WEBVTT - Savita Subramanian on Equity and Quantitative Strategy 0:00:02.480 --> 0:00:08.360 This is Master's in Business with Barry Ridholts on Bloomberg Radio. 0:00:09.480 --> 0:00:12.799 On this week's podcast, what Can I Say? Savita Subremanian 0:00:13.360 --> 0:00:16.120 formerly of Merrill Lynch, they got bought by Bank America. 0:00:16.440 --> 0:00:19.120 She's been with them for twenty three years. Her current 0:00:19.160 --> 0:00:23.279 title is Head of Equity and Quantitative Strategies. Savita is 0:00:23.280 --> 0:00:25.720 one of these women in the world of finance who 0:00:25.800 --> 0:00:31.240 is a powerhouse. Her quant work is wildly respected on 0:00:31.280 --> 0:00:34.560 the street. She's a regular on the Institutional investor All Star. 0:00:34.720 --> 0:00:39.600 I think, like the past eleven years. She manages literally 0:00:39.720 --> 0:00:43.400 hundreds of models and helps create just an endless amount 0:00:43.520 --> 0:00:47.919 of research and content. Her work is super high quality 0:00:48.440 --> 0:00:51.720 and is relied on by a lot of institutional as 0:00:51.800 --> 0:00:56.800 well as main street investors. I found the conversation really fascinating. 0:00:57.200 --> 0:01:01.320 She is one of the few people who combine quantitative 0:01:01.400 --> 0:01:06.560 investing with behavioral finance, not a common one two punch, 0:01:07.280 --> 0:01:10.800 and she's fantastic at it. I found the conversation to 0:01:10.840 --> 0:01:14.200 be absolutely intriguing, in a whole lot of fun, and 0:01:14.280 --> 0:01:17.920 I think you will also with no further ado, my 0:01:18.080 --> 0:01:24.520 discussion with Bank of America's Savita Supermanian. Thank you so much, Supermanian. 0:01:24.600 --> 0:01:26.400 I think I'm getting your name, Supramani. 0:01:26.520 --> 0:01:27.880 I've heard all sorts of things. 0:01:29.800 --> 0:01:32.720 I try not to butcher people's names. But let's talk 0:01:32.760 --> 0:01:36.839 a little bit about your background. So BA in mathematics 0:01:36.880 --> 0:01:42.119 and philosophy from Berkeley, an NBA from Columbia. I'm kind 0:01:42.160 --> 0:01:47.480 of intrigued by the idea of philosophy and math. What 0:01:47.560 --> 0:01:48.400 was the career plan? 0:01:48.680 --> 0:01:52.520 Yeah, well there was no career plan really, so at 0:01:52.560 --> 0:01:57.440 Berkeley I ended up changing my major a few times. 0:01:57.760 --> 0:02:00.320 From what well, I started out as. 0:02:00.240 --> 0:02:05.600 An electrical engineering computer science major, uh huh. And then 0:02:05.680 --> 0:02:08.720 I realized that there are basically no girls in any 0:02:08.760 --> 0:02:10.480 of those classes. 0:02:10.000 --> 0:02:13.519 Well back then, maybe not more today now, Yeah, which. 0:02:13.320 --> 0:02:14.480 Is a huge relief. 0:02:14.520 --> 0:02:18.080 But I also realized that I love to write, I 0:02:18.160 --> 0:02:21.360 love to read, and I kind of wanted to have 0:02:21.840 --> 0:02:25.560 some sort of a liberal arts aspect in my career. 0:02:26.000 --> 0:02:29.160 I took a class called existentialism in film and Literature. 0:02:29.240 --> 0:02:31.720 It's like one of these Berkeley classes, right, you know, 0:02:31.800 --> 0:02:35.080 this like completely pointless once you graduate, But it was. 0:02:35.080 --> 0:02:38.840 It's pointless one year I took an existential class in college. Yeah, 0:02:38.880 --> 0:02:42.880 I got a great mark on the midterm and the 0:02:42.960 --> 0:02:45.640 final was a paper which I never handed in. The 0:02:45.639 --> 0:02:48.000 professor asked me why, and I said, what does it matter? 0:02:49.320 --> 0:02:51.160 And he's like, you know, I feel compelled to give 0:02:51.200 --> 0:02:55.160 you a great Yeah. I wish that was a joke, 0:02:55.240 --> 0:02:57.200 but it's actually it's actually true. 0:02:58.040 --> 0:02:59.880 So I wasn't that smart. I did all the work. 0:03:00.160 --> 0:03:03.360 I read a quote from you way back when you 0:03:03.400 --> 0:03:05.760 said your parents were pushing you to be either an 0:03:05.760 --> 0:03:09.399 engineer or a doctor. Is this true? I mean, it's 0:03:09.480 --> 0:03:13.400 such a cliche Indian parents, Jewish parents go to school 0:03:13.480 --> 0:03:14.200 become a doctor. 0:03:14.360 --> 0:03:17.600 Well, I mean there's a reason it's a cliche. It's 0:03:17.639 --> 0:03:18.760 pretty much the norm. 0:03:18.840 --> 0:03:21.280 I mean, it happened to like me and everybody I 0:03:21.400 --> 0:03:25.040 know who's a you know, child of an immigrant from India, 0:03:25.160 --> 0:03:27.520 So it's kind of I mean, I think it was. 0:03:27.560 --> 0:03:29.839 You know, it was the seventies. It was unclear how 0:03:29.840 --> 0:03:31.400 anybody was going to make their living. 0:03:32.639 --> 0:03:33.720 My parents were. 0:03:33.560 --> 0:03:37.240 Both in high tech. My dad was an engineer, my 0:03:37.320 --> 0:03:40.640 mom was a software person. So really, yeah, they were 0:03:40.680 --> 0:03:42.000 both steeped. 0:03:41.600 --> 0:03:43.720 In technology in Silicon Valley. 0:03:43.840 --> 0:03:46.960 In Silicon Valley, they were you know, early early days 0:03:47.000 --> 0:03:53.120 in Mountain View, before it was you know, googleized routed. Yeah, exactly, 0:03:53.160 --> 0:03:56.680 before there was traffic, but it was it was I 0:03:56.680 --> 0:03:59.800 think that my parents, you know, they came here for 0:04:00.160 --> 0:04:02.480 to have a better life, to make some money, you know, 0:04:02.680 --> 0:04:05.720 not you know, to to basically live the American dream. 0:04:06.480 --> 0:04:10.440 And I think that the only legitimate careers were really 0:04:10.480 --> 0:04:14.720 in the sciences or you know, kind of practical applications. 0:04:14.960 --> 0:04:18.520 Today they've completely accepted me for who I am, as 0:04:18.600 --> 0:04:22.039 the dark you know, dark art of finance person. 0:04:22.320 --> 0:04:23.800 But but back the. 0:04:26.880 --> 0:04:27.360 Exactly. 0:04:28.040 --> 0:04:30.240 See for Jewish parents, if you go to law school, 0:04:30.480 --> 0:04:31.400 they'll put up with them. 0:04:32.480 --> 0:04:35.640 It's like the old school is just barely accepted. 0:04:35.760 --> 0:04:38.280 Right, It's all right, well, well will allow it. It's 0:04:38.320 --> 0:04:41.760 three years, will allow. But really, medical school is our 0:04:41.760 --> 0:04:42.880 first choice exactly. 0:04:43.000 --> 0:04:44.040 Yes, you know the drill. 0:04:44.160 --> 0:04:48.159 So I was a rebel and and I mean the 0:04:48.200 --> 0:04:50.920 reason I did mathematics and philosophy was that I have 0:04:50.960 --> 0:04:54.080 a very short attention span. So I found myself getting 0:04:54.120 --> 0:04:56.040 kind of bored with my mouth problem sets, and then 0:04:56.080 --> 0:04:58.560 I could shift to philosophy and then go back and forth. 0:04:58.640 --> 0:05:00.719 So it was actually pretty ideal for me. 0:05:01.440 --> 0:05:05.480 So how do you end up at Scudder Kemper in 0:05:06.040 --> 0:05:09.279 both New York and San Francisco In the nineteen nineties. 0:05:09.520 --> 0:05:12.000 At that point, I know you will talk about your 0:05:12.000 --> 0:05:15.960 internship a little later, but at that point, are you like, 0:05:16.160 --> 0:05:18.159 I think this is the career I want to be in. 0:05:18.320 --> 0:05:20.680 No, I had no idea when I graduated what I 0:05:20.680 --> 0:05:22.640 wanted to do. In fact, I was convinced that I 0:05:22.680 --> 0:05:27.599 wanted to be a professor in philosophy. And I took 0:05:27.880 --> 0:05:30.880 the gre and all those tests, and I applied, and 0:05:30.920 --> 0:05:33.000 I was going to get a PhD in philosophy, and 0:05:33.040 --> 0:05:35.080 I did all the work. But I realized I had 0:05:35.120 --> 0:05:37.559 to support myself while I was waiting to hear back. 0:05:37.839 --> 0:05:39.719 So I got a job in finance. I moved to 0:05:39.760 --> 0:05:41.520 New York because I'd always wanted. 0:05:41.200 --> 0:05:43.520 To be in New York. New York was my destination. 0:05:44.400 --> 0:05:49.200 And I got a job at Scudder doing something really random. 0:05:49.360 --> 0:05:50.040 I think it was. 0:05:50.680 --> 0:05:54.400 I think I was working as a technical writer on 0:05:54.440 --> 0:05:58.400 their software application. But I was just kind of bouncing 0:05:58.440 --> 0:06:00.800 around and looking for, you know, place where I could 0:06:00.839 --> 0:06:03.200 earn a study living and bide my time before I 0:06:03.240 --> 0:06:06.640 went to grad school. And then I started to realize 0:06:06.680 --> 0:06:12.320 that philosophers of professors of philosophy end up having to 0:06:12.400 --> 0:06:15.680 live in really random places in the country, and. 0:06:15.640 --> 0:06:16.520 Wherever they get a job. 0:06:16.640 --> 0:06:19.280 Wherever they get a job there, you know, they don't 0:06:19.279 --> 0:06:20.560 make a lot of cash. 0:06:21.200 --> 0:06:22.080 And meanwhile I. 0:06:22.080 --> 0:06:24.120 Was doing you know, I was working at this financial 0:06:24.160 --> 0:06:27.760 services company, and I was really interested in what they 0:06:27.800 --> 0:06:32.039 were doing. It was kind of like philosophy meets mathematics, 0:06:32.040 --> 0:06:35.760 because finance, to me is sort of a fuzzy science 0:06:35.839 --> 0:06:38.720 with no answers. 0:06:37.720 --> 0:06:38.520 Very logical. 0:06:39.120 --> 0:06:41.720 So it's got this math angle where you know, it's 0:06:41.720 --> 0:06:46.120 all numbers, but then there's this behavioral angle and psychological 0:06:46.160 --> 0:06:49.800 angle where you know, it's kind of a fun problem 0:06:49.880 --> 0:06:51.680 to tackle. So I realized I could make a lot 0:06:51.720 --> 0:06:54.600 more money working in finance and being a philosophy professor, 0:06:55.200 --> 0:06:59.279 and I basically kind of stayed the course. 0:07:00.000 --> 0:07:03.640 Today's episode of Barry confirming his priors is brought to 0:07:03.680 --> 0:07:07.680 you by so that very much is you know, one 0:07:07.720 --> 0:07:10.800 of the reasons I was looking forward to this conversation 0:07:11.080 --> 0:07:15.080 is how much everything you write is just right in 0:07:15.080 --> 0:07:17.800 my sweet spot. You can pull that out. But let's 0:07:17.800 --> 0:07:20.040 I want to talk about the internship. So let's let's 0:07:20.120 --> 0:07:22.800 let's go over there. So I mentioned you were an 0:07:22.840 --> 0:07:27.120 intern in college, and this is kind of fascinating. You 0:07:27.320 --> 0:07:32.000 interned for a Merrill Lynch quant team, which fast forward 0:07:32.360 --> 0:07:35.480 twenty plus years later, that's now the team that you 0:07:35.640 --> 0:07:39.640 lead at Bank America Merrill Lynch now known as b 0:07:39.800 --> 0:07:41.280 of A Right exactly. 0:07:41.360 --> 0:07:44.440 So that was actually my internship during business school. So 0:07:44.480 --> 0:07:47.840 after working at Scudder, I realized I didn't really have 0:07:47.960 --> 0:07:51.840 the foundations for financials. I didn't understand, you know, kind 0:07:51.880 --> 0:07:54.720 of how to parson income statement. And so I went 0:07:54.760 --> 0:07:56.680 to business school. I decided to go to business school 0:07:56.680 --> 0:07:59.080 and get that formal education. And then in the year 0:07:59.400 --> 0:08:02.080 the year in between your one and two of business school, 0:08:02.120 --> 0:08:06.040 I did my internship with Merrill Lynch with a gentleman 0:08:06.160 --> 0:08:07.320 named Rich Bernstein. 0:08:07.720 --> 0:08:10.080 And yes, you know him. 0:08:10.240 --> 0:08:10.800 I know Rich. 0:08:11.560 --> 0:08:16.280 And that was the beginning of, you know, a wonderful career. 0:08:16.720 --> 0:08:19.600 But it's it's sort of strange. I don't know whether 0:08:19.720 --> 0:08:23.560 to feel proud or depressed about this. But I am 0:08:23.600 --> 0:08:27.160 the only person I know from business school. I graduated 0:08:27.240 --> 0:08:29.680 Columbia two thousand and two, and I'm the only person 0:08:29.720 --> 0:08:32.160 I know who stayed in the same. 0:08:32.280 --> 0:08:36.560 Job for the last twenty three years. 0:08:36.679 --> 0:08:39.280 So you shouldn't be depressed about that. You should think 0:08:39.320 --> 0:08:42.880 about you should be grateful for Oh, I found what 0:08:42.920 --> 0:08:45.520 I wanted to do right out of school. It's true, 0:08:45.520 --> 0:08:48.000 and I've been honing that craft for twenty three years. 0:08:48.080 --> 0:08:50.760 That that is, that's half full. 0:08:50.960 --> 0:08:54.840 A lot of people, especially in finance, kind of flit 0:08:54.920 --> 0:08:58.880 from flower to flower until they find the right nectar. Yes, 0:08:58.920 --> 0:09:02.640 that works for them, and it's kinda Look, it's not 0:09:02.760 --> 0:09:04.680 just me. I've seen a bunch of people. They start 0:09:04.720 --> 0:09:07.760 out as brokers, they eventually get a CFP and they 0:09:07.800 --> 0:09:11.760 go to the advisory side, or people start out with 0:09:11.800 --> 0:09:14.480 the CFA and they decide, you know, I would rather 0:09:15.320 --> 0:09:19.120 manage the portfolio than tell I'd rather be a PM 0:09:19.280 --> 0:09:23.360 than advise the PM. And so people kind of have to, 0:09:23.800 --> 0:09:28.080 you know, that journey. You were fortunate that so not 0:09:28.160 --> 0:09:31.200 only did Scudder lead you to business school, but business 0:09:31.200 --> 0:09:33.400 school led you to the job that you've had for 0:09:33.440 --> 0:09:34.200 the rest of your life. 0:09:34.280 --> 0:09:37.800 Rich to quant strategy, now equity. It's just been a 0:09:37.880 --> 0:09:39.160 dream come true. 0:09:39.320 --> 0:09:43.160 So you had mentioned the behavioral side of finance. Not 0:09:43.400 --> 0:09:49.480 a lot of quants marry behavioral finance to the mathematical side. 0:09:50.120 --> 0:09:55.120 Tell us how this sort of mixture, which I love, 0:09:55.200 --> 0:09:58.040 it works so well for me. I started on a 0:09:58.080 --> 0:10:02.000 trading desk. I kind of stop into behavioral finance in 0:10:02.080 --> 0:10:04.559 the mid nineties, right before all the cool kids were 0:10:04.559 --> 0:10:07.880 doing it, and it suddenly like, oh, all of this 0:10:07.960 --> 0:10:10.880 stuff that seems sort of random, Now at least there's 0:10:10.880 --> 0:10:14.560 an explanation for the randomness, and it kind of makes 0:10:14.600 --> 0:10:17.960 sense why people do the things they do. We're you know, 0:10:18.320 --> 0:10:20.160 we're just not wired for. 0:10:20.040 --> 0:10:21.880 This, right, right, right? Right? 0:10:22.000 --> 0:10:22.040 No. 0:10:22.200 --> 0:10:23.359 I think that that's. 0:10:23.160 --> 0:10:25.360 The part of it that I find the most interesting 0:10:25.520 --> 0:10:29.240 is the idea that you know, a stock price doesn't 0:10:29.320 --> 0:10:34.360 really have a you know, the fair value of an 0:10:34.400 --> 0:10:40.080 investment instrument is somewhat arbitrary, right, And then it's you know, 0:10:40.080 --> 0:10:42.440 it's supplied demand, it's perception. 0:10:42.640 --> 0:10:47.040 Perception is reality for many of these companies. So, I mean, 0:10:47.080 --> 0:10:48.160 I think the. 0:10:48.280 --> 0:10:53.680 Day that I realized that behavioral finance deserves a very 0:10:53.800 --> 0:10:56.400 prominent place in the arsenal of models. 0:10:56.000 --> 0:10:59.880 That we all use was when I got it. 0:11:00.600 --> 0:11:04.079 I got the job as equity strategists, and I realized 0:11:04.120 --> 0:11:08.480 that probably the most important number that I publish is 0:11:08.720 --> 0:11:11.960 our year end target. It's kind of a silly number, 0:11:12.160 --> 0:11:16.240 but people are going to think you're smart or dumb 0:11:16.280 --> 0:11:19.240 based on that number. And so I said, Okay, let's 0:11:19.320 --> 0:11:21.400 use all these quant models that I've been building for 0:11:21.440 --> 0:11:25.440 the last ten plus years, and after testing all of them, 0:11:25.640 --> 0:11:28.920 it turned out that there was one model that was 0:11:29.120 --> 0:11:32.840 better than everything else predicting the next twelve months of 0:11:33.000 --> 0:11:37.680 S and P returns, and that was a behavioral model. 0:11:37.960 --> 0:11:41.640 Really, how do you measure behavior in a quantitative model 0:11:41.960 --> 0:11:42.760 for equities? 0:11:42.880 --> 0:11:44.200 It's a very cool model. 0:11:44.240 --> 0:11:46.680 And I actually was lucky enough to inherit it from 0:11:46.720 --> 0:11:49.800 my former boss, Rich, who I think inherited it from 0:11:49.840 --> 0:11:53.000 his former boss. So it's been around at Merrill for 0:11:53.320 --> 0:11:54.760 you know, since the eighties. 0:11:54.800 --> 0:11:56.800 Who was who was Rich's former boss? 0:11:56.960 --> 0:11:59.200 I can't remember. We'll have to get him on and 0:11:59.240 --> 0:12:00.559 ask him. 0:12:00.800 --> 0:12:03.360 I've had him on. Yeah, I'm sure he's told me, 0:12:03.480 --> 0:12:04.280 but he may. 0:12:04.480 --> 0:12:06.920 Yeah, we'll we'll look it up in the annals. But 0:12:08.040 --> 0:12:11.679 you know, it's been around for it predates Rich Bernstein's 0:12:11.720 --> 0:12:17.840 so so basically this model is just a simple straight 0:12:17.960 --> 0:12:24.760 average of all the Wall Street strategists recommended allocations to 0:12:25.000 --> 0:12:28.360 stocks in a balanced portfolio. So if you go to 0:12:28.480 --> 0:12:31.480 your broker and he or she tells you you should 0:12:31.520 --> 0:12:34.320 put you know, sixty percent in stocks, or you should 0:12:34.360 --> 0:12:36.920 put forty percent in stocks. We take all those numbers 0:12:36.920 --> 0:12:39.360 from the different houses and we average them together. We've 0:12:39.360 --> 0:12:43.199 been doing this every month since you nineteen eighty, and 0:12:43.679 --> 0:12:48.280 it turns out to be the best contrary indicator. 0:12:48.600 --> 0:12:51.319 Oh really, I thought you were going to go with, Oh, 0:12:51.360 --> 0:12:55.079 it's a very wisdom of crowds and whatever it averages 0:12:55.120 --> 0:12:56.040 out run. 0:12:55.960 --> 0:12:57.160 The opera to the opposite. 0:12:57.240 --> 0:12:58.160 Yeah, no kidding. 0:12:58.320 --> 0:13:01.480 That was the punchline of indicator, and I thought that 0:13:01.600 --> 0:13:04.240 was so fascinating. But then when you peel back the onion, 0:13:04.280 --> 0:13:07.559 you realize there's a reason for it. It's because you know, 0:13:07.800 --> 0:13:10.560 when everybody's looking at all this data and it all 0:13:10.600 --> 0:13:15.880 seems terrible, chances are that information's priced into the market 0:13:15.960 --> 0:13:18.040 and it's going to surprise in the opposite direction. 0:13:18.360 --> 0:13:22.559 I want to say to go back to Rich Bernstein's boss. 0:13:23.200 --> 0:13:27.120 Was it Bob Farrell or was Bob Farrell two bosses before? Gosh, 0:13:27.200 --> 0:13:29.800 I don't kind of remember him as late eighties, early nineties. 0:13:29.920 --> 0:13:33.000 Yeah, Bob Ferrell was I never seventies eighty like way 0:13:33.040 --> 0:13:33.760 before my time? 0:13:33.920 --> 0:13:34.360 You ever have? 0:13:34.520 --> 0:13:35.400 Oh yeah, yeah, yeah. 0:13:35.480 --> 0:13:39.600 I met him at a market technicians association all night. 0:13:39.720 --> 0:13:43.720 Then I interviewed him for one of their events. But 0:13:44.240 --> 0:13:48.679 Bob Farrell's ten investing rules. Yes, that was gospel, and 0:13:48.760 --> 0:13:53.720 to this day is still like, you're hard pressedifying another 0:13:53.760 --> 0:13:58.000 ten rules that are as insightful and astute and still relevant. 0:13:58.120 --> 0:13:58.800 Completely. 0:13:59.280 --> 0:14:01.359 It's he always been spectacular. 0:14:01.559 --> 0:14:05.320 Yeah, he was onto something and he probably he created this, 0:14:05.320 --> 0:14:09.160 this framework. I don't recall, but I mean I still 0:14:09.200 --> 0:14:13.400 have financial advisor sending me these Bob Ferrell quotes. 0:14:12.960 --> 0:14:16.640 And like, bring it, this is great. He was. He 0:14:16.720 --> 0:14:17.680 was a legend, right. 0:14:17.960 --> 0:14:20.200 I want to say that might have been one of 0:14:20.200 --> 0:14:23.640 his quotes. I could quickly find it, which was something like, 0:14:23.680 --> 0:14:27.920 if everybody's talking about it, it's already reflected in the price. No, 0:14:28.680 --> 0:14:32.280 there's no surprise there exactly when all the experts and 0:14:32.440 --> 0:14:36.000 forecasts agree, something else is going to happen. That's right, 0:14:36.080 --> 0:14:39.920 rule number nine from Bob. So you're you're definitely channeling 0:14:39.960 --> 0:14:44.600 a little Farrell. Ye. So, given this, how do you 0:14:44.840 --> 0:14:51.040 draw a price target or a market forecast from here's 0:14:51.080 --> 0:14:56.200 the average of all the Wall Street strategists. Let's say 0:14:56.200 --> 0:14:59.120 it's plus eight percent. Yeah, what do you do with that? 0:14:59.280 --> 0:15:01.560 On average? Well, you about plus eight nine percent on 0:15:01.600 --> 0:15:03.520 the S and B we Yeah. 0:15:03.600 --> 0:15:04.520 So here's the thing. 0:15:04.600 --> 0:15:08.080 I mean, if you think about just how much this 0:15:08.280 --> 0:15:11.680 number changes over time. So it's been you know, back 0:15:11.960 --> 0:15:14.680 in two thousand and one, strategists were telling you to 0:15:14.760 --> 0:15:18.200 put about seventy percent of your money in stocks. But 0:15:18.320 --> 0:15:22.520 then you know, just in I think it was twenty twelve, 0:15:22.640 --> 0:15:27.000 coming out of the financial crisis, you know, after after 0:15:27.880 --> 0:15:31.320 one round of QI, Europe was in a you know, 0:15:31.360 --> 0:15:32.040 a recession. 0:15:32.120 --> 0:15:35.000 Everybody was Brexit, Grexit, it was all happen. 0:15:34.840 --> 0:15:37.840 Everything was all happening. The US just got downgraded. And 0:15:38.880 --> 0:15:44.720 that was when that indicator plummeted to forty three percent. 0:15:45.160 --> 0:15:48.400 Wow, which was exactly the right time you wanted to 0:15:48.440 --> 0:15:50.880 buy equities. I remember printed money. 0:15:50.920 --> 0:15:55.040 Since twenty ten, eleven, twenty twelve, there was so much 0:15:55.040 --> 0:15:59.440 skepticism yeah about equity markets. And my pushback to people 0:15:59.480 --> 0:16:03.440 was always, show me another time when down fifty seven 0:16:03.480 --> 0:16:08.000 percent wasn't a spectacular entry right into US equities, right? 0:16:08.040 --> 0:16:11.880 And the answer is always twenty nine and thirty two? Okay, 0:16:12.280 --> 0:16:15.600 is this like thirty two? Is this remotely like twenty nine? Right? 0:16:15.720 --> 0:16:18.960 I mean you already had the dot com implosion. If 0:16:18.960 --> 0:16:21.640 you want to say that down eighty one percent was 0:16:21.680 --> 0:16:25.200 your twenty nine, fine, But that was you know, seven 0:16:25.240 --> 0:16:27.440 eight years ago and here we are down fifty seve. 0:16:27.320 --> 0:16:28.160 Here we are again. 0:16:28.360 --> 0:16:31.560 I know, I know, it was an interesting time, and 0:16:31.600 --> 0:16:34.320 that's right when I got the job as strategists. So 0:16:34.400 --> 0:16:36.840 it was really interesting because I was looking at this model, 0:16:37.120 --> 0:16:38.360 which was my holy grail. 0:16:38.480 --> 0:16:39.840 Right out of everything. 0:16:39.440 --> 0:16:42.160 We'd back tested, this had the best predictive power over 0:16:42.200 --> 0:16:45.600 the next twelve months highest R squared and it was 0:16:45.720 --> 0:16:49.440 telling us to back up the truck on equities. It 0:16:49.520 --> 0:16:51.760 was as low as it had ever been since the 0:16:51.960 --> 0:16:52.960 nineteen eighties. 0:16:53.160 --> 0:16:53.360 Wow. 0:16:53.600 --> 0:16:56.120 And I remember, you know, thinking, oh my gosh, is 0:16:56.160 --> 0:16:59.120 this a data error, and I like, triple quadruple check 0:16:59.200 --> 0:17:01.760 the data. But it was, you know, really a prescient 0:17:01.920 --> 0:17:04.960 signal that a lot of bad news was really priced 0:17:05.000 --> 0:17:08.080 into the market and it was more likely to move higher. 0:17:08.160 --> 0:17:11.280 And you know, since then, it hasn't dropped to forty 0:17:11.280 --> 0:17:13.720 three percent, but it's been pretty low. I mean, I 0:17:13.760 --> 0:17:16.720 think we've been in this market environment since the GFC 0:17:16.840 --> 0:17:20.680 where global financial crisis, where folks have just been worried, 0:17:20.760 --> 0:17:24.040 and the most recent event that we anchor our memories 0:17:24.080 --> 0:17:28.920 to is this horrible credit crisis that derailed the banking sector, 0:17:29.400 --> 0:17:32.520 that crushed the consumer, and now we're just assuming that's 0:17:32.520 --> 0:17:33.920 going to repeat over and over again. 0:17:34.200 --> 0:17:37.640 That's the post GFC PTSD. 0:17:37.960 --> 0:17:38.520 Exactly. 0:17:38.560 --> 0:17:41.080 What was your experience during the first quarter of twenty 0:17:41.119 --> 0:17:45.120 twenty during the pandemic, SMP down thirty four percent. Yeah, 0:17:45.240 --> 0:17:50.399 neatly within the quarter. I noticed some people kind of panic, 0:17:50.520 --> 0:17:53.280 then here comes and other people like, no, Dow, I'm 0:17:53.280 --> 0:17:54.600 thirty four percent. I'm a buyer. 0:17:54.720 --> 0:17:56.679 But yeah, I think that it was. 0:17:57.560 --> 0:18:01.040 It was one of those moments where I think I 0:18:01.080 --> 0:18:03.919 went on TV at some point and they said, you know, 0:18:05.119 --> 0:18:06.680 do you buy here or is. 0:18:06.640 --> 0:18:07.520 There more to go? 0:18:08.440 --> 0:18:10.120 And I yes, and yes. 0:18:09.960 --> 0:18:13.760 I said, you buy here. You pick your stocks, but 0:18:13.840 --> 0:18:14.480 you buy here. 0:18:14.520 --> 0:18:17.480 There are gonna be a lot of really high quality 0:18:17.560 --> 0:18:22.400 companies that have been crushed by fear and loathing and 0:18:22.720 --> 0:18:26.560 you know, just heading for the hills. And this is 0:18:26.600 --> 0:18:28.719 an opportunity that we're probably going to look back on 0:18:28.880 --> 0:18:31.720 and want to buy what I wish we'd bought these companies. 0:18:31.760 --> 0:18:31.919 You know. 0:18:33.040 --> 0:18:38.240 Unfortunately, sometimes people in media or elsewhere they talk about 0:18:38.359 --> 0:18:42.760 catching the bottom and rather than being the bottom tick, 0:18:42.800 --> 0:18:46.080 you could look at that big sweeping parabola and say, 0:18:46.119 --> 0:18:47.919 I don't need to be at the bottom. I just 0:18:47.960 --> 0:18:50.800 want to buy as we're getting close and buy as 0:18:50.800 --> 0:18:54.359 we're moving away from it, and so that two years 0:18:54.400 --> 0:18:57.440 from now, my average cost is just far below where 0:18:57.440 --> 0:19:00.600 the markets so exactly, you don't have to nail the bottom. 0:19:00.280 --> 0:19:02.159 No, and you never will nail the bottom. 0:19:02.520 --> 0:19:04.600 Yeah, someone is going to get lucky, someone's going to 0:19:04.600 --> 0:19:07.119 get that bottom tick. But ninety nine percent of people 0:19:07.240 --> 0:19:09.880 or not right right, So rather than try and pick 0:19:09.920 --> 0:19:14.600 that yeah, hey, down x percent, at down twenty five percent, 0:19:14.600 --> 0:19:16.480 I'm a buyer at down thirty percent, I'm a buyer 0:19:16.760 --> 0:19:19.120 and I don't have enough dry powder that I can 0:19:19.240 --> 0:19:22.719 keep buying down forty percent, down fifty percent completely at 0:19:22.760 --> 0:19:27.400 a certain point when everybody's terrified. It's a spectacular it. 0:19:27.240 --> 0:19:29.680 Is, it's a spectacular buying opportunity. I mean, there's one 0:19:29.680 --> 0:19:33.159 thing that I've looked at that seems to be a 0:19:33.200 --> 0:19:36.199 good leading indicator of, you know, when you want to 0:19:36.520 --> 0:19:40.400 start stepping in, which is I mean momentum. 0:19:40.560 --> 0:19:40.679 Right. 0:19:40.760 --> 0:19:42.240 There's a reason that there are. 0:19:42.160 --> 0:19:45.679 So many momentum investors because the market usually figures out 0:19:46.520 --> 0:19:51.760 whether things are kind of getting worse or getting better. 0:19:52.400 --> 0:19:56.800 And one of the models that we've used to determine 0:19:56.840 --> 0:20:01.280 whether something is actually cheap and attractive or cheap, and 0:20:01.320 --> 0:20:07.360 a falling knife is a falling knife is looking at 0:20:07.440 --> 0:20:10.560 earnings revisions coupled with price momentum. 0:20:11.280 --> 0:20:12.720 And what we've found is that. 0:20:12.680 --> 0:20:17.880 When stocks are going lower but analysts haven't taken down 0:20:17.920 --> 0:20:21.200 their earnings, so it looks cheap, but it's only because 0:20:21.600 --> 0:20:24.600 the cell side is late to react, that's when you 0:20:24.720 --> 0:20:25.520 don't want to buy it. 0:20:25.640 --> 0:20:28.520 Uh huh, you want to. So if there's downside momentum 0:20:28.800 --> 0:20:31.200 and you've had a whole bunch of hey, we're changing 0:20:31.200 --> 0:20:34.119 our earnings estimate, we're changing our price targets, right, that 0:20:34.520 --> 0:20:36.800 means it should be mostly priced. 0:20:36.440 --> 0:20:39.240 Then exactly, So you want to buy a falling You 0:20:39.280 --> 0:20:42.720 want to buy a value stock when its price decline 0:20:42.800 --> 0:20:46.560 is starting to slow down, but estimate revisions are still 0:20:46.640 --> 0:20:50.760 deeply negative. So you're in this environment where everybody hates 0:20:50.920 --> 0:20:55.240 risk and they're downgrading, downgrading, downgrading, but the market's telling you, Okay, 0:20:55.240 --> 0:20:56.920 things are actually not as bad. 0:20:57.160 --> 0:21:00.880 Huh. Really interesting. So let's talk a little bit about 0:21:01.160 --> 0:21:04.040 a day in the life of a big bank's chief 0:21:04.119 --> 0:21:07.159 quant tell us, how do you spend your time, what 0:21:07.160 --> 0:21:09.959 are you doing during the day, and what do you, you know, 0:21:10.000 --> 0:21:13.800 what keeps you curious, what keeps you wondering about what 0:21:13.920 --> 0:21:14.520 comes next? 0:21:14.680 --> 0:21:15.920 Yeah, so my day. 0:21:15.760 --> 0:21:18.080