 1: I look back on like, you know, bosses that I've
• 55:25
  Speaker 1: had and mentors that I've had, and yeah, their investment folks.
• 55:28
  Speaker 1: You know, I got to work with Larry Tint at
• 55:30
  Speaker 1: Black Rock and Blake Grossman and folks like that who
• 55:32
  Speaker 1: are super influential. But I, you know, it would I
• 55:35
  Speaker 1: be the same person without her, you know, taking me
• 55:38
  Speaker 1: in the backside. Probably not. That's that's quite interesting. What
• 55:41
  Speaker 1: about investors who influenced the way you think about the
• 55:44
  Speaker 1: world of investments? You know, it's hard not to say
• 55:48
  Speaker 1: Burton Malkill, just because you know, if if I look
• 55:51
  Speaker 1: at the you know, my current thinking about markets and
• 55:54
  Speaker 1: the difficulty of active management, not the impossibility, but the
• 55:57
  Speaker 1: extreme difficulty of successful active manage meant um, I always
• 56:01
  Speaker 1: end up coming back to the random walk. It just
• 56:04
  Speaker 1: it rings true. I guess the counter valance that would
• 56:07
  Speaker 1: be um for the same era of my life in
• 56:10
  Speaker 1: my early twenties looking at you know, Peter Lynch and
• 56:13
  Speaker 1: his you know much more. Go to the mall, find
• 56:16
  Speaker 1: the stories you like, figure out how they run their business,
• 56:18
  Speaker 1: learn about it, and then invest in it, which is
• 56:21
  Speaker 1: sort of the antithesis of the random walk, UM, I think,
• 56:24
  Speaker 1: and then for the Ben Graham intelligent investor version of that,
• 56:29
  Speaker 1: which is like, really understand where the values are in
• 56:32
  Speaker 1: a company, They're They're almost diametrically opposed in some ways.
• 56:36
  Speaker 1: I tend to think of Peter Lynch and and Uh
• 56:38
  Speaker 1: and Ben Graham is sort of opposite ends of the
• 56:41
  Speaker 1: active investing food chain. But I think that that really
• 56:45
  Speaker 1: helps shape my worldview having those three in the mix.
• 56:49
  Speaker 1: Let's talk You mentioned intelligent investor Ben Graham. What are
• 56:52
  Speaker 1: some of your favorite books? Fiction, non fiction, investing related
• 56:55
  Speaker 1: or otherwise. So Uh, and you and I have talked
• 56:58
  Speaker 1: about we have We've talked about frightening overlap between our bookshelf.
• 57:03
  Speaker 1: I tend to read a lot of genre fiction, science
• 57:06
  Speaker 1: fiction in particular. I'm a big Hineland fan. Do do
• 57:10
  Speaker 1: Tell mentioned a few Rubberts. Well, It's a Stranger in
• 57:13
  Speaker 1: a Strange Land is one. I dropped that book for sure, Definitely,
• 57:16
  Speaker 1: that's one that UM, I don't reread it every year.
• 57:19
  Speaker 1: My wife does. There's a copy that just sits on
• 57:21
  Speaker 1: her nightstand. Really um and the and she just heard
• 57:24
  Speaker 1: rolls the um Lord of the Rings trilogy. But I
• 57:29
  Speaker 1: had to stop that at a certain point so, but
• 57:31
  Speaker 1: more recently, um, wait before you move beyond Heineland. Yeah.
• 57:36
  Speaker 1: One of my old time favorite quotes comes from the
• 57:39
  Speaker 1: notebooks of Lazarus Long, which is, never try and teach
• 57:43
  Speaker 1: a pig to sing. It wastes your time, and it
• 57:46
  Speaker 1: always the pig. I just I just love that and
• 57:51
  Speaker 1: and that. Having read that fifty years ago and then
• 57:55
  Speaker 1: rereading it a decade ago, it was like a light
• 57:59
  Speaker 1: bulb went off on, like, oh, I'm teaching pigs to sing,
• 58:01
  Speaker 1: and I have to study that the other one for years.
• 58:04
  Speaker 1: My password for like, it's not anymore, so I'll say it,
• 58:08
  Speaker 1: but um tan Staffel. There ain't no such thing as
• 58:10
  Speaker 1: a freelan, which is another Lazarus Long is um um
• 58:13
  Speaker 1: that that you know, all of my password had Tan Staffel.
• 58:16
  Speaker 1: In the middle of somewhere you could go through a
• 58:18
  Speaker 1: whole run of of Hinlan books. They were like every
• 58:22
  Speaker 1: ten year old science fiction geek discovers Heinland and works
• 58:26
  Speaker 1: through the whole the whole catalog. To me, the new
• 58:30
  Speaker 1: Heinland is China. Melville we would who wrote. The most
• 58:35
  Speaker 1: recent book I wrote was called The City in the City,
• 58:37
  Speaker 1: which is this bizarre book about how from effectively a
• 58:43
  Speaker 1: new Jerusalem in which you have it's not explicitly saying this,
• 58:47
  Speaker 1: but you have two cultures that don't agree with each
• 58:50
  Speaker 1: other and can't get along for deep held reasons. City
• 58:52
  Speaker 1: in a city, the city in the city and the
• 58:55
  Speaker 1: city and they and they sort of live in the
• 58:58
  Speaker 1: same physical space but ignore or each other. And it's
• 59:01
  Speaker 1: a really interesting construct. And then there's a detective story
• 59:05
  Speaker 1: that happens in the middle of it. Um. But She's
• 59:07
  Speaker 1: she's sort of my current favorite. What tell him? What
• 59:10
  Speaker 1: else do you? What else do you like outside of
• 59:12
  Speaker 1: or from within science? I tend to. I tend to
• 59:15
  Speaker 1: also read um stuff that's as far afield from my
• 59:19
  Speaker 1: day to day life as I can get. So I
• 59:21
  Speaker 1: like to read science, UM shows and philosophy, um um.
• 59:26
  Speaker 1: Well go to Lescherbach is one of my favorite. Didn't
• 59:29
  Speaker 1: we talk about that? I don't so. I had a
• 59:32
  Speaker 1: philosophy class in college and that was one of the books.
• 59:37
  Speaker 1: It's amazing, it's at it holds up, it's not an
• 59:40
  Speaker 1: old dated it's absolutely offend someone else mentioned it. I'll
• 59:44
  Speaker 1: have to go through the my list of books and
• 59:47
  Speaker 1: see who else. But but that is just an unbelievable book. Yeah,
• 59:51
  Speaker 1: so I so things like that. Um, there aren't many
• 59:54
  Speaker 1: things like that, No, there aren't. That is that is
• 59:56
  Speaker 1: a I mean like the Panda's Thumb, like anthropology stuff
• 59:59
  Speaker 1: and stumb I haven't read. Yeah, did you ever read
• 1:00:02
  Speaker 1: Last Ape Standing We talked? Yeah, yeah, yeah, that that's
• 1:00:05
  Speaker 1: a really fascinating science book. And Soul of an Octopus
• 1:00:09
  Speaker 1: was another, so that you turned me on the Soul
• 1:00:11
  Speaker 1: of an Octopus, which did right up my alley. That
• 1:00:13
  Speaker 1: kind of nonfiction where you go into a world that
• 1:00:16
  Speaker 1: is not related to anything that you normally just give
• 1:00:19
  Speaker 1: me more. I have my own list books. I want
• 1:00:21
  Speaker 1: to get your books. So, um the so I'm a
• 1:00:26
  Speaker 1: big John Scalz fan. John Scalz is a science fiction writer.
• 1:00:30
  Speaker 1: I'm reading a great one right now that won the
• 1:00:32
  Speaker 1: Hugo I think six years ago, called Red Shirts, which
• 1:00:36
  Speaker 1: is trying to explain why all the Red Shirts and
• 1:00:38
  Speaker 1: star Trek are always getting killed. Uh, And it creates
• 1:00:41
  Speaker 1: this whole sort of feasible construct about what what how
• 1:00:45
  Speaker 1: how Starfleet could exist in a world where they're just
• 1:00:47
  Speaker 1: killing off all the people in Red Shirt? And Uh.
• 1:00:50
  Speaker 1: I love stuff like that. I love things that sort
• 1:00:53
  Speaker 1: of break the mold. Um. I've actually you had I'm
• 1:00:57
  Speaker 1: pardon the name, you had a gentleman talking about blockchain
• 1:01:00
  Speaker 1: six or seven episodes. Yeah, I've read his book on
• 1:01:03
  Speaker 1: blockchain to books. Yeah, so I've been digging deep into
• 1:01:07
  Speaker 1: that sort of part of the technology. Um. And then
• 1:01:10
  Speaker 1: I read a lot of really boring plumbing books about
• 1:01:14
  Speaker 1: about about the industry. So like so nonfiction nonfiction stuff, um,
• 1:01:19
  Speaker 1: about the mechanics of of how finance works. Yeah, Like
• 1:01:23
  Speaker 1: this is the nerdiest one you'll ever hear of. Rob Posen,
• 1:01:25
  Speaker 1: who is a fidelity for years, wrote a book called
• 1:01:28
  Speaker 1: After the Trade Is Made, which is about trade settlement.
• 1:01:31
  Speaker 1: It's like a thousand pages long, and it is so great.
• 1:01:35
  Speaker 1: It was. It's one of these books where when you
• 1:01:36
  Speaker 1: read it, you now know this like arcane knowledge that
• 1:01:40
  Speaker 1: like eight other people in the industry actually understand. I
• 1:01:43
  Speaker 1: love that kind of thing. I love digging deep into
• 1:01:47
  Speaker 1: something that we all take for granted and then teasing
• 1:01:50
  Speaker 1: out the actual under knife underneath, you know, underpinnings of
• 1:01:54
  Speaker 1: how it all works. All right, So I'm going to
• 1:01:55
  Speaker 1: make a book recommendation to you, and I'm assuming you
• 1:01:58
  Speaker 1: haven't read it because of the data of it. But
• 1:02:00
  Speaker 1: did you have a read Black Monday by Tim Metz. Alright,
• 1:02:04
  Speaker 1: so it's the entire history before, during, and after, uh
• 1:02:09
  Speaker 1: the eight seven crash and all of the things you're describing,
• 1:02:13
  Speaker 1: the mechanics of the introduction of futures and how portfolio
• 1:02:17
  Speaker 1: insurance worked and how the trades were executed and settled
• 1:02:19
  Speaker 1: and where it broke down. It's and it's a world
• 1:02:23
  Speaker 1: that doesn't exist anymore, but it it surprisingly does. Actually
• 1:02:29
  Speaker 1: that actually still does. We've replaced portfolio insurance with swaps
• 1:02:33
  Speaker 1: markets and all sorts of other things. But um, they're
• 1:02:36
  Speaker 1: surprisingly number, surpurprising number of things that are still true
• 1:02:39
  Speaker 1: today that we're true in eighty seven. That's a good
• 1:02:41
  Speaker 1: one that I'll take that one absolutely. So So what
• 1:02:44
  Speaker 1: is uh, what do you find most exciting right now
• 1:02:47
  Speaker 1: about the et F space? Uh, well, there's no obviously
• 1:02:51
  Speaker 1: new ideas like the bitcoin et F I think are interesting.
• 1:02:54
  Speaker 1: I think the stuff we talked about in corporate governance
• 1:02:57
  Speaker 1: I think is interesting. I actually think the most interesting
• 1:03:00
  Speaker 1: thing related ish to e T S is what's going
• 1:03:03
  Speaker 1: on in direct indexing, which is what direct indexing. You
• 1:03:06
  Speaker 1: and I have had this conversation before with custodians explain
• 1:03:10
  Speaker 1: what direct index. Yes, so their firms like M one
• 1:03:12
  Speaker 1: Finance and Wealth Front are to the come to the
• 1:03:15
  Speaker 1: top of my head, that are doing this effectively. Instead
• 1:03:18
  Speaker 1: of going to an et F provider, you go to
• 1:03:20
  Speaker 1: a broker like M one Finance and you'd say, here's
• 1:03:22
  Speaker 1: my hundred thousand bucks, and you would subscribe to a portfolio,
• 1:03:27
  Speaker 1: so you would say, I would like to be in
• 1:03:29
  Speaker 1: the SMP five hundred. Here's my hundred thousand dollars. Well,
• 1:03:31
  Speaker 1: you can't really buy all this doc in the SMP
• 1:03:33
  Speaker 1: five hundred and the rate weights because the values don't
• 1:03:37
  Speaker 1: line up. So instead what they do is they just
• 1:03:39
  Speaker 1: roll your desired position into the firm's overall desired position
• 1:03:45
  Speaker 1: and assign you your fractional ownership of the shares that
• 1:03:48
  Speaker 1: make up the SMP five hundred. So at the end
• 1:03:50
  Speaker 1: of the day, and one knows we have a trillion
• 1:03:53
  Speaker 1: dollars or whatever it is, and Dave's hundred thousand is
• 1:03:56
  Speaker 1: this economic exposure, So we need to own these errors
• 1:04:00
  Speaker 1: to back up that economic exposure. So they do the
• 1:04:03
  Speaker 1: fractional share keeping, So I own a quarter of a
• 1:04:05
  Speaker 1: share of Apple is opposed to a whole share of Apples. Now,
• 1:04:08
  Speaker 1: why is that superior to just spending eight bucks and
• 1:04:10
  Speaker 1: basis points in buying the TF. Well, it cuts the
• 1:04:14
  Speaker 1: issuer out of the equation entirely. But it's three bibs
• 1:04:17
  Speaker 1: or five bibs. Who cares. Well, But if that three
• 1:04:20
  Speaker 1: bibs can be one, it's four bibs to me, looks
• 1:04:25
  Speaker 1: between one. So the reason why it's interesting is not
• 1:04:28
  Speaker 1: because it cuts the three basis points down to what.
• 1:04:30
  Speaker 1: The reason it's interesting is because it makes a direct
• 1:04:33
  Speaker 1: connection between the intellectual property of investing, which is really
• 1:04:36
  Speaker 1: all we care about, and me as the investor, removing
• 1:04:40
  Speaker 1: effectively all of the middlemen except the transaction engine, which
• 1:04:44
  Speaker 1: is always going to be a broker somewhere in the
• 1:04:46
  Speaker 1: middle making the transaction. So what that means is I
• 1:04:49
  Speaker 1: can now go and say instead of I want the
• 1:04:51
  Speaker 1: SMP five hundred, I can say I want the SMP
• 1:04:54
  Speaker 1: five hundred, but I don't want Apple. That's impossible to
• 1:04:57
  Speaker 1: do with an ETN like I have to go short
• 1:04:59
  Speaker 1: Apple out of the portfolio. So taking the best part
• 1:05:03
  Speaker 1: about indexing and adding human terrible judgment too, well, you
• 1:05:09
  Speaker 1: and I have disagreed, So so yes, it does open
• 1:05:12
  Speaker 1: up that. But what it really does is it lets
• 1:05:14
  Speaker 1: UH an index provider mass customized and a useful fashion.
• 1:05:19
  Speaker 1: So now all of a sudden, you could come up
• 1:05:20
  Speaker 1: with six different versions of the SMP five hundred that
• 1:05:23
  Speaker 1: have different E s G slams, no gun ownership, or
• 1:05:27
  Speaker 1: no sin stocks, or load up on the sin stocks
• 1:05:29
  Speaker 1: because I think that's oversold or whatever, and now I
• 1:05:33
  Speaker 1: can have that sort of personalized index service. It also
• 1:05:36
  Speaker 1: lets you do things that can be very useful, so
• 1:05:38
  Speaker 1: like if it's a tax account, you can do single
• 1:05:40
  Speaker 1: stock UH harvesting, UD those kinds of issue. You can
• 1:05:44
  Speaker 1: take into account the fact that you know, I, as
• 1:05:47
  Speaker 1: a CEBO employee have cebow stock, maybe I don't want
• 1:05:49
  Speaker 1: to load up with more cebow stock make sense? So
• 1:05:53
  Speaker 1: if only ge UH employees had that, yeah, exactly, well
• 1:05:57
  Speaker 1: and that and that is a real problem for a
• 1:05:59
  Speaker 1: lot of corporate America. So I think that direct indexing
• 1:06:02
  Speaker 1: model eventually supplants the entire package product market. Like why
• 1:06:07
  Speaker 1: do I actually need a mutual fund company in the
• 1:06:09
  Speaker 1: mix if I want to be in a smart beta product?
• 1:06:13
  Speaker 1: Why do I not just have a direct relationship with
• 1:06:15
  Speaker 1: rob or not at research affiliates? Like why can't I
• 1:06:18
  Speaker 1: just subscribe to his raffie. We'll see if that catches on.
• 1:06:23
  Speaker 1: Tell us about the time you failed and what you
• 1:06:25
  Speaker 1: learned from the experience, boy, other than the big one,
• 1:06:27
  Speaker 1: Like I mean, we talked about open fund education one.
• 1:06:32
  Speaker 1: Um boy, I've made some really great mistakes as parent.
• 1:06:36
  Speaker 1: Parent parents, parents make mistakes all the time, and uh,
• 1:06:40
  Speaker 1: you know, I think I underestimate my kids a lot.
• 1:06:44
  Speaker 1: Um so specific examples, you know, I've I've I've traveled
• 1:06:49
  Speaker 1: with my daughter pretty extensively. She's now in college. And
• 1:06:53
  Speaker 1: we went to Paris when she was like fourteen or
• 1:06:55
  Speaker 1: something like that, and we were walking through some museum
• 1:06:59
  Speaker 1: and I was like, oh, well, we should see this,
• 1:07:01
  Speaker 1: and we should see that, we should see this other thing,
• 1:07:03
  Speaker 1: and and she got really annoyed and ended up just saying,
• 1:07:07
  Speaker 1: I've already seen all of these things on the internet.
• 1:07:09
  Speaker 1: I want to see all the things that I can't
• 1:07:11
  Speaker 1: see and created our own, her own path through cors
• 1:07:14
  Speaker 1: the louver that never get photographed. And like my failure
• 1:07:18
  Speaker 1: to realize her intelligence is something that I think I've
• 1:07:20
  Speaker 1: done over and over and over again. That's that's kind
• 1:07:24
  Speaker 1: of interesting. Um So, speaking of youth, give us Uh,
• 1:07:28
  Speaker 1: the sort of advice you would give to a millennial
• 1:07:30
  Speaker 1: or recent college grad who was um looking for career advice. Yeah,
• 1:07:37
  Speaker 1: I actually get this one a lot. The number one
• 1:07:41
  Speaker 1: thing I could say is pick up the goddamn phone,
• 1:07:45
  Speaker 1: like the number of And this isn't a millennial thing.
• 1:07:47
  Speaker 1: I've had folks that I've hired who were in their
• 1:07:49
  Speaker 1: forties and who were in you know, they're not quite twenties. Yet.
• 1:07:53
  Speaker 1: There is this reluctance and modern culture to actually pick
• 1:07:56
  Speaker 1: up a dang telephone and have a conversation with somebody
• 1:08:00
  Speaker 1: opposed to sending them an email or sending them a text.
• 1:08:02
  Speaker 1: And the difference is enormous, Like that human connection of
• 1:08:07
  Speaker 1: talking to somebody often is the difference between a lifelong
• 1:08:10
  Speaker 1: relationship where you can get something out of that relationship
• 1:08:13
  Speaker 1: in a bilateral way, and a transactional relationship where you
• 1:08:16
  Speaker 1: just simply get a thing done and then forget about it. So,
• 1:08:19
  Speaker 1: actually learning how to make and have good conversations on
• 1:08:22
  Speaker 1: the phone and in person is a dying art and
• 1:08:25
  Speaker 1: it's not something anybody teaches. Interesting And our final question,
• 1:08:29
  Speaker 1: what do you know about the world of ets today
• 1:08:32
  Speaker 1: that you wish you knew twenty five years ago. Oh boy, um,
• 1:08:37
  Speaker 1: I I know a lot more about how you can
• 1:08:40
  Speaker 1: step on your own feet with trading. I used to
• 1:08:43
  Speaker 1: uh sort of dismissed that, like the trading infrastructure works fine, whatever,
• 1:08:47
  Speaker 1: you work with a broker. Uh. Most of the horror
• 1:08:49
  Speaker 1: stories that fill up my mailbox are people who don't
• 1:08:51
  Speaker 1: have good trading hygiene, who you know, trading right. They
• 1:08:55
  Speaker 1: do something they shouldn't do right. They put in a
• 1:08:57
  Speaker 1: market order in the midst of a crazy volatile day,
• 1:09:01
  Speaker 1: and they put in a market order in some tech
• 1:09:02
  Speaker 1: e t F and they're surprised when they get an
• 1:09:05
  Speaker 1: execution five percent different than what they expected. Right. And
• 1:09:08
  Speaker 1: that's not E t F being broken. It's the e
• 1:09:10
  Speaker 1: t F relying on an ecosystem which is inherently chaotic,
• 1:09:16
  Speaker 1: quite quite fascinating. We have been speaking with Dave Natig.
• 1:09:20
  Speaker 1: He is the managing director of e t F dot Com.
• 1:09:24
  Speaker 1: If you enjoyed this conversation, will be showing Look up
• 1:09:27
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• 1:09:31
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• 1:09:35
  Speaker 1: any of the other two hundred plus conversations we've had.
• 1:09:41
  Speaker 1: We love your comments, feedback and suggestions right to us
• 1:09:44
  Speaker 1: at m IB podcast at Bloomberg dot Net. I would
• 1:09:48
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• 1:09:51
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• 1:09:55
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• 1:10:01
  Speaker 1: our booker producer. Michael Batnick is my head of research.
• 1:10:05
  Speaker 1: I'm Barry Ritolts. You've been listening to Masters in Business
• 1:10:08
  Speaker 1: on Bloomberg Radio