1
00:00:02,200 --> 00:00:06,800
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

2
00:00:10,000 --> 00:00:12,800
Speaker 1: This week on the podcast, I have an extra special guest.

3
00:00:13,200 --> 00:00:17,040
Speaker 1: His name is Dave Natig. And really, if you were

4
00:00:17,079 --> 00:00:20,360
Speaker 1: at all interested in how e t F s are

5
00:00:21,280 --> 00:00:25,800
Speaker 1: researched and put together and assembled and manufactured and regulated

6
00:00:26,200 --> 00:00:31,320
Speaker 1: and traded and retired, well, really, I don't know any

7
00:00:31,360 --> 00:00:34,800
Speaker 1: single person with a greater body of knowledge from more

8
00:00:34,840 --> 00:00:40,160
Speaker 1: aspects of the finance industry about e t F than Dave.

9
00:00:40,280 --> 00:00:44,159
Speaker 1: He was at Barclays in the early days when the

10
00:00:44,200 --> 00:00:48,240
Speaker 1: predecessor to I Shares came about. He spent time working

11
00:00:48,240 --> 00:00:51,559
Speaker 1: with a number of consultants as a consultant early on

12
00:00:51,640 --> 00:00:54,360
Speaker 1: in the e t F industry, and he has been

13
00:00:54,360 --> 00:00:58,160
Speaker 1: working at et F dot com, which is probably the

14
00:00:58,240 --> 00:01:02,800
Speaker 1: leading media public at about e t F s UH

15
00:01:03,240 --> 00:01:07,760
Speaker 1: pretty much since the beginning of of the world's understanding

16
00:01:07,760 --> 00:01:11,520
Speaker 1: that e t F s were significant. Previously as UH

17
00:01:12,000 --> 00:01:15,720
Speaker 1: Chief Investment Officers, subsequently when it became part of fact

18
00:01:15,800 --> 00:01:19,480
Speaker 1: Set as a head of Analytics, and now as CEO

19
00:01:19,720 --> 00:01:24,759
Speaker 1: slash Managing director since cebo bod e TF dot Com

20
00:01:24,840 --> 00:01:28,679
Speaker 1: The Chicago Board of Options Exchange Global Markets is now

21
00:01:28,720 --> 00:01:32,199
Speaker 1: the owner of ETF dot Com. So, with no further ado,

22
00:01:32,480 --> 00:01:40,440
Speaker 1: here is my conversation with David Natick. When it comes

23
00:01:40,440 --> 00:01:43,240
Speaker 1: to e t F s. My guest today is probably

24
00:01:43,520 --> 00:01:47,760
Speaker 1: the single most knowledgeable person in the world. Dave Nati

25
00:01:47,920 --> 00:01:50,280
Speaker 1: is a Managing director at et F dot Com, which

26
00:01:50,360 --> 00:01:55,080
Speaker 1: is a subsidiary of cbo E Global Markets. Dave was

27
00:01:55,160 --> 00:01:58,800
Speaker 1: e t F dot COM's Chief investment Officer, and he

28
00:01:58,880 --> 00:02:03,200
Speaker 1: returned to et F dot Com as CEO in November

29
00:02:04,760 --> 00:02:09,840
Speaker 1: uh He was previously Managing director at Barclay's Global Investors,

30
00:02:09,840 --> 00:02:13,519
Speaker 1: where he helped to design some of the world's first ETFs,

31
00:02:14,000 --> 00:02:18,200
Speaker 1: including the development and marketing of the World Equity Benchmark

32
00:02:18,240 --> 00:02:21,600
Speaker 1: ETF series. You probably know that by its current name

33
00:02:22,040 --> 00:02:25,920
Speaker 1: I Shares. He's conducted some of the earliest research on

34
00:02:26,040 --> 00:02:29,959
Speaker 1: the only financial advisors and the rise of indexing. He

35
00:02:30,120 --> 00:02:32,760
Speaker 1: is the co author of the Definitive Book on E

36
00:02:32,880 --> 00:02:36,960
Speaker 1: t F s, a Comprehensive Guide to exchange traded Funds,

37
00:02:37,320 --> 00:02:41,600
Speaker 1: published by the cf A Institute. Dave nadd Welcome to Bloomberg.

38
00:02:41,720 --> 00:02:44,280
Speaker 1: Thanks for having me. So. You and I know each

39
00:02:44,280 --> 00:02:46,440
Speaker 1: other for a long time, and I'm familiar with your

40
00:02:46,480 --> 00:02:50,080
Speaker 1: career path. Will come back to that a little later,

41
00:02:50,760 --> 00:02:53,320
Speaker 1: let's talk about this whole E t F thing. Is

42
00:02:53,600 --> 00:02:57,520
Speaker 1: this gonna be big one day? Just a temporary thing.

43
00:02:57,800 --> 00:03:01,400
Speaker 1: So so the key that comes up all the time,

44
00:03:02,040 --> 00:03:05,600
Speaker 1: what is the underlying advantage of E t F s

45
00:03:06,160 --> 00:03:08,520
Speaker 1: versus mutual funds. Well, if you think about it, mutual

46
00:03:08,560 --> 00:03:11,639
Speaker 1: funds are actually one of the most ridiculous financial inventions

47
00:03:11,639 --> 00:03:14,080
Speaker 1: in history. If I went to you and said, hey,

48
00:03:14,160 --> 00:03:17,000
Speaker 1: I'm gonna sell you a car, and you're gonna give

49
00:03:17,040 --> 00:03:19,680
Speaker 1: me a whole bunch of money right now, but I'm

50
00:03:19,680 --> 00:03:22,280
Speaker 1: not gonna tell you exactly how much the car cost,

51
00:03:22,360 --> 00:03:26,000
Speaker 1: will trew it up later. You'd never buy that car,

52
00:03:26,240 --> 00:03:29,399
Speaker 1: right You'd never say it could be thirty, it could

53
00:03:29,400 --> 00:03:32,280
Speaker 1: be forty. We'll tell you at four o'clock. And that's

54
00:03:32,320 --> 00:03:35,520
Speaker 1: how mutual funds work. It's literally the only financial product

55
00:03:35,600 --> 00:03:39,240
Speaker 1: that has forward based pricing, which is kind of ridiculous.

56
00:03:39,280 --> 00:03:42,920
Speaker 1: And there have been innumerable cases over the last forty

57
00:03:43,040 --> 00:03:46,440
Speaker 1: years in which you know, that's been abused or misused.

58
00:03:46,480 --> 00:03:49,000
Speaker 1: We had examples in the eighties, we had front running

59
00:03:49,040 --> 00:03:53,520
Speaker 1: issues and so yeah, exactly, I mean over and over again,

60
00:03:53,560 --> 00:03:57,520
Speaker 1: this happens anytime you create that you know, intense lengthy

61
00:03:57,640 --> 00:04:00,680
Speaker 1: time arbitrage between nine thirty in the morning four o'clock,

62
00:04:00,920 --> 00:04:03,080
Speaker 1: somebody's going to figure out how to game it. And

63
00:04:03,160 --> 00:04:05,360
Speaker 1: e t S in part one of the things they

64
00:04:05,360 --> 00:04:07,640
Speaker 1: do is they solve that problem because they allow that

65
00:04:07,680 --> 00:04:10,880
Speaker 1: pricing to be negotiated. Uh and I think that's meaning

66
00:04:11,000 --> 00:04:13,360
Speaker 1: they trade intra day and you can see the price

67
00:04:13,440 --> 00:04:15,400
Speaker 1: that's on the screen is literally the price it is

68
00:04:15,520 --> 00:04:17,680
Speaker 1: exactly and you can decide as an investor whether you

69
00:04:17,720 --> 00:04:21,160
Speaker 1: want to pay that price. Now, there's some costs to that,

70
00:04:21,240 --> 00:04:23,800
Speaker 1: and there's some benefits to that. If we're talking about

71
00:04:23,880 --> 00:04:26,080
Speaker 1: US equities, we're trading you know, sp Y, which is

72
00:04:26,120 --> 00:04:29,680
Speaker 1: the biggest ETF trade, the SMP five hundred. Anybody can

73
00:04:29,720 --> 00:04:32,080
Speaker 1: tally up all the stocks in the SMP five hundred

74
00:04:32,120 --> 00:04:34,039
Speaker 1: and a spreadsheet and come up with what the right

75
00:04:34,200 --> 00:04:36,440
Speaker 1: prices for that based on the last trade of price

76
00:04:36,480 --> 00:04:38,680
Speaker 1: of the stocks. A little tougher if you're trying to

77
00:04:38,720 --> 00:04:41,320
Speaker 1: trade Japan at two o'clock in the afternoon New York,

78
00:04:41,720 --> 00:04:44,599
Speaker 1: because what are all those stocks actually worth? Well, that's

79
00:04:44,600 --> 00:04:47,240
Speaker 1: a negotiation, that's price discovery. So e t f s

80
00:04:47,520 --> 00:04:50,320
Speaker 1: not only give you access to those markets that are

81
00:04:50,320 --> 00:04:53,240
Speaker 1: closed or less liquid, but they give you another price

82
00:04:53,279 --> 00:04:55,800
Speaker 1: discovery mechanism to go along with it. So in other words,

83
00:04:56,000 --> 00:04:58,839
Speaker 1: even though we don't know the true arbitrage price of

84
00:04:58,960 --> 00:05:02,279
Speaker 1: Japan two pm New York time, you get at least

85
00:05:02,520 --> 00:05:05,240
Speaker 1: a rough wisdom of the crowd estimate in how that

86
00:05:05,279 --> 00:05:08,760
Speaker 1: e t F is trading, assuming it's liquid, because, as

87
00:05:08,760 --> 00:05:12,080
Speaker 1: we'll discuss later, some et f seem to trade by

88
00:05:12,120 --> 00:05:14,320
Speaker 1: appointment only. Yeah, if you're lucky, if you can even

89
00:05:14,320 --> 00:05:16,880
Speaker 1: get an appointment. Yeah, it is definitely some haves and

90
00:05:16,920 --> 00:05:18,880
Speaker 1: have not in the et F space. I mean, there's

91
00:05:18,960 --> 00:05:21,080
Speaker 1: just there's so many of them at this point. So

92
00:05:21,120 --> 00:05:22,760
Speaker 1: one of the things that comes up all the time

93
00:05:22,760 --> 00:05:26,560
Speaker 1: when we're comparing mutual funds in ETFs is in a

94
00:05:26,640 --> 00:05:31,039
Speaker 1: non qualified portfolio, meaning a fully taxable account, you could

95
00:05:31,080 --> 00:05:34,120
Speaker 1: have a mutual fund that doesn't show any gains for

96
00:05:34,160 --> 00:05:37,520
Speaker 1: the year, and yet you get hit with capital gains taxes.

97
00:05:38,200 --> 00:05:40,240
Speaker 1: That doesn't really seem to happen with you. Yeah, there's

98
00:05:40,240 --> 00:05:42,400
Speaker 1: a fairness issue and that and that's and I think

99
00:05:42,400 --> 00:05:44,880
Speaker 1: that's the other big advantage of e t F in

100
00:05:44,920 --> 00:05:48,039
Speaker 1: a taxable environment because the way e t F shares

101
00:05:48,040 --> 00:05:52,000
Speaker 1: are created and redeemed um which is done through market

102
00:05:52,040 --> 00:05:55,840
Speaker 1: makers big authorized participants. They're able to wash out any

103
00:05:55,880 --> 00:05:58,560
Speaker 1: gains from internal trading. So if you know, even in

104
00:05:58,600 --> 00:06:00,760
Speaker 1: the SMP, if you know stock X goes out and

105
00:06:00,800 --> 00:06:04,239
Speaker 1: stock Y comes in and stock X had an embedded gain,

106
00:06:04,680 --> 00:06:07,520
Speaker 1: that creates a taxable gain in the portfolio. Even if

107
00:06:07,520 --> 00:06:09,119
Speaker 1: at the end of the year the SMP is down,

108
00:06:09,680 --> 00:06:11,960
Speaker 1: they still have to distribute that taxable gain. E t

109
00:06:12,080 --> 00:06:14,599
Speaker 1: F s get away from that by allowing them to

110
00:06:14,640 --> 00:06:17,680
Speaker 1: wash out that gain by effectively handing low base of

111
00:06:17,720 --> 00:06:20,799
Speaker 1: shares out to the street. So the e t F loophole,

112
00:06:21,320 --> 00:06:24,520
Speaker 1: what what does that cover? Well, from a tax perspective,

113
00:06:24,560 --> 00:06:27,880
Speaker 1: it covers anything that you can do in kind transactions

114
00:06:27,880 --> 00:06:30,600
Speaker 1: with and and technically mutual funds could do this too,

115
00:06:30,640 --> 00:06:34,839
Speaker 1: but they don't because it's complicated and it requires a

116
00:06:34,880 --> 00:06:37,440
Speaker 1: lot of coordination with the street. You have to have

117
00:06:37,440 --> 00:06:40,720
Speaker 1: a partner on the street technically called an authorized participant

118
00:06:41,080 --> 00:06:44,360
Speaker 1: that's willing to do those in kind creations and redemptions

119
00:06:44,360 --> 00:06:48,240
Speaker 1: to share. So complicated that you do profit distributions even

120
00:06:48,279 --> 00:06:50,920
Speaker 1: on a losing or flat year, it's not worth it.

121
00:06:51,000 --> 00:06:54,760
Speaker 1: That just seems like that is a huge disadvantage for

122
00:06:54,920 --> 00:06:58,720
Speaker 1: mutual funds relative to well. One of the challenges in

123
00:06:58,760 --> 00:07:01,400
Speaker 1: a traditional mutual fund environment is for you, as an

124
00:07:01,400 --> 00:07:04,600
Speaker 1: authorized participant, to agree to do those in kind trades,

125
00:07:04,680 --> 00:07:06,400
Speaker 1: you need to know what's in the basket, Like what

126
00:07:06,440 --> 00:07:08,200
Speaker 1: are you going to get? What do I have to deliver?

127
00:07:08,720 --> 00:07:11,560
Speaker 1: If you're gonna know, then there's got to be some transparency.

128
00:07:11,600 --> 00:07:13,880
Speaker 1: Most mutual funds don't want to tell you what's under

129
00:07:13,920 --> 00:07:16,840
Speaker 1: the hood, right. Most mutual funds are still actively managed

130
00:07:16,880 --> 00:07:20,080
Speaker 1: by assets, and most active managers don't want to tell

131
00:07:20,120 --> 00:07:22,040
Speaker 1: you what they're doing on a day to day basis,

132
00:07:22,040 --> 00:07:25,720
Speaker 1: and that makes that arbitrage process really difficult. But it's

133
00:07:25,760 --> 00:07:27,720
Speaker 1: baked into how E t f s work. That in

134
00:07:27,800 --> 00:07:30,600
Speaker 1: kind creation redemption is sort of a core of how

135
00:07:30,640 --> 00:07:32,640
Speaker 1: E t f s work, and so that doesn't make

136
00:07:32,720 --> 00:07:35,920
Speaker 1: much of a difference in terms of the capital gains

137
00:07:35,960 --> 00:07:39,760
Speaker 1: distribution or does the loophole cover that? No, the loophole

138
00:07:39,800 --> 00:07:43,320
Speaker 1: I mean, and loophole is as I think of an

139
00:07:43,360 --> 00:07:46,320
Speaker 1: aggressive word. But really what we're talking about here is

140
00:07:46,360 --> 00:07:49,200
Speaker 1: part of the I r S approach rate how the

141
00:07:49,240 --> 00:07:52,080
Speaker 1: I r S treats et s. It allows in kind

142
00:07:52,120 --> 00:07:55,960
Speaker 1: transactions to be untaxed, right, and that tax basis then

143
00:07:56,080 --> 00:07:59,200
Speaker 1: can get washed out, so that covers really any kind

144
00:07:59,200 --> 00:08:01,080
Speaker 1: of et F, any kind of investment that you want

145
00:08:01,120 --> 00:08:04,600
Speaker 1: to make, whether it's bonds, whether it's you know, equities. Uh,

146
00:08:04,720 --> 00:08:07,040
Speaker 1: you know, you can get away with that in kind

147
00:08:07,080 --> 00:08:09,600
Speaker 1: creation redemption to wash out those capital gains. So for

148
00:08:09,640 --> 00:08:13,840
Speaker 1: taxable accounts, ETFs have really caught on. Uh even for

149
00:08:13,960 --> 00:08:16,760
Speaker 1: non taxable accounts. The fact that you can trade it

150
00:08:16,800 --> 00:08:19,360
Speaker 1: in traday with some price certainty I think has been

151
00:08:19,440 --> 00:08:22,480
Speaker 1: the other major issue. Let's talk a little bit about

152
00:08:22,480 --> 00:08:26,880
Speaker 1: some of the issues that are surrounding ETFs today. We

153
00:08:27,080 --> 00:08:30,160
Speaker 1: have a little bit of a fat head long tail

154
00:08:30,440 --> 00:08:36,040
Speaker 1: problem in that in that e t F issue, ince

155
00:08:36,080 --> 00:08:39,800
Speaker 1: and underwriting is very top. Have you have Vanguard, black

156
00:08:39,880 --> 00:08:44,120
Speaker 1: Rock and State Street dominating. I mean that's the vast

157
00:08:44,160 --> 00:08:49,920
Speaker 1: major assets assets not necessarily what is there twenty one? Yeah,

158
00:08:49,920 --> 00:08:53,640
Speaker 1: it's over two thousand ETFs right now. Um and by number, sure,

159
00:08:54,040 --> 00:08:56,400
Speaker 1: black Rock in particular has a large number. I think

160
00:08:56,440 --> 00:09:00,360
Speaker 1: it's fourts in the in the stable. Yeah. To put

161
00:09:00,400 --> 00:09:03,120
Speaker 1: that in perspective, you know, back into the two thousands

162
00:09:03,240 --> 00:09:06,360
Speaker 1: or early two thousands, there were a hundred and fiftyf

163
00:09:06,480 --> 00:09:10,679
Speaker 1: So there's been really fifteen years of phenomenal asset and

164
00:09:10,960 --> 00:09:14,400
Speaker 1: product growth, really now covering virtually every corner of the

165
00:09:14,480 --> 00:09:18,520
Speaker 1: investment market, from physical gold to junk bonds. So why those?

166
00:09:19,080 --> 00:09:21,960
Speaker 1: First of all, why the three biggest dominating? And then

167
00:09:21,960 --> 00:09:24,679
Speaker 1: the next question is why those three but I kind

168
00:09:24,720 --> 00:09:27,520
Speaker 1: of have a sneaking space and why those well, so,

169
00:09:27,679 --> 00:09:30,840
Speaker 1: why just why is it so dominated by these giant phones. Well,

170
00:09:30,920 --> 00:09:34,400
Speaker 1: because the economies of scale here are dramatic, and one

171
00:09:34,480 --> 00:09:37,960
Speaker 1: of the sort of accidental advantages of ets it wasn't

172
00:09:38,040 --> 00:09:41,240
Speaker 1: designed for this is that they have become incredibly cheap,

173
00:09:41,360 --> 00:09:43,120
Speaker 1: and we're in the midst of a price war that's

174
00:09:43,200 --> 00:09:46,439
Speaker 1: driving them down towards the price of zero. They can

175
00:09:46,559 --> 00:09:50,079
Speaker 1: be that cheap because running an incremental dollar in the

176
00:09:50,240 --> 00:09:54,040
Speaker 1: SMP five hundred costs literally no money. Right if if

177
00:09:54,240 --> 00:09:58,200
Speaker 1: if Black Rock, which manages I don't know idea trillion dollars,

178
00:09:58,520 --> 00:10:00,360
Speaker 1: probably a trillion dollars of that is tie to large

179
00:10:00,400 --> 00:10:03,640
Speaker 1: capus equity for them, probably more for them to manage

180
00:10:03,679 --> 00:10:06,800
Speaker 1: an additional dollar literally doesn't cost them anything. And so

181
00:10:07,000 --> 00:10:11,040
Speaker 1: the marginal cost of production in big index shops is

182
00:10:11,080 --> 00:10:13,400
Speaker 1: so low they can price these products at three four

183
00:10:13,480 --> 00:10:16,880
Speaker 1: or five eight basis points and still eventually make enough

184
00:10:16,920 --> 00:10:21,480
Speaker 1: money to survive. Very tough for Ritholt's Wealth Management to

185
00:10:21,679 --> 00:10:24,160
Speaker 1: get into the et F game at three basis points

186
00:10:24,240 --> 00:10:27,000
Speaker 1: and ever make a dime to launch an e t F,

187
00:10:27,160 --> 00:10:30,000
Speaker 1: and we I explored this last summer. I looked at

188
00:10:30,040 --> 00:10:33,400
Speaker 1: a couple of interesting ideas. It's a couple of hundred

189
00:10:33,440 --> 00:10:36,360
Speaker 1: thousand dollars to half a million to launch by the

190
00:10:36,440 --> 00:10:39,440
Speaker 1: time you get done with record keeping and custodian ships

191
00:10:39,480 --> 00:10:42,000
Speaker 1: and two BIPs here and three BIPs there and five bps.

192
00:10:42,000 --> 00:10:44,640
Speaker 1: There's a lot of expenses that go into it that

193
00:10:44,920 --> 00:10:47,560
Speaker 1: it's not like, hey, here's an idea, let's launch an

194
00:10:47,600 --> 00:10:53,600
Speaker 1: e t F. It's a complicated legal accounting underwriting issue

195
00:10:54,120 --> 00:10:56,480
Speaker 1: for a small shop. But for van go to black

196
00:10:56,600 --> 00:10:58,839
Speaker 1: rockwer State Street if they want to crank out a

197
00:10:58,880 --> 00:11:02,120
Speaker 1: different ETF every day. How hard is It's not hard

198
00:11:02,160 --> 00:11:04,839
Speaker 1: at all, and it is getting easier. There's a big

199
00:11:04,960 --> 00:11:07,439
Speaker 1: new set of rulemaking out of the SEC that's actually

200
00:11:07,520 --> 00:11:10,240
Speaker 1: in common period right now that would clean up that

201
00:11:10,400 --> 00:11:12,760
Speaker 1: process and maybe drive the cost for a new issue

202
00:11:12,760 --> 00:11:15,520
Speaker 1: where down from that couple hundred thousand to maybe a

203
00:11:15,600 --> 00:11:18,240
Speaker 1: hundred thousand. Uh, you know, it will have become less

204
00:11:18,360 --> 00:11:20,280
Speaker 1: of an exception to the rule and more of an

205
00:11:20,320 --> 00:11:23,480
Speaker 1: approved activity. But there's still work that's got to get

206
00:11:23,520 --> 00:11:25,880
Speaker 1: done and you have to establish all those relationships. So

207
00:11:26,640 --> 00:11:30,640
Speaker 1: those big players have that entrenched economy of scale that

208
00:11:30,800 --> 00:11:32,920
Speaker 1: I think is really tough to compete with, and that's

209
00:11:32,960 --> 00:11:37,000
Speaker 1: why you've seen very few upstarts. If you will, really

210
00:11:37,120 --> 00:11:39,760
Speaker 1: get a lot of traction. So we've been spending a

211
00:11:39,800 --> 00:11:42,520
Speaker 1: lot of time talking about equities, let's talk about bonds

212
00:11:42,559 --> 00:11:45,680
Speaker 1: for a minute. There are lots and lots of dollars

213
00:11:45,800 --> 00:11:50,319
Speaker 1: allocated to bond ETFs, so much so that it's had

214
00:11:50,440 --> 00:11:54,760
Speaker 1: a giant impact on how bonds are traded and what

215
00:11:55,120 --> 00:11:58,920
Speaker 1: Wall Street bond desks look like today. You're the first

216
00:11:58,960 --> 00:12:02,800
Speaker 1: person who brought this to my attention. Explain what what

217
00:12:02,960 --> 00:12:04,920
Speaker 1: has been taking place over the past decades. Well, we

218
00:12:04,960 --> 00:12:06,959
Speaker 1: have two things going on at the same time. One is,

219
00:12:07,080 --> 00:12:10,040
Speaker 1: because of regulation, we no longer have banks having giant

220
00:12:10,120 --> 00:12:12,319
Speaker 1: bond desk. Right, they had to basically get out of

221
00:12:12,360 --> 00:12:15,200
Speaker 1: that business. Was it regulations or was it zero interest rates?

222
00:12:15,200 --> 00:12:17,679
Speaker 1: And they weren't making any money both, right, So the

223
00:12:17,760 --> 00:12:19,760
Speaker 1: hoops you had to jump through to to run an

224
00:12:19,800 --> 00:12:23,760
Speaker 1: eight style bond desk were significant, and the capital a

225
00:12:23,800 --> 00:12:25,960
Speaker 1: location was no longer making all that much money. They

226
00:12:26,000 --> 00:12:28,199
Speaker 1: are better things for them to do with that risk capital.

227
00:12:28,520 --> 00:12:31,520
Speaker 1: So you had that sort of abandonment of the bond

228
00:12:31,559 --> 00:12:34,280
Speaker 1: market by traditional players, But at the same time you

229
00:12:34,360 --> 00:12:36,880
Speaker 1: had lots of folks that still wanted to invest in bonds.

230
00:12:37,360 --> 00:12:40,160
Speaker 1: Investing in individual bonds, I'm sure you know, is kind

231
00:12:40,200 --> 00:12:42,240
Speaker 1: of a pain in the neck, right, even even if

232
00:12:42,280 --> 00:12:44,079
Speaker 1: you're just trying to buy treasury. Sure you can go

233
00:12:44,200 --> 00:12:46,760
Speaker 1: to Treasury dot gov and and go do it all direct.

234
00:12:46,880 --> 00:12:50,160
Speaker 1: You want to do a laddered bond portfolio, or you

235
00:12:50,240 --> 00:12:52,880
Speaker 1: want a portfolio of munies that are high quality in

236
00:12:53,000 --> 00:12:55,440
Speaker 1: this if you're in a high tax state, it's not easy.

237
00:12:55,520 --> 00:12:58,400
Speaker 1: It's not easy to do. And even as a professional investor,

238
00:12:58,480 --> 00:13:03,120
Speaker 1: you're going to pay significant basis point spreads getting in

239
00:13:03,200 --> 00:13:06,319
Speaker 1: and out of these positions to say nothing. If if

240
00:13:06,360 --> 00:13:09,400
Speaker 1: you wait, you can cut those eight bit spreads down

241
00:13:09,480 --> 00:13:12,880
Speaker 1: to like sixty. There you go. You could. You could

242
00:13:12,920 --> 00:13:15,400
Speaker 1: find something in the middle. But it's a valid point.

243
00:13:15,440 --> 00:13:17,760
Speaker 1: It's not easy to to execute these treas but it's

244
00:13:17,760 --> 00:13:20,319
Speaker 1: an as a class most investors should be in. And

245
00:13:20,440 --> 00:13:22,679
Speaker 1: so that's why we've had bond mutual funds. Okay, bond

246
00:13:22,760 --> 00:13:25,840
Speaker 1: mutual funds are fine, but again you have all these

247
00:13:25,880 --> 00:13:28,480
Speaker 1: pricing issues. You've got these embedded tax issues, which are

248
00:13:28,480 --> 00:13:31,559
Speaker 1: even worse than most bond portfolios because most people in

249
00:13:31,600 --> 00:13:34,000
Speaker 1: their bond portfolios want to hold a certain maturity, like

250
00:13:34,120 --> 00:13:36,480
Speaker 1: I want to hold your five years my target duration

251
00:13:36,559 --> 00:13:38,520
Speaker 1: or something like that. To hold that, it means you

252
00:13:38,600 --> 00:13:41,240
Speaker 1: have to constantly be selling something and buying something else

253
00:13:41,320 --> 00:13:44,120
Speaker 1: in order to hold that duration of that maturity um.

254
00:13:44,360 --> 00:13:46,880
Speaker 1: And that creates taxes when you do that, particularly if

255
00:13:46,920 --> 00:13:49,480
Speaker 1: you're in a bond market with rising prices and declining rates.

256
00:13:50,240 --> 00:13:52,160
Speaker 1: So let me, let's just delve into that. When you

257
00:13:52,240 --> 00:13:54,560
Speaker 1: say people have to sell stuff to hold the same duration,

258
00:13:54,640 --> 00:13:57,880
Speaker 1: it's as time goes by, Hey, suddenly things that were

259
00:13:58,120 --> 00:14:00,760
Speaker 1: four and a half years become five years. You duration

260
00:14:01,240 --> 00:14:03,240
Speaker 1: that's out, and you have to add other stuff to

261
00:14:03,320 --> 00:14:05,800
Speaker 1: make exactly. And so if you're in a you know,

262
00:14:05,880 --> 00:14:08,000
Speaker 1: an I shared bond fund that says that this is

263
00:14:08,040 --> 00:14:11,240
Speaker 1: a five year muni fund or whatever, um, as that

264
00:14:11,360 --> 00:14:13,760
Speaker 1: five year becomes four, you have to sell it. And

265
00:14:13,920 --> 00:14:16,439
Speaker 1: as that seven year became five, you have to buy it.

266
00:14:16,920 --> 00:14:19,400
Speaker 1: And if you're an environment where the prices of those

267
00:14:19,440 --> 00:14:21,440
Speaker 1: bonds have been going up, which has been where we've

268
00:14:21,440 --> 00:14:24,440
Speaker 1: been for a long time. Then you've got those capital

269
00:14:24,520 --> 00:14:26,360
Speaker 1: gains from that sales process, and the e t F

270
00:14:26,680 --> 00:14:29,640
Speaker 1: helps you get rid of some of that. So the

271
00:14:30,000 --> 00:14:33,640
Speaker 1: thing that I find fascinating is that the bond desks

272
00:14:33,760 --> 00:14:37,880
Speaker 1: have essentially been replaced by black Rock. Now when people

273
00:14:38,040 --> 00:14:40,880
Speaker 1: want to do a big bond allocation, they don't call

274
00:14:40,960 --> 00:14:43,760
Speaker 1: Goldman or Morgan Stanley necessarily or you by S or

275
00:14:43,800 --> 00:14:48,160
Speaker 1: Credit Swiss. They called black Rock. Is that a fair assessment? Yeah,

276
00:14:48,400 --> 00:14:51,240
Speaker 1: it's black Rock. And really it's also folks like PIMCO, right,

277
00:14:51,320 --> 00:14:53,440
Speaker 1: And you know PIMCO, I think is mostly known as

278
00:14:53,520 --> 00:14:56,280
Speaker 1: being the sort of Bill Gross's old big shop for

279
00:14:56,560 --> 00:14:59,640
Speaker 1: actively managed mutual funds. They have a huge et F

280
00:14:59,720 --> 00:15:02,640
Speaker 1: present it's now they're actually the largest actively managed et

281
00:15:02,800 --> 00:15:06,080
Speaker 1: F provider. And yeah, they have become the bond desk

282
00:15:06,200 --> 00:15:08,800
Speaker 1: for the world. If Mexico wants to float a new issue,

283
00:15:09,360 --> 00:15:12,040
Speaker 1: they call Blackrock, and or they called Pimco and they

284
00:15:12,040 --> 00:15:14,360
Speaker 1: asked them if they'll take down the whole thing, and

285
00:15:14,480 --> 00:15:16,720
Speaker 1: that may never trade, you may never actually see it

286
00:15:16,800 --> 00:15:21,400
Speaker 1: go across. Wow, that's absolutely fascinating. Let's let's talk about

287
00:15:21,560 --> 00:15:26,040
Speaker 1: your long and wacky career. You began as an accountant

288
00:15:26,120 --> 00:15:29,120
Speaker 1: slash screenwriter. How the hell does that act? Well? I,

289
00:15:29,320 --> 00:15:30,920
Speaker 1: I you know, I think like a lot of people,

290
00:15:31,000 --> 00:15:33,080
Speaker 1: I went to college having no idea what I wanted

291
00:15:33,080 --> 00:15:34,960
Speaker 1: to do, and I've got a creative writing degree and

292
00:15:35,040 --> 00:15:37,520
Speaker 1: then headed to Hollywood to write the Great American screenplay,

293
00:15:38,040 --> 00:15:41,520
Speaker 1: uh and instead end up writing the Great American payroll Check. Uh.

294
00:15:41,720 --> 00:15:43,840
Speaker 1: And uh, you know I went to Hollywood, I I

295
00:15:44,000 --> 00:15:47,480
Speaker 1: ended up locked into a production company just because I

296
00:15:47,560 --> 00:15:49,720
Speaker 1: needed work, hoping that I'd be able to write for

297
00:15:49,800 --> 00:15:53,440
Speaker 1: a living, and actually found that I was more fascinated

298
00:15:53,520 --> 00:15:58,040
Speaker 1: by the process of producing television than anything else, and um,

299
00:15:58,280 --> 00:16:01,440
Speaker 1: and got really interested in the big nos itself. And

300
00:16:01,640 --> 00:16:02,920
Speaker 1: that led me to think I should go back and

301
00:16:02,960 --> 00:16:05,000
Speaker 1: get a business degree, which is what I did. Uh,

302
00:16:05,120 --> 00:16:07,840
Speaker 1: and then sort of fell in love with investing from there. So,

303
00:16:08,160 --> 00:16:10,360
Speaker 1: so you go to Boston University for an NBA. Is

304
00:16:10,400 --> 00:16:14,240
Speaker 1: that right? And then how do you then move sideways

305
00:16:14,320 --> 00:16:17,560
Speaker 1: into finance? So? What what lad you? You were at

306
00:16:17,680 --> 00:16:19,960
Speaker 1: Surly Associates. Yeah, So when I was at BU, I

307
00:16:20,040 --> 00:16:23,320
Speaker 1: was studying with v Body relatively well known professor there

308
00:16:23,400 --> 00:16:26,080
Speaker 1: on investments, and really he sort of sparked a lot

309
00:16:26,160 --> 00:16:29,320
Speaker 1: of my interest in investing. UH. And one of my

310
00:16:29,440 --> 00:16:33,000
Speaker 1: classmates was the then wife of Kurt Ceruli, and he

311
00:16:33,120 --> 00:16:36,280
Speaker 1: and I started really associates to do really sort of

312
00:16:36,360 --> 00:16:41,280
Speaker 1: consulting work and mostly advisor survey type work for big

313
00:16:41,440 --> 00:16:45,320
Speaker 1: asset managers. Because at that time, this was very early nineties,

314
00:16:45,440 --> 00:16:47,800
Speaker 1: just coming out of the late eighties. UH, we were

315
00:16:47,840 --> 00:16:51,400
Speaker 1: in this phase shift from the traditional brokerage commission model

316
00:16:51,560 --> 00:16:55,520
Speaker 1: to true independent fee only financial advisors, and that really

317
00:16:55,680 --> 00:16:58,640
Speaker 1: was changing the game for asset managers. That that was

318
00:16:58,800 --> 00:17:02,080
Speaker 1: early nineties. That was way way early in the process.

319
00:17:02,120 --> 00:17:04,760
Speaker 1: I mean Ken Fisher was doing this gig then and

320
00:17:05,200 --> 00:17:07,320
Speaker 1: other people had started back then, but it was still

321
00:17:07,359 --> 00:17:10,359
Speaker 1: a tiny percentage overall. What made you say, oh, this

322
00:17:10,560 --> 00:17:14,000
Speaker 1: is the future because that's where consulting clients wanted to pass.

323
00:17:15,320 --> 00:17:17,720
Speaker 1: So we had from right marketing for it, says. We

324
00:17:17,800 --> 00:17:20,359
Speaker 1: had firms like Fidelity and what was then Wells Fargo,

325
00:17:20,440 --> 00:17:24,040
Speaker 1: Nico Investment Advisors which became Barklay's Global Investors, and State

326
00:17:24,119 --> 00:17:26,919
Speaker 1: Street UM and and actually one of my first clients

327
00:17:27,000 --> 00:17:30,119
Speaker 1: was Jean vanak Here in the city of k and uh,

328
00:17:30,320 --> 00:17:32,880
Speaker 1: and they were all trying to figure out how this shift,

329
00:17:33,359 --> 00:17:36,200
Speaker 1: both in the defined contribution space, which was really kicking

330
00:17:36,280 --> 00:17:39,320
Speaker 1: off hard in the early nineties UH, and in the

331
00:17:39,400 --> 00:17:41,520
Speaker 1: field only financial advisor business, how that was going to

332
00:17:41,640 --> 00:17:45,080
Speaker 1: change their investment management practices from a product structure standpoint,

333
00:17:45,520 --> 00:17:47,720
Speaker 1: from how do I sell to these people if I'm

334
00:17:47,760 --> 00:17:50,560
Speaker 1: not giving them trips to Hawaii or paying them you know,

335
00:17:50,680 --> 00:17:53,080
Speaker 1: back end loads or all of those horrible ways of

336
00:17:53,920 --> 00:17:58,760
Speaker 1: selling products so exactly and so so you know, at

337
00:17:58,800 --> 00:18:02,480
Speaker 1: that point, as a really wet behind the years early twenties, kid,

338
00:18:02,960 --> 00:18:05,320
Speaker 1: I was making phone calls to financial advisors and asking

339
00:18:05,359 --> 00:18:08,080
Speaker 1: about their practices and and that really, you know, it

340
00:18:08,119 --> 00:18:09,720
Speaker 1: was it was an exciting place to be because it

341
00:18:09,760 --> 00:18:12,240
Speaker 1: was very new. When when was the big move from

342
00:18:12,440 --> 00:18:16,200
Speaker 1: define benefits to define contributions slash four oh one K

343
00:18:16,760 --> 00:18:19,560
Speaker 1: When when did that really ramp up? Right about that?

344
00:18:19,760 --> 00:18:21,359
Speaker 1: I mean it was it was sort of towards the

345
00:18:21,520 --> 00:18:23,800
Speaker 1: end and certainly coming out of the financial well what

346
00:18:23,960 --> 00:18:26,640
Speaker 1: was what we called then the financial crisis in seven

347
00:18:27,160 --> 00:18:31,240
Speaker 1: UM that was a little minor, minor hiccup. Then back

348
00:18:31,240 --> 00:18:34,560
Speaker 1: in the days of Glass Stiegel, a one day collapse

349
00:18:34,600 --> 00:18:37,160
Speaker 1: in the market doesn't spill over today. It's a little different,

350
00:18:37,160 --> 00:18:38,800
Speaker 1: a little different, little different. That was the first time

351
00:18:38,800 --> 00:18:41,440
Speaker 1: I lost a lot of money was in UM. But

352
00:18:41,720 --> 00:18:44,920
Speaker 1: the uh, you know, that was really the hockey stick

353
00:18:45,000 --> 00:18:46,720
Speaker 1: of the takeoff in four oh one K. It's when

354
00:18:46,800 --> 00:18:49,399
Speaker 1: Vanguard really got into that business. It's when Fidelity got

355
00:18:49,440 --> 00:18:52,040
Speaker 1: into that business. Uh. And you know, the assets really

356
00:18:52,040 --> 00:18:55,920
Speaker 1: started flowing in, and it implied getting rid of all

357
00:18:56,000 --> 00:18:58,320
Speaker 1: these costs in the system, all these loads, everything else.

358
00:18:58,359 --> 00:18:59,680
Speaker 1: You can't put any of that into a four o

359
00:18:59,760 --> 00:19:02,520
Speaker 1: one risk. It doesn't let you, right. So I sometimes

360
00:19:02,600 --> 00:19:07,160
Speaker 1: describe you as there at the beginning when ETFs were created,

361
00:19:07,200 --> 00:19:09,440
Speaker 1: and you pushed back on that all the time. What

362
00:19:09,720 --> 00:19:13,440
Speaker 1: was your role in in the early days of e ts. Yeah,

363
00:19:13,520 --> 00:19:15,560
Speaker 1: so you're the early days of ets which is really

364
00:19:15,640 --> 00:19:19,359
Speaker 1: ninety three was spy uh. Slightly before that with the

365
00:19:19,400 --> 00:19:23,600
Speaker 1: Toronto Index participation, securities, tips UM and then the webs

366
00:19:23,640 --> 00:19:26,600
Speaker 1: products that I worked on was ninety four and five.

367
00:19:26,720 --> 00:19:29,600
Speaker 1: I think they finally launched in ninety five. UM when

368
00:19:29,640 --> 00:19:31,720
Speaker 1: did the cues launch? It was not much after that.

369
00:19:31,840 --> 00:19:34,440
Speaker 1: It was in all in the same window. UM. I

370
00:19:34,480 --> 00:19:35,960
Speaker 1: think the cues might have been a little bit later,

371
00:19:36,040 --> 00:19:38,800
Speaker 1: like it might have been ninety eight. Um. But the

372
00:19:39,680 --> 00:19:41,960
Speaker 1: the reason I pushed back is because this is a

373
00:19:42,040 --> 00:19:45,359
Speaker 1: classic success has a thousand fathers problem. Um. You know

374
00:19:45,800 --> 00:19:47,840
Speaker 1: Jim Ross, you know who you've had on the show

375
00:19:47,920 --> 00:19:50,600
Speaker 1: from State Street, who's great, Um, you know he he

376
00:19:50,760 --> 00:19:52,720
Speaker 1: often sort of tells the story of like, yeah, I

377
00:19:52,840 --> 00:19:54,720
Speaker 1: was in the room when Spy was created. I was

378
00:19:54,800 --> 00:19:57,040
Speaker 1: getting coffee, right, And I think the other way the

379
00:19:57,080 --> 00:19:59,280
Speaker 1: other guy who started as an accountant and could crunch

380
00:19:59,320 --> 00:20:01,359
Speaker 1: the numbers, And I said, we better keep Jim around.

381
00:20:01,359 --> 00:20:04,160
Speaker 1: He seems he seems to understand the plumbing. Yeah. Um,

382
00:20:04,440 --> 00:20:06,720
Speaker 1: And I think that that's very true. I was very young.

383
00:20:06,880 --> 00:20:09,080
Speaker 1: There were, you know, the people who were really the

384
00:20:09,320 --> 00:20:12,679
Speaker 1: intellect behind this, which really required a lot of thinking

385
00:20:12,840 --> 00:20:17,040
Speaker 1: through the market mechanics and regulatory issues. Were folks like

386
00:20:17,160 --> 00:20:19,840
Speaker 1: Nate Most at the Amax, or even Patty dunne It

387
00:20:19,920 --> 00:20:22,000
Speaker 1: well as far Unico, both of them have passed away.

388
00:20:22,160 --> 00:20:26,080
Speaker 1: I mean, it is a generation ago of some very

389
00:20:26,200 --> 00:20:29,600
Speaker 1: bright thinkers that really drove the foundation of this and

390
00:20:29,720 --> 00:20:32,080
Speaker 1: a bunch of Yahoo kids that were sitting there trying

391
00:20:32,080 --> 00:20:34,440
Speaker 1: to figure out how to sell this to people. Quite

392
00:20:34,480 --> 00:20:37,919
Speaker 1: fascinating Uh, you know, there's a little background. You were

393
00:20:38,280 --> 00:20:41,200
Speaker 1: c I O at et F dot com right back

394
00:20:41,240 --> 00:20:43,680
Speaker 1: in the day, and then you leave and you run

395
00:20:43,760 --> 00:20:47,760
Speaker 1: the t F department at fact Set. Yeah. So originally

396
00:20:47,840 --> 00:20:49,960
Speaker 1: E t F to confounded by a guy named Jim Wyant.

397
00:20:50,040 --> 00:20:51,520
Speaker 1: He brought a bunch of us in to sort of

398
00:20:51,560 --> 00:20:55,240
Speaker 1: build that business in the I've been to Jim's confis

399
00:20:55,280 --> 00:20:58,040
Speaker 1: events in Spain, which was quite fascinating. Yeah, and he

400
00:20:58,440 --> 00:21:00,440
Speaker 1: had the vision of building this bis this you know,

401
00:21:00,560 --> 00:21:03,600
Speaker 1: a decade ago. And really there were three legs at

402
00:21:03,600 --> 00:21:05,560
Speaker 1: that stool. There was sort of the media business, which

403
00:21:05,560 --> 00:21:07,320
Speaker 1: we now know as et F dot Com. We published

404
00:21:07,320 --> 00:21:09,720
Speaker 1: a magazine, the et F Report, which we've been publishing

405
00:21:09,760 --> 00:21:12,040
Speaker 1: for twelve years or something like that. Now. Um, there

406
00:21:12,119 --> 00:21:15,440
Speaker 1: was a conference business which became inside et S. Go

407
00:21:15,560 --> 00:21:19,120
Speaker 1: to that event. That's a fantastic event. Thousands of advisors

408
00:21:19,200 --> 00:21:21,840
Speaker 1: to literally two thousand people. That's the bit that may

409
00:21:21,880 --> 00:21:24,920
Speaker 1: be the biggest single room. I ever stood at a

410
00:21:24,960 --> 00:21:28,040
Speaker 1: podium and looked out at it was. It just goes.

411
00:21:29,640 --> 00:21:30,760
Speaker 1: And then the third leg of the stool was a

412
00:21:30,840 --> 00:21:32,879
Speaker 1: data and analytics business, which was the part that I

413
00:21:32,960 --> 00:21:36,560
Speaker 1: came into build. UM and we were a venture capital

414
00:21:36,640 --> 00:21:39,119
Speaker 1: backed start up at that point, and we sold the

415
00:21:39,160 --> 00:21:41,160
Speaker 1: pieces off, you know, over the course of a couple

416
00:21:41,160 --> 00:21:44,800
Speaker 1: of years. The in the conference business was sold to Informa,

417
00:21:44,960 --> 00:21:47,639
Speaker 1: which is a huge conference company based in London. The

418
00:21:48,480 --> 00:21:50,560
Speaker 1: data and analytics business that I was running was sold

419
00:21:50,600 --> 00:21:52,600
Speaker 1: the fact Set and I went with it to fact

420
00:21:52,600 --> 00:21:55,240
Speaker 1: Set for a year. Uh. And then the media business

421
00:21:55,320 --> 00:21:57,720
Speaker 1: was sold to what was then BATS and then became

422
00:21:57,800 --> 00:22:01,160
Speaker 1: CBOG Global Markets uh, and then they brought me back

423
00:22:01,240 --> 00:22:04,040
Speaker 1: in to run it. So you're you're hired as CEO. Tip,

424
00:22:04,200 --> 00:22:07,280
Speaker 1: what is this managing directed? Well, they can't can't have

425
00:22:07,320 --> 00:22:10,680
Speaker 1: too many CEOs and the publicly traded company, so that

426
00:22:11,040 --> 00:22:14,119
Speaker 1: makes a lot of sense. So so let's you're the

427
00:22:14,200 --> 00:22:18,280
Speaker 1: perfect person to ask this question. I've discussed how e

428
00:22:18,400 --> 00:22:21,280
Speaker 1: t f s come to be. Someone has an idea

429
00:22:21,320 --> 00:22:23,560
Speaker 1: and they run through a bunch of machinery and then

430
00:22:23,680 --> 00:22:26,720
Speaker 1: out of the other end of that factory comes some

431
00:22:26,920 --> 00:22:29,720
Speaker 1: e t F. But I don't think people really understand

432
00:22:29,800 --> 00:22:33,440
Speaker 1: how e t f s are actually put together. Walk

433
00:22:33,520 --> 00:22:36,399
Speaker 1: us through what an e t F launch is like

434
00:22:36,880 --> 00:22:40,960
Speaker 1: from from conception to trading. Well, in the current environment,

435
00:22:41,080 --> 00:22:44,359
Speaker 1: right with the current regulatory structure, you know, you're actually

436
00:22:44,400 --> 00:22:47,679
Speaker 1: a classic case of a large successful are a believes

437
00:22:47,760 --> 00:22:49,440
Speaker 1: they have a bit of a better mouse trap, whatever

438
00:22:49,520 --> 00:22:52,000
Speaker 1: that is. They're actively managed equity strategy, they've got a

439
00:22:52,040 --> 00:22:56,640
Speaker 1: great stock picker, we have a fantastic bitcoin hedge. We're

440
00:22:56,880 --> 00:22:59,760
Speaker 1: there turning into an ET right. So you so what

441
00:23:00,040 --> 00:23:02,320
Speaker 1: you do, You've really got two options. One is you

442
00:23:02,440 --> 00:23:06,040
Speaker 1: go down this path entirely on your own, and effectively

443
00:23:06,119 --> 00:23:08,600
Speaker 1: what you're doing is launching a mutual fund. So it's

444
00:23:08,600 --> 00:23:10,760
Speaker 1: a Forty Act mutual fund. You have to get a board,

445
00:23:10,840 --> 00:23:12,240
Speaker 1: you have to get a fund account, and you gotta

446
00:23:12,280 --> 00:23:15,040
Speaker 1: get all that stuff in place. And then after you've

447
00:23:15,080 --> 00:23:16,600
Speaker 1: done all of that work, you have to go to

448
00:23:16,640 --> 00:23:19,879
Speaker 1: the SEC and have this big mother may I conversation.

449
00:23:20,080 --> 00:23:22,040
Speaker 1: But whether or not you can break all of the

450
00:23:22,160 --> 00:23:24,400
Speaker 1: rules that are in the forty Act, and it's called

451
00:23:24,480 --> 00:23:29,240
Speaker 1: the Exemptive Release Relief process. You're asking for exemptions and

452
00:23:29,359 --> 00:23:32,840
Speaker 1: they let you do things like treat authorized participants differently

453
00:23:32,960 --> 00:23:36,719
Speaker 1: than common shareholders and allowing it to trade on an exchange,

454
00:23:36,800 --> 00:23:38,800
Speaker 1: which a normal mutual fund can't. So there's all these

455
00:23:39,280 --> 00:23:41,320
Speaker 1: rules that you have to break to be an e

456
00:23:41,440 --> 00:23:45,119
Speaker 1: t F. That's changing, hopefully, what's what's the new system?

457
00:23:45,680 --> 00:23:48,280
Speaker 1: The new system is going to be very straightforward. They'll

458
00:23:48,320 --> 00:23:50,360
Speaker 1: just basically be the same set of forms you fill

459
00:23:50,400 --> 00:23:52,920
Speaker 1: out for a mutual fund and you'll check a box

460
00:23:53,000 --> 00:23:56,640
Speaker 1: for et F instead, and all of those distinctions about

461
00:23:56,720 --> 00:23:58,760
Speaker 1: like being able to trade on exchange will just come

462
00:23:58,840 --> 00:24:01,879
Speaker 1: baked in. So you need a special privilege, You'll just

463
00:24:02,000 --> 00:24:04,800
Speaker 1: be part of an existing piece of regulation. Is that

464
00:24:05,000 --> 00:24:09,000
Speaker 1: likely to Yeah, so this is going to happen. This

465
00:24:09,160 --> 00:24:11,159
Speaker 1: is going to happen. We're in the comment period for

466
00:24:11,320 --> 00:24:13,200
Speaker 1: it now. It's called the e t F rule, is

467
00:24:13,240 --> 00:24:15,040
Speaker 1: what it's being called. And it's literally just a new

468
00:24:15,080 --> 00:24:19,000
Speaker 1: piece of text that's going into to allow e t

469
00:24:19,160 --> 00:24:22,080
Speaker 1: F to happen, and it should compress the time to market.

470
00:24:22,240 --> 00:24:24,399
Speaker 1: Right now, it's maybe six months for an easy e

471
00:24:24,480 --> 00:24:26,320
Speaker 1: t F to come to market. We can probably get

472
00:24:26,359 --> 00:24:29,160
Speaker 1: that down to two months um and the cost will

473
00:24:29,240 --> 00:24:31,400
Speaker 1: go from, like you said, a couple hundred thousand bucks

474
00:24:31,440 --> 00:24:34,639
Speaker 1: to maybe fifty thousand if it's really simple and you

475
00:24:34,720 --> 00:24:37,520
Speaker 1: have those existing mutual fund relationships in place. So you

476
00:24:37,800 --> 00:24:41,200
Speaker 1: specifically said to me earlier, there are over two thousand

477
00:24:41,280 --> 00:24:44,840
Speaker 1: ETF Once we make it faster, cheaper, easier, to launch

478
00:24:44,960 --> 00:24:47,560
Speaker 1: these what's that number gonna go? We're gonna have ten?

479
00:24:48,359 --> 00:24:50,320
Speaker 1: Will there'll be more e t F than the eleven

480
00:24:50,359 --> 00:24:53,160
Speaker 1: thousand hedge funds that are out or that eight thousand

481
00:24:53,240 --> 00:24:55,800
Speaker 1: mutual funds um. You know, I think there is a

482
00:24:56,080 --> 00:25:00,000
Speaker 1: natural diminishing set of returns on that. I don't think

483
00:25:00,000 --> 00:25:01,760
Speaker 1: we're gonna end up with eight thousand like we have

484
00:25:01,960 --> 00:25:04,560
Speaker 1: in mutual funds UM, largely because I think they won't

485
00:25:04,600 --> 00:25:07,080
Speaker 1: be successful in gathering assets and there are some fixed

486
00:25:07,160 --> 00:25:09,840
Speaker 1: costs to running an e t F, So I think

487
00:25:09,960 --> 00:25:12,760
Speaker 1: that will it'll slow down a little bit. Where we

488
00:25:13,000 --> 00:25:16,320
Speaker 1: haven't seen the big entrance yet is frankly, the big

489
00:25:16,440 --> 00:25:19,359
Speaker 1: active managers, right, there's no Growth Fund of America e

490
00:25:19,480 --> 00:25:22,439
Speaker 1: t F. Right, Putnam isn't in this space. They're all

491
00:25:22,480 --> 00:25:24,240
Speaker 1: sorts of people who are not in the e t

492
00:25:24,400 --> 00:25:27,800
Speaker 1: F space. And even the big traditional asset managers like

493
00:25:27,880 --> 00:25:30,960
Speaker 1: Fidelity really just stuck their toes in the water with

494
00:25:31,000 --> 00:25:33,520
Speaker 1: a couple of index products. There's no contra fund et F,

495
00:25:33,600 --> 00:25:36,200
Speaker 1: there's no Magellan e t F, and I think until

496
00:25:36,440 --> 00:25:41,400
Speaker 1: that shoe drops, we're not going to see massive inflows there.

497
00:25:41,600 --> 00:25:45,040
Speaker 1: So you you you reference the ability to gather assets,

498
00:25:45,119 --> 00:25:47,520
Speaker 1: you need a certain critical mass. The number I've heard

499
00:25:47,600 --> 00:25:49,840
Speaker 1: kicked about is fifty millions. Some people have said a

500
00:25:49,920 --> 00:25:52,359
Speaker 1: hundred million or something like that. What what is it

501
00:25:52,520 --> 00:25:57,120
Speaker 1: that precludes an e t F from gathering that mass?

502
00:25:57,359 --> 00:26:00,440
Speaker 1: I remember a couple of years ago when the UM

503
00:26:00,760 --> 00:26:04,720
Speaker 1: hack e t F came out, the cybersecurity that just

504
00:26:05,640 --> 00:26:08,040
Speaker 1: came out, and then suddenly there was the Sony hack

505
00:26:08,119 --> 00:26:10,760
Speaker 1: in the North Korean Act and that exploded. That became

506
00:26:10,800 --> 00:26:14,920
Speaker 1: a billion dollars almost overnight. The biggest issue with e

507
00:26:15,040 --> 00:26:18,120
Speaker 1: t F is there the classic bought not sold product.

508
00:26:18,160 --> 00:26:20,040
Speaker 1: I mean, you make this et F, you put it

509
00:26:20,119 --> 00:26:23,359
Speaker 1: out there on the exchange pretty much literally anybody who

510
00:26:23,560 --> 00:26:26,919
Speaker 1: can get access to the to a US equity exchange

511
00:26:26,960 --> 00:26:29,080
Speaker 1: will be able to buy it. But then how do

512
00:26:29,200 --> 00:26:32,160
Speaker 1: you convince anybody that they should buy it? And it's

513
00:26:32,160 --> 00:26:34,440
Speaker 1: a it's just classic push marketing. They have to you

514
00:26:34,480 --> 00:26:35,919
Speaker 1: have to put out ads, or you have to get

515
00:26:35,920 --> 00:26:38,680
Speaker 1: a wholesaler to go call on your office and try

516
00:26:38,720 --> 00:26:40,800
Speaker 1: to convince you to switch out of this other et

517
00:26:40,920 --> 00:26:44,320
Speaker 1: F into this new et F. That's just hard, and

518
00:26:44,400 --> 00:26:47,800
Speaker 1: it requires substantial capital if you don't have an entrenched

519
00:26:47,920 --> 00:26:51,399
Speaker 1: distribution system So if your fidelity and you've got you know,

520
00:26:51,520 --> 00:26:54,120
Speaker 1: hundreds of wholesalers that are out there talking to people

521
00:26:54,160 --> 00:26:56,800
Speaker 1: all the time, tossing ETFs in the bag isn't a

522
00:26:56,880 --> 00:26:59,560
Speaker 1: big deal. If you're an r A building something from scratch,

523
00:27:00,119 --> 00:27:02,600
Speaker 1: not in the business of distribution, that's not what you do.

524
00:27:02,960 --> 00:27:05,320
Speaker 1: You're in r A A. So figuring out how to

525
00:27:05,840 --> 00:27:08,120
Speaker 1: catch lightning in a bottle and get all these other

526
00:27:08,200 --> 00:27:12,360
Speaker 1: people to start participating in your big idea, it's not obvious,

527
00:27:12,600 --> 00:27:14,520
Speaker 1: and I think we've seen a lot of people come

528
00:27:14,600 --> 00:27:17,680
Speaker 1: to market with some pretty interesting ideas that never get

529
00:27:17,760 --> 00:27:20,960
Speaker 1: that traction. I remember she when she first came out

530
00:27:21,720 --> 00:27:25,080
Speaker 1: between the stock symbol, which there have been studies that

531
00:27:25,119 --> 00:27:30,800
Speaker 1: shown symbols make a difference to the whole controversy of

532
00:27:31,080 --> 00:27:34,960
Speaker 1: the girl facing off with the bull down and lower

533
00:27:35,000 --> 00:27:38,679
Speaker 1: Broadway right near Wall Street. Uh to is it? Calsters

534
00:27:38,800 --> 00:27:41,200
Speaker 1: was the one who funded the original couple of hundred couple,

535
00:27:41,359 --> 00:27:43,640
Speaker 1: which is kind of still where it is. How has

536
00:27:43,760 --> 00:27:46,600
Speaker 1: that not caught on? I'm kind of shot, Well, you know,

537
00:27:47,320 --> 00:27:49,840
Speaker 1: who knows what catches and what doesn't write that? That

538
00:27:50,080 --> 00:27:53,480
Speaker 1: is a classic first mover into the E S G

539
00:27:53,680 --> 00:27:56,000
Speaker 1: space and the women in governance is the core behind

540
00:27:56,080 --> 00:27:59,720
Speaker 1: that product, and it has definitely resonated with a certain

541
00:27:59,800 --> 00:28:04,160
Speaker 1: institutional audience, but it hasn't resonated with mom and pop investors,

542
00:28:04,240 --> 00:28:08,280
Speaker 1: It hasn't resonated with a raft of financial advisors. Um.

543
00:28:08,400 --> 00:28:10,800
Speaker 1: You know, I have some theories on that it is

544
00:28:10,840 --> 00:28:13,200
Speaker 1: a one off product. It's not part of a suite

545
00:28:13,320 --> 00:28:15,440
Speaker 1: of E s G products. I think that can be

546
00:28:15,600 --> 00:28:17,879
Speaker 1: tough to sell a one off product because what are

547
00:28:17,920 --> 00:28:20,400
Speaker 1: you gonna do take up billboards that just talked about

548
00:28:20,560 --> 00:28:24,240
Speaker 1: s A across you know, the marketing spend that would

549
00:28:24,240 --> 00:28:27,320
Speaker 1: be required would be enormous. What what about? Um there's

550
00:28:27,440 --> 00:28:30,560
Speaker 1: been a new potty t F floated. I think it

551
00:28:30,640 --> 00:28:32,800
Speaker 1: should go with the symbol weed. Of course it should,

552
00:28:32,880 --> 00:28:35,000
Speaker 1: but every but I don't know if that's available, if

553
00:28:35,040 --> 00:28:37,880
Speaker 1: someone else has it, or if it's two in your face.

554
00:28:37,960 --> 00:28:40,440
Speaker 1: It's probably two in your for the sec if it's

555
00:28:40,480 --> 00:28:42,560
Speaker 1: a medical Maril, well, the other one is m J

556
00:28:42,800 --> 00:28:45,040
Speaker 1: which is pretty close, right, which is Mary Jane? I mean,

557
00:28:45,160 --> 00:28:47,520
Speaker 1: how is that? Well they could say it stands from marijuana,

558
00:28:47,600 --> 00:28:50,840
Speaker 1: but we know what. Um So, so what are your

559
00:28:50,880 --> 00:28:54,400
Speaker 1: thoughts on these real niche specialty E t F? I

560
00:28:54,480 --> 00:28:57,400
Speaker 1: think they have a place, right. I mean, niche products

561
00:28:57,600 --> 00:29:00,800
Speaker 1: in the financial market are not something new. They're tiny,

562
00:29:00,840 --> 00:29:03,040
Speaker 1: little knitche mutual funds that are covering a lot of

563
00:29:03,080 --> 00:29:05,720
Speaker 1: the same spaces. Um, I think they have a place

564
00:29:05,760 --> 00:29:08,800
Speaker 1: in the market for folks that are speculating on those

565
00:29:08,960 --> 00:29:13,360
Speaker 1: narrow themes. The danger is because these are bought, not sold,

566
00:29:14,520 --> 00:29:16,840
Speaker 1: you can create a story about how, you know, my

567
00:29:17,040 --> 00:29:20,640
Speaker 1: mom ends up reading something you know, or seeing something

568
00:29:20,800 --> 00:29:23,840
Speaker 1: on TV and gets all excited about it, and it

569
00:29:23,920 --> 00:29:26,520
Speaker 1: turns out that it's triple leveraged oil or something like that,

570
00:29:27,040 --> 00:29:29,440
Speaker 1: which she has no business investing in. And because et

571
00:29:29,600 --> 00:29:32,800
Speaker 1: f are this sort of great democratizing flatten er of

572
00:29:32,920 --> 00:29:36,880
Speaker 1: investment assets, really almost anything you could want to do

573
00:29:37,160 --> 00:29:39,120
Speaker 1: you can do in an e t F, whether that's

574
00:29:39,160 --> 00:29:41,920
Speaker 1: a good idea or not. And so I think there

575
00:29:42,000 --> 00:29:44,040
Speaker 1: are some issues around that. But um, you know, I

576
00:29:44,280 --> 00:29:45,960
Speaker 1: tend to be a little bit of a libertarian on

577
00:29:46,080 --> 00:29:49,200
Speaker 1: these things. I think we shouldn't stop we shouldn't keep

578
00:29:49,280 --> 00:29:51,880
Speaker 1: people from making these products because we're concerned they're missus,

579
00:29:51,960 --> 00:29:54,920
Speaker 1: they'll be misused. We should focus on investor education so

580
00:29:55,200 --> 00:29:59,680
Speaker 1: eventually there'll be a Darwinian competition. And when there's whatever

581
00:30:00,000 --> 00:30:03,680
Speaker 1: e thousand, ten thousand e t fs. Some will catch

582
00:30:03,760 --> 00:30:06,000
Speaker 1: a little bit of lightning the bottle, as you mentioned,

583
00:30:06,520 --> 00:30:10,480
Speaker 1: others won't. Is this just gonna eventually winnow down to

584
00:30:11,360 --> 00:30:13,320
Speaker 1: a core thout or is it going to be like

585
00:30:13,480 --> 00:30:16,320
Speaker 1: the mutual fund world where there's tens of if you

586
00:30:16,360 --> 00:30:18,920
Speaker 1: include all the share classes, is like twenty. Well, the

587
00:30:20,080 --> 00:30:22,040
Speaker 1: one thing that ets have going for them in this

588
00:30:22,200 --> 00:30:26,640
Speaker 1: regard is that it actually is expensive and problematic to

589
00:30:26,840 --> 00:30:29,560
Speaker 1: let a tiny little e t F you know, million

590
00:30:29,600 --> 00:30:33,000
Speaker 1: dollar et F that never trades. That thing eventually will

591
00:30:33,040 --> 00:30:36,480
Speaker 1: get delisted, right, these things are listed on exchanges. Exchanges

592
00:30:36,520 --> 00:30:39,600
Speaker 1: don't want to have their you know, product list just

593
00:30:40,360 --> 00:30:43,760
Speaker 1: filled up with this cruft junk, So these products will

594
00:30:43,800 --> 00:30:46,960
Speaker 1: eventually get delisted. There are sort of ongoing maintenance costs.

595
00:30:46,960 --> 00:30:48,600
Speaker 1: You have to have a board meeting for this darn

596
00:30:48,640 --> 00:30:51,480
Speaker 1: thing in the year, right, they're hard costs associated with it.

597
00:30:51,640 --> 00:30:54,120
Speaker 1: So we do see e t f s closed with

598
00:30:54,320 --> 00:30:57,560
Speaker 1: I think a higher frequency than mutual funds. That's a

599
00:30:57,680 --> 00:30:59,680
Speaker 1: good thing. So you know, last year, I think we

600
00:30:59,720 --> 00:31:02,640
Speaker 1: had a DRETF launch, we had a coupletfs closed. We

601
00:31:02,760 --> 00:31:05,640
Speaker 1: ended up positive by maybe a hundred new ETFs. That's

602
00:31:05,680 --> 00:31:08,280
Speaker 1: all it was. I think that's a very healthy thing.

603
00:31:08,840 --> 00:31:11,960
Speaker 1: We have been speaking with Dave Natick. He is the

604
00:31:12,120 --> 00:31:15,840
Speaker 1: managing director at et F dot com. If you enjoy

605
00:31:15,920 --> 00:31:19,280
Speaker 1: this conversation, be sure and come back for the podcast extras,

606
00:31:19,320 --> 00:31:22,720
Speaker 1: where we keep the tape rolling and continue discussing all

607
00:31:22,840 --> 00:31:29,000
Speaker 1: things E t F related. You can find that at iTunes, Overcast, Stitcher,

608
00:31:29,440 --> 00:31:33,280
Speaker 1: Bloomberg dot com, wherever final podcasts are sold. We love

609
00:31:33,360 --> 00:31:37,480
Speaker 1: your comments, feedback and suggestions right to us at m

610
00:31:37,520 --> 00:31:40,479
Speaker 1: IB podcast at Bloomberg dot net. You can check out

611
00:31:40,560 --> 00:31:44,160
Speaker 1: my daily column at the Opinion section of Bloomberg dot com.

612
00:31:44,680 --> 00:31:48,160
Speaker 1: Follow me on Twitter at Rid Halts. I'm Barry Riholts.

613
00:31:48,280 --> 00:32:06,560
Speaker 1: You're listening to Masters in Business on Bloomberg Radio. Welcome

614
00:32:06,600 --> 00:32:08,640
Speaker 1: to the podcast, Dave. Thank you so much for doing this.

615
00:32:08,760 --> 00:32:11,640
Speaker 1: I've been I've been thinking about having you here for forever,

616
00:32:11,760 --> 00:32:15,000
Speaker 1: and I know you are kind of mobile these days,

617
00:32:15,680 --> 00:32:18,240
Speaker 1: talking forth between Boston and New York. Usually we do

618
00:32:18,360 --> 00:32:20,840
Speaker 1: this over dinner, so it's that that is actually true.

619
00:32:20,920 --> 00:32:23,160
Speaker 1: And every time I finished, I'm like, I gotta get

620
00:32:23,200 --> 00:32:26,320
Speaker 1: that guy in the studio. He really knows these E

621
00:32:26,520 --> 00:32:29,520
Speaker 1: t F things. One one day one day they're going

622
00:32:29,560 --> 00:32:33,520
Speaker 1: to catch on. So, um, there's a bunch of stuff

623
00:32:33,600 --> 00:32:35,440
Speaker 1: we didn't get to. Let me, let me go through

624
00:32:35,520 --> 00:32:40,000
Speaker 1: some of the questions we missed, although you really touched on.

625
00:32:40,640 --> 00:32:43,160
Speaker 1: So we talked about the new regulations. We talked about

626
00:32:43,200 --> 00:32:46,240
Speaker 1: the number of ETFs winking in and out of existence.

627
00:32:47,080 --> 00:32:49,640
Speaker 1: You have a bird's eye view. What what's the biggest

628
00:32:49,720 --> 00:32:54,400
Speaker 1: mistake people who are developing new ETFs make in the

629
00:32:54,560 --> 00:32:58,480
Speaker 1: process from conception to launch. Oh, it's I think it's

630
00:32:58,480 --> 00:33:02,360
Speaker 1: absolutely distribution, right, it's it's it's a distribution. If you

631
00:33:02,400 --> 00:33:05,080
Speaker 1: look at the folks that come in and are successful now,

632
00:33:05,600 --> 00:33:08,440
Speaker 1: not ten years ago, but now they come in at

633
00:33:08,600 --> 00:33:11,080
Speaker 1: your your colleague here a Bloomberg, Eric Beltuna says, you know,

634
00:33:11,200 --> 00:33:13,560
Speaker 1: bring your own assets b y O A. Right, And

635
00:33:14,160 --> 00:33:17,680
Speaker 1: you know we've recently seen JP Morrigan just basically decide

636
00:33:17,720 --> 00:33:20,680
Speaker 1: to get into the space. They decided by moving a

637
00:33:20,760 --> 00:33:24,480
Speaker 1: bunch of internal assets out of other funds, maybe separate accounts,

638
00:33:24,520 --> 00:33:27,760
Speaker 1: maybe institutional clients, and just rolling that into et s

639
00:33:27,840 --> 00:33:30,720
Speaker 1: Boom their multibillion dollar complex. How do you how do

640
00:33:30,760 --> 00:33:32,720
Speaker 1: you do that? Hey? The that s m A you

641
00:33:32,840 --> 00:33:36,200
Speaker 1: have congratulations is now in EF But that's what we've seen, right.

642
00:33:36,320 --> 00:33:38,840
Speaker 1: So Goldman did this when they launched g SLC, which

643
00:33:38,920 --> 00:33:40,960
Speaker 1: is the Golden Sacks Large Cap is what it stands for,

644
00:33:41,080 --> 00:33:43,280
Speaker 1: and it's a smart beta fund. They launched at nine

645
00:33:43,320 --> 00:33:45,480
Speaker 1: basis points and everybody was like, oh, smart beta and

646
00:33:45,560 --> 00:33:48,280
Speaker 1: nine basis points, you know, that's really smart of them.

647
00:33:48,360 --> 00:33:50,360
Speaker 1: I was like, no, that's probably what the s m

648
00:33:50,440 --> 00:33:52,680
Speaker 1: A was charging, and that's the only way they could

649
00:33:52,720 --> 00:33:55,200
Speaker 1: map that in, right, So that's just rolling it from

650
00:33:55,240 --> 00:33:57,240
Speaker 1: A to B. And and you know, there may be

651
00:33:57,480 --> 00:34:00,480
Speaker 1: you know, depending on the kind of investor, maybe there's

652
00:34:00,520 --> 00:34:03,280
Speaker 1: tax implications to keep you from doing that. But for

653
00:34:03,400 --> 00:34:06,360
Speaker 1: the most part, if your mapping institutional money in, their

654
00:34:06,400 --> 00:34:08,560
Speaker 1: taxes are not an issue. So what I've been hearing

655
00:34:08,640 --> 00:34:12,239
Speaker 1: from you is that the et F space, now dominated

656
00:34:12,320 --> 00:34:15,360
Speaker 1: by three giants um and a whole lot of small

657
00:34:15,480 --> 00:34:18,560
Speaker 1: little guppies nipping at their heels, is going to be

658
00:34:18,640 --> 00:34:21,799
Speaker 1: dominated by three giants plus a hundred other really big

659
00:34:21,880 --> 00:34:25,359
Speaker 1: companies and a handful of guppies still nipping at everybody. Yeah,

660
00:34:25,360 --> 00:34:28,400
Speaker 1: I think we're gonna see a healthy middle tier right

661
00:34:28,480 --> 00:34:30,840
Speaker 1: below that third and I would actually, which doesn't exist now.

662
00:34:30,880 --> 00:34:33,520
Speaker 1: It's a Barbell. Well, it's a there is a there

663
00:34:33,600 --> 00:34:36,000
Speaker 1: is a healthy middle tier. It is firms like Goldman

664
00:34:36,160 --> 00:34:38,880
Speaker 1: and JP Morgan and Schwab. Right, I don't think anybody's

665
00:34:38,920 --> 00:34:41,440
Speaker 1: gonna worry about Swab being a guppy in this space, right,

666
00:34:41,640 --> 00:34:44,719
Speaker 1: gilling in tens of billions of dollars in the space, Now,

667
00:34:44,960 --> 00:34:47,840
Speaker 1: that's not a lot compared to the six trillion black

668
00:34:47,960 --> 00:34:51,200
Speaker 1: Rock runs or whatever it is today. But they're they're

669
00:34:51,280 --> 00:34:54,319
Speaker 1: healthy in it for the long haul players. And then

670
00:34:54,400 --> 00:34:56,040
Speaker 1: there's a tier of folks that have been in this

671
00:34:56,120 --> 00:34:58,879
Speaker 1: business for a long time and aren't going anywhere. Wisdom Tree,

672
00:34:59,040 --> 00:35:02,160
Speaker 1: Van neck On, Himer, folks like that. You know, they're

673
00:35:02,200 --> 00:35:04,640
Speaker 1: in this for the long haul and they're doing just fine,

674
00:35:04,680 --> 00:35:07,600
Speaker 1: Thank you very much. We're going to see more and

675
00:35:07,719 --> 00:35:09,880
Speaker 1: more new players. Some of those new players are going

676
00:35:09,920 --> 00:35:11,759
Speaker 1: to have big old names, and some of they're gonna

677
00:35:11,760 --> 00:35:14,319
Speaker 1: be people we never heard of. You mentioned your mom

678
00:35:14,480 --> 00:35:17,400
Speaker 1: is in a three X leveraged oil oil et F.

679
00:35:18,000 --> 00:35:21,320
Speaker 1: What explain the mechanism why all these leveraged e t

680
00:35:21,520 --> 00:35:25,040
Speaker 1: F s have such dramatic slippage due to the cost

681
00:35:25,160 --> 00:35:28,080
Speaker 1: of their their carriage. Yeah, well, it comes down to

682
00:35:28,160 --> 00:35:31,279
Speaker 1: compounding math and math is always great for radio, right

683
00:35:31,280 --> 00:35:33,560
Speaker 1: where you can illustrate it. But but but it really

684
00:35:33,600 --> 00:35:35,120
Speaker 1: comes down to the fact that when you go up

685
00:35:35,200 --> 00:35:37,040
Speaker 1: ten per cent and then you come down ten percent,

686
00:35:37,120 --> 00:35:38,719
Speaker 1: you don't know nep where you started. Right. If you

687
00:35:38,760 --> 00:35:40,960
Speaker 1: have a hundred dollars and you go up ten percent,

688
00:35:41,040 --> 00:35:43,360
Speaker 1: you're a hundred and ten a hundred and ten, you

689
00:35:43,440 --> 00:35:45,400
Speaker 1: go down ten percent, you don't go back down to

690
00:35:45,520 --> 00:35:48,759
Speaker 1: a hundred, right, you go down eleven dollars. You're right

691
00:35:48,880 --> 00:35:53,200
Speaker 1: that compounding math up and down is exactly what messes

692
00:35:53,320 --> 00:35:57,160
Speaker 1: up most of these daily reset, leveraged or inverse products

693
00:35:57,239 --> 00:36:00,480
Speaker 1: because they reset their exposure every single gold day, and

694
00:36:00,560 --> 00:36:03,520
Speaker 1: they're using futures and other products that are not cheap.

695
00:36:03,560 --> 00:36:06,439
Speaker 1: It's usually swaps, and most of these things the cost

696
00:36:06,520 --> 00:36:09,279
Speaker 1: of carry every day. There's usually a cost embedded in

697
00:36:09,360 --> 00:36:11,560
Speaker 1: those swaps, which is less transparent than I would like.

698
00:36:11,719 --> 00:36:14,480
Speaker 1: I'd love to see explicit swap pricing out there, but

699
00:36:15,239 --> 00:36:17,319
Speaker 1: as I'm sure you know, swap pricing tends to get

700
00:36:17,400 --> 00:36:19,520
Speaker 1: buried in the total return of the swap. It doesn't

701
00:36:19,560 --> 00:36:22,279
Speaker 1: explicitly get called out all the time. Um, and so

702
00:36:22,440 --> 00:36:25,600
Speaker 1: that's problematic. But most of these products work with a

703
00:36:25,719 --> 00:36:28,839
Speaker 1: giant cash balance, which is the technically what they own

704
00:36:29,000 --> 00:36:31,359
Speaker 1: quote unquote is this giant cash balance, which is why

705
00:36:31,400 --> 00:36:33,360
Speaker 1: they're allowed to do it. And then they have this

706
00:36:33,520 --> 00:36:37,719
Speaker 1: notional overnight settled swap for whatever the pattern of returns is.

707
00:36:37,800 --> 00:36:41,239
Speaker 1: They want triple leveraged oil inverse SMP, you name it.

708
00:36:41,960 --> 00:36:45,759
Speaker 1: And um, we didn't get to the bitcoin U E

709
00:36:45,920 --> 00:36:49,239
Speaker 1: t F that's supposedly coming out. Before we do that,

710
00:36:49,360 --> 00:36:52,640
Speaker 1: I have to touch on g LD, the gold E

711
00:36:52,800 --> 00:36:55,960
Speaker 1: t F. There was a wonderful wool Street Journal column

712
00:36:56,120 --> 00:36:59,760
Speaker 1: on how g l D was created by the World's

713
00:37:00,000 --> 00:37:02,720
Speaker 1: Old Council that had a problem with all this gold

714
00:37:02,920 --> 00:37:06,600
Speaker 1: piling up in warehouses in what was that early two

715
00:37:06,680 --> 00:37:10,200
Speaker 1: thousand's and g l D is launched and it just

716
00:37:10,360 --> 00:37:15,080
Speaker 1: becomes the timing was just fortuitous. It becomes briefly bigger

717
00:37:15,160 --> 00:37:19,439
Speaker 1: than the spiders at one point. Um, are we gonna

718
00:37:19,520 --> 00:37:22,800
Speaker 1: see so it made trading golds. You don't have to

719
00:37:22,840 --> 00:37:25,320
Speaker 1: buy physical gold, you don't have to buy gold futures,

720
00:37:25,719 --> 00:37:28,280
Speaker 1: and the hell with the junior miners, which have always

721
00:37:28,360 --> 00:37:31,520
Speaker 1: been problematic. You could buy g LD. Are we going

722
00:37:31,560 --> 00:37:35,160
Speaker 1: to see something similar with the bitcoin ETL I think

723
00:37:35,239 --> 00:37:38,600
Speaker 1: we are eventually. Right now, I'm not I'm not involved

724
00:37:38,640 --> 00:37:41,160
Speaker 1: in the regulatory process. You know. I see ABU Global

725
00:37:41,200 --> 00:37:43,280
Speaker 1: Markets has a group that's working on some of this stuff,

726
00:37:43,320 --> 00:37:45,320
Speaker 1: so you know, it is sort of out there in

727
00:37:45,400 --> 00:37:49,000
Speaker 1: the sphere around me. But I think, ultimately I think

728
00:37:49,040 --> 00:37:53,560
Speaker 1: about bitcoin as being a digital gold variant. Um. You know,

729
00:37:54,040 --> 00:37:57,160
Speaker 1: some people have argued the rise of bitcoin is why gold,

730
00:37:57,680 --> 00:38:00,560
Speaker 1: despite all of the craziness and the political world hasn't

731
00:38:00,600 --> 00:38:02,839
Speaker 1: rocked it. Right, this should be a good environment for gold,

732
00:38:02,880 --> 00:38:05,040
Speaker 1: but it's not. Low inflation of saw it. In the

733
00:38:05,160 --> 00:38:09,000
Speaker 1: end of the problem I have with with bitcoin is

734
00:38:09,040 --> 00:38:11,360
Speaker 1: the same problem I have with gold in these structures,

735
00:38:11,400 --> 00:38:13,640
Speaker 1: which is, if you were buying it from sort of

736
00:38:13,760 --> 00:38:17,200
Speaker 1: a guns and butter fear perspective, you know, you can't

737
00:38:17,239 --> 00:38:19,440
Speaker 1: go get a bitcoin out of a vault and do

738
00:38:19,560 --> 00:38:21,440
Speaker 1: anything with it anymore than you can get gold out

739
00:38:21,440 --> 00:38:23,239
Speaker 1: of a vault and do something with it if what

740
00:38:23,360 --> 00:38:25,920
Speaker 1: you did was buy it on an exchange somewhere. Now

741
00:38:26,000 --> 00:38:29,359
Speaker 1: you're living with the custody issues that are inherent in that. Now.

742
00:38:29,440 --> 00:38:31,480
Speaker 1: I'm not worried about that. I'm not a guns and

743
00:38:31,560 --> 00:38:34,640
Speaker 1: butter investor, but guns and bottled water in them there

744
00:38:34,719 --> 00:38:37,840
Speaker 1: you go more more accurately. But by the way, the

745
00:38:38,000 --> 00:38:40,840
Speaker 1: bitcoin question I didn't ask you during the broadcast portion.

746
00:38:41,520 --> 00:38:45,920
Speaker 1: Was bitcoin a fraud or merely just a scam? But

747
00:38:46,400 --> 00:38:48,279
Speaker 1: the reason I didn't ask is because I didn't want

748
00:38:48,360 --> 00:38:51,399
Speaker 1: the email to light up. And I don't believe it's

749
00:38:51,440 --> 00:38:54,720
Speaker 1: a full on scam. I I suspect North Korea is involved,

750
00:38:54,760 --> 00:38:58,839
Speaker 1: and I suspect I ran as busy mining bitcoins um

751
00:38:59,560 --> 00:39:01,680
Speaker 1: and there are a lot of other unsavory characters. When

752
00:39:01,760 --> 00:39:04,640
Speaker 1: when I have people killed, I do it paid for

753
00:39:04,719 --> 00:39:10,440
Speaker 1: it with bitcoin? But modern assassin isn't Isn't that some

754
00:39:10,680 --> 00:39:13,520
Speaker 1: of the issues that the SEC has to be considering

755
00:39:14,120 --> 00:39:17,480
Speaker 1: When gee, it's such an unregulated currency, we have no

756
00:39:17,640 --> 00:39:20,640
Speaker 1: idea what's going on with it? Is it legitimately used

757
00:39:20,719 --> 00:39:24,040
Speaker 1: for money laundering, for drug trafficking, for whatever? How can

758
00:39:24,120 --> 00:39:27,080
Speaker 1: the SEC approve that? If the I R S and

759
00:39:27,120 --> 00:39:31,080
Speaker 1: the Treasury Department is finding their own war against bitcoin people,

760
00:39:31,200 --> 00:39:33,440
Speaker 1: does that enter the calculus? Well, so, I have no

761
00:39:33,480 --> 00:39:35,239
Speaker 1: idea what's going on in the regulators had It's not

762
00:39:35,400 --> 00:39:38,240
Speaker 1: my job, But I would say people made this argument

763
00:39:38,280 --> 00:39:41,160
Speaker 1: about gold for a long time, really right, People made

764
00:39:41,200 --> 00:39:43,640
Speaker 1: this argument in the sixties and seventies and eighties about

765
00:39:43,800 --> 00:39:46,600
Speaker 1: crew grands, right. And I remember one of my very

766
00:39:46,680 --> 00:39:49,200
Speaker 1: first jobs before, like while I was in college, was

767
00:39:49,520 --> 00:39:52,239
Speaker 1: helping somebody at a treasure in a treasurer's office at

768
00:39:52,280 --> 00:39:55,600
Speaker 1: a global manufacturer. They made water treatment. I never heard that.

769
00:39:55,840 --> 00:40:00,520
Speaker 1: And and they actually transacted in some kind trees where

770
00:40:00,560 --> 00:40:05,360
Speaker 1: we had hyper inflation like that. Transactions were literally getting

771
00:40:05,480 --> 00:40:07,920
Speaker 1: done in stacks of crew grants. And there were real

772
00:40:08,040 --> 00:40:11,479
Speaker 1: concerns about like, well, gold has become in this post

773
00:40:11,520 --> 00:40:15,640
Speaker 1: Breton Woods environment effectively the currency of criminals. Right, That's

774
00:40:15,680 --> 00:40:18,600
Speaker 1: the exact same set of arguments, right now. That's something

775
00:40:18,719 --> 00:40:22,200
Speaker 1: you know I used to speak at the The Agora

776
00:40:22,280 --> 00:40:26,440
Speaker 1: Group used to do this wonderful conference, annual conference in

777
00:40:26,600 --> 00:40:30,480
Speaker 1: Vancouver every AUGUSTUM around the time we're recording this, and

778
00:40:30,600 --> 00:40:33,560
Speaker 1: it was another giant event. And if you've ever spent

779
00:40:33,640 --> 00:40:38,000
Speaker 1: any time in Vancouver, it's a fanta love, love love Vancouver,

780
00:40:38,200 --> 00:40:41,239
Speaker 1: fantastic food. Everybody in the city is beautiful. It's like

781
00:40:41,840 --> 00:40:48,280
Speaker 1: it's such a like exactly right. So, um, I remember

782
00:40:48,960 --> 00:40:51,840
Speaker 1: they would do this Whiskey Bar, which was a panel

783
00:40:52,320 --> 00:40:56,040
Speaker 1: where the audience would throw questions at people and um,

784
00:40:56,360 --> 00:40:59,600
Speaker 1: this was one ten eleven, and I remember being one

785
00:40:59,600 --> 00:41:04,920
Speaker 1: of the only stock bulls. They're not exactly Especially in eleven,

786
00:41:05,360 --> 00:41:08,200
Speaker 1: I talked about why how gold will end. It's run

787
00:41:08,480 --> 00:41:11,360
Speaker 1: not with a whimper, but with a spike and a collapse.

788
00:41:11,440 --> 00:41:14,920
Speaker 1: And and the fascinating thing was someone asked the question,

789
00:41:15,080 --> 00:41:18,680
Speaker 1: don't you want to have some some bars of gold

790
00:41:18,719 --> 00:41:21,960
Speaker 1: in case you have to up and and flee? And

791
00:41:22,000 --> 00:41:25,000
Speaker 1: I'm like, well, listen, dudes, you know every all you

792
00:41:25,080 --> 00:41:27,440
Speaker 1: folks up here. I don't see a whole lot of

793
00:41:27,560 --> 00:41:31,719
Speaker 1: fellow tribesmen here, and and Jews have learned always have

794
00:41:31,800 --> 00:41:34,560
Speaker 1: a bag packed by the front door, by the back door,

795
00:41:34,560 --> 00:41:36,239
Speaker 1: because you never know when there's gonna be a knock

796
00:41:36,320 --> 00:41:40,200
Speaker 1: and you have to flee. And gold is heavy. You

797
00:41:40,400 --> 00:41:42,279
Speaker 1: can't take a lot of gold, but you can carry

798
00:41:42,280 --> 00:41:44,040
Speaker 1: a lot of bitcoin with you. You can carry all

799
00:41:44,080 --> 00:41:46,040
Speaker 1: the bitcoin you want, or a bag of diamonds. But

800
00:41:46,360 --> 00:41:49,160
Speaker 1: to to flee with any sizable amount of gold is

801
00:41:49,280 --> 00:41:51,919
Speaker 1: just not not gonna happen. And it was said in jest,

802
00:41:52,600 --> 00:41:55,080
Speaker 1: but the people who are claiming you could do these

803
00:41:55,200 --> 00:41:59,959
Speaker 1: giant gold trans that you can't move millions of dollars

804
00:42:00,120 --> 00:42:02,600
Speaker 1: worth of gold as easily as you can do that

805
00:42:02,719 --> 00:42:05,160
Speaker 1: with bitcoin. And I you know, I tend to be

806
00:42:05,239 --> 00:42:07,279
Speaker 1: I'm a bit of a bitcoin skeptic, not because I

807
00:42:07,360 --> 00:42:09,840
Speaker 1: think I think the underlying technology is super interesting, and

808
00:42:09,880 --> 00:42:13,120
Speaker 1: I actually think that there's, you know, something like there

809
00:42:13,200 --> 00:42:17,320
Speaker 1: there will be something that the blockchain ends up driving

810
00:42:17,520 --> 00:42:20,360
Speaker 1: that will change the way we think about financial transactions.

811
00:42:20,520 --> 00:42:23,560
Speaker 1: I just think probably I think we're in the MySpace era.

812
00:42:23,760 --> 00:42:26,040
Speaker 1: I don't think we're in the Facebook era, bit pile

813
00:42:26,120 --> 00:42:32,120
Speaker 1: and alta vistas. I call blockchain and bitcoin Linux for libertarians.

814
00:42:32,440 --> 00:42:36,200
Speaker 1: There you go, So I think I think that works. UM, So,

815
00:42:36,600 --> 00:42:41,640
Speaker 1: so send your angry emails to UM Dave at cbo

816
00:42:41,719 --> 00:42:44,400
Speaker 1: E dot com and he'll he'll be happy to respond

817
00:42:44,440 --> 00:42:48,040
Speaker 1: to any of your your bitcoin questions. You know I

818
00:42:48,200 --> 00:42:51,120
Speaker 1: left I left out a question about your background that

819
00:42:51,160 --> 00:42:54,400
Speaker 1: I want to get to UM. In the late nineties,

820
00:42:54,719 --> 00:42:59,320
Speaker 1: you were running an experimental or co running and experimental funds.

821
00:43:00,040 --> 00:43:03,800
Speaker 1: Tell us about that. Yeah. So, after the after Barkley's

822
00:43:03,840 --> 00:43:07,560
Speaker 1: bought the indexing business and became b G, I myself

823
00:43:07,760 --> 00:43:11,760
Speaker 1: and my then partner Don Leskin. I'm sorry, Don Leskin,

824
00:43:11,920 --> 00:43:16,480
Speaker 1: I know one of your favorite people. Uh, I've crossed

825
00:43:16,480 --> 00:43:19,240
Speaker 1: swords with him. I I used to do cud loan Kramer.

826
00:43:19,880 --> 00:43:24,720
Speaker 1: He was my my foil and heading into the financial crisis.

827
00:43:25,800 --> 00:43:28,839
Speaker 1: He seems to think I like actively dislike him. I don't.

828
00:43:29,400 --> 00:43:31,680
Speaker 1: He just could not have been more bullish and more

829
00:43:31,760 --> 00:43:35,480
Speaker 1: wrong in oh seven and oh eight, and I feel

830
00:43:35,520 --> 00:43:37,640
Speaker 1: on an obligation to call people that when they're wrong.

831
00:43:37,840 --> 00:43:39,640
Speaker 1: I read something the other day where he thinks I'm

832
00:43:39,719 --> 00:43:44,160
Speaker 1: like after him or hate him until you mentioned to

833
00:43:44,280 --> 00:43:46,800
Speaker 1: me that you were working way back when, which I

834
00:43:46,880 --> 00:43:51,120
Speaker 1: was stunned to learn. I I harbored, no animus. I

835
00:43:51,280 --> 00:43:54,880
Speaker 1: just think, dude, you're whatever your methodology was, it was

836
00:43:55,480 --> 00:43:59,800
Speaker 1: he missed the worst financial Don wrote a piece was

837
00:44:00,080 --> 00:44:03,840
Speaker 1: the Washington Post piece. I don't know, so I believe

838
00:44:04,120 --> 00:44:06,200
Speaker 1: there was a piece that was written. I don't remember

839
00:44:06,239 --> 00:44:08,320
Speaker 1: who wrote it. Maybe it wasn't him. Somebody wrote a

840
00:44:08,400 --> 00:44:11,680
Speaker 1: piece on the in the Washington Post, an opinion piece

841
00:44:12,560 --> 00:44:15,960
Speaker 1: um on the Saturday saying, you know, the economy is

842
00:44:15,960 --> 00:44:19,040
Speaker 1: find everything is great, and then Sunday lemen quoted and

843
00:44:19,800 --> 00:44:22,160
Speaker 1: those things always happen. And I mean, but the timing

844
00:44:22,239 --> 00:44:25,000
Speaker 1: could not have possibly been any well. We we did

845
00:44:25,080 --> 00:44:27,400
Speaker 1: really well on the timing of our venture two because

846
00:44:27,480 --> 00:44:31,720
Speaker 1: we launched a tech fund pretty much at the tail

847
00:44:31,800 --> 00:44:34,640
Speaker 1: end of the hockey stick in the tech boom late nineties,

848
00:44:36,640 --> 00:44:39,239
Speaker 1: and uh and we did. We raised a bunch of

849
00:44:39,320 --> 00:44:42,040
Speaker 1: venture capital money. We launched an actively managed tech fund

850
00:44:42,080 --> 00:44:44,279
Speaker 1: called open Fund, which now, but that was the most

851
00:44:44,360 --> 00:44:47,080
Speaker 1: interesting part of what you guys did. You were the

852
00:44:47,360 --> 00:44:52,240
Speaker 1: first totally transparent mutual funds. Yeah, and even more transparent

853
00:44:52,280 --> 00:44:54,360
Speaker 1: than ETFs. We actually had a camera on our treating

854
00:44:54,400 --> 00:44:57,920
Speaker 1: floor and broadcast our tickets like ticket by ticket, so

855
00:44:58,040 --> 00:45:00,080
Speaker 1: you couldn't have been short a whole lot of stuff. No,

856
00:45:00,760 --> 00:45:03,279
Speaker 1: but we you know, we mostly we did very very

857
00:45:03,360 --> 00:45:06,120
Speaker 1: well in our first like six months. We were we'd

858
00:45:06,160 --> 00:45:08,160
Speaker 1: beat if you remember the under net net fund. We

859
00:45:08,480 --> 00:45:10,919
Speaker 1: absolutely we beat that one. For the first six months.

860
00:45:10,960 --> 00:45:15,600
Speaker 1: We skyrocketed, raised a bunch of money, and then somewhere

861
00:45:15,880 --> 00:45:18,320
Speaker 1: crazily down the other end of this, you know, we

862
00:45:18,480 --> 00:45:21,560
Speaker 1: we just roller coastered that thing. Because we know the

863
00:45:21,640 --> 00:45:24,279
Speaker 1: timing was awful. If we'd launched two years earlier, I

864
00:45:24,320 --> 00:45:27,239
Speaker 1: probably wouldn't be sitting here talking about ETFs UM. But

865
00:45:27,360 --> 00:45:30,919
Speaker 1: it was. It was a humbling experience in that I think,

866
00:45:31,040 --> 00:45:33,760
Speaker 1: until you've sat in the chair of an active manager

867
00:45:33,880 --> 00:45:38,000
Speaker 1: on a trading desk. You don't quite understand what it's

868
00:45:38,040 --> 00:45:40,400
Speaker 1: like to lose a lot of somebody else's money. Oh,

869
00:45:40,560 --> 00:45:43,200
Speaker 1: it's it's horrific. It is a even if you were

870
00:45:43,440 --> 00:45:45,600
Speaker 1: if you were in a retail brokerage shop, if you

871
00:45:45,640 --> 00:45:49,680
Speaker 1: are trading a house account. Anytime you do anything like

872
00:45:49,800 --> 00:45:53,359
Speaker 1: that where it's someone else's money and market forces going,

873
00:45:53,440 --> 00:45:56,640
Speaker 1: it's you. It's nauseating. You want to throw up. No,

874
00:45:57,000 --> 00:45:59,319
Speaker 1: and we I had plenty of folks actually throw up

875
00:45:59,360 --> 00:46:02,040
Speaker 1: off my trading during during the worst of it, and

876
00:46:02,400 --> 00:46:04,319
Speaker 1: it was, you know, it was a lot of fun. Sure,

877
00:46:04,360 --> 00:46:06,200
Speaker 1: we raised a bunch of money. We you know, were

878
00:46:06,239 --> 00:46:09,040
Speaker 1: mastered in Universe for a short period of time. Um,

879
00:46:10,200 --> 00:46:13,200
Speaker 1: but it was I think that experience of losing other

880
00:46:13,239 --> 00:46:16,279
Speaker 1: people's money and my own obviously because we were you know,

881
00:46:16,520 --> 00:46:19,200
Speaker 1: all of my money was in this fun So two

882
00:46:19,280 --> 00:46:21,800
Speaker 1: th hurdle left the mark also, Yeah, that one. That

883
00:46:21,880 --> 00:46:24,480
Speaker 1: one hurt a lot too. And that was you know,

884
00:46:24,600 --> 00:46:26,719
Speaker 1: it was to some extent humiliating. You don't love it

885
00:46:26,719 --> 00:46:29,759
Speaker 1: when your ideas go that bad. Well, but it wasn't

886
00:46:29,840 --> 00:46:33,040
Speaker 1: the idea that was bad. It was just the timing. Well,

887
00:46:33,400 --> 00:46:38,800
Speaker 1: the idea of transparency in in investing transactions and not

888
00:46:39,000 --> 00:46:41,719
Speaker 1: hiding what you're doing, although you always run into the

889
00:46:41,800 --> 00:46:44,960
Speaker 1: issue of front running another questions. So if you were

890
00:46:45,040 --> 00:46:48,000
Speaker 1: transparent on a thirty day delay or even a week delay,

891
00:46:48,600 --> 00:46:50,920
Speaker 1: that pretty much covers a lot of that issue well.

892
00:46:50,960 --> 00:46:53,120
Speaker 1: And a lot of what we were doing was not

893
00:46:53,320 --> 00:46:56,480
Speaker 1: particularly chastable because what, to be blunt, what we were

894
00:46:56,520 --> 00:46:58,319
Speaker 1: doing was flipping I p O s. Right, We were

895
00:46:58,360 --> 00:47:00,759
Speaker 1: getting good I p O alakey asans from the bear

896
00:47:00,840 --> 00:47:03,000
Speaker 1: Sterns of the world, etcetera in the midst of the

897
00:47:03,080 --> 00:47:05,799
Speaker 1: dot com boom, and we rode those things and then

898
00:47:05,840 --> 00:47:08,400
Speaker 1: we flipped them. And that's basically a core of the

899
00:47:08,480 --> 00:47:12,120
Speaker 1: strategy was new tech. That's what we did with new technology.

900
00:47:12,560 --> 00:47:16,400
Speaker 1: UM and so we day traded new technology, which looking

901
00:47:16,560 --> 00:47:18,960
Speaker 1: back on it is like the most ridiculous sentence that

902
00:47:19,040 --> 00:47:23,200
Speaker 1: had you kept those insuances, how would you have done? Uh?

903
00:47:23,520 --> 00:47:25,640
Speaker 1: Not so well because you know, if you think back

904
00:47:25,760 --> 00:47:29,279
Speaker 1: on those that ere it's it's Juniper and j D S,

905
00:47:29,400 --> 00:47:34,120
Speaker 1: Uniphase and UM and you know, there was a lot

906
00:47:34,200 --> 00:47:37,080
Speaker 1: of garbage in there and we were all drinking the

907
00:47:37,120 --> 00:47:39,200
Speaker 1: cool aid of the new economy. Man. This time was

908
00:47:39,239 --> 00:47:43,000
Speaker 1: different so so Mark and Reason apology for the name drop,

909
00:47:43,200 --> 00:47:46,360
Speaker 1: But Mark and Reason says, there's no bad ideas, just

910
00:47:46,600 --> 00:47:49,600
Speaker 1: early ideas. And pets dot com was a disaster, but

911
00:47:49,880 --> 00:47:53,359
Speaker 1: Chiwi is now a giant, uh success story, and it's

912
00:47:53,400 --> 00:47:55,759
Speaker 1: a set effectively. Pets dot com well, and I'm sure

913
00:47:55,800 --> 00:47:58,080
Speaker 1: Amazon is probably the largest seller of pet food in

914
00:47:58,120 --> 00:48:02,040
Speaker 1: the country. You know, I I don't even do anything.

915
00:48:02,120 --> 00:48:05,440
Speaker 1: It's just on a regular subscribe and save and all

916
00:48:05,520 --> 00:48:08,200
Speaker 1: the little dog treats, they all show up every month.

917
00:48:08,320 --> 00:48:10,719
Speaker 1: I think if I if I look back and say,

918
00:48:10,800 --> 00:48:13,560
Speaker 1: there was one thing that I got most wrong about

919
00:48:13,680 --> 00:48:17,719
Speaker 1: my sense of the economy in it wasn't that the

920
00:48:18,680 --> 00:48:20,080
Speaker 1: you know, the rise of the Internet was going to

921
00:48:20,200 --> 00:48:22,560
Speaker 1: change how everything worked. It was that it would be

922
00:48:22,600 --> 00:48:25,839
Speaker 1: concentrated in so few winners. Like looking at it now,

923
00:48:26,080 --> 00:48:29,759
Speaker 1: there actually were so few winners from that era, just

924
00:48:30,080 --> 00:48:34,040
Speaker 1: just handfuls um and yet there were hundreds of companies

925
00:48:34,120 --> 00:48:37,240
Speaker 1: that we were all excited about back then. I remember

926
00:48:38,880 --> 00:48:45,560
Speaker 1: when um Wall Street Week with Lewis Ruckiser, the irrational

927
00:48:45,640 --> 00:48:49,879
Speaker 1: Suberant speech happened. The general recognition that hey, these tech

928
00:48:49,920 --> 00:48:54,239
Speaker 1: stocks have become unmoored from normal valuations, and a lot

929
00:48:54,280 --> 00:48:57,320
Speaker 1: of these companies have no you know, Netscape went public

930
00:48:57,440 --> 00:49:01,280
Speaker 1: and then and was success. That was a giant hunger

931
00:49:01,360 --> 00:49:04,400
Speaker 1: and a demand for these companies. And it was five

932
00:49:04,520 --> 00:49:10,719
Speaker 1: more years before the and that's pretty much it. But

933
00:49:11,000 --> 00:49:15,239
Speaker 1: you know, if you followed traditional metrics, you missed it.

934
00:49:15,320 --> 00:49:17,560
Speaker 1: You drum up. So even though there were a handful

935
00:49:17,600 --> 00:49:22,080
Speaker 1: of all right, Amazon survived, Apple survived, Microsoft clearly survived

936
00:49:22,440 --> 00:49:25,759
Speaker 1: all these company Google came out afterwards, but all these

937
00:49:25,840 --> 00:49:30,759
Speaker 1: companies had giant draw down. I remember post dot com,

938
00:49:30,800 --> 00:49:34,799
Speaker 1: you could have bought Amazon for eight yucks. Well, all

939
00:49:34,840 --> 00:49:36,680
Speaker 1: I did was turned me into a passive investor again.

940
00:49:36,719 --> 00:49:38,760
Speaker 1: You know, I started my career in the indexing space.

941
00:49:39,160 --> 00:49:43,240
Speaker 1: I had this brief, you know, dalliance with ridiculously active

942
00:49:43,320 --> 00:49:46,480
Speaker 1: management literally day trading tech stocks. And then I sort

943
00:49:46,520 --> 00:49:48,680
Speaker 1: of you know, came back to religion if you will.

944
00:49:49,719 --> 00:49:52,440
Speaker 1: So you you briefly, uh, we're eating trade, and then

945
00:49:52,480 --> 00:49:54,880
Speaker 1: you went right back to uh, I got it. I

946
00:49:55,000 --> 00:49:59,200
Speaker 1: understand how that works. Um that that's interesting. So that

947
00:49:59,400 --> 00:50:02,800
Speaker 1: we pretty much went through most of the questions I

948
00:50:02,920 --> 00:50:06,120
Speaker 1: prepped on the way here. Is there any e t

949
00:50:06,320 --> 00:50:08,440
Speaker 1: F thing that you want to talk about? That's a

950
00:50:08,520 --> 00:50:10,400
Speaker 1: technical radio term by the way E t F than

951
00:50:10,560 --> 00:50:12,560
Speaker 1: a t F than is there is there anything I

952
00:50:12,640 --> 00:50:15,200
Speaker 1: didn't ask that you think is important that should the

953
00:50:15,520 --> 00:50:18,360
Speaker 1: listeners should be aware. Yeah. I think that it's reasonable

954
00:50:18,440 --> 00:50:21,120
Speaker 1: to ask questions about this concentration of assets we have

955
00:50:21,200 --> 00:50:23,640
Speaker 1: at the top. I think that was a good question, um.

956
00:50:24,000 --> 00:50:25,719
Speaker 1: And when we look at the black rocks and state

957
00:50:25,719 --> 00:50:29,880
Speaker 1: streets and vanguards to the world and their ownership of equities,

958
00:50:30,200 --> 00:50:33,839
Speaker 1: it is intense right they they combined, between all of them,

959
00:50:34,360 --> 00:50:36,680
Speaker 1: if they all got together as a block to decide

960
00:50:36,719 --> 00:50:40,200
Speaker 1: how they wanted to vote Apple shares, would have substantial

961
00:50:40,400 --> 00:50:43,880
Speaker 1: influence on what Apple's board did. That's the pushback to

962
00:50:44,280 --> 00:50:47,680
Speaker 1: passive is all these guys, they what they can do.

963
00:50:47,800 --> 00:50:49,560
Speaker 1: They can't sell the shares, so what do I care

964
00:50:49,600 --> 00:50:51,680
Speaker 1: what they have to say, But they can vote the

965
00:50:51,719 --> 00:50:55,000
Speaker 1: shares exactly. And I think what determines how an E

966
00:50:55,160 --> 00:50:57,680
Speaker 1: t F manager votes their shares, well, they have a

967
00:50:57,719 --> 00:51:00,160
Speaker 1: proxy department, and I think there's been a lot of

968
00:51:00,200 --> 00:51:03,560
Speaker 1: discussion about this, and there have been. I had I

969
00:51:03,680 --> 00:51:06,680
Speaker 1: had lunch yesterday with a mutual friend, Jan Vannack from

970
00:51:06,800 --> 00:51:11,040
Speaker 1: chick and he we had a great conversation, Um, But

971
00:51:11,120 --> 00:51:13,560
Speaker 1: we had this conversation about corporate governance, and he's a

972
00:51:13,640 --> 00:51:17,520
Speaker 1: proponent of actually limiting the a votability of the shares

973
00:51:17,560 --> 00:51:20,280
Speaker 1: held by pass managers, which to me is a bridge

974
00:51:20,320 --> 00:51:23,000
Speaker 1: too far, precisely for the reason you're doing what you're saying,

975
00:51:23,040 --> 00:51:24,680
Speaker 1: which is that, well, if they just hold the shares

976
00:51:24,680 --> 00:51:27,400
Speaker 1: forever and they're never gonna sell, then effectively they're just

977
00:51:27,400 --> 00:51:29,680
Speaker 1: gonna be rubber stamps from management forever and they sort

978
00:51:29,719 --> 00:51:33,239
Speaker 1: of block and well, and that this is my counter,

979
00:51:33,400 --> 00:51:35,680
Speaker 1: which is that I think if you look at, for instance,

980
00:51:35,800 --> 00:51:38,920
Speaker 1: just the SMP five three huge e t fs, one

981
00:51:39,040 --> 00:51:41,640
Speaker 1: from Vanguard, one from State Street, one from black Rock,

982
00:51:42,280 --> 00:51:44,880
Speaker 1: I think in ten years, when you go to decide

983
00:51:44,920 --> 00:51:48,080
Speaker 1: which SMP E t F you want to buy, you're

984
00:51:48,120 --> 00:51:50,520
Speaker 1: not gonna care much about costs. They're all effectively going

985
00:51:50,560 --> 00:51:52,520
Speaker 1: to be free, They're all going to be well managed,

986
00:51:52,520 --> 00:51:54,640
Speaker 1: They're the performance is going to be with the basis

987
00:51:54,640 --> 00:51:57,839
Speaker 1: point of each other. But what will be different is, well,

988
00:51:57,920 --> 00:51:59,880
Speaker 1: how does black Rock vote their shares? How does van

989
00:52:00,040 --> 00:52:03,480
Speaker 1: Car vote their shares? And I think that transparency about

990
00:52:04,120 --> 00:52:07,080
Speaker 1: what is important in corporate governance is going to start

991
00:52:07,239 --> 00:52:10,520
Speaker 1: being much more transparent and much more important to investors,

992
00:52:10,600 --> 00:52:12,600
Speaker 1: not just at the institutional level where it is now.

993
00:52:12,800 --> 00:52:16,239
Speaker 1: So we haven't really talked about E s G, and

994
00:52:16,400 --> 00:52:20,120
Speaker 1: that's really a whole another conversation, but even non E

995
00:52:20,400 --> 00:52:23,759
Speaker 1: s G holdings like the SMP five hundred could have

996
00:52:23,960 --> 00:52:27,200
Speaker 1: an E s G differentiator depending on how black Rock

997
00:52:27,280 --> 00:52:29,680
Speaker 1: van Good State Street. State Street has been. State Street

998
00:52:29,680 --> 00:52:31,320
Speaker 1: has been really upfront with this with their sort of

999
00:52:31,320 --> 00:52:34,000
Speaker 1: pushed on women in diversity. You know, they actually were

1000
00:52:34,280 --> 00:52:36,640
Speaker 1: very vocal and said, hey, we actually just voted against

1001
00:52:36,680 --> 00:52:40,080
Speaker 1: management on four hundred board seat elections in large cap

1002
00:52:40,200 --> 00:52:43,040
Speaker 1: US companies because we wanted to increase the diversity on

1003
00:52:43,120 --> 00:52:46,279
Speaker 1: their boards. That's a pretty bold move. And we've seen,

1004
00:52:46,520 --> 00:52:48,840
Speaker 1: you know, a letter from Larry fankat black Rock that

1005
00:52:48,960 --> 00:52:51,440
Speaker 1: was a big Wall Street total up ed piece about

1006
00:52:51,760 --> 00:52:54,279
Speaker 1: you get your acts together. Yeah, and and so there's

1007
00:52:54,280 --> 00:52:56,320
Speaker 1: a lot of discussion going on around this, and some

1008
00:52:56,440 --> 00:52:59,640
Speaker 1: of this is a reaction to demands from the institutional

1009
00:52:59,680 --> 00:53:03,400
Speaker 1: and alman community, which often has strictures in their investment

1010
00:53:03,440 --> 00:53:06,280
Speaker 1: guidelines that says, you know, we won't invest in fossil

1011
00:53:06,320 --> 00:53:09,120
Speaker 1: fuels or something like that. Um, they're the ones who

1012
00:53:09,200 --> 00:53:11,000
Speaker 1: are pushing this, but I think it's going to become

1013
00:53:11,000 --> 00:53:14,719
Speaker 1: a marketing issue in the next ten years. I think

1014
00:53:14,760 --> 00:53:16,880
Speaker 1: that's really cool. Larry Fink is another one. I have

1015
00:53:16,960 --> 00:53:19,160
Speaker 1: to get in here. He's on my He's on my list.

1016
00:53:19,200 --> 00:53:20,879
Speaker 1: If you can make it intro, I would, I would

1017
00:53:20,880 --> 00:53:23,080
Speaker 1: appreciate what I can. All right, I don't have you

1018
00:53:23,320 --> 00:53:25,640
Speaker 1: all day, so I want to get to some of

1019
00:53:25,760 --> 00:53:29,759
Speaker 1: my favorite questions. Um. These are the questions I asked

1020
00:53:29,800 --> 00:53:35,120
Speaker 1: all of our guests, and they often are revealing. And

1021
00:53:35,239 --> 00:53:38,239
Speaker 1: let's start with what's the most important thing that most

1022
00:53:38,280 --> 00:53:41,480
Speaker 1: people don't know about you? Um? You know, I think

1023
00:53:41,840 --> 00:53:44,320
Speaker 1: you know. We hit briefly on sort of my initial

1024
00:53:44,440 --> 00:53:49,279
Speaker 1: foray into into screenwriting, into trying to be a creative writer. UM.

1025
00:53:49,440 --> 00:53:52,880
Speaker 1: I tend to actually think about myself first informist being

1026
00:53:52,920 --> 00:53:55,120
Speaker 1: a writer. Right. I happen to have ended up in

1027
00:53:55,160 --> 00:53:57,400
Speaker 1: finance for most of my career. I happen to have

1028
00:53:57,480 --> 00:53:59,719
Speaker 1: been locked into passive investing in ets for the last

1029
00:53:59,760 --> 00:54:02,520
Speaker 1: twin of years. But ultimately I think of myself as

1030
00:54:02,560 --> 00:54:05,440
Speaker 1: a writer and a communicator and an educator. Um, and

1031
00:54:05,600 --> 00:54:07,200
Speaker 1: it really does come back. I mean, if I had

1032
00:54:07,239 --> 00:54:09,239
Speaker 1: to go back and change one thing in my career,

1033
00:54:09,360 --> 00:54:11,680
Speaker 1: it would not be getting a creative writing degree from

1034
00:54:11,680 --> 00:54:14,040
Speaker 1: the University of Massachusetts. I would hold on to that forever.

1035
00:54:14,160 --> 00:54:16,840
Speaker 1: I might give up the business degree. Really that that's interesting.

1036
00:54:16,880 --> 00:54:20,440
Speaker 1: There were some parallels there that I didn't realize that.

1037
00:54:20,640 --> 00:54:25,799
Speaker 1: That's quite quite fascinating. Who are some of your early mentors? Uh?

1038
00:54:26,120 --> 00:54:29,200
Speaker 1: You know, I would say I went to Hollywood with

1039
00:54:29,520 --> 00:54:32,640
Speaker 1: some pretty grand ambitions and the woman that I ended

1040
00:54:32,680 --> 00:54:35,320
Speaker 1: up working for was a woman named Tara Sandler. And

1041
00:54:35,960 --> 00:54:39,400
Speaker 1: she wouldn't recognize me, probably in retrospect at all, but

1042
00:54:39,520 --> 00:54:43,399
Speaker 1: she was the producer for this live TV reality show

1043
00:54:43,520 --> 00:54:45,359
Speaker 1: that we were doing every day in ninety minutes live

1044
00:54:45,400 --> 00:54:51,120
Speaker 1: TV called Home. And she was an unbelievable force in

1045
00:54:51,239 --> 00:54:55,040
Speaker 1: that business, you know, very male dominated culture, very young culture.

1046
00:54:55,440 --> 00:54:57,840
Speaker 1: And she sort of showed me that you can be

1047
00:54:58,040 --> 00:55:01,359
Speaker 1: both compassionate and a hardass at the same time. UM,

1048
00:55:01,600 --> 00:55:03,960
Speaker 1: and was both of those things to me and sort

1049
00:55:04,000 --> 00:55:06,480
Speaker 1: of whipped me into shape in a way that I

1050
00:55:06,520 --> 00:55:08,840
Speaker 1: think I desperately needed at the age of twenty or

1051
00:55:08,880 --> 00:55:11,680
Speaker 1: whatever it was when I ended up in Hollywood for uh.

1052
00:55:11,800 --> 00:55:15,600
Speaker 1: And so she's gone on to produce literally hundreds of

1053
00:55:15,680 --> 00:55:19,360
Speaker 1: reality TV shows since then, House Hunters and things like that,

1054
00:55:20,080 --> 00:55:23,080
Speaker 1: and UH, and has had a hugely successful career. But

1055
00:55:23,200 --> 00:55:25,719
Speaker 1: I look back on like, you know, bosses that I've

1056
00:55:25,800 --> 00:55:28,400
Speaker 1: had and mentors that I've had, and yeah, their investment folks.

1057
00:55:28,480 --> 00:55:30,400
Speaker 1: You know, I got to work with Larry Tint at

1058
00:55:30,520 --> 00:55:32,759
Speaker 1: Black Rock and Blake Grossman and folks like that who

1059
00:55:32,800 --> 00:55:35,800
Speaker 1: are super influential. But I, you know, it would I

1060
00:55:35,880 --> 00:55:38,320
Speaker 1: be the same person without her, you know, taking me

1061
00:55:38,360 --> 00:55:41,880
Speaker 1: in the backside. Probably not. That's that's quite interesting. What

1062
00:55:41,960 --> 00:55:44,680
Speaker 1: about investors who influenced the way you think about the

1063
00:55:44,719 --> 00:55:48,319
Speaker 1: world of investments? You know, it's hard not to say

1064
00:55:48,400 --> 00:55:51,440
Speaker 1: Burton Malkill, just because you know, if if I look

1065
00:55:51,520 --> 00:55:54,480
Speaker 1: at the you know, my current thinking about markets and

1066
00:55:54,600 --> 00:55:57,680
Speaker 1: the difficulty of active management, not the impossibility, but the

1067
00:55:57,760 --> 00:56:01,320
Speaker 1: extreme difficulty of successful active manage meant um, I always

1068
00:56:01,400 --> 00:56:03,759
Speaker 1: end up coming back to the random walk. It just

1069
00:56:04,160 --> 00:56:07,239
Speaker 1: it rings true. I guess the counter valance that would

1070
00:56:07,280 --> 00:56:10,040
Speaker 1: be um for the same era of my life in

1071
00:56:10,120 --> 00:56:13,000
Speaker 1: my early twenties looking at you know, Peter Lynch and

1072
00:56:13,320 --> 00:56:16,200
Speaker 1: his you know much more. Go to the mall, find

1073
00:56:16,239 --> 00:56:18,600
Speaker 1: the stories you like, figure out how they run their business,

1074
00:56:18,760 --> 00:56:21,120
Speaker 1: learn about it, and then invest in it, which is

1075
00:56:21,160 --> 00:56:24,759
Speaker 1: sort of the antithesis of the random walk, UM, I think,

1076
00:56:24,880 --> 00:56:29,040
Speaker 1: and then for the Ben Graham intelligent investor version of that,

1077
00:56:29,239 --> 00:56:32,040
Speaker 1: which is like, really understand where the values are in

1078
00:56:32,080 --> 00:56:36,279
Speaker 1: a company, They're They're almost diametrically opposed in some ways.

1079
00:56:36,320 --> 00:56:38,560
Speaker 1: I tend to think of Peter Lynch and and Uh

1080
00:56:38,920 --> 00:56:41,080
Speaker 1: and Ben Graham is sort of opposite ends of the

1081
00:56:41,920 --> 00:56:45,399
Speaker 1: active investing food chain. But I think that that really

1082
00:56:45,480 --> 00:56:48,359
Speaker 1: helps shape my worldview having those three in the mix.

1083
00:56:49,120 --> 00:56:52,080
Speaker 1: Let's talk You mentioned intelligent investor Ben Graham. What are

1084
00:56:52,160 --> 00:56:55,200
Speaker 1: some of your favorite books? Fiction, non fiction, investing related

1085
00:56:55,880 --> 00:56:58,560
Speaker 1: or otherwise. So Uh, and you and I have talked

1086
00:56:58,600 --> 00:57:03,040
Speaker 1: about we have We've talked about frightening overlap between our bookshelf.

1087
00:57:03,200 --> 00:57:06,120
Speaker 1: I tend to read a lot of genre fiction, science

1088
00:57:06,160 --> 00:57:10,400
Speaker 1: fiction in particular. I'm a big Hineland fan. Do do

1089
00:57:10,640 --> 00:57:13,360
Speaker 1: Tell mentioned a few Rubberts. Well, It's a Stranger in

1090
00:57:13,360 --> 00:57:16,400
Speaker 1: a Strange Land is one. I dropped that book for sure, Definitely,

1091
00:57:16,840 --> 00:57:19,600
Speaker 1: that's one that UM, I don't reread it every year.

1092
00:57:19,720 --> 00:57:21,760
Speaker 1: My wife does. There's a copy that just sits on

1093
00:57:21,840 --> 00:57:24,240
Speaker 1: her nightstand. Really um and the and she just heard

1094
00:57:24,360 --> 00:57:29,160
Speaker 1: rolls the um Lord of the Rings trilogy. But I

1095
00:57:29,720 --> 00:57:31,720
Speaker 1: had to stop that at a certain point so, but

1096
00:57:31,960 --> 00:57:35,720
Speaker 1: more recently, um, wait before you move beyond Heineland. Yeah.

1097
00:57:36,160 --> 00:57:39,560
Speaker 1: One of my old time favorite quotes comes from the

1098
00:57:39,640 --> 00:57:43,560
Speaker 1: notebooks of Lazarus Long, which is, never try and teach

1099
00:57:43,600 --> 00:57:46,680
Speaker 1: a pig to sing. It wastes your time, and it

1100
00:57:46,760 --> 00:57:51,640
Speaker 1: always the pig. I just I just love that and

1101
00:57:51,880 --> 00:57:55,720
Speaker 1: and that. Having read that fifty years ago and then

1102
00:57:55,840 --> 00:57:59,200
Speaker 1: rereading it a decade ago, it was like a light

1103
00:57:59,280 --> 00:58:01,800
Speaker 1: bulb went off on, like, oh, I'm teaching pigs to sing,

1104
00:58:01,880 --> 00:58:04,840
Speaker 1: and I have to study that the other one for years.

1105
00:58:04,960 --> 00:58:07,800
Speaker 1: My password for like, it's not anymore, so I'll say it,

1106
00:58:08,040 --> 00:58:10,280
Speaker 1: but um tan Staffel. There ain't no such thing as

1107
00:58:10,320 --> 00:58:13,400
Speaker 1: a freelan, which is another Lazarus Long is um um

1108
00:58:13,680 --> 00:58:16,240
Speaker 1: that that you know, all of my password had Tan Staffel.

1109
00:58:16,280 --> 00:58:18,760
Speaker 1: In the middle of somewhere you could go through a

1110
00:58:18,800 --> 00:58:22,600
Speaker 1: whole run of of Hinlan books. They were like every

1111
00:58:22,760 --> 00:58:26,840
Speaker 1: ten year old science fiction geek discovers Heinland and works

1112
00:58:26,840 --> 00:58:30,120
Speaker 1: through the whole the whole catalog. To me, the new

1113
00:58:30,200 --> 00:58:34,960
Speaker 1: Heinland is China. Melville we would who wrote. The most

1114
00:58:35,040 --> 00:58:36,880
Speaker 1: recent book I wrote was called The City in the City,

1115
00:58:37,760 --> 00:58:43,480
Speaker 1: which is this bizarre book about how from effectively a

1116
00:58:43,560 --> 00:58:47,640
Speaker 1: new Jerusalem in which you have it's not explicitly saying this,

1117
00:58:47,720 --> 00:58:50,000
Speaker 1: but you have two cultures that don't agree with each

1118
00:58:50,000 --> 00:58:52,760
Speaker 1: other and can't get along for deep held reasons. City

1119
00:58:52,880 --> 00:58:55,440
Speaker 1: in a city, the city in the city and the

1120
00:58:55,520 --> 00:58:58,400
Speaker 1: city and they and they sort of live in the

1121
00:58:58,480 --> 00:59:01,640
Speaker 1: same physical space but ignore or each other. And it's

1122
00:59:01,680 --> 00:59:05,320
Speaker 1: a really interesting construct. And then there's a detective story

1123
00:59:05,360 --> 00:59:07,760
Speaker 1: that happens in the middle of it. Um. But She's

1124
00:59:07,800 --> 00:59:10,800
Speaker 1: she's sort of my current favorite. What tell him? What

1125
00:59:10,920 --> 00:59:12,720
Speaker 1: else do you? What else do you like outside of

1126
00:59:12,960 --> 00:59:15,040
Speaker 1: or from within science? I tend to. I tend to

1127
00:59:15,080 --> 00:59:18,960
Speaker 1: also read um stuff that's as far afield from my

1128
00:59:19,080 --> 00:59:20,880
Speaker 1: day to day life as I can get. So I

1129
00:59:21,000 --> 00:59:26,400
Speaker 1: like to read science, UM shows and philosophy, um um.

1130
00:59:26,520 --> 00:59:29,479
Speaker 1: Well go to Lescherbach is one of my favorite. Didn't

1131
00:59:29,480 --> 00:59:32,080
Speaker 1: we talk about that? I don't so. I had a

1132
00:59:32,200 --> 00:59:36,040
Speaker 1: philosophy class in college and that was one of the books.

1133
00:59:37,360 --> 00:59:40,840
Speaker 1: It's amazing, it's at it holds up, it's not an

1134
00:59:40,880 --> 00:59:44,840
Speaker 1: old dated it's absolutely offend someone else mentioned it. I'll

1135
00:59:44,840 --> 00:59:47,000
Speaker 1: have to go through the my list of books and

1136
00:59:47,040 --> 00:59:50,960
Speaker 1: see who else. But but that is just an unbelievable book. Yeah,

1137
00:59:51,080 --> 00:59:54,360
Speaker 1: so I so things like that. Um, there aren't many

1138
00:59:54,440 --> 00:59:56,680
Speaker 1: things like that, No, there aren't. That is that is

1139
00:59:56,760 --> 00:59:59,760
Speaker 1: a I mean like the Panda's Thumb, like anthropology stuff

1140
00:59:59,800 --> 01:00:02,760
Speaker 1: and stumb I haven't read. Yeah, did you ever read

1141
01:00:02,880 --> 01:00:05,400
Speaker 1: Last Ape Standing We talked? Yeah, yeah, yeah, that that's

1142
01:00:05,440 --> 01:00:09,680
Speaker 1: a really fascinating science book. And Soul of an Octopus

1143
01:00:09,800 --> 01:00:11,520
Speaker 1: was another, so that you turned me on the Soul

1144
01:00:11,520 --> 01:00:13,200
Speaker 1: of an Octopus, which did right up my alley. That

1145
01:00:13,280 --> 01:00:15,880
Speaker 1: kind of nonfiction where you go into a world that

1146
01:00:16,080 --> 01:00:19,880
Speaker 1: is not related to anything that you normally just give

1147
01:00:19,920 --> 01:00:21,760
Speaker 1: me more. I have my own list books. I want

1148
01:00:21,760 --> 01:00:26,040
Speaker 1: to get your books. So, um the so I'm a

1149
01:00:26,080 --> 01:00:29,880
Speaker 1: big John Scalz fan. John Scalz is a science fiction writer.

1150
01:00:30,200 --> 01:00:32,040
Speaker 1: I'm reading a great one right now that won the

1151
01:00:32,120 --> 01:00:36,000
Speaker 1: Hugo I think six years ago, called Red Shirts, which

1152
01:00:36,080 --> 01:00:38,280
Speaker 1: is trying to explain why all the Red Shirts and

1153
01:00:38,320 --> 01:00:41,200
Speaker 1: star Trek are always getting killed. Uh, And it creates

1154
01:00:41,280 --> 01:00:45,160
Speaker 1: this whole sort of feasible construct about what what how

1155
01:00:45,360 --> 01:00:47,720
Speaker 1: how Starfleet could exist in a world where they're just

1156
01:00:47,800 --> 01:00:50,800
Speaker 1: killing off all the people in Red Shirt? And Uh.

1157
01:00:50,880 --> 01:00:53,120
Speaker 1: I love stuff like that. I love things that sort

1158
01:00:53,120 --> 01:00:56,600
Speaker 1: of break the mold. Um. I've actually you had I'm

1159
01:00:57,160 --> 01:00:59,800
Speaker 1: pardon the name, you had a gentleman talking about blockchain

1160
01:01:00,240 --> 01:01:03,120
Speaker 1: six or seven episodes. Yeah, I've read his book on

1161
01:01:03,200 --> 01:01:07,280
Speaker 1: blockchain to books. Yeah, so I've been digging deep into

1162
01:01:07,880 --> 01:01:10,520
Speaker 1: that sort of part of the technology. Um. And then

1163
01:01:10,560 --> 01:01:13,320
Speaker 1: I read a lot of really boring plumbing books about

1164
01:01:14,160 --> 01:01:19,000
Speaker 1: about about the industry. So like so nonfiction nonfiction stuff, um,

1165
01:01:19,200 --> 01:01:22,440
Speaker 1: about the mechanics of of how finance works. Yeah, Like

1166
01:01:23,080 --> 01:01:25,800
Speaker 1: this is the nerdiest one you'll ever hear of. Rob Posen,

1167
01:01:25,880 --> 01:01:27,959
Speaker 1: who is a fidelity for years, wrote a book called

1168
01:01:28,080 --> 01:01:31,160
Speaker 1: After the Trade Is Made, which is about trade settlement.

1169
01:01:31,320 --> 01:01:34,760
Speaker 1: It's like a thousand pages long, and it is so great.

1170
01:01:35,000 --> 01:01:36,640
Speaker 1: It was. It's one of these books where when you

1171
01:01:36,720 --> 01:01:40,360
Speaker 1: read it, you now know this like arcane knowledge that

1172
01:01:40,560 --> 01:01:43,720
Speaker 1: like eight other people in the industry actually understand. I

1173
01:01:43,960 --> 01:01:47,640
Speaker 1: love that kind of thing. I love digging deep into

1174
01:01:47,720 --> 01:01:50,760
Speaker 1: something that we all take for granted and then teasing

1175
01:01:50,840 --> 01:01:54,040
Speaker 1: out the actual under knife underneath, you know, underpinnings of

1176
01:01:54,080 --> 01:01:55,520
Speaker 1: how it all works. All right, So I'm going to

1177
01:01:55,600 --> 01:01:58,360
Speaker 1: make a book recommendation to you, and I'm assuming you

1178
01:01:58,440 --> 01:02:00,720
Speaker 1: haven't read it because of the data of it. But

1179
01:02:00,880 --> 01:02:04,600
Speaker 1: did you have a read Black Monday by Tim Metz. Alright,

1180
01:02:04,720 --> 01:02:09,280
Speaker 1: so it's the entire history before, during, and after, uh

1181
01:02:09,400 --> 01:02:13,520
Speaker 1: the eight seven crash and all of the things you're describing,

1182
01:02:13,640 --> 01:02:17,160
Speaker 1: the mechanics of the introduction of futures and how portfolio

1183
01:02:17,200 --> 01:02:19,720
Speaker 1: insurance worked and how the trades were executed and settled

1184
01:02:19,960 --> 01:02:23,600
Speaker 1: and where it broke down. It's and it's a world

1185
01:02:23,640 --> 01:02:28,240
Speaker 1: that doesn't exist anymore, but it it surprisingly does. Actually

1186
01:02:29,640 --> 01:02:33,280
Speaker 1: that actually still does. We've replaced portfolio insurance with swaps

1187
01:02:33,360 --> 01:02:36,160
Speaker 1: markets and all sorts of other things. But um, they're

1188
01:02:36,200 --> 01:02:39,360
Speaker 1: surprisingly number, surpurprising number of things that are still true

1189
01:02:39,440 --> 01:02:41,360
Speaker 1: today that we're true in eighty seven. That's a good

1190
01:02:41,360 --> 01:02:44,360
Speaker 1: one that I'll take that one absolutely. So So what

1191
01:02:44,640 --> 01:02:47,400
Speaker 1: is uh, what do you find most exciting right now

1192
01:02:47,640 --> 01:02:50,840
Speaker 1: about the et F space? Uh, well, there's no obviously

1193
01:02:51,480 --> 01:02:54,480
Speaker 1: new ideas like the bitcoin et F I think are interesting.

1194
01:02:54,640 --> 01:02:57,480
Speaker 1: I think the stuff we talked about in corporate governance

1195
01:02:57,520 --> 01:03:00,320
Speaker 1: I think is interesting. I actually think the most interesting

1196
01:03:00,400 --> 01:03:03,040
Speaker 1: thing related ish to e T S is what's going

1197
01:03:03,080 --> 01:03:06,200
Speaker 1: on in direct indexing, which is what direct indexing. You

1198
01:03:06,280 --> 01:03:09,960
Speaker 1: and I have had this conversation before with custodians explain

1199
01:03:10,040 --> 01:03:12,400
Speaker 1: what direct index. Yes, so their firms like M one

1200
01:03:12,520 --> 01:03:14,920
Speaker 1: Finance and Wealth Front are to the come to the

1201
01:03:15,000 --> 01:03:18,360
Speaker 1: top of my head, that are doing this effectively. Instead

1202
01:03:18,440 --> 01:03:20,120
Speaker 1: of going to an et F provider, you go to

1203
01:03:20,200 --> 01:03:22,640
Speaker 1: a broker like M one Finance and you'd say, here's

1204
01:03:22,680 --> 01:03:26,920
Speaker 1: my hundred thousand bucks, and you would subscribe to a portfolio,

1205
01:03:27,160 --> 01:03:29,000
Speaker 1: so you would say, I would like to be in

1206
01:03:29,040 --> 01:03:31,560
Speaker 1: the SMP five hundred. Here's my hundred thousand dollars. Well,

1207
01:03:31,560 --> 01:03:33,439
Speaker 1: you can't really buy all this doc in the SMP

1208
01:03:33,560 --> 01:03:36,960
Speaker 1: five hundred and the rate weights because the values don't

1209
01:03:37,000 --> 01:03:39,480
Speaker 1: line up. So instead what they do is they just

1210
01:03:39,800 --> 01:03:44,920
Speaker 1: roll your desired position into the firm's overall desired position

1211
01:03:45,320 --> 01:03:48,240
Speaker 1: and assign you your fractional ownership of the shares that

1212
01:03:48,320 --> 01:03:50,520
Speaker 1: make up the SMP five hundred. So at the end

1213
01:03:50,560 --> 01:03:53,320
Speaker 1: of the day, and one knows we have a trillion

1214
01:03:53,360 --> 01:03:56,640
Speaker 1: dollars or whatever it is, and Dave's hundred thousand is

1215
01:03:56,920 --> 01:04:00,280
Speaker 1: this economic exposure, So we need to own these errors

1216
01:04:00,320 --> 01:04:02,920
Speaker 1: to back up that economic exposure. So they do the

1217
01:04:03,000 --> 01:04:05,760
Speaker 1: fractional share keeping, So I own a quarter of a

1218
01:04:05,760 --> 01:04:07,920
Speaker 1: share of Apple is opposed to a whole share of Apples. Now,

1219
01:04:08,040 --> 01:04:10,640
Speaker 1: why is that superior to just spending eight bucks and

1220
01:04:10,840 --> 01:04:14,160
Speaker 1: basis points in buying the TF. Well, it cuts the

1221
01:04:14,280 --> 01:04:17,520
Speaker 1: issuer out of the equation entirely. But it's three bibs

1222
01:04:17,640 --> 01:04:20,240
Speaker 1: or five bibs. Who cares. Well, But if that three

1223
01:04:20,280 --> 01:04:25,040
Speaker 1: bibs can be one, it's four bibs to me, looks

1224
01:04:25,840 --> 01:04:27,960
Speaker 1: between one. So the reason why it's interesting is not

1225
01:04:28,080 --> 01:04:30,080
Speaker 1: because it cuts the three basis points down to what.

1226
01:04:30,840 --> 01:04:33,280
Speaker 1: The reason it's interesting is because it makes a direct

1227
01:04:33,360 --> 01:04:36,760
Speaker 1: connection between the intellectual property of investing, which is really

1228
01:04:36,760 --> 01:04:40,680
Speaker 1: all we care about, and me as the investor, removing

1229
01:04:40,720 --> 01:04:44,360
Speaker 1: effectively all of the middlemen except the transaction engine, which

1230
01:04:44,440 --> 01:04:45,960
Speaker 1: is always going to be a broker somewhere in the

1231
01:04:46,040 --> 01:04:49,080
Speaker 1: middle making the transaction. So what that means is I

1232
01:04:49,200 --> 01:04:51,600
Speaker 1: can now go and say instead of I want the

1233
01:04:51,720 --> 01:04:54,080
Speaker 1: SMP five hundred, I can say I want the SMP

1234
01:04:54,200 --> 01:04:57,520
Speaker 1: five hundred, but I don't want Apple. That's impossible to

1235
01:04:57,560 --> 01:04:59,560
Speaker 1: do with an ETN like I have to go short

1236
01:04:59,640 --> 01:05:03,200
Speaker 1: Apple out of the portfolio. So taking the best part

1237
01:05:03,280 --> 01:05:09,040
Speaker 1: about indexing and adding human terrible judgment too, well, you

1238
01:05:09,120 --> 01:05:11,919
Speaker 1: and I have disagreed, So so yes, it does open

1239
01:05:12,040 --> 01:05:14,360
Speaker 1: up that. But what it really does is it lets

1240
01:05:14,880 --> 01:05:19,080
Speaker 1: UH an index provider mass customized and a useful fashion.

1241
01:05:19,200 --> 01:05:20,680
Speaker 1: So now all of a sudden, you could come up

1242
01:05:20,720 --> 01:05:23,640
Speaker 1: with six different versions of the SMP five hundred that

1243
01:05:23,720 --> 01:05:27,040
Speaker 1: have different E s G slams, no gun ownership, or

1244
01:05:27,120 --> 01:05:29,440
Speaker 1: no sin stocks, or load up on the sin stocks

1245
01:05:29,480 --> 01:05:32,960
Speaker 1: because I think that's oversold or whatever, and now I

1246
01:05:33,040 --> 01:05:35,960
Speaker 1: can have that sort of personalized index service. It also

1247
01:05:36,040 --> 01:05:38,480
Speaker 1: lets you do things that can be very useful, so

1248
01:05:38,600 --> 01:05:40,360
Speaker 1: like if it's a tax account, you can do single

1249
01:05:40,400 --> 01:05:44,560
Speaker 1: stock UH harvesting, UD those kinds of issue. You can

1250
01:05:44,600 --> 01:05:47,120
Speaker 1: take into account the fact that you know, I, as

1251
01:05:47,160 --> 01:05:49,840
Speaker 1: a CEBO employee have cebow stock, maybe I don't want

1252
01:05:49,840 --> 01:05:53,200
Speaker 1: to load up with more cebow stock make sense? So

1253
01:05:53,600 --> 01:05:57,640
Speaker 1: if only ge UH employees had that, yeah, exactly, well

1254
01:05:57,800 --> 01:05:59,360
Speaker 1: and that and that is a real problem for a

1255
01:05:59,440 --> 01:06:02,680
Speaker 1: lot of corporate America. So I think that direct indexing

1256
01:06:02,760 --> 01:06:07,720
Speaker 1: model eventually supplants the entire package product market. Like why

1257
01:06:07,800 --> 01:06:09,640
Speaker 1: do I actually need a mutual fund company in the

1258
01:06:09,720 --> 01:06:13,200
Speaker 1: mix if I want to be in a smart beta product?

1259
01:06:13,520 --> 01:06:15,400
Speaker 1: Why do I not just have a direct relationship with

1260
01:06:15,480 --> 01:06:17,960
Speaker 1: rob or not at research affiliates? Like why can't I

1261
01:06:18,040 --> 01:06:23,040
Speaker 1: just subscribe to his raffie. We'll see if that catches on.

1262
01:06:23,520 --> 01:06:25,160
Speaker 1: Tell us about the time you failed and what you

1263
01:06:25,320 --> 01:06:27,680
Speaker 1: learned from the experience, boy, other than the big one,

1264
01:06:27,880 --> 01:06:32,280
Speaker 1: Like I mean, we talked about open fund education one.

1265
01:06:32,680 --> 01:06:35,720
Speaker 1: Um boy, I've made some really great mistakes as parent.

1266
01:06:36,320 --> 01:06:40,080
Speaker 1: Parent parents, parents make mistakes all the time, and uh,

1267
01:06:40,640 --> 01:06:44,120
Speaker 1: you know, I think I underestimate my kids a lot.

1268
01:06:44,680 --> 01:06:49,760
Speaker 1: Um so specific examples, you know, I've I've I've traveled

1269
01:06:49,840 --> 01:06:52,840
Speaker 1: with my daughter pretty extensively. She's now in college. And

1270
01:06:53,080 --> 01:06:55,800
Speaker 1: we went to Paris when she was like fourteen or

1271
01:06:55,880 --> 01:06:59,600
Speaker 1: something like that, and we were walking through some museum

1272
01:06:59,680 --> 01:07:01,040
Speaker 1: and I was like, oh, well, we should see this,

1273
01:07:01,120 --> 01:07:02,920
Speaker 1: and we should see that, we should see this other thing,

1274
01:07:03,360 --> 01:07:07,080
Speaker 1: and and she got really annoyed and ended up just saying,

1275
01:07:07,400 --> 01:07:09,400
Speaker 1: I've already seen all of these things on the internet.

1276
01:07:09,440 --> 01:07:10,959
Speaker 1: I want to see all the things that I can't

1277
01:07:11,040 --> 01:07:14,480
Speaker 1: see and created our own, her own path through cors

1278
01:07:14,560 --> 01:07:18,240
Speaker 1: the louver that never get photographed. And like my failure

1279
01:07:18,320 --> 01:07:20,760
Speaker 1: to realize her intelligence is something that I think I've

1280
01:07:20,800 --> 01:07:24,480
Speaker 1: done over and over and over again. That's that's kind

1281
01:07:24,480 --> 01:07:28,040
Speaker 1: of interesting. Um So, speaking of youth, give us Uh,

1282
01:07:28,280 --> 01:07:30,240
Speaker 1: the sort of advice you would give to a millennial

1283
01:07:30,680 --> 01:07:37,760
Speaker 1: or recent college grad who was um looking for career advice. Yeah,

1284
01:07:37,800 --> 01:07:41,280
Speaker 1: I actually get this one a lot. The number one

1285
01:07:41,400 --> 01:07:44,160
Speaker 1: thing I could say is pick up the goddamn phone,

1286
01:07:45,040 --> 01:07:47,440
Speaker 1: like the number of And this isn't a millennial thing.

1287
01:07:47,560 --> 01:07:49,480
Speaker 1: I've had folks that I've hired who were in their

1288
01:07:49,520 --> 01:07:52,800
Speaker 1: forties and who were in you know, they're not quite twenties. Yet.

1289
01:07:53,200 --> 01:07:56,400
Speaker 1: There is this reluctance and modern culture to actually pick

1290
01:07:56,520 --> 01:07:59,840
Speaker 1: up a dang telephone and have a conversation with somebody

1291
01:08:00,000 --> 01:08:02,120
Speaker 1: opposed to sending them an email or sending them a text.

1292
01:08:02,560 --> 01:08:06,880
Speaker 1: And the difference is enormous, Like that human connection of

1293
01:08:07,080 --> 01:08:10,800
Speaker 1: talking to somebody often is the difference between a lifelong

1294
01:08:10,880 --> 01:08:13,360
Speaker 1: relationship where you can get something out of that relationship

1295
01:08:13,400 --> 01:08:16,479
Speaker 1: in a bilateral way, and a transactional relationship where you

1296
01:08:16,560 --> 01:08:18,840
Speaker 1: just simply get a thing done and then forget about it. So,

1297
01:08:19,439 --> 01:08:22,680
Speaker 1: actually learning how to make and have good conversations on

1298
01:08:22,800 --> 01:08:25,640
Speaker 1: the phone and in person is a dying art and

1299
01:08:25,680 --> 01:08:29,000
Speaker 1: it's not something anybody teaches. Interesting And our final question,

1300
01:08:29,360 --> 01:08:31,639
Speaker 1: what do you know about the world of ets today

1301
01:08:32,200 --> 01:08:37,080
Speaker 1: that you wish you knew twenty five years ago. Oh boy, um,

1302
01:08:37,680 --> 01:08:40,240
Speaker 1: I I know a lot more about how you can

1303
01:08:40,520 --> 01:08:42,680
Speaker 1: step on your own feet with trading. I used to

1304
01:08:43,479 --> 01:08:47,000
Speaker 1: uh sort of dismissed that, like the trading infrastructure works fine, whatever,

1305
01:08:47,040 --> 01:08:49,400
Speaker 1: you work with a broker. Uh. Most of the horror

1306
01:08:49,439 --> 01:08:51,719
Speaker 1: stories that fill up my mailbox are people who don't

1307
01:08:51,760 --> 01:08:55,759
Speaker 1: have good trading hygiene, who you know, trading right. They

1308
01:08:55,840 --> 01:08:57,840
Speaker 1: do something they shouldn't do right. They put in a

1309
01:08:57,920 --> 01:09:01,000
Speaker 1: market order in the midst of a crazy volatile day,

1310
01:09:01,120 --> 01:09:02,840
Speaker 1: and they put in a market order in some tech

1311
01:09:02,880 --> 01:09:05,080
Speaker 1: e t F and they're surprised when they get an

1312
01:09:05,080 --> 01:09:08,280
Speaker 1: execution five percent different than what they expected. Right. And

1313
01:09:08,400 --> 01:09:10,519
Speaker 1: that's not E t F being broken. It's the e

1314
01:09:10,600 --> 01:09:14,240
Speaker 1: t F relying on an ecosystem which is inherently chaotic,

1315
01:09:16,040 --> 01:09:20,040
Speaker 1: quite quite fascinating. We have been speaking with Dave Natig.

1316
01:09:20,160 --> 01:09:23,760
Speaker 1: He is the managing director of e t F dot Com.

1317
01:09:24,479 --> 01:09:27,240
Speaker 1: If you enjoyed this conversation, will be showing Look up

1318
01:09:27,240 --> 01:09:31,800
Speaker 1: an Inch or down an Inch on Apple, iTunes, Stitcher, Overcast,

1319
01:09:31,840 --> 01:09:35,880
Speaker 1: Bloomberg wherever final podcasts are sold, and you can see

1320
01:09:35,960 --> 01:09:40,519
Speaker 1: any of the other two hundred plus conversations we've had.

1321
01:09:41,160 --> 01:09:44,479
Speaker 1: We love your comments, feedback and suggestions right to us

1322
01:09:44,640 --> 01:09:48,559
Speaker 1: at m IB podcast at Bloomberg dot Net. I would

1323
01:09:48,600 --> 01:09:50,960
Speaker 1: be remiss if I did not thank my crack staff

1324
01:09:51,439 --> 01:09:55,640
Speaker 1: who helps us keep these conversations together. Medina Parwana is

1325
01:09:55,680 --> 01:10:01,280
Speaker 1: our producer and audio engineer par Excellence. Taylor Riggs is

1326
01:10:01,320 --> 01:10:04,320
Speaker 1: our booker producer. Michael Batnick is my head of research.

1327
01:10:05,000 --> 01:10:08,120
Speaker 1: I'm Barry Ritolts. You've been listening to Masters in Business

1328
01:10:08,439 --> 01:10:09,519
Speaker 1: on Bloomberg Radio