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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: The news backs loving you.

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Speaker 1: How often have you thought about making major change in

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Speaker 1: your career. You're going to give up some time, some effort,

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Speaker 1: a lot of education, and potentially a lot of money.

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Speaker 1: But if it pays off in the end, then it's

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Speaker 1: a worthwhile thing to be true to yourself. On today's

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Speaker 1: Out the Money, let's speak with William Bernstein. He began

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Speaker 1: his career as a medical doctor, a neurologist who discovered

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Speaker 1: he had a knack for investing and investment research, eventually

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Speaker 1: opening Efficient Frontier Advisors. He is also the author of

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Speaker 1: multiple books, The Intelligent Asset Allocator, Four Pillars of Investing, Investors,

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Speaker 1: madeim Festo, and on and on. His most recent book

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Speaker 1: is The Delusions of Crowd Bill Bernstein, welcome to add

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Speaker 1: the Money. Let's just start with a quick question. You

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Speaker 1: went to medical school. Did you expect to spend your

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Speaker 1: whole life as a doctor?

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Speaker 3: Heaven No, at least I didn't expect that that was

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Speaker 3: going to happen. But you know, I happened to live

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Speaker 3: in a country that doesn't have a functioning social welfare

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Speaker 3: system or safety in it, and so I realized I

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Speaker 3: was going to have to invest in save from my

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Speaker 3: own retirement. And I went about it in the way

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Speaker 3: that I thought any scientists would do, which is to

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Speaker 3: read the peer reviewed literature, a basic textbooks, collect data,

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Speaker 3: build models. And that led me into finance and eventually

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Speaker 3: led me into writing about history, because you really can't

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Speaker 3: do finance unless you have a good working knowledge of

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Speaker 3: the history. And I found that I enjoyed reading and

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Speaker 3: writing about it.

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Speaker 1: So this began, as you thinking I need to plan

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Speaker 1: for my own finances. What was the aha moment that, hey,

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Speaker 1: I now have a new knowledge base and a new

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Speaker 1: skill set. Maybe I could share this with other people.

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Speaker 3: I'll give credit to a guy you may have heard

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Speaker 3: of named Frank Armstrong, who was one of the early

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Speaker 3: efficient market passive indexing gurus. He was another financial advisor,

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Speaker 3: and after I had built some of my models, he said,

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Speaker 3: you know, Bill, you need to put all this stuff online.

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Speaker 3: You've got a basic textbook that you wrote. You need

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Speaker 3: to put that online as well, which he had already done.

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Speaker 3: You know this is we're talking more than thirty years ago.

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Speaker 3: And you do that and pretty soon you find that

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Speaker 3: you're getting called by journalists. You're getting called by other investors,

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Speaker 3: and one thing leads to another and the next thing,

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Speaker 3: you know, you're managing money and writing books.

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Speaker 1: So what was what was the moment when this went

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Speaker 1: from I need to take control of my own finances

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Speaker 1: to hey, maybe I don't want to be a neurologist anymore.

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Speaker 1: Maybe my career lay in managing money for other people.

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Speaker 3: Well, there are two kinds of doctors. The overwhelming majority

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Speaker 3: of the doctors probably you know, sixty seventy percent of

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Speaker 3: them realized by age fifty or so that it's a

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Speaker 3: tough game and they're going to get.

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Speaker 1: Very tough and it's gotten worse, hasn't it.

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Speaker 3: It has not gotten any easier, that's for sure. And

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Speaker 3: they're going to get out of it as soon as

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Speaker 3: they can afford to do it. And you know, and

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Speaker 3: then a third of them are the kinds of you

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Speaker 3: know doctors, God bless them who love what they do

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Speaker 3: and get carried out first at age seventy eight or so,

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Speaker 3: and I fell into the first category. So when the

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Speaker 3: opportunity came to do something that, you know, put mean

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Speaker 3: too contact with very intelligent people all day long, having

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Speaker 3: fun conversations and dealing with fun concepts that I left

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Speaker 3: at the chance.

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Speaker 1: So at what point did you say, Hey, this is

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Speaker 1: going to become financially remunerative and I'm not just giving

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Speaker 1: up a well paying job, although it comes with a

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Speaker 1: lot of student loans and obligations in debt. How long

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Speaker 1: did it take you to reach that point where, oh,

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Speaker 1: I can make a go of this.

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Speaker 3: It took about three or four years from the time

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Speaker 3: the first book came out, and you know, it became

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Speaker 3: a parent that I could make a decent living managing

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Speaker 3: money in writing. You know, I mean, who doesn't want

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Speaker 3: to make your living? You know? Writing? I mean that's

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Speaker 3: everybody's dream job. And I fell into my lap.

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Speaker 1: I guess, okay, so A, you're preaching to the choir,

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Speaker 1: But b most people don't love writing. And what's kind

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Speaker 1: of in interesting is how solitary the process of writing is.

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Speaker 1: And all of us who write in public do so

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Speaker 1: for that back and forth, for that conversation. For you,

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Speaker 1: writing became a pathway to a career change. I had

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Speaker 1: the same sort of experience. Did you have any doubts

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Speaker 1: or fears? How did you manage that?

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Speaker 3: Oh? My god, I have a full I still have

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Speaker 3: a full blown case of imposter syndrome. Really, Oh my god, yes,

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Speaker 3: of course, Uh you know. I mean I think I

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Speaker 3: told you maybe several years ago about the experience I

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Speaker 3: had of getting invited to a conference that was hosted

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Speaker 3: by the DNI, the Director of National Intelligence, and here

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Speaker 3: I am, you know, with these spokes and four stripers

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Speaker 3: talking about national security. I mean, you know, if that

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Speaker 3: doesn't induce, you know, a full blown case of imposter syndrome,

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Speaker 3: I don't know what what does. See.

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Speaker 1: My assumption is that they're bringing someone in from a

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Speaker 1: different field because very often knowledge, adjacency and just seeing

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Speaker 1: the world from a different perspective can provide insights to them.

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Speaker 3: I mean, with luck, maybe that happened. I don't know

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Speaker 3: that it actually did the way I dealt with it,

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Speaker 3: as I picked the subject which was as remote from

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Speaker 3: modern geopolitics as I can find. So I talked about

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Speaker 3: the strategy of the geostrategy of the Athenian grain trade.

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Speaker 1: Huh, fascinating. And these guys aren't experts in that sort

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Speaker 1: of history, and they're obviously military and national intelligence repercussions

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Speaker 1: to that. So I don't understand this some imposter syndrome

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Speaker 1: you're you're referring to. But but let's talk about other mistakes.

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Speaker 1: You know, did you when you made this transition? Were

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Speaker 1: their mistakes made? How did you recover from them? How

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Speaker 1: did you get past sort of being a novice with

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Speaker 1: a non traditional background in the world of investment.

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Speaker 3: Well, you know, before I took started to take finance

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Speaker 3: serious seriously, I made all the mistakes that rookie investors make.

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Speaker 3: I invested in hot funds, I played futures, and and

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Speaker 3: you know, you know, experience is a fine teacher, so

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Speaker 3: you learn, you learn from those things, and of course

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Speaker 3: I learned, you know, in the past twenty or thirty years,

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Speaker 3: I absorbed certain truths that I really didn't understand when

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Speaker 3: I started out.

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Speaker 1: I love I think it's Howard Marx's line, experience is

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Speaker 1: what you get when you don't get what you want. That, right,

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Speaker 1: seems seems kind of appropriate. So along the line, what

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Speaker 1: sort of tools did you create? Did you develop systems

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Speaker 1: for managing assets and dealing with clients or checklists? Everybody

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Speaker 1: has their own set of tools they use. What did

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Speaker 1: you create?

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Speaker 3: Well, I had an interesting experience, which is, you know,

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Speaker 3: very early on, I understood the importance of maintaining a

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Speaker 3: policy allocation and rebalancing towards it. So at one asset

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Speaker 3: quest did particularly well, you bought, you sold it to

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Speaker 3: sell it down to its policy, and when it did poorly,

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Speaker 3: you did the opposite. You bought and went back up

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Speaker 3: to your policy. And one of the funds that I

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Speaker 3: used was the old Vanguard Precious Metals Fund, which back

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Speaker 3: in the day was a real, honest to god, low

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Speaker 3: cost gold and precious metals equity fund. And what I

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Speaker 3: found was that simply by rebalancing it, the internal rate

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Speaker 3: of return I got out of it was about five

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Speaker 3: percent higher than the than the dollar weighted excuse me,

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Speaker 3: the time weighted return. So in other words, I had

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Speaker 3: a positive gap, not a negative gap, and I wanted

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Speaker 3: to know where that five percent came from. It didn't

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Speaker 3: matter how I did it, whether I balanced monthly or

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Speaker 3: quarterly or annually, or I used thresholds year after year

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Speaker 3: that five percent. Some years it was four percent, some

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Speaker 3: years was seven percent. But an average sum five percent.

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Speaker 3: Couldn't figure out where it came from. So I worked

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Speaker 3: out the canonical math of it. Okay, And if you

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Speaker 3: understand the mathematics of rebalancing where that bonus comes from,

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Speaker 3: then you understand acid allocation, and if you understand acid allocation,

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Speaker 3: you understand finance. It's just that simple. So that's that

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Speaker 3: was that was sort of that was that was that

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Speaker 3: was sort of the the insight that I had early

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Speaker 3: on that had enabled me to write about finance.

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Speaker 1: So so to oversimplify that tool. When you're rebalancing, you're

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Speaker 1: selling a little bit of what got expensive, you're buying

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Speaker 1: a little bit of what got cheap. And is that

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Speaker 1: where the magic percentage came from, where the bonus came from.

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Speaker 3: With precious metals, it surely does. And precious metals is

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Speaker 3: a is a special case. It doesn't work quite as

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Speaker 3: well for the more common, the more common asset classes.

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Speaker 3: But the really nice thing about golden precious metals is

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Speaker 3: that it is subject to animal instincts. So there are

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Speaker 3: some time periods when you simply can't give gold precious

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Speaker 3: metals equities away, and people are saying, this really doesn't

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Speaker 3: belong in your portfolio anymore, and I would read I

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Speaker 3: would read experts, you know, talking about, yeah, gold golden

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Speaker 3: precious metals really doesn't belong in your portfolio anymore. And

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Speaker 3: then you have other times when you know the gold

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Speaker 3: bugs are hopping, the dogs are quacking, and they have

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Speaker 3: to be fed. And those are the times when you

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Speaker 3: feed them and you sell them, and you sell your

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Speaker 3: your your precious metals and your your your your your

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Speaker 3: precious metals equities. I mean, there was a I saw

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Speaker 3: a wonderful article in the journal a couple of weeks ago.

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Speaker 3: I saw, I saw yeah, and I saw this John Yeah,

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Speaker 3: and well it was that and it was about him

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Speaker 3: and a number of other people. I think it's the

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Speaker 3: same article you're talking about. And I saw a wonderful

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Speaker 3: three word term, which is first time investor. Anytime you

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Speaker 3: see first time investor, uh, you know, around an ascid class,

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Speaker 3: you know that things are getting really propty.

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Speaker 1: So the funny thing is, as soon as I saw

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Speaker 1: that journal article that referred to after the big short

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Speaker 1: where Paulson it was really one of his lieutenants is

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Speaker 1: the guy who created that bet. Paulson just was the

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Speaker 1: owner of the firm, and Pat Baghini Paganini is the

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Speaker 1: guy who had done that bet, made an ungodly amount

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Speaker 1: of money and rolled it into gold. And that was

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Speaker 1: fifteen years ago, and the journal is saying the trade

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Speaker 1: is finally working out I'm like trade, it's fifteen years.

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Speaker 1: The SMP has out performed gold over the past fifteen

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Speaker 1: years by like five x. How is this anything but

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Speaker 1: a disastrous trade. That's a little less disastrous.

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Speaker 3: Yeah, it's funny that you mentioned that, because almost exactly

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Speaker 3: fifteen years ago, Jason has Wagge interviewed me about Ron

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Speaker 3: Paul's portfolio, which was very heavy in gold and precious metals. Now,

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Speaker 3: the article came, i believe at the end of nine

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Speaker 3: to twenty eleven, when gold was coming off of a

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Speaker 3: run of very high.

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Speaker 1: Nineteen hundred and change or so, if memory serves.

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Speaker 3: Yeah, and you know, Jason and I just got absolutely

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Speaker 3: flamed in the comments section of that article. It verged,

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Speaker 3: you know, pretty much towards over anti semitism in spots

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Speaker 3: and you know, Jews and gold and all that, and

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Speaker 3: that was that was a pretty good marker. And that

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Speaker 3: was exactly the same time period that you're talking about.

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Speaker 3: You start from twenty eleven, it was a disaster. You

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Speaker 3: start from twenty fifteen. Gold's done very well, thank you.

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Speaker 3: But gold looked very different in twenty fifteen than it

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Speaker 3: did at the end of twenty eleven.

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Speaker 1: Huh. It's it's pretty amazing that. I guess I used

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Speaker 1: to think people's definition of long term was too short.

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Speaker 1: Like when someone says, well, I'm a long term investor,

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Speaker 1: I'm an investor for a couple of years, I'm like, no, No,

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Speaker 1: you got to think in terms of decades, and now

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Speaker 1: fifteen years is a trade that is where out It's

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Speaker 1: really kind of amusing. But let's bring this back to

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Speaker 1: your career change. There are very specific skills that you

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Speaker 1: bring to the table as both a medical doctor and

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Speaker 1: a neurologist. Any of those skills transferable? How did you

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Speaker 1: leverage that?

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Speaker 3: Well? You would think that being a neurologist would help

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Speaker 3: you with behavioral fiance. It really doesn't, because the everyday

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Speaker 3: practice of neurology has almost nothing to do or relatively

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Speaker 3: little to do with with behavior I the kind of

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Speaker 3: neurology I did is something that's referred to disparagingly in

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Speaker 3: the Greatest Chicken neurology, which is that which is nexs

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Speaker 3: and backs okay.

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Speaker 1: Nex send backs okay?

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Speaker 3: Yeah, and and Dwaye. You know, people talk to me

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Speaker 3: about the neurosciences and about all these brilliant people, you know,

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Speaker 3: Konoman and firsty and spa spurry and gazanaga. And what

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Speaker 3: I like to say is, no, those guys are you

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Speaker 3: know Da Vinci and Michaelangelo. You know I was Sherwin Williams.

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Speaker 3: It really didn't. It really didn't help me all that much.

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Speaker 3: Where it did help me with the basic scientific treaming,

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Speaker 3: it brought me respect for data and for updating your priors.

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Speaker 3: When when the data contradict your your deeply held beliefs,

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Speaker 3: maybe your deeply held beliefs need to be reevaluated.

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Speaker 1: Well that's always a challenge. So let me throw out

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Speaker 1: a touchy question at you. Doctors have a notorious reputation

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Speaker 1: amongst finance people for being terrible investors. And my pet

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Speaker 1: thesis is their nurses and staff or look up to them,

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Speaker 1: their patients think their God. How on earth can those

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Speaker 1: people bring any level of humility to a world that

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Speaker 1: is so unknown and so challenging. Indexings is in admission.

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Speaker 1: I'm not going to be a Warren Buffett or Peter Lynch.

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Speaker 1: I'm not going to be a stock picker a market

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Speaker 1: time timer. What's your experience dealing with doctors, because you

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Speaker 1: clearly don't fit that stereotype amongst a lot of financial advisors. No,

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Speaker 1: doctors can be difficult.

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Speaker 3: That's a fair that's a fair observation. Surgeons tend to

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Speaker 3: be more overconfident than than than than medically oriented positions.

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Speaker 1: Hey, we're cutting a person open and we think it'll

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Speaker 1: all work out. How can you not be over confident?

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Speaker 3: Exactly? And then you know, there's the there's the gender

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Speaker 3: aspect of it as well, which is male doctors are

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Speaker 3: much worse. Uh, most people are happier by the way,

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Speaker 3: with female doctors, probably for the very same reason as

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Speaker 3: one of my neurological colleagues once, a female neurological colleague

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Speaker 3: once told me that testosterone does wonderful things for reflex

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Speaker 3: time and muscle maacks mass, but for judgment not so much. Now,

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Speaker 3: that's that's happening. It's the overconfidence aspect. But the real reason,

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Speaker 3: and I think actually even the bigger reason why physicians

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Speaker 3: do so poorly, is they don't treat it like a

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Speaker 3: serious subject. Okay, you know you wouldn't You know, before

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Speaker 3: you're even allowed you're a patient, you have to master

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Speaker 3: the basic sciences. You know, your anatomy and your physiology

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Speaker 3: and your pharmacology and so forth. And they never bother

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Speaker 3: to take the time. And the way I explain it

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Speaker 3: to them is without treating finance as a serious subject

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Speaker 3: worthy of academic study, they're trying to do brain surgery

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Speaker 3: by reading the USA today. It just doesn't work.

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Speaker 1: Huh. That's that's really really insightful. So last question, if

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Speaker 1: someone were going to ask you for advice about undertaking

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Speaker 1: a career change, what sort of advice would you give them.

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Speaker 3: Well, it's it's a complex bit of calculus, which is

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Speaker 3: that you do have to be financially secure and change

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Speaker 3: your career. Okay. One of my favorite New Yorker cartoons

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Speaker 3: is the typical, you know, homeless guy in the street

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Speaker 3: with the tin cup of his sign says, followed my bliss.

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Speaker 3: All right, so don't don't follow your dress when you're

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Speaker 3: when you're too young. You know, if you have to

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Speaker 3: spend ten or twenty years doing something you don't like

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Speaker 3: to become financially secure. Uh. And you understand that money

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Speaker 3: doesn't buy things, it buys time and autonomy. Get that

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Speaker 3: time and economy and become financially secure and then you

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Speaker 3: can do whatever the hell you want to do.

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Speaker 1: Great stuff, Bill, Thanks, We have been speaking with William Bernstein,

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Speaker 1: co founder Officient Frontier Advisors and author of so many

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Speaker 1: great books on economic history, Birth of plenty, splendid exchange,

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Speaker 1: masters of the word, delusions of the crow of crowds,

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Speaker 1: On and on. You're listening to Bloomberg's at The Money

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Speaker 1: Doctor doted give me the news. I've got it.

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Speaker 2: Jez, loving you,