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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: This week, I have a very special guest. And I

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Speaker 1: know I say that every week and everybody gives me

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Speaker 1: grief about it, but I really have a very special guest,

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Speaker 1: Jeremy Siegel, professor at Wharton School of Business at the

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Speaker 1: University of Pennsylvania. A quick funny story. Um, So I've

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Speaker 1: done television and I've been on the other side of

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Speaker 1: the debate from Professor Siegel over the years, and you know,

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Speaker 1: I always kind of scratched my head. Yeah, Yes, Stocks

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Speaker 1: for the Long Run is pretty good book. It's now

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Speaker 1: it's fifth printing, and there are millions of them out there,

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Speaker 1: and he's consistently the top ranked professor at Wharton. But

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Speaker 1: on TV he always seems to you know, he I'm

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Speaker 1: wholly unimpressed with his television appearances and what he says,

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Speaker 1: and and I've been pursuing him to do the show

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Speaker 1: for a while and we just couldn't get the schedules

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Speaker 1: when he's he's in Philadelphia most of the time. We

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Speaker 1: finally got him into New York this week, and it

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Speaker 1: was one of those situations with which, based on his

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Speaker 1: his appearances that I've seen him previously. I mean, I've

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Speaker 1: seen his writings and they're usually fantastic, but his television

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Speaker 1: appearances were always like, not the greatest thing going. And

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Speaker 1: this experience of having him here for the podcast was

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Speaker 1: really interesting because it made me think that the television

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Speaker 1: appearances he does are just completely the wrong format for him.

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Speaker 1: A guy like him who's that informed, that knowledgeable, that intelligent,

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Speaker 1: and that articulate, you can't give him twelve seconds for

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Speaker 1: a sound bite. He needs a little time to flesh

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Speaker 1: out an answer. And so I guess I look, I

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Speaker 1: know who Professor Siegel is. I know who the Wizard

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Speaker 1: of Warton is. I just came into the podcast expect think, oh,

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Speaker 1: this will be a decent podcast, and I have to

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Speaker 1: tell you, he blew my doors off. He just basically

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Speaker 1: so enthusiastic and so articulate, and we really had so

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Speaker 1: much fun talking about all this stuff. I had a

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Speaker 1: great time, and I think those of you who may

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Speaker 1: not know Professor Jeremy Siegel well will also have a

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Speaker 1: really good time. Um, listen to this. For those of

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Speaker 1: you who are fans of stocks for the long run

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Speaker 1: and or no Professor Siegel, you're gonna enjoy this. Also,

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Speaker 1: he says a few things that he I don't believe

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Speaker 1: has ever said before publicly, and and it was just

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Speaker 1: a fascinating conversation. So, without any further ado my conversation

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Speaker 1: with Professor Jeremy Siegel. You mentioned Chicago. So it was

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Speaker 1: born in Chicago, ended up in Columbia, m I t

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Speaker 1: then across the river to Cambridge for a year post doc,

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Speaker 1: and then back to Chicago. How it brought you to

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Speaker 1: Wharton from Chicago? It was very interesting. So I was

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Speaker 1: in my fourth year, I was assistant professor of of

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Speaker 1: Business Economics, and I got a call from a colleague

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Speaker 1: one person, uh Tony Santa Marro, who by the way,

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Speaker 1: was president of the Federal Reserve Bank of Philadelphia after

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Speaker 1: he left Wharton, but at that time he was in Warton.

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Speaker 1: He called me up and said, Jeremy, I need I

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Speaker 1: need another macro person here. Would you consider coming to Wharton?

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Speaker 1: And I went to Wharton and they offered me a

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Speaker 1: very very attractive job. Even though I like Chicago a lot,

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Speaker 1: I decided to uh to settle there at at the

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Speaker 1: Wharton School. And now you're known as the Wizard of Warton.

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Speaker 1: You've been there for how is my year? That's amazing?

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Speaker 1: It is. I'm amazed myself sometimes. And you're gonna stay

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Speaker 1: for how long are you gonna go for the full fifties? Well,

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Speaker 1: I don't know. Actually, um, they have a very good program.

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Speaker 1: If before seventy you can do a reduced load. I

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Speaker 1: have one under honors undergraduate class after teaching. I've counted, Barry,

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Speaker 1: I've taught over ten thousand students in the forty four

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Speaker 1: years teaching. That's amazing, over ten thousand soon. So I

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Speaker 1: decided gonna gonna take it a little easier, and uh,

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Speaker 1: I just have an honors undergraduate class, which I love.

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Speaker 1: They're very unbelievably smart at Wharton. And uh so I'll

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Speaker 1: be on reduced teaching for a few years, probably four

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Speaker 1: or five years, and then you know, settle back after that.

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Speaker 1: So so let's jump right into it. You mentioned you're

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Speaker 1: a macro guy. How significant is the macro economy to

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Speaker 1: people's portfolios? Oh? Yeah, well, very significant. Uh. I mean

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Speaker 1: I take a look, just take a look at the

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Speaker 1: financial crisis. Uh you know, produced the worst decline in

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Speaker 1: GDP since the Great Depression and not uh coincidentally accidentally

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Speaker 1: the worst bear market since the Great Depression. So you

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Speaker 1: know business cycles, economic health that you know, that's all inflation. Wow,

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Speaker 1: that's really all about bonds and stocks and markets. So

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Speaker 1: let me throw a curve ball at you. If people

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Speaker 1: are we we mentioned stocks for the long run, If

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Speaker 1: people are supposed to be invested for the long run,

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Speaker 1: why should they care about macroeconomic wobbles? Why should they

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Speaker 1: even care about a giant financial crisis? Here it is.

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Speaker 1: The crisis began sometime in oh eight. It bottomed in

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Speaker 1: March o nine. We're already above the pre crisis highs

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Speaker 1: of oh seven. If you just put it away until

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Speaker 1: you were talking about that, that is true. If you

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Speaker 1: can be patient and just put it in you know,

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Speaker 1: uh indexed fund and let it ride and don't pan

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Speaker 1: it when things go bad. Um, you know, I I

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Speaker 1: think you will do very very well. Uh. So that's

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Speaker 1: where you're that's where you're budding in a way. You know,

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Speaker 1: if you're if you're just a buy and hold person,

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Speaker 1: I guess that's all you have to do. All right, Well,

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Speaker 1: thank you some ups and we're gonna leave right So

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Speaker 1: so let me ask you, um, a number of people,

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Speaker 1: including your your buddy Professor Bob Schiller have been saying

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Speaker 1: stocks are expensive, and there are other people saying the

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Speaker 1: technology stocks and venture capital stocks and private equity are

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Speaker 1: in a bubble. What what's your perspective on that? First,

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Speaker 1: let's talk about a bubble. P M nastac is what

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Speaker 1: thirty now on the Yeah, maybe bass earning. I don't know,

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Speaker 1: p of P of the SMP five hundred is about sixteen. Yeah. No,

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Speaker 1: But I'm gonna I'm gonna tell you NASDAK and I'll

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Speaker 1: tell you why I do NASDACK at thirty because in

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Speaker 1: March of two thousand it was six hundred. So that

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Speaker 1: means that means no earnings, you know. And so if

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Speaker 1: you take a look at a graph um and by

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Speaker 1: the way, you know, I actually you know, I find

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Speaker 1: that on Bloomberg a graph of pe ratios on nazdac

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Speaker 1: and it just goes like this and then collapses like this,

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Speaker 1: And I tell people, now, that's a bubble. You're listening

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Speaker 1: to Masters in Business on Bloomberg Radio. My guest this

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Speaker 1: week Professor Jeremy Siegel, author of Stocks for the Long Run,

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Speaker 1: professor at Wharton at the University of Pennsylvania. Previously we

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Speaker 1: were talking about the impact of the macro economy on stocks,

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Speaker 1: but trying to time the two, trying to correlate the

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Speaker 1: two is very challenging. And in fact, um you mentioned

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Speaker 1: uh Indexers Vanguard, the big indexing shop, did a study

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Speaker 1: and they could not find a correlation between stock returns

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Speaker 1: and macroeconomic news releases. How do you reconcile the two,

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Speaker 1: at least from a timing perspective. Well, you know, there's

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Speaker 1: that famous sam Usen quote that the stock market has

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Speaker 1: predicted like eleven out of the last five recessions. Uh.

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Speaker 1: You know, one thing, we know, the market always goes

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Speaker 1: down in a recession, but it often goes down when

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Speaker 1: there isn't a recession. There's a lot of false alarms

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Speaker 1: with with the market. But um uh you know, I

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Speaker 1: I think the accumulation of events. I mean again, let's

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Speaker 1: let's go back to the crisis, Uh, the Lehman Brothers,

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Speaker 1: uh collapse, the stresses in those markets, I mean it,

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Speaker 1: it just kept on moving into the market and everyone

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Speaker 1: saw the economic fallout of that, and you fell sixty

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Speaker 1: five percent from October of two thousand seven until March

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Speaker 1: two thousand nine. Now, in my lifetime, I never had

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Speaker 1: seen that my parents lived through two where the decline

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Speaker 1: was eighty five, the worst in world history, and that

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Speaker 1: also was the worst economic contraction. So again, it's very

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Speaker 1: hard to predict these contractions. We can see them after

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Speaker 1: a fact, but there's no question that you know, the

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Speaker 1: market is behavior is is linked to those contracts. Clearly.

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Speaker 1: When the economy slows, profits slow, and when profits slow

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Speaker 1: and they investors are less willing to pay up for stocks,

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Speaker 1: they're paying them multiple Yeah, exactly. So so let's um,

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Speaker 1: let's ask the question how closely should investors follow the

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Speaker 1: macroeconomic background. Is it important to their day to day holdings,

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Speaker 1: is it important for their long term portfolios? What should

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Speaker 1: mom and pop do with this just fire hose of

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Speaker 1: economic news that comes out every week every month. Well,

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Speaker 1: you know, it's reflecting on what I said in in

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Speaker 1: the first section, like just buy and hold. Um, I've

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Speaker 1: gained a greater appreciation that it is important to look

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Speaker 1: at valuation. Uh, and we're gonna talk about pete ratios.

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Speaker 1: You know, the average around fifteen. But you know, in

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Speaker 1: March of two thousand, when you were at the peak

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Speaker 1: of that dot com bubble and the Nasdaq was selling

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Speaker 1: a five six times or anything, and and and and

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Speaker 1: and it was crazy. That's a time to be lighter

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Speaker 1: in stocks now. The interesting thing, Yeah, I mean a

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Speaker 1: lot of people said, well, Jeremy, you know you weren't.

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Speaker 1: Well what I said, it's very important when I said

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Speaker 1: I said tech stocks were crazy, I said the non

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Speaker 1: tech sector wasn't. I recall that people have given you grief.

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Speaker 1: Well he missed two thousand, But I remember you warning

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Speaker 1: very clearly. And you're known as a buy and hold,

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Speaker 1: long term guy. And I saw you on TV saying, hey,

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Speaker 1: the tech stocks has just gone off the rails. The

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Speaker 1: that sector of the market is just completely unhinged. And

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Speaker 1: I remember kind of saying, wow, if he thinks this

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Speaker 1: is pricey, he's a buy and hold guy, it's got

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Speaker 1: to really be price you know. Yeah, the the you know,

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Speaker 1: the March tenth, which was the high March fourteenth, I

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Speaker 1: had an lead op ed piece in Wall Street Journal

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Speaker 1: big cap tech stocks are a sucker's bet. And I

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Speaker 1: looked at the biggest tech stocks, Yahoo, E, M, C, A, O,

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Speaker 1: l Uh, you know, Son Micro, none of those. Yeah,

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Speaker 1: they were all selling at you know, two hundred, three hundred,

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Speaker 1: five hundred six. I said, this is absolutely crazy. And

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Speaker 1: I said that, I mean, that was that what I said. Listen,

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Speaker 1: you know, I'm a bull on the market, and I

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Speaker 1: think the rest of the market isn't really all that overveil.

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Speaker 1: But you've got to get out of these And that's

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Speaker 1: an unusual statement from you, so very unusual. So you

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Speaker 1: said earlier that the market is slightly elevated and slight value.

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Speaker 1: But how do you how do you textualize that given

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Speaker 1: that rates are at zero and the ten years paying

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Speaker 1: two point Yeah, but that's that's also very important, and

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Speaker 1: that's one reason why even though we're slightly elevated. I mean,

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Speaker 1: if you take a look at what times earnings you are, yeah,

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Speaker 1: we're about eighteen um times earnings. This was a bad year.

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Speaker 1: I mean, the the oil coapps, the energy sector and

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Speaker 1: and the dollar going higher. Uh. You know, I have

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Speaker 1: people I talked to they said that that could have

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Speaker 1: clipped thirteen bucks off of the S ANDP earnings, So

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Speaker 1: that you know that that's a huge chunk, uh, you know,

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Speaker 1: and a lot of people are saying, you know, if

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Speaker 1: we don't get a repeat of that, and I do mean,

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Speaker 1: it goes back, but just don't repeat it. People are

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Speaker 1: talking about a hundred five next year, and by the way,

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Speaker 1: that puts US at sixteen sixteen and a half times

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Speaker 1: earnings UM not not terribly unreasoned not to you know,

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Speaker 1: in a low extraordinary, low interest rate world, that margin

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Speaker 1: between what's called the valuation of stocks and bonds is

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Speaker 1: still very much greater than the historical average. It's called

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Speaker 1: the equity risk premium, and economists have written about that

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Speaker 1: a long time. If you go through all of history,

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Speaker 1: it's about three to three and a half percent a

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Speaker 1: year that stocks are over bonds. Now when I look

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Speaker 1: ahead and I'm looking at around five UM, and that's

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Speaker 1: the premium you pay for stocks, that's what future returns

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Speaker 1: of stocks versus that is the expected. So basically after inflation,

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Speaker 1: I see around a six percent UH return on stocks

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Speaker 1: going forward, a little less than the six point seven

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Speaker 1: the historical average. But what you got on the tips

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Speaker 1: and then we're looking at rio after inflation, you got

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Speaker 1: fifty basis points on the ten year, a little over

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Speaker 1: one on on the thirty years, So you're looking that

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Speaker 1: margin six to one on is that five percent? And

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Speaker 1: that is a greater margin in favor of stocks than

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Speaker 1: the long run historic player. So, so let's talk a

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Speaker 1: little bit about your friend, Professor Bomb Shiller of Yale.

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Speaker 1: People may not realize this. You guys are lifelong friends

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Speaker 1: at m I T. Is that right, first year at

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Speaker 1: m I T. The first week of m I T

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Speaker 1: we won't with went to graduate school together in economics

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Speaker 1: and we hit off. The first year at m I T.

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Speaker 1: That was nineteen sixty seven. My god, I'm looking that's

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Speaker 1: forty eight years ago, almost getting to our fiftieth anniverse.

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Speaker 1: We've been very, very close friends. He was at Penn

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Speaker 1: when I was there. Uh, he stayed another ten years

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Speaker 1: before going to Yale, and so now of course he's

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Speaker 1: at Yale University. So in the last thirty seconds, um,

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Speaker 1: let's just briefly talk about you guys are actually long

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Speaker 1: term family friends. Your fit together when the Poconos at

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Speaker 1: the Jersey Shore, we visit each other. You know, we

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Speaker 1: both have two boys as sons, and uh, we've had

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Speaker 1: a wonderful relationship. This is Masters in Business on Bloomberg Radio.

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Speaker 1: I'm Barry Ridhults. My special guest this week is Professor

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Speaker 1: Jeremy Siegel. He teaches macroeconomics at Wharton at the University

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Speaker 1: of Pennsylvania we were discussing earlier. You're a long term

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Speaker 1: friend of Professor Bob Schiller, who is known for a

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Speaker 1: number of things, one of which is his cyclically adjusted

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Speaker 1: PE ratio, better known as the CAPE ratio, which has

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Speaker 1: shown that stocks are extremely overvalued. What what is your

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Speaker 1: take on CAPE? Well, you know, it's very interesting because

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Speaker 1: I've I've been looking and examining CAPE for a long

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Speaker 1: time and this is bary. This basic My conclusion um

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Speaker 1: CAPE has done a fantastic job at forecasting tenuere returns

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Speaker 1: until the last in years when I think it has

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Speaker 1: gone off the rails. It is not Bob's fault that

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Speaker 1: has gone off the rails. What has happened? Remember, he

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Speaker 1: goes all the way back to seventy one, where we

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Speaker 1: have or anything. Both Bob and I love to work

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Speaker 1: with long term series. He goes all the way back,

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Speaker 1: and you know, and and and looks at that. In

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Speaker 1: the nineteen nineties, fastby the Financial Counting Standing Board started

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Speaker 1: changing the way firms do their accounting stop options, but

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Speaker 1: particularly marked to market. That never used to be the case.

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Speaker 1: You never used to write down until you sold. Then

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Speaker 1: you would record either a gain or a loss. What

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Speaker 1: they did said is you gotta mark down whether you

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Speaker 1: sell or not. Now, what has happened as a result

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Speaker 1: is in the last two recessions. Now, the ninety the

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Speaker 1: two thousand one two was a relatively mildest recession of corps.

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Speaker 1: The next one was the deep crisis recession produced a

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Speaker 1: tremendous drop in earnings that were way exceeded what we

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Speaker 1: had seen in prior recessions. And that was an asset

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Speaker 1: balance sheet based drop. It was not the an operating drop,

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Speaker 1: which is what they used to record previously. So otherwards,

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Speaker 1: the holdings of companies, even though it was a temporary

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Speaker 1: drop in in sflue, they hadn't market and that shows

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Speaker 1: up as a giant drop in So what you got,

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Speaker 1: and and particularly that that jumped out at me because

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Speaker 1: actually the drop in earnings recorded in the two thousand

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Speaker 1: nine recession was many times worse than the nineteen thirties.

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Speaker 1: And again we have a hundred and forty years of history.

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Speaker 1: And I said, just a minute here, I mean, yeah,

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Speaker 1: this was bad, but you know it was two we

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Speaker 1: had drop in GDP. We only had about a six

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Speaker 1: percent drop in the last one, and yet the earnings

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Speaker 1: and then I discuss covered. Yes, it's the market to market.

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Speaker 1: All these firms started writing down all their UH assets

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Speaker 1: and taking it into earnings as they were mandated to do. Now,

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Speaker 1: the effect of that, very simply is that you have

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Speaker 1: in two thousand and two tho nine almost zero earnings

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Speaker 1: because it's that's right, that is that's in the denominator.

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Speaker 1: Don't forget, Bob takes the cyclically adjusted price earnings RACIO,

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Speaker 1: takes the simple average of the last ten years, no waiting,

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Speaker 1: no other adjustments are done. So for two years we've

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Speaker 1: got almost a zero in there, a very low number,

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Speaker 1: and when that's in the denominator, that pushes up the rats.

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Speaker 1: Everything look much more, very much more extensive. In fact,

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Speaker 1: so I followed month by month the cape ratio very closely, Bob.

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Speaker 1: It did, at the bottom of the bear market go

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Speaker 1: below the average UM, and then a few months later,

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Speaker 1: by May, and you know, the averages UH bottomed in March.

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Speaker 1: By May it already jumped above. And I said, Tom,

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Speaker 1: come on, I mean, we're we're we're not into UH,

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Speaker 1: you know, overvalued position on that, And of course it's

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Speaker 1: been going up ever since. But this is really the

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Speaker 1: first year we've had a correction of of any magnitude

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Speaker 1: uh that is affecting it. But he, in my opinion,

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Speaker 1: until we get that zero out of that average, which

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Speaker 1: will guess will be Bob is going to look and say,

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Speaker 1: oh wow, the Cape ratio is very, very over extend.

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Speaker 1: My My head of research is a gentleman named Mike

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Speaker 1: Batnick who's a big fan of yours and a fan

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Speaker 1: of stocks for the long run. And he gave me

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Speaker 1: this data point when we were doing some research into

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Speaker 1: this conversation. He said, stocks have been below their historical

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Speaker 1: CAPE average sixteen of the last three hundred and nine months.

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Speaker 1: Since that time, the total return on the SMP five

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Speaker 1: is nine. So clearly something in the cape some three

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Speaker 1: months the past let's call it twenty five years. It's

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Speaker 1: not working the way it's not. It is not working.

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Speaker 1: And again Bob is just using the received one in

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Speaker 1: Bobby's scene. I've written a paper on this. Actually it's

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Speaker 1: been considered one of the journals now and I hope

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Speaker 1: it will be published uh soon. It's called the Cape

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Speaker 1: Ratio a New Look, And I acknowledge how what a

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Speaker 1: great idea this is to average them, but then point

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Speaker 1: out what these the problem is And what I do, Barry,

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Speaker 1: is I use alternative definitions like operating earnings and National

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Speaker 1: income account earnings and I put those and develop a

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Speaker 1: cape ratio UH for that, and that shows much less

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Speaker 1: overvaluation in the market. So that that basically is where

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Speaker 1: I stand in terms of you know, why has the

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Speaker 1: cape ratio been not a good predictor over the last

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Speaker 1: four or five years? And it's been been because of

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Speaker 1: this change and accounting standards. This is Masters in Business

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Speaker 1: on Bloomberg Radio. I'm Barry rid Halts. My guest this

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Speaker 1: week on Masters in Business is Professor Jeremy Siegel of

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Speaker 1: the Wharton School of Economics at Is that the right title,

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Speaker 1: Wharton School of Economics. Actually, it's just the Wharton School

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Speaker 1: used to be the Wharton School of Finance, but now

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Speaker 1: they've just shortened the Wharton School of the University of

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Speaker 1: pennsylis at University of Pennsylvania. So, so you wrote a

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Speaker 1: book which was consistently in all sorts of lists of

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Speaker 1: best investment books of all time, called Stocks for the

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Speaker 1: Long Run. Let's talk a bit about the case for equities.

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Speaker 1: What is the case for equities? Yes, I started the

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Speaker 1: research actually seven good time Actually it was very interesting. Um.

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Speaker 1: One of my colleagues at Wharton got a phone call

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Speaker 1: from the New York Stock Exchange, uh, wanting to do

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Speaker 1: a history of the exchange on New York Stock ex

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Speaker 1: Change was found seventeen two. You co authored a book

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Speaker 1: on that revolution on Wall Street. Now that what's interesting

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Speaker 1: is when when Marshall Bloom, which is just retired as

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Speaker 1: a faculty member at Edwardon he knew everything about history

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Speaker 1: and in historical I went up he said, call me,

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Speaker 1: said Jeremy, you're interested in the markets. You want to

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Speaker 1: do this book? And I said yeah, So I said,

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Speaker 1: I'll tell you what I want to do. Marshall. I

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Speaker 1: want to look at the longest history of stocks in

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Speaker 1: the US as I can. And he said, go ahead

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Speaker 1: and do that. I got it. I got this stuff together.

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Speaker 1: We we we put it in the book and well

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Speaker 1: in the New York stockt en get back and said, Jeremy,

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Speaker 1: your stuff is fascinating, but it makes it too long.

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Speaker 1: And um and and and Marshall Bloom and one of

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Speaker 1: the most I think generous gestures he said to me, Jeremy,

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Speaker 1: this stuff you can make your own book and just

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Speaker 1: joined me as a co author on the institutional side

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Speaker 1: of what happened since uh seventeen ninety two, which is

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Speaker 1: when the New York Stock and James was founded. I

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Speaker 1: got stock market data from eighteen o two, so I

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Speaker 1: couldn't quite get the first ten years, but I got

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Speaker 1: it after that, and uh, that was actually the beginning

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Speaker 1: of the book. Uh, the stocks for the long run.

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Speaker 1: Now here's the major idea that I think that I

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Speaker 1: think really made it a powerful new book. Not just

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Speaker 1: a long term data and not just the fact that

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Speaker 1: stocks return six and after seven percent after inflation overall

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Speaker 1: long term periods. What I showed was when you stretch

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Speaker 1: out your holding period up to you know, fift twenty

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Speaker 1: thirty years, stocks actually we're safer than bonds, at a

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Speaker 1: lower variance and lower volatility than bonds. And I made

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Speaker 1: one of the biggest criticisms I have of standard portfolio

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Speaker 1: theory that we teach in in our business school. It's

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Speaker 1: all based on one year measures of risk. We all

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Speaker 1: do one year, we grind it out and all that

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Speaker 1: and assume that that's okay if we extended in the future.

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Speaker 1: But it isn't for stocks because stocks have a property

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Speaker 1: which is now almost uniform It wasn't at that time

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Speaker 1: when I first throwed it, but afterwards now among academics

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Speaker 1: is almost in informally agreed. It has a property called

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Speaker 1: mean reversion, reverting to the mean. So you know, we

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Speaker 1: can have a couple of good years of stocks and

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Speaker 1: if it gets way above it'll come back down. A

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Speaker 1: couple of bad years, it comes back up. Mean reversion

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Speaker 1: means that volatility and longer periods of time are relatively

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Speaker 1: less than in shorter periods of time because you're going

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Speaker 1: back to the mean. So let let me rephrase mean

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Speaker 1: reversion for people who don't have any sort of little

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Speaker 1: math phobio or don't have a math background. If we

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Speaker 1: know stocks are gonna return seven percent a year, anytime

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Speaker 1: we have a couple of years where they're returning considerably

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Speaker 1: less than that, we should expect the next few years

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Speaker 1: to be on the other side of the seven percent,

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Speaker 1: or the other way around. When you have a period

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Speaker 1: like where they're returning high double digits, hey, you have

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Speaker 1: to expect the next few years after that you're gonna

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Speaker 1: be way below seven percent. Exactly Now. I wish it

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Speaker 1: could be just a couple of years. Sometimes it's longer

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Speaker 1: and have a string. Yeah, you have a string of

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Speaker 1: good years. I mean actually from eighty two now we've

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Speaker 1: had we had some interruptions, but to two thousand, the

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Speaker 1: average real returns on the market were nearly fourteen percent

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Speaker 1: a year. That was more than twice the average. I

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Speaker 1: mean that that shows you. And then we got, you know,

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Speaker 1: we got to the most overvalued position ever. In March

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Speaker 1: of two thousand, we had a PE of thirty for

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Speaker 1: the S and P five hundred. We had a PE

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Speaker 1: for a hundred of the SNP tech stocks, and as

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Speaker 1: I mentioned in an early your segment, we had a

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Speaker 1: P of six hundred for Nastac. So you can really

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Speaker 1: get extended. If we all knew two years it would

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Speaker 1: turn around, it would make us feel a lot better.

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Speaker 1: But sometimes it can be three, four or five years.

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Speaker 1: But if you are thirty years and don't forget think

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Speaker 1: of retirement fun I mean, you know, we put in

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Speaker 1: I RA s we can stand four or five bad

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Speaker 1: years followed by four or five good years and then

427
00:26:07,560 --> 00:26:11,000
Speaker 1: even better years. And if we know that return over

428
00:26:11,040 --> 00:26:13,560
Speaker 1: that longer period of time is gonna be bonds by

429
00:26:13,560 --> 00:26:15,879
Speaker 1: three or four or five percent a year, Wow, that

430
00:26:16,080 --> 00:26:18,480
Speaker 1: becomes the asset of choice for the long run. So

431
00:26:18,480 --> 00:26:21,040
Speaker 1: so let's put that eighty two to two thousand, that

432
00:26:21,160 --> 00:26:25,639
Speaker 1: secular bile market that lasted eighteen years return fourteen percent

433
00:26:25,640 --> 00:26:29,800
Speaker 1: a year into context. The previous sixteen years from nineteen

434
00:26:29,840 --> 00:26:36,480
Speaker 1: sixty six flat essentially basically, but that's nominally. Once you

435
00:26:36,520 --> 00:26:40,880
Speaker 1: take inflation to adjust, it was virtually a zero, right,

436
00:26:40,960 --> 00:26:43,399
Speaker 1: And then you turn around you say two thousand to

437
00:26:43,480 --> 00:26:48,240
Speaker 1: two thousand thirteen essentially flat, also not founding dividends, and

438
00:26:48,280 --> 00:26:50,480
Speaker 1: you had another period of high inflation right in the

439
00:26:50,560 --> 00:26:53,400
Speaker 1: middle of that. So when you talk about mean reversion

440
00:26:53,400 --> 00:26:56,600
Speaker 1: over long periods of time, ten fifteen years, you can

441
00:26:56,640 --> 00:27:00,919
Speaker 1: have no returns, fabulous returns for ten in fifteen years,

442
00:27:01,200 --> 00:27:04,320
Speaker 1: and then more no returns from another ten fifteen years.

443
00:27:04,320 --> 00:27:07,160
Speaker 1: But also then and you have to be careful about

444
00:27:07,200 --> 00:27:11,000
Speaker 1: valuation again. The bad period that that we had since

445
00:27:11,040 --> 00:27:14,919
Speaker 1: two thousand was because we were at the most overvalued point. Uh.

446
00:27:14,960 --> 00:27:17,200
Speaker 1: The great period from a D two on started from

447
00:27:17,200 --> 00:27:21,760
Speaker 1: an extremely undervalued, went to fairly valued and then stretched

448
00:27:21,800 --> 00:27:24,000
Speaker 1: all the way upright, same thing nineteen sixty six. You

449
00:27:24,040 --> 00:27:26,480
Speaker 1: are a twenty year bullmarket from World War two and

450
00:27:26,520 --> 00:27:30,520
Speaker 1: overvalued in sixty six fifty fifty very pricey. Those are

451
00:27:30,560 --> 00:27:34,080
Speaker 1: the like you mentioned the concentrated stocks in two thousand,

452
00:27:34,640 --> 00:27:37,600
Speaker 1: very very similar concept. So so let's let me push

453
00:27:37,600 --> 00:27:40,280
Speaker 1: back a little bit and give you an opportunity. Response

454
00:27:40,320 --> 00:27:43,920
Speaker 1: to criticism, The Wall Street Journal had an article saying, well,

455
00:27:44,040 --> 00:27:46,840
Speaker 1: stocks for the long run has a lot of survivorship bias.

456
00:27:46,960 --> 00:27:49,200
Speaker 1: We really don't know. You know, there aren't a lot

457
00:27:49,240 --> 00:27:52,480
Speaker 1: of great records from the eighteen hundreds. Yeah, all we

458
00:27:52,560 --> 00:27:54,960
Speaker 1: know are a handful of stocks that survive. What about

459
00:27:54,960 --> 00:27:57,600
Speaker 1: the hundreds of other stocks that went out of business?

460
00:27:58,080 --> 00:28:02,000
Speaker 1: What's the what's the counterarcad So so it's interesting from

461
00:28:02,160 --> 00:28:08,760
Speaker 1: eighteen seventy one on very careful to remove uh any

462
00:28:08,840 --> 00:28:11,920
Speaker 1: survivorship bias in whereas every stock is there if it

463
00:28:12,000 --> 00:28:14,840
Speaker 1: went bankrupt in zero, we put it in a zero.

464
00:28:15,119 --> 00:28:19,000
Speaker 1: We don't just do the survivors. Was the journal. A

465
00:28:19,040 --> 00:28:23,040
Speaker 1: couple of people had questioned my earlier data eighteen o

466
00:28:23,119 --> 00:28:25,199
Speaker 1: two to eighteen seventy one, which was one of the

467
00:28:25,240 --> 00:28:28,600
Speaker 1: innovative things that I added, and they pointed out that

468
00:28:28,720 --> 00:28:34,320
Speaker 1: those series might have um some survivorship ballot bias. Now,

469
00:28:34,400 --> 00:28:39,760
Speaker 1: fortunately a number of academics getsman um uh and others

470
00:28:39,840 --> 00:28:42,600
Speaker 1: at will Getsman at at uh UM and ibits and

471
00:28:42,680 --> 00:28:45,160
Speaker 1: if its in at Yale Getsman at Columbia, you might

472
00:28:45,160 --> 00:28:48,480
Speaker 1: have even maybe talked to them on your program. Uh.

473
00:28:48,760 --> 00:28:52,680
Speaker 1: Everyone knows the Ibbotson series. And they went back to

474
00:28:52,720 --> 00:28:57,840
Speaker 1: the newspapers and they actually dug down into every stock

475
00:28:57,960 --> 00:29:02,040
Speaker 1: from around eighteen ten onward. And you know what the

476
00:29:02,040 --> 00:29:05,280
Speaker 1: biggest uncertainty is there is we It was they didn't

477
00:29:05,280 --> 00:29:09,080
Speaker 1: have good records of dividends. But if you apply a

478
00:29:09,400 --> 00:29:12,720
Speaker 1: dividend rate among the ones that we do know to

479
00:29:12,840 --> 00:29:16,360
Speaker 1: the ones we don't know, it was very very close

480
00:29:16,560 --> 00:29:20,720
Speaker 1: to the number that I actually got. So I think

481
00:29:21,080 --> 00:29:23,880
Speaker 1: we you know, again, there's no no bias from eighteen

482
00:29:23,920 --> 00:29:26,160
Speaker 1: seventy one onwards. We produced six and a half percent

483
00:29:26,560 --> 00:29:32,040
Speaker 1: from eighteen in real time with the zeros. Uh. Now

484
00:29:32,080 --> 00:29:34,760
Speaker 1: there's another interesting question about survivorship bias, and that is

485
00:29:34,800 --> 00:29:38,280
Speaker 1: relative to countries, because people say, well, look at you know,

486
00:29:38,280 --> 00:29:41,040
Speaker 1: the most successful country. What happens if you went into

487
00:29:41,080 --> 00:29:44,440
Speaker 1: Russia or Argentina and all this? And there are definitely

488
00:29:44,520 --> 00:29:50,320
Speaker 1: a few that don't. And three British economists UH Elroy Dimpson,

489
00:29:50,720 --> 00:29:56,840
Speaker 1: Mike Staunton, um uh and UH Terry marsh in two

490
00:29:56,880 --> 00:30:00,200
Speaker 1: thousand did an investigation of a hundred year is a

491
00:30:00,280 --> 00:30:06,760
Speaker 1: return in seventeen different countries and the interestingly enough from

492
00:30:06,800 --> 00:30:09,320
Speaker 1: and I'm updating it now to the first published in

493
00:30:09,400 --> 00:30:12,080
Speaker 1: two thousands, but I'm updating it. Do you know that

494
00:30:12,120 --> 00:30:17,120
Speaker 1: the United States was not the best from over the

495
00:30:17,200 --> 00:30:20,479
Speaker 1: last hundred and fifteen years? And one country just shocks

496
00:30:20,520 --> 00:30:23,280
Speaker 1: people out of their mind. South Africa had higher and

497
00:30:23,280 --> 00:30:26,240
Speaker 1: this is in the US hours. This is converting South

498
00:30:26,320 --> 00:30:32,440
Speaker 1: Africa and Australia. US was number three. That's fascinating. Let's

499
00:30:32,560 --> 00:30:35,360
Speaker 1: let's since you bring up emerging markets, what do you

500
00:30:35,400 --> 00:30:40,840
Speaker 1: think the role of emerging markets should be in infinitely?

501
00:30:41,040 --> 00:30:43,640
Speaker 1: I think they definitely have a role. So you're different

502
00:30:43,720 --> 00:30:47,160
Speaker 1: from people like John Bogel who says, add this currency

503
00:30:47,280 --> 00:30:49,440
Speaker 1: risk and the other problems just keep it at home.

504
00:30:49,680 --> 00:30:52,920
Speaker 1: You like a global asset allocation first of all, that

505
00:30:52,920 --> 00:30:57,720
Speaker 1: that's an interesting thing you for the developed world. You

506
00:30:57,760 --> 00:31:02,720
Speaker 1: can hedge currency risk today for zero price because the

507
00:31:02,800 --> 00:31:05,760
Speaker 1: interest rates are when their interest rates are the same

508
00:31:05,800 --> 00:31:10,320
Speaker 1: between the two countries, currency risk can be hitched completely

509
00:31:10,360 --> 00:31:13,800
Speaker 1: at no cost. It is expensive to heads currency risk

510
00:31:13,920 --> 00:31:17,760
Speaker 1: in the emerging markets. To be sure, there's no question.

511
00:31:17,800 --> 00:31:22,400
Speaker 1: I think it's like twelve in Brazil and India, probably

512
00:31:22,400 --> 00:31:24,880
Speaker 1: six or seven percent a year, and that can drag

513
00:31:24,960 --> 00:31:27,280
Speaker 1: your earnings down. That's why you have to make sure

514
00:31:27,320 --> 00:31:30,640
Speaker 1: that one you're not buying over priced currency and to

515
00:31:30,800 --> 00:31:33,800
Speaker 1: you're not buying over priced stocks. And believe it or not,

516
00:31:34,160 --> 00:31:37,840
Speaker 1: today when I look at emerging markets, wow, I see

517
00:31:38,040 --> 00:31:41,360
Speaker 1: both of those at being very low. Currencies are low

518
00:31:41,800 --> 00:31:45,520
Speaker 1: and there prices are low relatives of their earnings. I

519
00:31:45,560 --> 00:31:49,440
Speaker 1: think in the next three to five years, emerging markets

520
00:31:49,480 --> 00:31:53,000
Speaker 1: will be among the very best performing sectors. We've been

521
00:31:53,040 --> 00:31:57,720
Speaker 1: speaking with Professor Jeremy Siegel of the University of Pennsylvania

522
00:31:58,040 --> 00:32:01,560
Speaker 1: Wharton School. If you and ay this conversation, be sure

523
00:32:01,600 --> 00:32:04,200
Speaker 1: and check out our podcast extras, where we let the

524
00:32:04,240 --> 00:32:07,680
Speaker 1: digital tape keep rolling and continue chatting. Be sure and

525
00:32:07,800 --> 00:32:11,640
Speaker 1: check out my daily column on Bloomberg View dot com.

526
00:32:11,760 --> 00:32:15,320
Speaker 1: Follow me on Twitter at rid Halts. You can see

527
00:32:15,480 --> 00:32:20,080
Speaker 1: more of Professor Siegel's writings at Jeremy Siegel dot com,

528
00:32:20,240 --> 00:32:22,880
Speaker 1: or just pick up stocks for the long run. I'm

529
00:32:22,960 --> 00:32:28,360
Speaker 1: Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio. Okay,

530
00:32:28,400 --> 00:32:30,560
Speaker 1: this is the podcast portion I don't know why I

531
00:32:30,600 --> 00:32:34,000
Speaker 1: do that every time I stretched my arms out. Okay,

532
00:32:34,040 --> 00:32:37,760
Speaker 1: this is a international symbol for podcasts. If I forget

533
00:32:37,800 --> 00:32:39,680
Speaker 1: to say this later, thank you so much for doing this,

534
00:32:40,040 --> 00:32:43,200
Speaker 1: Professor Siegel. We've been back and forth for a while

535
00:32:43,240 --> 00:32:46,080
Speaker 1: trying to arrange this year in Philadelphia, and you're only

536
00:32:46,080 --> 00:32:50,320
Speaker 1: in New York on on rare occasions. Um Man, there

537
00:32:50,320 --> 00:32:54,520
Speaker 1: are so many questions I did not get to. So

538
00:32:54,760 --> 00:32:57,120
Speaker 1: why don't Why don't we pick up where we left off?

539
00:32:57,840 --> 00:33:01,400
Speaker 1: So we have owned, I want to say, for about

540
00:33:01,480 --> 00:33:09,640
Speaker 1: four or five years a Wisdom Tree Japan yen hedged funds,

541
00:33:10,400 --> 00:33:14,240
Speaker 1: which when we first owned it it hardly traded, nobody

542
00:33:14,240 --> 00:33:18,080
Speaker 1: paid attention to it. And then outcomes at a bonomics

543
00:33:18,200 --> 00:33:23,080
Speaker 1: and this thing just goes straight upright, the yend collapses,

544
00:33:23,920 --> 00:33:29,840
Speaker 1: the Nike Dow skyrockets. There's no offsetting yeah currency yet

545
00:33:30,120 --> 00:33:32,360
Speaker 1: because I's almost a no brainer, doesn't and it and

546
00:33:32,400 --> 00:33:36,120
Speaker 1: it became a fifth ye or sixty billion dollar funds.

547
00:33:36,520 --> 00:33:39,560
Speaker 1: I don't want to say overnight, but very When we

548
00:33:39,600 --> 00:33:42,360
Speaker 1: first put money into it was five or six billion dollars.

549
00:33:42,600 --> 00:33:44,600
Speaker 1: I think I got the three we didn't. We didn't

550
00:33:44,600 --> 00:33:50,440
Speaker 1: get to sixty, but it exploded, just drive through the roof.

551
00:33:50,640 --> 00:33:52,400
Speaker 1: And then we did one for Europe that has been

552
00:33:53,120 --> 00:33:57,080
Speaker 1: enormous called hedge. Now Europe is tougher because you can

553
00:33:57,240 --> 00:34:01,280
Speaker 1: hedge everything, so the like Swiss, ser Land and Great Britain.

554
00:34:01,280 --> 00:34:04,520
Speaker 1: But yeah, countries that aren't in the euro but are

555
00:34:04,600 --> 00:34:07,720
Speaker 1: important parts of the European economy. So it's about what

556
00:34:07,800 --> 00:34:11,799
Speaker 1: is it about? Heage, Well, I mean we if if

557
00:34:11,840 --> 00:34:15,880
Speaker 1: you want to take just euro Zone and you know,

558
00:34:15,960 --> 00:34:19,800
Speaker 1: take the UK, is something different in Switzerland kind of hard? Yeah,

559
00:34:19,920 --> 00:34:22,160
Speaker 1: you know that. That's that's true. You don't get you

560
00:34:22,239 --> 00:34:26,600
Speaker 1: don't get those two segments. But clearly that also became

561
00:34:26,680 --> 00:34:30,920
Speaker 1: enormously popular with Mario. Draggy said, you know what, I

562
00:34:30,960 --> 00:34:35,399
Speaker 1: think we need to bring the euro downe And that's

563
00:34:35,400 --> 00:34:38,120
Speaker 1: so that that also went from a one or two

564
00:34:38,160 --> 00:34:41,600
Speaker 1: billion dollar fund all the way. So how did you

565
00:34:41,600 --> 00:34:43,680
Speaker 1: get involved with Wisdom Tree? How long have you been

566
00:34:44,360 --> 00:34:48,680
Speaker 1: a part of that? Because that's a Jonathan stun So.

567
00:34:49,239 --> 00:34:54,680
Speaker 1: His father, soul Science Steinberg, won a big insurance company

568
00:34:54,760 --> 00:34:57,640
Speaker 1: and he went to work. Oh really, he ran, I'm

569
00:34:57,680 --> 00:35:01,279
Speaker 1: doing this from memory reliance. That's right, buddy, was the

570
00:35:01,320 --> 00:35:04,320
Speaker 1: General council years ago, Yes, that's right. And that was

571
00:35:04,360 --> 00:35:08,680
Speaker 1: a big shot. That was a big shop. Um, and

572
00:35:08,920 --> 00:35:12,680
Speaker 1: he was he had been in the markets, uh, in

573
00:35:12,680 --> 00:35:16,080
Speaker 1: in many different ways. I think he was with Leasco

574
00:35:16,239 --> 00:35:19,320
Speaker 1: at one point. I mean he he arrivaled IBM. He

575
00:35:19,320 --> 00:35:21,680
Speaker 1: he went in and said, you know, IBM always leased

576
00:35:21,719 --> 00:35:25,480
Speaker 1: their computers and uh, they wouldn't let you buy their

577
00:35:25,480 --> 00:35:28,360
Speaker 1: computers in the nineteen fifties. That was part of their policy.

578
00:35:28,560 --> 00:35:30,400
Speaker 1: And the Supreme Court said you can't do that, but

579
00:35:30,440 --> 00:35:33,200
Speaker 1: no one else changed and he actually went in got

580
00:35:33,239 --> 00:35:39,480
Speaker 1: funding to buy them and then undercut IBM on the

581
00:35:39,520 --> 00:35:43,120
Speaker 1: exactly exactly. So I mean he's been in the market

582
00:35:43,120 --> 00:35:45,839
Speaker 1: one one way or the other. And uh again he

583
00:35:45,880 --> 00:35:48,279
Speaker 1: was at Warden way before I was at Warden. But

584
00:35:48,520 --> 00:35:54,640
Speaker 1: his son went to Warden. Um and Jonathan Steinberg and um,

585
00:35:54,719 --> 00:35:59,239
Speaker 1: we had met each other at occasion. Um. Uh you

586
00:35:59,320 --> 00:36:03,279
Speaker 1: know Jonathan in Steinberg's wife, I do not, Maria Bartoma.

587
00:36:03,560 --> 00:36:07,160
Speaker 1: Oh that's right. I didn't know that. Yes, And I

588
00:36:07,239 --> 00:36:11,279
Speaker 1: actually had Maria in a class that I did in

589
00:36:11,280 --> 00:36:15,080
Speaker 1: New York about learning financial markets for financial reporters, way

590
00:36:15,080 --> 00:36:18,560
Speaker 1: back before she became famous. So how did you meet Steinberg?

591
00:36:18,640 --> 00:36:20,600
Speaker 1: Was he a student of yours or just he was

592
00:36:20,680 --> 00:36:23,120
Speaker 1: not in my class, so he didn't I didn't. I

593
00:36:23,200 --> 00:36:27,400
Speaker 1: knew of him, but didn't know much of him. And basically,

594
00:36:27,960 --> 00:36:33,760
Speaker 1: um um. He called me up. He had a financial magazine.

595
00:36:33,760 --> 00:36:35,920
Speaker 1: He said, Jeremy, would you like to do some columns

596
00:36:35,920 --> 00:36:39,879
Speaker 1: on economics? And he vaguely remember that magazine about Yeah,

597
00:36:39,880 --> 00:36:43,200
Speaker 1: I'm trying to remember, zackly what the title was. Um uh,

598
00:36:43,360 --> 00:36:47,480
Speaker 1: not trader but something else, Yeah, something about investing. It

599
00:36:47,520 --> 00:36:50,440
Speaker 1: was mostly in small companies, and obviously when the when

600
00:36:50,440 --> 00:36:53,239
Speaker 1: the market went puff in two thousand, that had difficulty.

601
00:36:54,000 --> 00:36:57,640
Speaker 1: Um uh. And Kiplinger called me up that he had

602
00:36:57,640 --> 00:36:59,960
Speaker 1: told always rights Kipling and now I read a column

603
00:37:00,000 --> 00:37:03,239
Speaker 1: every other month and Kipling here um but which was

604
00:37:03,280 --> 00:37:05,759
Speaker 1: a continuation of that. But so I knew Jonathan a

605
00:37:05,800 --> 00:37:08,399
Speaker 1: little bit. And Jonathan called me up back in two

606
00:37:08,440 --> 00:37:14,200
Speaker 1: thousand two. Uh, he said, Jeremy. He said, listen, you

607
00:37:14,200 --> 00:37:17,279
Speaker 1: you've been having questions about cap weighted indsease. You know

608
00:37:17,840 --> 00:37:20,239
Speaker 1: after the bust. I said, yeah, I was all in

609
00:37:20,320 --> 00:37:22,440
Speaker 1: tech because it was so big, it was so much,

610
00:37:22,480 --> 00:37:25,440
Speaker 1: and I wanted to get out of tech. And he said, listen,

611
00:37:25,480 --> 00:37:31,560
Speaker 1: we're developing some indexes that instead of waiting by market cap,

612
00:37:32,120 --> 00:37:36,640
Speaker 1: you wait by earnings or dividends, also known as smart data,

613
00:37:36,800 --> 00:37:39,440
Speaker 1: well now known as smart data. Back then it was

614
00:37:39,640 --> 00:37:45,120
Speaker 1: fundamental indexing because it was based on a fundamental index

615
00:37:45,239 --> 00:37:48,240
Speaker 1: either earnings dividends. Now people have extended that the sales

616
00:37:48,280 --> 00:37:52,000
Speaker 1: and other concepts of that. We've had Rob or not

617
00:37:51,440 --> 00:37:56,279
Speaker 1: Rob Research Affiliates. Research Affiliates actually came out with the

618
00:37:56,320 --> 00:37:59,960
Speaker 1: first or one, the Raffie one thousand. We followed him

619
00:38:00,040 --> 00:38:02,960
Speaker 1: with with others. He has a more complicated formula. I

620
00:38:02,960 --> 00:38:06,160
Speaker 1: know Rob very very well smart, very smart guy. I

621
00:38:06,200 --> 00:38:08,520
Speaker 1: like I like him or not and as you you

622
00:38:08,600 --> 00:38:11,319
Speaker 1: mind him known, I mean it's public record. Um, there

623
00:38:11,360 --> 00:38:18,000
Speaker 1: was a little little intellectual property. Everybody was happy. And

624
00:38:18,080 --> 00:38:20,960
Speaker 1: now wisdom Tree is a big success, would you say

625
00:38:20,960 --> 00:38:26,560
Speaker 1: sixty billions? And back of the envelope their two point

626
00:38:26,600 --> 00:38:30,439
Speaker 1: two billion market cap and according to something I read

627
00:38:30,520 --> 00:38:33,120
Speaker 1: not too long ago, you're a two percent holder of

628
00:38:33,160 --> 00:38:36,560
Speaker 1: wisdom Tree, which makes you a forty five million dollar man.

629
00:38:36,680 --> 00:38:40,160
Speaker 1: Is do you feel like you know it's been really

630
00:38:40,200 --> 00:38:45,319
Speaker 1: good for me? I I'm I feel very fortunate. I

631
00:38:45,920 --> 00:38:48,160
Speaker 1: you know, it's nothing that you're selling anytime soon. It's

632
00:38:48,200 --> 00:38:52,480
Speaker 1: just even though I have I have, I've sold a

633
00:38:52,480 --> 00:38:54,200
Speaker 1: lot of it. I still hold hold it, hold it.

634
00:38:54,520 --> 00:38:58,440
Speaker 1: My heart beat still stocks for the long run, jour selling.

635
00:38:59,040 --> 00:39:01,560
Speaker 1: But you're you're, you're, you're diversifying. So Barrey, let me

636
00:39:01,600 --> 00:39:03,400
Speaker 1: tell you all right, so let me let's let's be

637
00:39:03,520 --> 00:39:06,200
Speaker 1: very frank. So let's let's go through the story, because

638
00:39:06,239 --> 00:39:08,480
Speaker 1: that tells you a little bit about where you know,

639
00:39:08,760 --> 00:39:15,400
Speaker 1: that's a concentrated position. That's what I mean. You have dollars,

640
00:39:15,960 --> 00:39:20,160
Speaker 1: you don't want your networking one stop. So uh, that's

641
00:39:20,200 --> 00:39:22,440
Speaker 1: so I'm diversified out. I still held a way overweight

642
00:39:22,480 --> 00:39:26,759
Speaker 1: in that stock. But so I'll go through this. Um

643
00:39:26,880 --> 00:39:30,120
Speaker 1: uh so I he said, Jeremy, would you check this.

644
00:39:30,320 --> 00:39:33,560
Speaker 1: We've got some preliminary data. Looks good. And I had

645
00:39:33,560 --> 00:39:36,120
Speaker 1: a real good research assistant that helped me do Future

646
00:39:36,120 --> 00:39:38,759
Speaker 1: for Investors one of my books. Also, his name is

647
00:39:38,840 --> 00:39:41,920
Speaker 1: Jeremy Schwartz, which now, by the way, director of research

648
00:39:42,120 --> 00:39:45,960
Speaker 1: at Wisdom Tree. And he looked at that data. We

649
00:39:45,960 --> 00:39:48,839
Speaker 1: looked at that Dad and said, wow, this beats cap

650
00:39:48,880 --> 00:39:52,680
Speaker 1: waiting on a risk return page. Reported back to them

651
00:39:52,760 --> 00:39:54,400
Speaker 1: and they said, you know, that's what we were finding.

652
00:39:54,400 --> 00:39:58,840
Speaker 1: But you obviously have all the statistical techniques on that. Uh.

653
00:39:58,920 --> 00:40:00,640
Speaker 1: He said, well, I'm gonna tell a little bit where

654
00:40:00,640 --> 00:40:05,240
Speaker 1: we're going. We got Michael Steinhardt to fund a company

655
00:40:05,800 --> 00:40:10,440
Speaker 1: called Index Development Partners. We're going thinking of launching a

656
00:40:10,520 --> 00:40:16,640
Speaker 1: set of ETFs based on fundamental indexing. Um, would you

657
00:40:16,680 --> 00:40:20,480
Speaker 1: like to be an advisor? Uh? And uh actually started

658
00:40:20,520 --> 00:40:22,799
Speaker 1: me out. I was also a board member on that,

659
00:40:23,680 --> 00:40:28,000
Speaker 1: and I said yes. I said, I really, I you know,

660
00:40:28,080 --> 00:40:32,440
Speaker 1: after the the dot com crash, I said, if cap

661
00:40:32,480 --> 00:40:36,920
Speaker 1: waited has flaws, the huge flaws, huge flaws, huge flaws.

662
00:40:36,960 --> 00:40:39,520
Speaker 1: I mean, you know here I had, you know, I mean,

663
00:40:39,560 --> 00:40:41,480
Speaker 1: let's face it. I was in the first two or

664
00:40:41,520 --> 00:40:43,440
Speaker 1: three editions. It's talks for a long one. I was

665
00:40:43,480 --> 00:40:50,360
Speaker 1: a huge Vanguard fan. Van Guard paid me commissions for

666
00:40:50,400 --> 00:40:53,040
Speaker 1: every dollar I probably of their index fund. I so

667
00:40:53,239 --> 00:40:55,560
Speaker 1: I would be rich from that. They're up to three

668
00:40:55,560 --> 00:41:00,480
Speaker 1: trillion dollars. I know they're there. I listen, Greedy just

669
00:41:00,480 --> 00:41:03,560
Speaker 1: gets one bogel and I I love him. I think

670
00:41:03,560 --> 00:41:05,920
Speaker 1: he's great. And you know, we've had a little difference.

671
00:41:05,960 --> 00:41:07,920
Speaker 1: He said, Jeremy, I'm not happy you went on too

672
00:41:07,960 --> 00:41:10,920
Speaker 1: the fundamental route. He didn't stay you know that. I

673
00:41:10,920 --> 00:41:13,759
Speaker 1: mean he's you've had him on, I have no, I've

674
00:41:13,760 --> 00:41:17,080
Speaker 1: had had him. I've had Jack Brennan, who's the chairman.

675
00:41:17,200 --> 00:41:19,400
Speaker 1: Why don't you get bog You gotta get Bogel. I

676
00:41:19,440 --> 00:41:21,800
Speaker 1: would love to get Bogel, except to have to slept

677
00:41:21,880 --> 00:41:25,600
Speaker 1: into that old creek. He doesn't really try travel that much?

678
00:41:25,800 --> 00:41:29,800
Speaker 1: Was he? Valley Forge Pence. Yeah, so I've actually spoken

679
00:41:29,840 --> 00:41:32,120
Speaker 1: to people here and said, let's do a field trip

680
00:41:32,160 --> 00:41:35,279
Speaker 1: to Pennsylvania. Will listen. There's only one Bogel he's not

681
00:41:35,280 --> 00:41:40,320
Speaker 1: getting I think, you know, I don't know. Mike Steinhardt

682
00:41:40,400 --> 00:41:42,239
Speaker 1: is another one i'd love to speak to. I find

683
00:41:42,320 --> 00:41:47,839
Speaker 1: him absolutely fast. Ask him, Um, Michael, all right, you'll

684
00:41:47,840 --> 00:41:50,279
Speaker 1: make an introduction, make an introduction. You know, I know

685
00:41:50,400 --> 00:41:56,040
Speaker 1: Michael personally. I actually now. Michael Steinhardt is another Warton grad.

686
00:41:56,360 --> 00:42:00,080
Speaker 1: Not surprising, not surprisingly, also someone I did I knew of,

687
00:42:00,200 --> 00:42:03,000
Speaker 1: but did not know. So you know, it was like

688
00:42:03,080 --> 00:42:06,040
Speaker 1: Jonathan I met in a few occasions because being wife

689
00:42:06,320 --> 00:42:10,160
Speaker 1: Maria my class and a few occasions. Michael, I I

690
00:42:10,200 --> 00:42:12,799
Speaker 1: don't I don't even remember meeting. Of course I knew

691
00:42:12,840 --> 00:42:18,120
Speaker 1: about him, um, and and another fascinating guy, really interested stories.

692
00:42:18,600 --> 00:42:22,200
Speaker 1: He's quite a fascinating guy. Um. And he's also written

693
00:42:22,200 --> 00:42:25,680
Speaker 1: a book, by the way, I think, basically a book

694
00:42:25,719 --> 00:42:30,080
Speaker 1: of his his life and investing, and it's also very fascinating.

695
00:42:30,200 --> 00:42:32,680
Speaker 1: I'm gonna have to pull that. Yeah, he is a

696
00:42:32,719 --> 00:42:36,000
Speaker 1: fascinating guy. We we become quite friendly with him. My

697
00:42:36,000 --> 00:42:39,799
Speaker 1: wife and I a uh through wisdom treating his position's

698
00:42:39,840 --> 00:42:42,600
Speaker 1: chairman of the board. So, so Jonathan Steinberg was CEO,

699
00:42:43,160 --> 00:42:45,799
Speaker 1: and you're on the board of advisors. He's the check. Yeah,

700
00:42:45,800 --> 00:42:47,880
Speaker 1: I'm on basically an advisor. I'm no longer on the

701
00:42:47,880 --> 00:42:53,680
Speaker 1: board of uh uh directors directors so for various reasons.

702
00:42:53,800 --> 00:42:55,880
Speaker 1: I I stayed there for about one year, but I'm

703
00:42:55,920 --> 00:43:00,120
Speaker 1: senior investment strategy advisor. And you know, he said come on,

704
00:43:00,239 --> 00:43:02,560
Speaker 1: and you know part of it was options, you know,

705
00:43:03,560 --> 00:43:09,000
Speaker 1: tech companies and all that, um um. So uh Index

706
00:43:09,040 --> 00:43:13,160
Speaker 1: Development Partners was trading as the stump company from his

707
00:43:13,239 --> 00:43:16,200
Speaker 1: original company, so it was trading at four cents of share.

708
00:43:17,000 --> 00:43:23,240
Speaker 1: Really yeah, so all that so let me just mention

709
00:43:23,320 --> 00:43:26,840
Speaker 1: to you because it's the member of public record, Sawing

710
00:43:26,840 --> 00:43:31,000
Speaker 1: had four cents of share when it was announced that

711
00:43:31,560 --> 00:43:34,720
Speaker 1: you know, Michael Steinhard had funded were changing Index Development

712
00:43:34,719 --> 00:43:40,360
Speaker 1: and I joined it. It closed the next day. At

713
00:43:40,560 --> 00:43:43,000
Speaker 1: there you go. That's a good return right there. It

714
00:43:43,160 --> 00:43:47,840
Speaker 1: subsequently went up to ten and then crashed to about

715
00:43:47,880 --> 00:43:52,000
Speaker 1: forty cents in the crisis. So and where is it now?

716
00:43:52,520 --> 00:43:57,840
Speaker 1: So now it's fifteen alright, so it actually was as

717
00:43:57,920 --> 00:44:01,760
Speaker 1: high as twenty seven since but this tremendous down draand

718
00:44:01,840 --> 00:44:04,000
Speaker 1: you were day trading this the whole time. I don't

719
00:44:04,800 --> 00:44:08,759
Speaker 1: never date traded this. I did that trade trade did no.

720
00:44:09,000 --> 00:44:11,719
Speaker 1: So I mean we all of us went through a

721
00:44:11,840 --> 00:44:15,440
Speaker 1: roller coaster. So as you started going up, you know,

722
00:44:15,560 --> 00:44:18,600
Speaker 1: I said, listen to my gut, Yeah, I said, And

723
00:44:18,760 --> 00:44:20,719
Speaker 1: as we said, I mean, I'm stocked to the long run.

724
00:44:20,760 --> 00:44:24,920
Speaker 1: But I I didn't have to. You have to the

725
00:44:25,000 --> 00:44:29,239
Speaker 1: volatility of stomach jarning. Now here's the maybe funny isn't

726
00:44:29,280 --> 00:44:33,520
Speaker 1: the right word, but here's the um interesting parallel. Think

727
00:44:33,560 --> 00:44:37,480
Speaker 1: about every tech company and every twenty eight year old

728
00:44:37,760 --> 00:44:43,959
Speaker 1: software engineer, project manage or whatever at E. Mc dell. Yeah,

729
00:44:44,000 --> 00:44:48,560
Speaker 1: who go through the whole Intel, Son, Oracle, Microsoft, These

730
00:44:48,640 --> 00:44:52,319
Speaker 1: got kids in their twenties and thirties suddenly are worth

731
00:44:52,480 --> 00:44:55,560
Speaker 1: tens of millions, hundreds of millions of dollars. Same thing happened.

732
00:44:55,560 --> 00:45:01,239
Speaker 1: And then watching a drop. Well, yeah, that's that's that's right. Uh.

733
00:45:01,280 --> 00:45:05,160
Speaker 1: And in fact, wisdom Tree and it's and it's and

734
00:45:05,200 --> 00:45:07,520
Speaker 1: I think at that time it was uh it was

735
00:45:07,560 --> 00:45:09,839
Speaker 1: paint Is wisdom Tree. We changed our name from Index

736
00:45:09,840 --> 00:45:12,440
Speaker 1: Development Partners to Wisdom Tree. But we're talking about a

737
00:45:12,520 --> 00:45:20,480
Speaker 1: ninety five cent drop from nearly ten nine five. That

738
00:45:21,120 --> 00:45:27,719
Speaker 1: was well, you know that was yeah you so yeah,

739
00:45:29,520 --> 00:45:33,160
Speaker 1: so you know, I it was quite a ride. But

740
00:45:33,280 --> 00:45:38,400
Speaker 1: you know, you know, truthfully, as I say, um uh

741
00:45:38,719 --> 00:45:41,799
Speaker 1: to me my teaching, I mean, I I never was

742
00:45:41,840 --> 00:45:43,520
Speaker 1: a guy. I mean, I owned one car. It's not

743
00:45:43,560 --> 00:45:47,000
Speaker 1: a fancy car. I'm not. I'm not a real expensive

744
00:45:47,040 --> 00:45:50,200
Speaker 1: guy that has real expensive taste. I mean. And the

745
00:45:50,239 --> 00:45:52,799
Speaker 1: fact that I've become better off than I had ever

746
00:45:52,880 --> 00:45:55,920
Speaker 1: imagined really gives me an opportunity to be charitable. And

747
00:45:55,960 --> 00:45:59,520
Speaker 1: that's what I'm doing. Uh, and I'm very thankful for that. So,

748
00:45:59,520 --> 00:46:02,839
Speaker 1: so let talk a little bit about um, that's really

749
00:46:02,880 --> 00:46:05,759
Speaker 1: a fascinating set of stories. Let's talk a little bit

750
00:46:05,800 --> 00:46:10,759
Speaker 1: about the concept of indexing. And we've been having this

751
00:46:10,920 --> 00:46:14,560
Speaker 1: debate back and forth in my office a right, So,

752
00:46:14,719 --> 00:46:20,799
Speaker 1: through a random twist of fate, the first major indexes

753
00:46:21,360 --> 00:46:25,719
Speaker 1: are set up cap weighted. Right, Well, yeah, I mean, well,

754
00:46:25,920 --> 00:46:29,520
Speaker 1: twist of fate. Uh, it's there's a random or what

755
00:46:29,600 --> 00:46:34,680
Speaker 1: was So there's two forces about there. One it's um,

756
00:46:34,760 --> 00:46:37,040
Speaker 1: it's almost a natural weighting in the sense of all right,

757
00:46:37,080 --> 00:46:39,680
Speaker 1: I'm gonna buy all the stocks, but you know we'll

758
00:46:39,719 --> 00:46:42,799
Speaker 1: go up and down. Well, obviously I gotta buy buy

759
00:46:42,960 --> 00:46:46,080
Speaker 1: more of a big stock than a widow. So let

760
00:46:46,120 --> 00:46:49,120
Speaker 1: me just look at the market capitalization and by relative

761
00:46:49,160 --> 00:46:52,560
Speaker 1: to that. The good thing about that waiting is that

762
00:46:52,800 --> 00:46:54,640
Speaker 1: if the stock goes up, you don't have to sell

763
00:46:54,760 --> 00:46:57,600
Speaker 1: or buy because it's automatically reweighted in your portfolio exactly

764
00:46:57,680 --> 00:47:02,239
Speaker 1: the same. That makes it extre really convenient. But secondly,

765
00:47:03,640 --> 00:47:08,280
Speaker 1: if the market is efficient, we economist had proved cap

766
00:47:08,440 --> 00:47:13,440
Speaker 1: weighted portfolios are the best optimal portfolios for risk return.

767
00:47:14,000 --> 00:47:18,319
Speaker 1: So let's repeat that. If the market is efficient, so

768
00:47:18,480 --> 00:47:23,040
Speaker 1: that all the information is impounded in the price. All right,

769
00:47:23,480 --> 00:47:26,920
Speaker 1: so is the most efficient. It is the most efficient.

770
00:47:27,040 --> 00:47:30,440
Speaker 1: Any other waiting will give you a worse risk return

771
00:47:30,520 --> 00:47:32,719
Speaker 1: tradeoff then to cap. So other words, on a risk

772
00:47:32,719 --> 00:47:35,640
Speaker 1: adjusted return, cap weighted is the most efficient if the

773
00:47:35,680 --> 00:47:38,239
Speaker 1: market is efficient. Now, what we see is there are

774
00:47:38,280 --> 00:47:42,320
Speaker 1: times when the market is mostly efficient, but during those

775
00:47:42,400 --> 00:47:46,000
Speaker 1: boom bus periods, that's where things get a little crazy.

776
00:47:46,080 --> 00:47:49,799
Speaker 1: So back to the two thousand year, as you discussed,

777
00:47:50,160 --> 00:47:53,920
Speaker 1: when the SMP five hundred is trading at thirty or forty,

778
00:47:54,280 --> 00:47:56,440
Speaker 1: the tech sector at a hundred and NASTAC at six.

779
00:47:57,280 --> 00:47:59,759
Speaker 1: So that means that that means that a handful of

780
00:48:00,000 --> 00:48:04,799
Speaker 1: ox are just out oversized within the and if you're

781
00:48:04,920 --> 00:48:07,120
Speaker 1: a cap weight weight, you can't sell those. You gotta

782
00:48:07,200 --> 00:48:11,680
Speaker 1: hold them, even though you know this is crazy. If

783
00:48:11,719 --> 00:48:14,680
Speaker 1: you're cap weighted, you gotta hold them. Meaning the index

784
00:48:14,719 --> 00:48:18,719
Speaker 1: portfolio construction is going to be wildly overweighted on the

785
00:48:18,920 --> 00:48:24,000
Speaker 1: most overpriced stocks by definitely. So now here's the argument

786
00:48:24,080 --> 00:48:28,480
Speaker 1: that we've been having in the office. So that efficiency,

787
00:48:28,640 --> 00:48:33,080
Speaker 1: that coincidence. Back when funds first index is first started

788
00:48:33,120 --> 00:48:37,440
Speaker 1: being created, we really didn't have the full on technology

789
00:48:37,600 --> 00:48:42,320
Speaker 1: to slicindise everything and look at things by book value

790
00:48:42,480 --> 00:48:46,560
Speaker 1: and look at least as easily as today book value, earnings, revenues,

791
00:48:46,600 --> 00:48:51,440
Speaker 1: whatever you want. And the argument is, the counter argument

792
00:48:51,640 --> 00:48:55,680
Speaker 1: is if you go with with a fundamental waiting, you're

793
00:48:55,719 --> 00:48:59,759
Speaker 1: basically owning a stock in a within the index in

794
00:48:59,800 --> 00:49:05,080
Speaker 1: a closer proportion to its impact to the total accoontom exactly.

795
00:49:05,160 --> 00:49:08,520
Speaker 1: So if that's the case, and here's where the debate is.

796
00:49:09,800 --> 00:49:13,359
Speaker 1: I've argued that, hey, you're making a decision to wait

797
00:49:13,480 --> 00:49:17,320
Speaker 1: an index by something, whether it's cap or earnings or

798
00:49:17,360 --> 00:49:20,640
Speaker 1: book value, you're choosing it. Some people claim that if

799
00:49:20,640 --> 00:49:23,680
Speaker 1: you wait an index by earnings or by book value

800
00:49:23,760 --> 00:49:28,960
Speaker 1: or by whatever, that's active management. I don't. I'm not

801
00:49:29,000 --> 00:49:33,360
Speaker 1: comfortable with that. Well we could let we could, uh,

802
00:49:33,680 --> 00:49:36,880
Speaker 1: let's talk a little bit about that. Um the way

803
00:49:36,920 --> 00:49:41,120
Speaker 1: that these uh fundamental weighted index and I think it's

804
00:49:41,120 --> 00:49:46,000
Speaker 1: exactly the same way with our not so wisdom tree rafite.

805
00:49:46,760 --> 00:49:49,960
Speaker 1: What you do is it's on the basis of just

806
00:49:50,200 --> 00:49:55,759
Speaker 1: objective data on the earnings. We don't make any judgment

807
00:49:55,920 --> 00:50:00,520
Speaker 1: whatso weather on whether the quantita it's a quantitative factor

808
00:50:00,640 --> 00:50:06,160
Speaker 1: and that's it. So that active management that you could

809
00:50:06,200 --> 00:50:09,680
Speaker 1: call that, But that's like active management at low level,

810
00:50:09,800 --> 00:50:13,240
Speaker 1: lowest level. I really look at that as a it's passive,

811
00:50:13,320 --> 00:50:17,239
Speaker 1: but it's constructed differently. That's exactly the way I would

812
00:50:17,239 --> 00:50:20,520
Speaker 1: prefer it. I think active is when you have judgments

813
00:50:20,520 --> 00:50:23,480
Speaker 1: and you're presented with prices going up or down. I

814
00:50:23,480 --> 00:50:26,360
Speaker 1: think this is now fulfilled my price target given the

815
00:50:26,400 --> 00:50:29,759
Speaker 1: potential of the company. Blah blah blah blah blah. Exactly.

816
00:50:30,000 --> 00:50:32,799
Speaker 1: That's what I think about as active managing. The other

817
00:50:33,120 --> 00:50:36,120
Speaker 1: is really what we call, you know what, what's now

818
00:50:36,160 --> 00:50:39,120
Speaker 1: called smart beta in the sense is construct a base

819
00:50:39,160 --> 00:50:42,200
Speaker 1: of your portfolio. But instead of using capway to use

820
00:50:42,239 --> 00:50:45,560
Speaker 1: a fundamental weight to get the way and ultimately that

821
00:50:45,640 --> 00:50:49,759
Speaker 1: index then runs itself based on the initial parameters. And

822
00:50:49,800 --> 00:50:56,880
Speaker 1: there's no have to rebalancewceance once a year. Others do

823
00:50:56,920 --> 00:51:00,160
Speaker 1: it more. We've we've been examining it. Um. You know,

824
00:51:00,200 --> 00:51:03,160
Speaker 1: there's there's no theory that tells you how many there

825
00:51:03,920 --> 00:51:06,719
Speaker 1: do it. We found that there's a lot of costs, taxes, expenses.

826
00:51:07,000 --> 00:51:10,760
Speaker 1: There are people who we find rebalance way too often

827
00:51:10,760 --> 00:51:13,920
Speaker 1: and it's just expense. So we we we at wisdom too.

828
00:51:14,080 --> 00:51:18,960
Speaker 1: We balanced once a year. Um. Again, once we look

829
00:51:19,000 --> 00:51:20,880
Speaker 1: at it, we look at the fundamentals and the price,

830
00:51:20,920 --> 00:51:23,120
Speaker 1: and we move. You know, if the fundamentals moved up

831
00:51:23,160 --> 00:51:24,719
Speaker 1: but the price didn't, we buy more of it. The

832
00:51:24,719 --> 00:51:28,120
Speaker 1: fundamentals moved down, we buy less of it. Relative it's

833
00:51:28,120 --> 00:51:30,840
Speaker 1: all relative to the price. Buy a formula. You know, again,

834
00:51:30,840 --> 00:51:34,080
Speaker 1: no judgment. It's a formula that anyone out there can

835
00:51:34,719 --> 00:51:36,600
Speaker 1: you know, I mean you can, you can do this,

836
00:51:37,320 --> 00:51:40,560
Speaker 1: anyone can do it. Yeah, but you know, we do

837
00:51:40,600 --> 00:51:43,799
Speaker 1: it at a very cheap cost. There's no reasons for

838
00:51:43,840 --> 00:51:47,000
Speaker 1: anyone to try and put together three hundred stocks one

839
00:51:47,040 --> 00:51:49,960
Speaker 1: by one when one E T F you got will

840
00:51:50,040 --> 00:51:52,319
Speaker 1: do it for you. And your internal expense ratios are

841
00:51:52,400 --> 00:51:56,480
Speaker 1: fairly compary low. Yeah, you're not a high priced fund.

842
00:51:56,520 --> 00:51:59,480
Speaker 1: You're pretty inexpensive. And we are very we are very

843
00:51:59,480 --> 00:52:01,719
Speaker 1: in fact that that was one thing I told John Oh,

844
00:52:01,719 --> 00:52:05,319
Speaker 1: I mean, go forget. I was again before the dot

845
00:52:05,360 --> 00:52:07,839
Speaker 1: com bubble. I was very much an Index fan. And

846
00:52:07,840 --> 00:52:12,080
Speaker 1: of course we know vanguards five, six, seven basis points crazy. Yeah,

847
00:52:12,160 --> 00:52:14,680
Speaker 1: I mean there, you know. And but I told John

848
00:52:14,680 --> 00:52:18,000
Speaker 1: Oh when he you know, that's what everyone called John Steinberg,

849
00:52:18,320 --> 00:52:20,960
Speaker 1: johnno is is that I said to johnno When he

850
00:52:21,000 --> 00:52:23,799
Speaker 1: wanted me on, I said, listen, John oh, um, I

851
00:52:23,880 --> 00:52:28,480
Speaker 1: will be on. But let's let's keep these management fees low.

852
00:52:29,040 --> 00:52:30,400
Speaker 1: I know this is a great thing, and I know

853
00:52:30,480 --> 00:52:32,239
Speaker 1: on the basis of where we see risk and return,

854
00:52:32,320 --> 00:52:34,400
Speaker 1: it could probably you know, charge a hundred and fifty.

855
00:52:34,680 --> 00:52:38,040
Speaker 1: And he said no, Jeremy, I want this to be low.

856
00:52:38,200 --> 00:52:40,640
Speaker 1: I want to get assets. I want to do a

857
00:52:40,719 --> 00:52:43,000
Speaker 1: job for people. I want to get him over from

858
00:52:43,040 --> 00:52:46,800
Speaker 1: from Vanguard and from Index. And I'm with you, so

859
00:52:47,200 --> 00:52:49,960
Speaker 1: I look at you guys, not as pulling money. By

860
00:52:49,960 --> 00:52:52,480
Speaker 1: the way, there's been a from what I understand, there's

861
00:52:52,520 --> 00:52:56,439
Speaker 1: been an internal debate at Vanguard about smart data. And

862
00:52:57,040 --> 00:53:00,480
Speaker 1: I don't think that's gonna change anytime soon. Although I

863
00:53:00,480 --> 00:53:03,080
Speaker 1: I don't make predictions very often, but I'm gonna predict

864
00:53:03,160 --> 00:53:05,880
Speaker 1: one day Vangard is gonna just see a lot of

865
00:53:05,920 --> 00:53:10,520
Speaker 1: money going to Fundamental Index thing. And I can say, alright,

866
00:53:10,560 --> 00:53:12,200
Speaker 1: why not if they could do what we could do

867
00:53:12,200 --> 00:53:15,040
Speaker 1: it better cheaper. So I think Vanguard is is going

868
00:53:15,080 --> 00:53:20,439
Speaker 1: to be I don't know whether again, I mean they

869
00:53:20,480 --> 00:53:26,040
Speaker 1: did ETFs and Bogo, as you know, objected furiously. Uh,

870
00:53:26,280 --> 00:53:31,839
Speaker 1: he would go bananas absolutely fund Metal. I don't know.

871
00:53:32,560 --> 00:53:34,680
Speaker 1: He's probably an honorary member now, I don't know if

872
00:53:34,719 --> 00:53:39,240
Speaker 1: he has an official Yeah, he's he's a sum emeritus title.

873
00:53:40,320 --> 00:53:44,080
Speaker 1: Oh no, listen, he's Mr Vanguard. I'm sure, let's face it. Uh.

874
00:53:44,120 --> 00:53:46,680
Speaker 1: And but but you know they had a big falling

875
00:53:46,719 --> 00:53:49,920
Speaker 1: out on E T F S you know, they to

876
00:53:49,920 --> 00:53:54,360
Speaker 1: to Vanguard's credit, they looked at Jeeves, this is the

877
00:53:54,400 --> 00:53:57,920
Speaker 1: fastest growing section of the But but as you know,

878
00:53:58,080 --> 00:54:03,000
Speaker 1: Bogo was really really ideologically opposed. He doesn't like the

879
00:54:03,080 --> 00:54:06,480
Speaker 1: t F because he says it encourages people exactly, although

880
00:54:06,680 --> 00:54:09,920
Speaker 1: he's a buy and hold guy and he did not

881
00:54:10,160 --> 00:54:13,600
Speaker 1: like that at all. So, but he also doesn't like

882
00:54:13,800 --> 00:54:17,040
Speaker 1: emerging markets and developed markets overseas going the currency risk.

883
00:54:17,440 --> 00:54:20,960
Speaker 1: Vanguard has a huge not hedges the way you guys are.

884
00:54:21,040 --> 00:54:25,399
Speaker 1: But they have that that that that's true, but that

885
00:54:25,560 --> 00:54:27,880
Speaker 1: isn't as big as when they did e t F

886
00:54:28,480 --> 00:54:33,240
Speaker 1: because they were they were potentially gutting his baby there

887
00:54:33,360 --> 00:54:35,919
Speaker 1: with the Vanguard Index. Mean, while the tf have worked

888
00:54:35,920 --> 00:54:39,279
Speaker 1: out pretty well for they're still very low cost. They

889
00:54:39,320 --> 00:54:42,680
Speaker 1: parallel the mutual funds. Of course, although um I forget

890
00:54:42,719 --> 00:54:46,000
Speaker 1: what it's called the Admiral shares. If you're buying institutional

891
00:54:46,480 --> 00:54:51,759
Speaker 1: quantity shares a Vanguard, it's amongst the cheapest things in

892
00:54:51,800 --> 00:54:53,759
Speaker 1: the world. It's cheaper than the e t F s

893
00:54:54,400 --> 00:54:58,240
Speaker 1: and it appeals to a very specific audience. It appeals

894
00:54:58,280 --> 00:55:00,880
Speaker 1: to to the r i A says, it appeals to

895
00:55:01,280 --> 00:55:04,160
Speaker 1: big endowments and trust it's the cheapest way they could

896
00:55:04,200 --> 00:55:07,400
Speaker 1: get instant exposure, and they're buying stuff for ten or

897
00:55:07,440 --> 00:55:09,799
Speaker 1: twenty years. They don't care about the e T so

898
00:55:09,880 --> 00:55:13,799
Speaker 1: for their perspective. Um, so that's interesting. I didn't know

899
00:55:13,840 --> 00:55:16,799
Speaker 1: you knew Bogel very well, very well. I I have

900
00:55:16,880 --> 00:55:19,720
Speaker 1: tremendous respect for him. And as getting we added, uh,

901
00:55:19,760 --> 00:55:23,399
Speaker 1: you know, we've had differences on this smart Beta fundamental indexing.

902
00:55:23,880 --> 00:55:28,480
Speaker 1: But uh, he is definitely man that will go down

903
00:55:28,480 --> 00:55:30,960
Speaker 1: in the history and he should. And uh yeah, Verry,

904
00:55:31,080 --> 00:55:35,120
Speaker 1: I think bring yourself down. It's worth you know, he's

905
00:55:35,120 --> 00:55:36,960
Speaker 1: had it's worth getting down there. Well, he's had some

906
00:55:37,160 --> 00:55:40,400
Speaker 1: unbelievable health challenges. As you know, he was born with

907
00:55:40,440 --> 00:55:43,000
Speaker 1: a defective heart and had to wait like fifteen years

908
00:55:43,000 --> 00:55:48,720
Speaker 1: for heart transplant. They didn't even know each he's twenty

909
00:55:48,800 --> 00:55:52,800
Speaker 1: years beyond that. And you know, but obviously none of

910
00:55:52,840 --> 00:55:56,600
Speaker 1: us are going to live forever. Um I. The Google

911
00:55:56,640 --> 00:56:00,120
Speaker 1: guys are working on that. They're trying to find a way.

912
00:56:00,160 --> 00:56:03,440
Speaker 1: I'm too old to get forever living. Maybe my children

913
00:56:03,440 --> 00:56:05,920
Speaker 1: will get forever living. I think that you'll end up

914
00:56:05,920 --> 00:56:09,000
Speaker 1: board after a while for eternally. So, so let's go

915
00:56:09,040 --> 00:56:11,480
Speaker 1: back to the stocks. For the long run. We talked

916
00:56:11,480 --> 00:56:13,879
Speaker 1: about the case for equities. We talked about why over

917
00:56:13,920 --> 00:56:17,399
Speaker 1: the long haul stocks are less risky than bonds, less

918
00:56:17,480 --> 00:56:21,719
Speaker 1: volad old um. We didn't talk about the significance of

919
00:56:21,840 --> 00:56:25,200
Speaker 1: dividends to long term stock returns. And I find people

920
00:56:25,239 --> 00:56:28,520
Speaker 1: are always surprised when I show them data from your

921
00:56:28,600 --> 00:56:32,160
Speaker 1: book as to the significance of dividends. Let's let's talk

922
00:56:32,160 --> 00:56:35,800
Speaker 1: about that a bit. Yeah, well and it and it's changed.

923
00:56:36,920 --> 00:56:39,360
Speaker 1: Let me kind of pretend a big picture here. Up

924
00:56:39,440 --> 00:56:45,200
Speaker 1: until around or eighty firms used to pay out two

925
00:56:45,320 --> 00:56:48,680
Speaker 1: thirds of their earnings as dividends, two thirds of their

926
00:56:48,680 --> 00:56:52,120
Speaker 1: earners of earnings in the earlier years and through the nights.

927
00:56:52,120 --> 00:56:54,799
Speaker 1: Are we talking about first half of the twentieth century, Yeah,

928
00:56:54,920 --> 00:56:56,960
Speaker 1: even the first half of the twins and started changing

929
00:56:57,040 --> 00:57:00,160
Speaker 1: post war. Began to accelerate around the late seven He's

930
00:57:00,200 --> 00:57:03,520
Speaker 1: in eighties and right now it's one third. And so

931
00:57:03,600 --> 00:57:06,360
Speaker 1: what's the SMB five dividen yeld now about two point

932
00:57:06,520 --> 00:57:10,000
Speaker 1: one okay, yeah, so so better about the same as

933
00:57:10,000 --> 00:57:12,960
Speaker 1: the ten year bonds. Yes, plus the upside on the equity,

934
00:57:13,040 --> 00:57:15,719
Speaker 1: and plus you got the buy backs, which is now

935
00:57:15,960 --> 00:57:18,840
Speaker 1: so what had happened. And this has to do with

936
00:57:19,200 --> 00:57:21,200
Speaker 1: a number of factors we could talk about if people

937
00:57:21,240 --> 00:57:25,920
Speaker 1: want to. But firms have substituted buy backs for dividends. Now,

938
00:57:25,960 --> 00:57:27,760
Speaker 1: I'm not a big fan of buy backs, and I'm

939
00:57:27,800 --> 00:57:29,880
Speaker 1: curious as to you. Okay, we have something, are you

940
00:57:29,920 --> 00:57:32,000
Speaker 1: are I am a fan? Well, I would rather see

941
00:57:32,000 --> 00:57:35,200
Speaker 1: them pay the money and dividends. Oh, I'm with you there, okay,

942
00:57:35,240 --> 00:57:37,400
Speaker 1: But I my everone else said oh, they should be

943
00:57:37,400 --> 00:57:39,200
Speaker 1: investing in in this and this and this and this

944
00:57:39,240 --> 00:57:42,200
Speaker 1: and buying this, And I said, hey, listen, I would

945
00:57:42,240 --> 00:57:46,680
Speaker 1: I'm with you Bury. I prefer the dividends. But if

946
00:57:46,720 --> 00:57:48,720
Speaker 1: it's not going to be dividends, the buy backs are

947
00:57:48,760 --> 00:57:52,040
Speaker 1: the second best thing to what long term R and

948
00:57:52,120 --> 00:57:55,280
Speaker 1: D you believe it or not? Or expanding planic government

949
00:57:55,360 --> 00:57:58,160
Speaker 1: or do you know what firms do? They have all

950
00:57:58,200 --> 00:58:00,480
Speaker 1: this money? Hey, I can buy this? Am I always

951
00:58:00,680 --> 00:58:05,880
Speaker 1: like that firm? You know, premium on crazy? You know,

952
00:58:06,040 --> 00:58:07,520
Speaker 1: I mean you have these c e O s. I

953
00:58:07,520 --> 00:58:09,920
Speaker 1: mean many are good, but some of our empire builders

954
00:58:10,120 --> 00:58:13,000
Speaker 1: got cash on hands, are gonna buy well. They spend

955
00:58:13,120 --> 00:58:16,080
Speaker 1: one decade building these conglomerates, in the next decade taking

956
00:58:16,120 --> 00:58:21,560
Speaker 1: him apart, right, So you know, as I say, I mean,

957
00:58:21,600 --> 00:58:24,120
Speaker 1: I prefer with you. I would love to see it

958
00:58:24,160 --> 00:58:27,520
Speaker 1: in dividends. Unfortunately, you know we've were now you know

959
00:58:27,720 --> 00:58:29,200
Speaker 1: under Obama we have you know, we used to have

960
00:58:29,200 --> 00:58:31,960
Speaker 1: fifteen percent tax and now it's first went to twenty

961
00:58:31,960 --> 00:58:35,040
Speaker 1: and then the three point six. Yeah, this is raised

962
00:58:35,040 --> 00:58:39,040
Speaker 1: the tax on dividends again. Pushed it. Yeah, I mean

963
00:58:39,120 --> 00:58:41,920
Speaker 1: we you know, we are one of the only countries

964
00:58:41,960 --> 00:58:44,320
Speaker 1: in the world that we double tax dividends. You know,

965
00:58:44,360 --> 00:58:46,920
Speaker 1: at one point in time was taxed as ordinary income.

966
00:58:47,040 --> 00:58:49,080
Speaker 1: I know, I mean back in the day dividends with

967
00:58:49,200 --> 00:58:53,640
Speaker 1: tax that single people got a hundred dollars exemption and

968
00:58:53,800 --> 00:58:57,800
Speaker 1: married couples two hundred dollars exemples. In the sixties you

969
00:58:57,920 --> 00:58:59,880
Speaker 1: had your first two and then it was absolutely or

970
00:59:00,040 --> 00:59:04,160
Speaker 1: mary income. Now you know, people complain about fifteen People

971
00:59:04,240 --> 00:59:07,560
Speaker 1: used to complain about fifteen percent, and my answer was always, hey,

972
00:59:07,640 --> 00:59:10,520
Speaker 1: you used to just be like like and it is

973
00:59:10,600 --> 00:59:14,320
Speaker 1: much better than thirties nine to have it today at

974
00:59:14,400 --> 00:59:18,000
Speaker 1: twenty three. Uh, but but you'd rather see it at

975
00:59:19,880 --> 00:59:23,960
Speaker 1: or or. I was actually advocating. I had um written

976
00:59:24,000 --> 00:59:26,760
Speaker 1: some papers on when I began to look at dividends

977
00:59:26,920 --> 00:59:32,520
Speaker 1: um And I was actually in congressional testimony when President

978
00:59:32,600 --> 00:59:35,640
Speaker 1: Bush first developed that break for dividen because he was

979
00:59:37,040 --> 00:59:40,200
Speaker 1: too Bush. We got the first dividend break in Bush

980
00:59:40,240 --> 00:59:43,760
Speaker 1: two and that was part of the Big Oh three

981
00:59:45,320 --> 00:59:48,360
Speaker 1: and that was a huge set of tax huge. Now

982
00:59:48,800 --> 00:59:56,640
Speaker 1: I was actually interesting. I actually advocated that they um exemptive,

983
00:59:57,000 --> 01:00:01,520
Speaker 1: well exempt dividends from the corporate tax, because that's weird

984
01:00:01,600 --> 01:00:05,160
Speaker 1: double taxing them. First exempt dividends from the corporate taxt?

985
01:00:05,480 --> 01:00:08,280
Speaker 1: How would that apply? You mean at the corporate level

986
01:00:08,640 --> 01:00:11,120
Speaker 1: or by whole right now? Is you know corporations can

987
01:00:11,160 --> 01:00:14,000
Speaker 1: subtract all the interest on their debt corporate I also

988
01:00:14,040 --> 01:00:16,400
Speaker 1: wanted them to be able to suppract all the dividends

989
01:00:16,400 --> 01:00:19,520
Speaker 1: on their stock. Why not? So in other words, it's

990
01:00:19,560 --> 01:00:25,520
Speaker 1: a cost like interests? And why again? Why one reason

991
01:00:25,520 --> 01:00:27,920
Speaker 1: they exempted it because I'm taxed on the interest, so

992
01:00:27,960 --> 01:00:30,560
Speaker 1: they don't do it on corporation. Why do they double

993
01:00:30,640 --> 01:00:33,280
Speaker 1: tax the dividend. I'm tax on dividends and they're not

994
01:00:33,640 --> 01:00:35,680
Speaker 1: get the break on the cost side. I think the

995
01:00:35,720 --> 01:00:39,320
Speaker 1: reason is interest is an operational expense and dividends is

996
01:00:39,360 --> 01:00:44,600
Speaker 1: a capital structure. Expect Well, you can but that's honestly,

997
01:00:44,680 --> 01:00:47,479
Speaker 1: firms have a choice debt or or equity or both

998
01:00:47,560 --> 01:00:49,400
Speaker 1: or what you know, I guess if you look at

999
01:00:49,440 --> 01:00:50,920
Speaker 1: it that way, it's the same thing. Yeah, I mean,

1000
01:00:51,080 --> 01:00:54,000
Speaker 1: you're borrowing money or you're borrowing if you want to

1001
01:00:54,040 --> 01:00:56,840
Speaker 1: prevent all the over leverage, which is you know, one

1002
01:00:56,880 --> 01:00:59,600
Speaker 1: of the things that led to the financial crisis, you

1003
01:00:59,680 --> 01:01:03,760
Speaker 1: don't want to it's encouraging debt. It's creating a bias

1004
01:01:03,840 --> 01:01:07,960
Speaker 1: more towards borrowing and less towards equity issues. So so

1005
01:01:08,040 --> 01:01:10,400
Speaker 1: let's go back to the buy backs a second. The

1006
01:01:10,920 --> 01:01:13,520
Speaker 1: rub against that, the argument against it is when we

1007
01:01:13,640 --> 01:01:17,640
Speaker 1: look through the history of buy backs, companies have a

1008
01:01:17,680 --> 01:01:21,040
Speaker 1: tendency to beat to do it very poorly. We have

1009
01:01:21,160 --> 01:01:23,320
Speaker 1: Dell in the news they just announced the purchase of

1010
01:01:23,320 --> 01:01:26,600
Speaker 1: e m C. The data point on Dell, which I

1011
01:01:26,640 --> 01:01:30,480
Speaker 1: find astonishing, is they spent more money on buy backs

1012
01:01:30,480 --> 01:01:33,320
Speaker 1: over their history when they were a public company then

1013
01:01:33,400 --> 01:01:36,520
Speaker 1: their total earnings over the course of that same period,

1014
01:01:36,880 --> 01:01:39,640
Speaker 1: which means they had to be buying high in order

1015
01:01:39,680 --> 01:01:43,360
Speaker 1: to to either reduce the float or issue more stock options.

1016
01:01:43,600 --> 01:01:48,000
Speaker 1: So aren't corporate executives poor timers of when it shouldn't

1017
01:01:48,040 --> 01:01:50,440
Speaker 1: be timers, though, I I think you just buy it

1018
01:01:50,520 --> 01:01:54,000
Speaker 1: at the market price. Some yes, sometimes you'll be overpaying,

1019
01:01:54,240 --> 01:01:58,400
Speaker 1: some price you're underpaying. You shouldn't try to time it now.

1020
01:01:58,480 --> 01:02:00,920
Speaker 1: I know. Bren Buffett always says, yeah, I think it's cheap,

1021
01:02:01,000 --> 01:02:04,480
Speaker 1: I'll start buying more mos on that, and he encourages others.

1022
01:02:04,640 --> 01:02:07,000
Speaker 1: But my feeling is all right, if you're not going

1023
01:02:07,040 --> 01:02:09,439
Speaker 1: to give it as dividends, that's suppose you buy three

1024
01:02:09,440 --> 01:02:12,320
Speaker 1: percent back a year. Just do it every month, you know,

1025
01:02:12,440 --> 01:02:15,000
Speaker 1: just as a stand you some some years will be

1026
01:02:15,040 --> 01:02:18,920
Speaker 1: over paying, some years you'll be underpaying, but on average

1027
01:02:18,960 --> 01:02:22,080
Speaker 1: you'll be paying the price and you'll be getting you know,

1028
01:02:22,760 --> 01:02:25,520
Speaker 1: a fair market value. In fact, by the way, you

1029
01:02:25,600 --> 01:02:27,640
Speaker 1: will be buying more when the price is low because

1030
01:02:29,600 --> 01:02:32,840
Speaker 1: dour cost average, it's actually a dour cost averaging. So

1031
01:02:32,960 --> 01:02:35,040
Speaker 1: so you do that. They're buying less when it's expensive

1032
01:02:35,120 --> 01:02:38,400
Speaker 1: more on right, So in a way, it's not you know,

1033
01:02:38,480 --> 01:02:41,080
Speaker 1: I obviously some of them, if they do it all

1034
01:02:41,120 --> 01:02:42,760
Speaker 1: on one date, or they don't do it for a

1035
01:02:42,800 --> 01:02:46,160
Speaker 1: few years, they suspended. So during the financial crisis, everybody

1036
01:02:46,200 --> 01:02:49,240
Speaker 1: suspended the purchase program well, which of course was when

1037
01:02:49,280 --> 01:02:51,840
Speaker 1: stocks were the cheapest they've been in a decade. Well

1038
01:02:52,480 --> 01:02:55,760
Speaker 1: they didn't have earnings either, to say the least. So

1039
01:02:55,800 --> 01:02:58,200
Speaker 1: I mean that was that was that was. But that's

1040
01:02:58,200 --> 01:03:01,040
Speaker 1: that's how you end up with them over paying because

1041
01:03:01,320 --> 01:03:05,240
Speaker 1: when things are cheapest, there in the least position to

1042
01:03:05,320 --> 01:03:08,720
Speaker 1: buy to a certain extent. That's that's true. But we

1043
01:03:08,840 --> 01:03:11,320
Speaker 1: know there's a lot of times the market goes down.

1044
01:03:11,520 --> 01:03:13,520
Speaker 1: As I said, you know when we talked about earlier,

1045
01:03:13,760 --> 01:03:18,840
Speaker 1: it over predicts recessions and rea, and that's where they

1046
01:03:18,840 --> 01:03:23,120
Speaker 1: get a good alright. So so to sum that up,

1047
01:03:23,280 --> 01:03:26,480
Speaker 1: prefer dividends of the buy backs. But but if if

1048
01:03:26,520 --> 01:03:28,880
Speaker 1: you you don't have the dividend, then you're gonna do

1049
01:03:28,920 --> 01:03:33,440
Speaker 1: the buy backs. All right. Um, that's really quite quite fascinating.

1050
01:03:33,800 --> 01:03:35,800
Speaker 1: So we did that. Let's talk about I p o s.

1051
01:03:36,480 --> 01:03:41,200
Speaker 1: You're another person who says I p o s take

1052
01:03:41,240 --> 01:03:43,680
Speaker 1: it as a whole. They don't really impress you. Yeah,

1053
01:03:43,880 --> 01:03:50,360
Speaker 1: discuss well, you know, and and and it's interesting, Uh,

1054
01:03:50,440 --> 01:03:53,600
Speaker 1: it was I looked at all the I p o s.

1055
01:03:55,080 --> 01:03:59,400
Speaker 1: Everyone not cherry picking the cherry picking the high one. Uh.

1056
01:03:59,440 --> 01:04:05,080
Speaker 1: And I did this around two thousand and five and six. Um,

1057
01:04:05,160 --> 01:04:08,400
Speaker 1: and when I looked all the way back, I compared

1058
01:04:08,480 --> 01:04:11,360
Speaker 1: it to a small stock index, not just the S

1059
01:04:11,440 --> 01:04:15,840
Speaker 1: and P. And my conclusion was, if you bought the

1060
01:04:15,920 --> 01:04:19,240
Speaker 1: portfolios of that, there were a few of these huge winners,

1061
01:04:19,280 --> 01:04:22,960
Speaker 1: but there were so many losers that you really, uh

1062
01:04:23,240 --> 01:04:27,600
Speaker 1: didn't beat a small stock index UM. And I wasn't

1063
01:04:27,760 --> 01:04:32,120
Speaker 1: excited about that. Now I didn't have the resources too,

1064
01:04:32,840 --> 01:04:35,320
Speaker 1: because it takes an awful lot of time too. Went

1065
01:04:35,400 --> 01:04:38,720
Speaker 1: in my fifth addition to update it. Some other people said, Jeremy,

1066
01:04:38,800 --> 01:04:41,400
Speaker 1: you know, in the last five, six, seven years, things

1067
01:04:41,400 --> 01:04:44,040
Speaker 1: have been better for the I p O s because

1068
01:04:44,080 --> 01:04:46,120
Speaker 1: it's been harder to go public unless you really like.

1069
01:04:47,040 --> 01:04:49,120
Speaker 1: The lesson of two thousand is, hey don't buy I

1070
01:04:49,200 --> 01:04:52,120
Speaker 1: pos that don't have profits. And I think I think

1071
01:04:52,160 --> 01:04:54,280
Speaker 1: one of you know, really very one of our biggest

1072
01:04:54,320 --> 01:04:59,960
Speaker 1: problems is we have firms disappearing. I mean, you know,

1073
01:05:00,200 --> 01:05:02,240
Speaker 1: it's it's really the anti I A P of the

1074
01:05:02,320 --> 01:05:05,960
Speaker 1: go in private UM. And I think that that is

1075
01:05:06,040 --> 01:05:09,360
Speaker 1: really deletarious to our whole capital markets. I love I

1076
01:05:09,480 --> 01:05:11,960
Speaker 1: P O s now in intense you're willing to go public,

1077
01:05:11,960 --> 01:05:13,840
Speaker 1: and my firm was willing to go public. I mean,

1078
01:05:14,160 --> 01:05:19,160
Speaker 1: we we're publicly traded UM. And John o has has

1079
01:05:19,200 --> 01:05:23,160
Speaker 1: said that that was very important to us. What traded

1080
01:05:23,280 --> 01:05:27,160
Speaker 1: What is the Wilshire five thousand now something? Three things?

1081
01:05:27,240 --> 01:05:31,040
Speaker 1: It's usually right, it's it's that's a So now some

1082
01:05:31,080 --> 01:05:34,560
Speaker 1: people have blamed the regulatory environment. Some people have blamed

1083
01:05:35,720 --> 01:05:39,120
Speaker 1: I have access to all this. The venture capital market

1084
01:05:39,640 --> 01:05:42,840
Speaker 1: is now so broad and deep. It's almost as if

1085
01:05:42,880 --> 01:05:44,720
Speaker 1: there isn't a need for a lot of these companies

1086
01:05:44,720 --> 01:05:47,640
Speaker 1: to go public. You look at Uber, where they worth

1087
01:05:47,720 --> 01:05:53,080
Speaker 1: fifty billion dollars with an exit for the vcs, you

1088
01:05:53,080 --> 01:05:55,960
Speaker 1: would think, yeah, so at some particular point, by the way,

1089
01:05:56,000 --> 01:05:59,120
Speaker 1: I do think I you know, there's been some studies

1090
01:05:59,160 --> 01:06:05,560
Speaker 1: on this. I do think Sarbanes oxially in the regulation afterwards. Yeah,

1091
01:06:05,640 --> 01:06:09,280
Speaker 1: and and and now, particularly on financials. I mean, I

1092
01:06:09,360 --> 01:06:12,160
Speaker 1: just know how much more we've had to do with compliance.

1093
01:06:13,040 --> 01:06:16,480
Speaker 1: I mean the financial firms, it's it's incredible. You have

1094
01:06:16,560 --> 01:06:19,360
Speaker 1: to dot your eyes and crushing every single thing. I mean,

1095
01:06:19,800 --> 01:06:22,960
Speaker 1: they're the burden of going public. Um, So let me

1096
01:06:23,000 --> 01:06:25,640
Speaker 1: tell you. I think it's I and I think that's

1097
01:06:25,720 --> 01:06:29,640
Speaker 1: bad because it doesn't give us, it doesn't give ordinary

1098
01:06:29,680 --> 01:06:33,840
Speaker 1: people and access to exciting capital developments. It's a friction

1099
01:06:33,920 --> 01:06:37,280
Speaker 1: on returns. It's a drag Listen. I run a relatively

1100
01:06:37,360 --> 01:06:40,360
Speaker 1: small office. We have an outside lawyer, we have an

1101
01:06:40,400 --> 01:06:44,880
Speaker 1: outside compliance firm. We have to do outside security updates

1102
01:06:44,960 --> 01:06:48,640
Speaker 1: just to make sure everybody's data is is sense. Everything

1103
01:06:48,680 --> 01:06:54,919
Speaker 1: we write is archived. We have multiple offsite. It's amazing.

1104
01:06:55,280 --> 01:06:57,560
Speaker 1: Now Afternon eleven, a lot of people lost a lot

1105
01:06:57,560 --> 01:06:59,360
Speaker 1: of data. It was really a problem, so they had

1106
01:06:59,360 --> 01:07:04,000
Speaker 1: to make some changes. But it is practically a full

1107
01:07:04,080 --> 01:07:09,000
Speaker 1: time job to keep a relatively small firm fully compliant,

1108
01:07:09,000 --> 01:07:15,000
Speaker 1: fully legal, fully matching everything. Um a big firm that

1109
01:07:15,000 --> 01:07:17,120
Speaker 1: that's got to be a staff of lawyers, a staff

1110
01:07:17,160 --> 01:07:20,680
Speaker 1: of accounts. That's gotta be amazing. Yeah, it absolutely is.

1111
01:07:20,720 --> 01:07:23,960
Speaker 1: And one wonders, you know we've had uh you know,

1112
01:07:24,000 --> 01:07:26,280
Speaker 1: I'm a macroeconomists. I always look at the GDP and

1113
01:07:26,320 --> 01:07:29,920
Speaker 1: on that. We've had a productivity collapse of enormous proportions

1114
01:07:29,960 --> 01:07:32,320
Speaker 1: of the last four or five years. We don't as

1115
01:07:32,320 --> 01:07:35,480
Speaker 1: economists know all the reasons why that, But we should

1116
01:07:35,680 --> 01:07:38,960
Speaker 1: have been increasing GDP four to five percent. You're not

1117
01:07:38,960 --> 01:07:41,720
Speaker 1: two to three given given what we've seen, and we

1118
01:07:41,760 --> 01:07:44,960
Speaker 1: don't understand what's going on. But is it regulation? Is

1119
01:07:45,000 --> 01:07:49,720
Speaker 1: it rules? Is its compliance. Is it administration goovers? I mean,

1120
01:07:49,760 --> 01:07:54,360
Speaker 1: I'm just saying we you know, we we've we've been

1121
01:07:54,440 --> 01:07:58,000
Speaker 1: having a productivity collapse. Let's talk about that, because that's

1122
01:07:58,040 --> 01:08:01,800
Speaker 1: a fascinating subject. And I've seen some very smart economists

1123
01:08:02,160 --> 01:08:06,720
Speaker 1: make the argument that we're measuring productivity wrong. All right,

1124
01:08:06,760 --> 01:08:09,920
Speaker 1: there's no doubt that I've suggested. Actually I wrote an article,

1125
01:08:10,040 --> 01:08:12,320
Speaker 1: as I mentioned, I must have been refering to. It

1126
01:08:12,440 --> 01:08:15,000
Speaker 1: might have been I. I actually so I'd say I

1127
01:08:15,040 --> 01:08:19,000
Speaker 1: write um kiplingers every other month. That was I write,

1128
01:08:19,040 --> 01:08:22,880
Speaker 1: And I talked about the productivity collapse, and I said,

1129
01:08:23,439 --> 01:08:26,360
Speaker 1: you know, no one buys cameras anymore because it's all

1130
01:08:26,360 --> 01:08:29,240
Speaker 1: on their phone. The government doesn't count it anymore because

1131
01:08:29,240 --> 01:08:31,320
Speaker 1: something that goes to zero and price doesn't get in

1132
01:08:31,360 --> 01:08:34,960
Speaker 1: g d P. And yet your phone is it's a phone,

1133
01:08:35,000 --> 01:08:39,080
Speaker 1: it's a computer, it's a camera, it's it's it's everything.

1134
01:08:39,120 --> 01:08:41,920
Speaker 1: No one by standalone GPS is anymore. And they're building

1135
01:08:41,920 --> 01:08:44,040
Speaker 1: in the car or you don't buy them. Everyone uses

1136
01:08:44,080 --> 01:08:46,559
Speaker 1: their phone. I mean, all sorts of things now have

1137
01:08:46,720 --> 01:08:51,320
Speaker 1: become free. Now. I've talked to others and he said, Jeremy,

1138
01:08:51,320 --> 01:08:53,880
Speaker 1: there's something to that we don't know. I mean, I

1139
01:08:54,680 --> 01:08:57,760
Speaker 1: donic adjustments and all that funds and Jake Destin's are

1140
01:08:57,840 --> 01:09:00,519
Speaker 1: very very difficult to do. But the dad, it is

1141
01:09:00,640 --> 01:09:07,120
Speaker 1: absolutely striking. The COLLAPSI productivity from two thousand eleven through today,

1142
01:09:07,360 --> 01:09:11,760
Speaker 1: uh is of a magnitude we have not seen, especially

1143
01:09:12,400 --> 01:09:16,640
Speaker 1: in an economic expansion, and this is very important in

1144
01:09:16,800 --> 01:09:20,360
Speaker 1: lower energy prices. We've had a collapse before, but that

1145
01:09:20,400 --> 01:09:22,800
Speaker 1: was in the seventies when energy was going way up

1146
01:09:22,800 --> 01:09:27,200
Speaker 1: in price. You understand why collapse at that particular. So

1147
01:09:27,200 --> 01:09:31,120
Speaker 1: so I wouldn't be surprised if regulations are part of it.

1148
01:09:31,520 --> 01:09:34,719
Speaker 1: I wouldn't be surprised if US measuring technology is part

1149
01:09:34,760 --> 01:09:37,759
Speaker 1: of it. I gotta imagine there's a whole bunch of difference.

1150
01:09:37,760 --> 01:09:41,200
Speaker 1: Who knows. I mean, you know, everyone has their pet thing.

1151
01:09:41,760 --> 01:09:45,960
Speaker 1: Now some people say it's the millennials work habits. They're

1152
01:09:46,000 --> 01:09:48,679
Speaker 1: just not working hard. They're not working hard on their jobs.

1153
01:09:48,720 --> 01:09:51,080
Speaker 1: So that's one reason. Do you believe that you deal

1154
01:09:51,120 --> 01:09:56,000
Speaker 1: with millennials? Everybody? Okay, So are they lazy? Are they stupid?

1155
01:09:56,000 --> 01:09:58,439
Speaker 1: Are they Well? I get wonderful students at work. I'm

1156
01:09:58,479 --> 01:10:00,760
Speaker 1: so I was the last I was. Can I tell

1157
01:10:00,800 --> 01:10:04,479
Speaker 1: you something I've heard this millennials or bums argument. I'm

1158
01:10:04,520 --> 01:10:06,920
Speaker 1: the old man in the office and all the guys

1159
01:10:06,920 --> 01:10:10,080
Speaker 1: who worked for me. I have an unbelievable staff of

1160
01:10:10,080 --> 01:10:13,920
Speaker 1: of twenty somethings and thirty somethings who are really hard working,

1161
01:10:13,960 --> 01:10:17,360
Speaker 1: who were really smart, who what we crank out as

1162
01:10:17,439 --> 01:10:19,680
Speaker 1: I don't want to make this segment about me, but

1163
01:10:19,880 --> 01:10:24,040
Speaker 1: my experience has been working with young people. Um, they

1164
01:10:26,040 --> 01:10:28,920
Speaker 1: come dressed in flip flops and T shirts, but other

1165
01:10:29,000 --> 01:10:31,559
Speaker 1: than that, they do their job. But I'm not say

1166
01:10:31,680 --> 01:10:36,040
Speaker 1: I don't yet. They're very, very talented. Yeah, I know.

1167
01:10:36,200 --> 01:10:38,639
Speaker 1: I mean it's a lot of but you know, there's

1168
01:10:39,560 --> 01:10:41,679
Speaker 1: first of all, there's a lot of people now under

1169
01:10:41,680 --> 01:10:43,920
Speaker 1: the burden of the student debt, which is, as you know,

1170
01:10:43,960 --> 01:10:46,200
Speaker 1: one point to trillion debt. But but there's been huge

1171
01:10:46,200 --> 01:10:49,960
Speaker 1: student debt for long long time. It's a record heights now,

1172
01:10:50,000 --> 01:10:52,599
Speaker 1: but it's gone up and up and up. For I'm

1173
01:10:52,640 --> 01:10:55,600
Speaker 1: fifty four, I'm almost done paying my student loans. So no,

1174
01:10:55,760 --> 01:10:59,120
Speaker 1: but really very we we've had student debt over the

1175
01:10:59,200 --> 01:11:04,160
Speaker 1: last ten years from maybe three billion triple to and

1176
01:11:04,240 --> 01:11:07,800
Speaker 1: I actually think it was a lot of these on

1177
01:11:08,120 --> 01:11:11,840
Speaker 1: miss information, a lot of these onlines you know what

1178
01:11:11,880 --> 01:11:15,280
Speaker 1: it was was's what's happened is there was an idea,

1179
01:11:15,800 --> 01:11:21,040
Speaker 1: let's take a look at the earnings of graduates college

1180
01:11:21,040 --> 01:11:25,720
Speaker 1: graduates versus non college and oh, it's this much. That

1181
01:11:25,800 --> 01:11:30,160
Speaker 1: means they can actually take on thousand dollars a death

1182
01:11:30,200 --> 01:11:32,240
Speaker 1: because their earnings are gonna be so much more, they're

1183
01:11:32,240 --> 01:11:36,320
Speaker 1: gonna pay it back. There's a little The problem is

1184
01:11:36,600 --> 01:11:40,040
Speaker 1: not You're now getting a generation that before would go

1185
01:11:40,200 --> 01:11:44,799
Speaker 1: into the workplace. They wouldn't get scholarships because they weren't

1186
01:11:44,840 --> 01:11:47,960
Speaker 1: as good. Because don't forget, if you're really good, you

1187
01:11:48,000 --> 01:11:49,920
Speaker 1: can go to Harvard and they'll pay everything for it.

1188
01:11:50,640 --> 01:11:53,479
Speaker 1: So these were not and you know, I know some

1189
01:11:54,040 --> 01:11:56,559
Speaker 1: not as good students. They didn't have it. But now

1190
01:11:56,600 --> 01:11:59,320
Speaker 1: they were given, uh, you know, a ticket. You had

1191
01:11:59,320 --> 01:12:02,920
Speaker 1: these lessers schools that could never charge, but not because

1192
01:12:02,920 --> 01:12:05,960
Speaker 1: the government gave them alone. They could they overcharge for

1193
01:12:06,000 --> 01:12:08,840
Speaker 1: the type of education they were giving. They weren't giving

1194
01:12:08,880 --> 01:12:11,200
Speaker 1: them the skills that they weren't getting placed and as

1195
01:12:11,200 --> 01:12:14,000
Speaker 1: a result, after they get out, they weren't getting the

1196
01:12:14,120 --> 01:12:17,679
Speaker 1: jobs that we're paying that much more. So I think

1197
01:12:17,720 --> 01:12:21,280
Speaker 1: that what I understand, the motive was good and I'm

1198
01:12:21,280 --> 01:12:25,600
Speaker 1: in education. But I think unfortunately that that's been a

1199
01:12:25,640 --> 01:12:28,200
Speaker 1: burden for a lot of students. Yeah, when when you

1200
01:12:28,280 --> 01:12:31,840
Speaker 1: look at first of all, there's a correlation error there.

1201
01:12:32,840 --> 01:12:35,960
Speaker 1: Graduate students get high paid. So therefore, every let's make

1202
01:12:35,960 --> 01:12:38,680
Speaker 1: everyone to graduate. Yeah, we can make everybody graduate. It's

1203
01:12:38,760 --> 01:12:43,280
Speaker 1: lake will be gone and it's not gonna work. But

1204
01:12:43,400 --> 01:12:45,879
Speaker 1: the other thing is we've had over the past decade

1205
01:12:45,960 --> 01:12:49,920
Speaker 1: all of these fly by night colleges coming to effect,

1206
01:12:50,000 --> 01:12:53,519
Speaker 1: some of these online. And you're a graduate of of

1207
01:12:54,200 --> 01:12:58,320
Speaker 1: the University of dot Com online, you're not going to

1208
01:12:58,439 --> 01:13:00,479
Speaker 1: get the same sort of job as a do it.

1209
01:13:00,560 --> 01:13:02,600
Speaker 1: And it's it's not only that. Actually they were just

1210
01:13:02,800 --> 01:13:05,919
Speaker 1: lesser schools that we had a hard time getting students.

1211
01:13:06,000 --> 01:13:07,559
Speaker 1: And all of a sudden, I said, just the government

1212
01:13:07,560 --> 01:13:10,400
Speaker 1: now he is paying tuition. And I see some of

1213
01:13:10,400 --> 01:13:12,519
Speaker 1: these lesser known I'm not gonna say which ones they are,

1214
01:13:13,000 --> 01:13:16,240
Speaker 1: they're charging like Harvard prices. And they said, we filled

1215
01:13:16,240 --> 01:13:19,400
Speaker 1: them through the loan program. And where was when were

1216
01:13:19,439 --> 01:13:22,600
Speaker 1: the big changes made to the to the loan availability?

1217
01:13:22,800 --> 01:13:26,479
Speaker 1: If ten years ago we were three hundred thousand, three hundred,

1218
01:13:26,720 --> 01:13:30,400
Speaker 1: three hundred thousand, three hundred billion dollars, you know again,

1219
01:13:30,439 --> 01:13:32,719
Speaker 1: I would have to check that that it might be

1220
01:13:32,920 --> 01:13:34,799
Speaker 1: I just know what. But there's been a huge increase,

1221
01:13:35,439 --> 01:13:37,519
Speaker 1: been a huge in piece in the in the last

1222
01:13:37,560 --> 01:13:40,479
Speaker 1: decade now, you know. And that I saw, I mean

1223
01:13:40,640 --> 01:13:43,760
Speaker 1: that was what was shocking from you know, like like

1224
01:13:43,800 --> 01:13:46,320
Speaker 1: early two thousands till now. It was almost like a

1225
01:13:46,360 --> 01:13:49,680
Speaker 1: straight light. So what changed that suddenly because the government

1226
01:13:49,800 --> 01:13:53,920
Speaker 1: had to see this is another thing, you know what

1227
01:13:54,080 --> 01:13:56,760
Speaker 1: the loan problem wasn't on the government budget because they

1228
01:13:56,760 --> 01:13:59,160
Speaker 1: all was a loan and it was always paid, and

1229
01:13:59,200 --> 01:14:03,120
Speaker 1: it was always paid. And and they put one thing,

1230
01:14:03,560 --> 01:14:05,040
Speaker 1: you know, that one thing they put in the law

1231
01:14:05,160 --> 01:14:07,800
Speaker 1: a student cannot go bankrupted to avoid They changed that

1232
01:14:07,840 --> 01:14:10,360
Speaker 1: a while ago. I always but that was one reason

1233
01:14:10,400 --> 01:14:13,679
Speaker 1: why none of that trillion dollars is in the budget.

1234
01:14:13,680 --> 01:14:16,479
Speaker 1: It was so easy for them always just give a guarantee.

1235
01:14:16,479 --> 01:14:20,240
Speaker 1: It's not on the budget. So banks and you know,

1236
01:14:20,439 --> 01:14:23,160
Speaker 1: you can't discharge them in bankruptcy. So eventually the banks

1237
01:14:23,200 --> 01:14:26,120
Speaker 1: will get the pan and the government does through the guarantees.

1238
01:14:26,120 --> 01:14:28,240
Speaker 1: Oh they can't go back. We're gonna get our money.

1239
01:14:28,320 --> 01:14:31,320
Speaker 1: In fact, someone told me that according to government accounting,

1240
01:14:31,520 --> 01:14:35,559
Speaker 1: they were actually counting a profit because from it, because

1241
01:14:35,560 --> 01:14:37,599
Speaker 1: they were actually getting more from the students than they

1242
01:14:37,880 --> 01:14:40,240
Speaker 1: had to pay on the government debt. So I'm floating,

1243
01:14:40,400 --> 01:14:42,880
Speaker 1: you know, treasury bills at three basis points and I'm

1244
01:14:42,880 --> 01:14:47,920
Speaker 1: getting student loans at five percentage points. It shrinks the deficit.

1245
01:14:48,479 --> 01:14:53,800
Speaker 1: It's crazy. Yeah, well, a lot of things, you know,

1246
01:14:53,840 --> 01:14:57,240
Speaker 1: in the name of let's give everybody a college education,

1247
01:14:57,920 --> 01:15:00,439
Speaker 1: it's gonna you know, it can't get pays for a self,

1248
01:15:01,000 --> 01:15:02,920
Speaker 1: but it doesn't, and it's not for a lot of

1249
01:15:02,960 --> 01:15:06,160
Speaker 1: students unfortunate, and they come out without the better jobs

1250
01:15:06,160 --> 01:15:09,640
Speaker 1: than a boatload of debt. Exactly. That that's really fascinating.

1251
01:15:09,920 --> 01:15:11,720
Speaker 1: Let me let me mix stuff up on you a

1252
01:15:11,760 --> 01:15:14,160
Speaker 1: little bit, because I know I don't have you all nice,

1253
01:15:14,280 --> 01:15:16,599
Speaker 1: and let me let me get to some of my

1254
01:15:16,640 --> 01:15:20,720
Speaker 1: favorite questions that I ask all my guests. Um. So,

1255
01:15:21,360 --> 01:15:24,840
Speaker 1: before the Philly Fed, you were essentially well, I only

1256
01:15:25,000 --> 01:15:27,160
Speaker 1: now I was full time at Warton. I just did

1257
01:15:27,360 --> 01:15:31,360
Speaker 1: one Uh, I took a one semester sabbatical where I

1258
01:15:31,400 --> 01:15:34,599
Speaker 1: actually was at the Fed as a researcher. Um So

1259
01:15:34,760 --> 01:15:37,439
Speaker 1: it wasn't you know I was it was. It wasn't

1260
01:15:37,479 --> 01:15:39,880
Speaker 1: really a any sort of a permanent job at the

1261
01:15:40,280 --> 01:15:42,400
Speaker 1: but you worked with somebody there. One of the questions

1262
01:15:42,439 --> 01:15:45,160
Speaker 1: I wanted to ask, where who are your early mentors.

1263
01:15:45,200 --> 01:15:49,759
Speaker 1: You've obviously mentored countless students over the years, over the decades.

1264
01:15:50,080 --> 01:15:53,519
Speaker 1: Who were your mentor? I would say in graduate school

1265
01:15:54,320 --> 01:15:59,160
Speaker 1: it was Paul Samuelson, one of the giants. One of

1266
01:15:59,160 --> 01:16:03,360
Speaker 1: the giants, Paul Samuelson, Robert Solo, these a m I

1267
01:16:03,439 --> 01:16:11,080
Speaker 1: T Frankoman Digiani. Um uh, but that's a that's murderous, right, yeah, listen,

1268
01:16:11,120 --> 01:16:12,880
Speaker 1: I'm honored. You know. All those three were my three

1269
01:16:12,920 --> 01:16:17,760
Speaker 1: thesis advices we phdu Nobel price, and they it was

1270
01:16:17,800 --> 01:16:20,280
Speaker 1: before well Samerson had won the Nobel Prize. The other

1271
01:16:20,320 --> 01:16:22,720
Speaker 1: two had not yet. They had got him after I

1272
01:16:22,760 --> 01:16:27,160
Speaker 1: actually left. So all three of your PhD advice a

1273
01:16:27,200 --> 01:16:30,640
Speaker 1: Nobel prize. That's right, that's astonished. That is that that

1274
01:16:30,720 --> 01:16:32,800
Speaker 1: that is something. But I would say the person that

1275
01:16:32,880 --> 01:16:37,400
Speaker 1: influenced me the most was Milton Freedman. I members in Chicago.

1276
01:16:37,439 --> 01:16:39,800
Speaker 1: First of all, I read a lot about him, you know,

1277
01:16:39,880 --> 01:16:42,200
Speaker 1: from Capitalism and Freedom, which I read in college, and

1278
01:16:42,200 --> 01:16:44,760
Speaker 1: I was I was really kind of a libertarian, and

1279
01:16:44,800 --> 01:16:47,640
Speaker 1: I still consider myself sort of a moderate libertarian in

1280
01:16:47,680 --> 01:16:50,360
Speaker 1: many ways. Is there such a thing because the Libertarians

1281
01:16:50,400 --> 01:16:52,519
Speaker 1: I know are really very black and white. Well that's

1282
01:16:52,680 --> 01:16:55,479
Speaker 1: what I think is the problem. I mean, I you know,

1283
01:16:55,680 --> 01:16:57,960
Speaker 1: Milton Freedman U should call himself a libertarian, but he

1284
01:16:58,120 --> 01:17:00,640
Speaker 1: is not. I mean, you know, libertarians today, like you

1285
01:17:00,720 --> 01:17:02,679
Speaker 1: know Rand Paul I want to get rid of the FAD,

1286
01:17:03,000 --> 01:17:08,519
Speaker 1: go back to the gold standards, everything, everything, So I mean,

1287
01:17:08,720 --> 01:17:11,160
Speaker 1: you know, and Milton was not for for all that.

1288
01:17:11,280 --> 01:17:13,839
Speaker 1: I mean he was of course, he wanted to reform

1289
01:17:13,920 --> 01:17:17,559
Speaker 1: the FAD to make it operate right, but he did

1290
01:17:17,640 --> 01:17:20,559
Speaker 1: believe we can't go He did not support going back

1291
01:17:20,600 --> 01:17:23,879
Speaker 1: onto the gold standard. Um And I read the monetary

1292
01:17:23,920 --> 01:17:26,360
Speaker 1: history of the United States. When I was at at

1293
01:17:26,479 --> 01:17:30,200
Speaker 1: at M, I t that was my specialty was monetary

1294
01:17:30,240 --> 01:17:34,560
Speaker 1: theory and policy. My thesis was on monetary policy and inflation.

1295
01:17:35,040 --> 01:17:38,080
Speaker 1: I was actually trained as an economist, not in finance.

1296
01:17:38,120 --> 01:17:41,360
Speaker 1: Were you a pure I was a pure economist. So

1297
01:17:41,479 --> 01:17:44,559
Speaker 1: let me tell you a little secret which not everyone knows.

1298
01:17:44,640 --> 01:17:50,880
Speaker 1: But um so, I've never taken a finance course in

1299
01:17:50,920 --> 01:17:56,280
Speaker 1: my life really at undergraduate MBA or PhD. Left that's unbelievable.

1300
01:17:56,680 --> 01:17:59,000
Speaker 1: But you wrote the book that notty much has become

1301
01:17:59,040 --> 01:18:02,599
Speaker 1: the standard. Have you ever disclosed this publicly? Are we gonna?

1302
01:18:03,160 --> 01:18:08,080
Speaker 1: I've disclosed it a little bits, but not very much. Um.

1303
01:18:08,360 --> 01:18:11,240
Speaker 1: I've been wondering when my students will say, just a minute,

1304
01:18:11,240 --> 01:18:14,520
Speaker 1: you're so undergrad You're one of the most famous professors

1305
01:18:14,520 --> 01:18:17,720
Speaker 1: of finance, the Russell we Palmer professor of finance at

1306
01:18:17,760 --> 01:18:19,680
Speaker 1: the Wharton's good the universe of Pennsylvania. And you've never

1307
01:18:19,720 --> 01:18:22,720
Speaker 1: taken a finance course. And the answer is not undergraduate,

1308
01:18:22,800 --> 01:18:25,960
Speaker 1: not PhD. Never So wait, wait, do you have a

1309
01:18:25,960 --> 01:18:28,880
Speaker 1: PhD and an NBA. No, I don't have an I

1310
01:18:28,880 --> 01:18:31,000
Speaker 1: didn't have you ever taken anything? I've never taken into

1311
01:18:31,600 --> 01:18:34,360
Speaker 1: so so uh so they said where do you learn?

1312
01:18:34,400 --> 01:18:36,479
Speaker 1: I said I I well, first of all, let me

1313
01:18:36,560 --> 01:18:39,800
Speaker 1: say who was in my class at M I t

1314
01:18:39,920 --> 01:18:44,320
Speaker 1: it only a class with thirty people. Bob Schiller, Robert Murton,

1315
01:18:45,240 --> 01:18:49,280
Speaker 1: you know of you know black shows. I mean, I

1316
01:18:49,360 --> 01:18:54,880
Speaker 1: had an incredible reservoir of brains and talent that I

1317
01:18:54,960 --> 01:18:58,000
Speaker 1: bounced ideas. I remember Bob Murton coming to me. You know,

1318
01:18:58,040 --> 01:19:00,280
Speaker 1: I was in graduate in sixties when the cat last

1319
01:19:00,280 --> 01:19:03,320
Speaker 1: surprising matter was being developed, right, uh you know, And

1320
01:19:03,360 --> 01:19:05,680
Speaker 1: I remember Bob and saying he said Jeremy, you know

1321
01:19:05,760 --> 01:19:08,479
Speaker 1: there's some stuff here. Let's talk about it, you know,

1322
01:19:08,520 --> 01:19:11,960
Speaker 1: be all sharp and and and the beta idea and

1323
01:19:12,080 --> 01:19:15,040
Speaker 1: all that, and said, let's let's talk about this. And

1324
01:19:15,080 --> 01:19:17,880
Speaker 1: we were we it was happening right then. But I

1325
01:19:18,240 --> 01:19:22,080
Speaker 1: my whole focus, uh, and I was in the economics department.

1326
01:19:22,200 --> 01:19:24,519
Speaker 1: Was I love monetary theory and the policy fed money

1327
01:19:24,640 --> 01:19:26,920
Speaker 1: all that, and I stayed there. But I always had

1328
01:19:26,960 --> 01:19:30,479
Speaker 1: a love for markets, and it was a perfect mild

1329
01:19:30,720 --> 01:19:34,280
Speaker 1: of and And I remember once my publisher when when

1330
01:19:34,280 --> 01:19:35,960
Speaker 1: I wrote TX to the Wrong One, first edition, she said,

1331
01:19:35,960 --> 01:19:38,559
Speaker 1: you know what's interesting, You really have a top down look.

1332
01:19:39,080 --> 01:19:41,840
Speaker 1: It's kind of a macro look. And so many times

1333
01:19:41,880 --> 01:19:47,400
Speaker 1: I see people bottom up. They're specialized, and I think, Uh,

1334
01:19:47,439 --> 01:19:50,040
Speaker 1: there were little bits of holes that I had to

1335
01:19:50,080 --> 01:19:52,840
Speaker 1: fill on my own, which was a struggle. But I'm

1336
01:19:52,960 --> 01:19:57,240
Speaker 1: very thankful that I approached it from an expertise level.

1337
01:19:57,400 --> 01:20:01,120
Speaker 1: In macro. It's a very differ look than somebody who

1338
01:20:01,120 --> 01:20:03,880
Speaker 1: could easily get lost. And that's why I kind of

1339
01:20:03,880 --> 01:20:06,320
Speaker 1: They always say, Cheeferemy, you always get to the big

1340
01:20:06,400 --> 01:20:09,040
Speaker 1: picture looking down, And I said, yeah, because that's the

1341
01:20:09,040 --> 01:20:12,840
Speaker 1: way I was trained as a macro economist, macro economist.

1342
01:20:13,240 --> 01:20:16,360
Speaker 1: So in a way, uh, you know, I struggled. I

1343
01:20:16,400 --> 01:20:17,840
Speaker 1: mean I would have learned he does let him on

1344
01:20:17,960 --> 01:20:20,120
Speaker 1: much better if I'd taken some of the FiOS courses,

1345
01:20:20,200 --> 01:20:22,760
Speaker 1: the pricing, the options and all that. And I struggled on.

1346
01:20:22,960 --> 01:20:25,800
Speaker 1: But you still got to the right answer. You just

1347
01:20:25,880 --> 01:20:30,680
Speaker 1: had a gun your own. So you mentioned monetary policy.

1348
01:20:30,960 --> 01:20:33,720
Speaker 1: Ben Bernanke has his new book out and reading it.

1349
01:20:33,800 --> 01:20:36,120
Speaker 1: I brought it. Actually it's in my briefcase. I'm on

1350
01:20:36,240 --> 01:20:38,639
Speaker 1: page four. It just came out, Mondy. So you're about

1351
01:20:38,680 --> 01:20:41,000
Speaker 1: a quarter of the way through. Um a little bit.

1352
01:20:41,439 --> 01:20:44,080
Speaker 1: What did you think. Let's talk about the FED. What

1353
01:20:44,080 --> 01:20:46,640
Speaker 1: did you think about the job that the Fed and

1354
01:20:46,760 --> 01:20:50,519
Speaker 1: Ben Bernankey did during the financial crisis. I've lectured a

1355
01:20:50,520 --> 01:20:55,200
Speaker 1: lot about that. I think he did extraordinary, extraordinary. Well, right,

1356
01:20:55,800 --> 01:20:58,639
Speaker 1: we had, by the way, we had Paul McCulley, who

1357
01:20:58,720 --> 01:21:01,679
Speaker 1: used to be the chief economist that PIMCO is now retired,

1358
01:21:02,120 --> 01:21:04,720
Speaker 1: and he was one of the first people who came

1359
01:21:04,800 --> 01:21:09,840
Speaker 1: on and just firing brimstone defense of the FED. All

1360
01:21:09,880 --> 01:21:13,040
Speaker 1: you people criticized, he was one of the few defenders.

1361
01:21:13,120 --> 01:21:17,120
Speaker 1: I am a big defender. I think what Bernanke, did

1362
01:21:17,280 --> 01:21:19,760
Speaker 1: I mean and and by the way, do you know

1363
01:21:20,160 --> 01:21:22,840
Speaker 1: why he did what he did? And he says so

1364
01:21:22,960 --> 01:21:25,680
Speaker 1: in the he doesn't say directly he blames Congress for

1365
01:21:25,760 --> 01:21:28,000
Speaker 1: not doing anything, but he blames him. But if you

1366
01:21:28,560 --> 01:21:32,479
Speaker 1: there's one part of the FED on Milton Friedman's ninetieth

1367
01:21:32,520 --> 01:21:35,840
Speaker 1: birthday party, he was, we won't do it again. We

1368
01:21:35,880 --> 01:21:38,160
Speaker 1: won't make that mistakes. And look that Milton is said,

1369
01:21:38,400 --> 01:21:40,519
Speaker 1: you showed us what we did war on wrong in

1370
01:21:40,560 --> 01:21:43,200
Speaker 1: the Great Depression of the thirties, and thanks to you,

1371
01:21:43,560 --> 01:21:46,200
Speaker 1: we will not make this mistake again. Now this was

1372
01:21:46,240 --> 01:21:49,799
Speaker 1: in two thousand and two. There was no subprime mortgage,

1373
01:21:50,040 --> 01:21:54,320
Speaker 1: there was no crisis coming, there was nothing. And he said,

1374
01:21:55,120 --> 01:21:59,120
Speaker 1: we will not make that mistake again. Now, Milton's passed

1375
01:21:59,120 --> 01:22:01,320
Speaker 1: away two years after, in two thousand and four, so

1376
01:22:01,400 --> 01:22:03,920
Speaker 1: he never lived to see it. But don't you think

1377
01:22:04,479 --> 01:22:07,919
Speaker 1: that when Lehman went under and all the financial markets

1378
01:22:07,920 --> 01:22:14,719
Speaker 1: seized up in panic, that that pledge did not come

1379
01:22:14,760 --> 01:22:18,560
Speaker 1: to mind? In Bernankee, I've got to act. I've had it.

1380
01:22:18,720 --> 01:22:20,760
Speaker 1: I know I'm gonna get flak for bailing out a

1381
01:22:20,880 --> 01:22:25,880
Speaker 1: I G and he did huge. I'm gonna take that.

1382
01:22:26,160 --> 01:22:27,760
Speaker 1: I think I think the title of the book. He

1383
01:22:27,840 --> 01:22:30,439
Speaker 1: had the courage to act. I said, I'm gonna get flak,

1384
01:22:30,920 --> 01:22:34,200
Speaker 1: but I've got I've got to do it. He could

1385
01:22:34,200 --> 01:22:37,439
Speaker 1: have called it a promise to keep it, promised to keep.

1386
01:22:37,560 --> 01:22:39,439
Speaker 1: He looked at Milton Freeman said, We're not going to

1387
01:22:39,520 --> 01:22:41,920
Speaker 1: make that mistake. I'm not gonna let this whole system go.

1388
01:22:42,000 --> 01:22:44,400
Speaker 1: And that's that's the difference between the O eight oh

1389
01:22:44,520 --> 01:22:49,360
Speaker 1: nine and we had a five we had five nine

1390
01:22:49,680 --> 01:22:54,960
Speaker 1: drop and g d p from you know, uh, we

1391
01:22:55,000 --> 01:22:59,720
Speaker 1: had a twenty six drop percent drop in. So you

1392
01:22:59,840 --> 01:23:03,479
Speaker 1: think the Fed basically stepped in, did what had to

1393
01:23:03,479 --> 01:23:07,160
Speaker 1: be do, dude, and prevented the next Great Depression? I

1394
01:23:07,240 --> 01:23:11,040
Speaker 1: absolutely do, absolutely do. So let me let me ask

1395
01:23:11,080 --> 01:23:14,920
Speaker 1: you the fiscal question, because bernanke Bernecki has made some

1396
01:23:15,040 --> 01:23:17,880
Speaker 1: really surprising comments in his book, or at least the

1397
01:23:17,920 --> 01:23:21,840
Speaker 1: excerpts I've read. He's a lifelong Republican who basically said

1398
01:23:21,960 --> 01:23:24,439
Speaker 1: moderate Republican. Right now, he said, these guys, I don't

1399
01:23:24,439 --> 01:23:27,760
Speaker 1: recognize this part anymore. More. People are saying that I'm

1400
01:23:27,800 --> 01:23:30,840
Speaker 1: an independent, and I understand well and that he's And

1401
01:23:30,880 --> 01:23:35,760
Speaker 1: he also thought that the Congress should have enacted a

1402
01:23:35,880 --> 01:23:40,439
Speaker 1: much more robust fiscal response, but essentially kicked the can

1403
01:23:40,479 --> 01:23:46,400
Speaker 1: down the road. Well don't you know, yeah, you had

1404
01:23:46,600 --> 01:23:49,240
Speaker 1: you know that there he doesn't stress that to my

1405
01:23:49,280 --> 01:23:51,080
Speaker 1: not again, I haven't finished everything in the book and

1406
01:23:51,080 --> 01:23:54,479
Speaker 1: I'm reading or really careful. Um, I think what he

1407
01:23:54,560 --> 01:23:57,840
Speaker 1: did was far more important, I mean than the fiscal side.

1408
01:23:57,880 --> 01:24:00,840
Speaker 1: Than the fiscal side, basically saving backing up all the

1409
01:24:00,880 --> 01:24:05,160
Speaker 1: money market funds, backing up all the bank accounts of

1410
01:24:05,280 --> 01:24:09,000
Speaker 1: businesses and the demand deposits out there, and all the deposits,

1411
01:24:09,000 --> 01:24:11,280
Speaker 1: not one deposit went under the way it did in

1412
01:24:11,280 --> 01:24:15,320
Speaker 1: the Great Depression when banks. We now have FDIC insurance,

1413
01:24:15,320 --> 01:24:17,559
Speaker 1: so that really but he wasn't even beyond that, don't

1414
01:24:17,600 --> 01:24:22,800
Speaker 1: forget insurance and they raise it. But even then he said,

1415
01:24:22,840 --> 01:24:25,559
Speaker 1: I'm not gonna because look at businesses have have to

1416
01:24:25,600 --> 01:24:30,280
Speaker 1: have a payroll that's more than two big. So he

1417
01:24:30,560 --> 01:24:32,880
Speaker 1: made sure of that. I mean, we could go on

1418
01:24:32,920 --> 01:24:36,280
Speaker 1: and on and on this thing. I remember you might remember,

1419
01:24:36,560 --> 01:24:39,800
Speaker 1: I remember I don't. People are saying, Jeremy, get a

1420
01:24:39,840 --> 01:24:42,240
Speaker 1: safe deposit box, and some people say, don't even get

1421
01:24:42,240 --> 01:24:45,599
Speaker 1: it in the bank, buy a safe, get your money out,

1422
01:24:45,920 --> 01:24:48,800
Speaker 1: get the cash out. I mean, there was crazy talk

1423
01:24:48,840 --> 01:24:54,080
Speaker 1: going on. People were full blown. That would have do

1424
01:24:54,080 --> 01:24:56,240
Speaker 1: you know what that would have done to our financial system?

1425
01:24:56,280 --> 01:24:58,360
Speaker 1: I don't even want to begin the thing. You know,

1426
01:24:58,560 --> 01:25:02,000
Speaker 1: everything had froze. And what the FED managed to do

1427
01:25:02,200 --> 01:25:05,800
Speaker 1: was slaw that and forced the banks to start giving

1428
01:25:05,800 --> 01:25:09,040
Speaker 1: each other credit back and forth. Well, he enabled them.

1429
01:25:09,160 --> 01:25:12,200
Speaker 1: He flooded them with enough reserves, saying I'm gonna give

1430
01:25:12,240 --> 01:25:14,240
Speaker 1: you the facility to get all the credit you need

1431
01:25:14,479 --> 01:25:17,200
Speaker 1: and the liquidity. They all wanted liquidity, and he said, okay,

1432
01:25:17,200 --> 01:25:19,599
Speaker 1: you need a trillion dollars in liquidity. Bank there it is.

1433
01:25:19,840 --> 01:25:22,320
Speaker 1: That's what quees was. Basically, I'm gonna give you all

1434
01:25:22,320 --> 01:25:25,240
Speaker 1: the liquidity you want so that hopefully you'll make some

1435
01:25:25,320 --> 01:25:27,800
Speaker 1: loans with this and we can keep our economy coming back.

1436
01:25:28,280 --> 01:25:31,519
Speaker 1: And that's more or less what would happened. So, so

1437
01:25:31,560 --> 01:25:35,960
Speaker 1: you are a terrible libertarian, say well, but you're you're

1438
01:25:36,000 --> 01:25:40,240
Speaker 1: a and Paul, I'm a terrible libertarian, but you're a pride.

1439
01:25:40,280 --> 01:25:44,960
Speaker 1: I think had Milton Friedman lived right, he would have said,

1440
01:25:45,000 --> 01:25:47,439
Speaker 1: that's what you have to do. Bernanke. Now he wouldn't

1441
01:25:47,479 --> 01:25:51,960
Speaker 1: agree with absolutely everything. He said, yes, the bulk of it. Well,

1442
01:25:52,280 --> 01:25:54,559
Speaker 1: if you go back and look at what he wrote

1443
01:25:54,600 --> 01:25:57,680
Speaker 1: about the Great Depression. What Milton Freedman wrote, it was

1444
01:25:57,760 --> 01:26:00,800
Speaker 1: pretty clear. You can't sit around and just watch the

1445
01:26:00,880 --> 01:26:04,240
Speaker 1: whole thing go down and say, that's a lot of

1446
01:26:04,240 --> 01:26:06,519
Speaker 1: the Republicans, you know, when they voted against the type

1447
01:26:06,520 --> 01:26:08,679
Speaker 1: and all that the first time, by the way, worst

1448
01:26:08,720 --> 01:26:12,679
Speaker 1: week in the market on a point basis, I think, ever,

1449
01:26:12,800 --> 01:26:17,519
Speaker 1: I don't know on a percentage basis. Still it's the

1450
01:26:17,520 --> 01:26:20,960
Speaker 1: biggest not the biggest percentage, but the biggest point. And

1451
01:26:20,960 --> 01:26:24,080
Speaker 1: then by that Friday, we've got to do something. Well,

1452
01:26:24,120 --> 01:26:26,400
Speaker 1: that's it the Republicans. I've got phone calls from there.

1453
01:26:26,720 --> 01:26:30,720
Speaker 1: Just a minute here, Uh, the people with therefore our

1454
01:26:30,760 --> 01:26:32,800
Speaker 1: one case and all that, just a minute here. Did

1455
01:26:32,800 --> 01:26:34,759
Speaker 1: you see what happened when you guys voted it down?

1456
01:26:35,439 --> 01:26:38,559
Speaker 1: I don't think that's good. Two days later overwhelmingly voted

1457
01:26:38,600 --> 01:26:41,439
Speaker 1: it for When when the president of General Electric and

1458
01:26:41,640 --> 01:26:45,200
Speaker 1: Foward and McDonald's called the White House and say, hey,

1459
01:26:45,240 --> 01:26:47,400
Speaker 1: we're not going to make payroll, Yeah, I think that

1460
01:26:47,479 --> 01:26:50,519
Speaker 1: really focuses well. And the seven seventy point, so they

1461
01:26:50,520 --> 01:26:53,400
Speaker 1: got the public in vow and the and everyone said,

1462
01:26:53,680 --> 01:26:56,320
Speaker 1: and it was amazing. They made a tiny little change

1463
01:26:57,240 --> 01:27:01,280
Speaker 1: the Republicans could save face and half of them voted no,

1464
01:27:01,600 --> 01:27:05,439
Speaker 1: voted yes two days later. It's amazing. So you mentioned

1465
01:27:05,439 --> 01:27:10,440
Speaker 1: some of your early mentors. What investors you mentioned Steinhart?

1466
01:27:10,560 --> 01:27:14,840
Speaker 1: What other investors influenced your your philosophy, your approach to

1467
01:27:15,400 --> 01:27:19,000
Speaker 1: thinking about equities. Well, I would have to say that

1468
01:27:19,160 --> 01:27:25,040
Speaker 1: I was a huge straight indexo. Bogo got it. I

1469
01:27:25,120 --> 01:27:28,439
Speaker 1: remember Samuelson. He wrote an article when I was at gradual, Gee,

1470
01:27:28,560 --> 01:27:31,000
Speaker 1: all we want is an index fund, but we didn't

1471
01:27:31,040 --> 01:27:35,280
Speaker 1: have one. Actually responded you go through the history. He said,

1472
01:27:35,320 --> 01:27:38,320
Speaker 1: we need someone with an index fund, and you know

1473
01:27:38,400 --> 01:27:41,080
Speaker 1: Bogeol answered that question. I was one of the first

1474
01:27:41,120 --> 01:27:43,240
Speaker 1: people to put my money in there in Vanguard and

1475
01:27:43,320 --> 01:27:49,200
Speaker 1: Vanguard Index. That's amazing. Who else influenced your thinking besides Bogel, Well,

1476
01:27:49,240 --> 01:27:52,680
Speaker 1: I mean, I mean again, it was the theory and

1477
01:27:52,760 --> 01:27:55,880
Speaker 1: I was pretty much saying I don't see active management

1478
01:27:55,880 --> 01:27:59,200
Speaker 1: beating it after fees and so all the way until

1479
01:27:59,280 --> 01:28:03,840
Speaker 1: the tech the tech bubble. Hey, on the work that

1480
01:28:03,920 --> 01:28:07,519
Speaker 1: I did, when you know, Jonathan Steinberg and Michael stein

1481
01:28:07,600 --> 01:28:10,240
Speaker 1: had called me up about, you know, we want to

1482
01:28:10,280 --> 01:28:12,839
Speaker 1: have a better a fund. Can we do a better

1483
01:28:12,920 --> 01:28:19,000
Speaker 1: index thing rather than get overweight. That became really that

1484
01:28:19,120 --> 01:28:21,439
Speaker 1: really a big impact that hit me on a cap.

1485
01:28:21,479 --> 01:28:24,240
Speaker 1: I mean, theoretically, I hear I had to hold this

1486
01:28:24,360 --> 01:28:27,800
Speaker 1: capway with technology. That would be if two hundred I

1487
01:28:27,800 --> 01:28:29,600
Speaker 1: said I don't want to hold it, But then I

1488
01:28:29,760 --> 01:28:34,879
Speaker 1: break my philosophy. How can I redo it? So markets

1489
01:28:34,880 --> 01:28:38,719
Speaker 1: are efficient until human behavior makes them crazy. Your buddy

1490
01:28:38,760 --> 01:28:42,639
Speaker 1: Bob Schiller would say they're efficient until people get involved. Yeah, well,

1491
01:28:42,720 --> 01:28:45,559
Speaker 1: you know it's if they're still not easy to beat.

1492
01:28:45,640 --> 01:28:48,840
Speaker 1: Let's put it that when that's why obviously active managers

1493
01:28:48,880 --> 01:28:51,960
Speaker 1: after fees don't really beat it all over long periods

1494
01:28:52,000 --> 01:28:55,679
Speaker 1: of time. It's it's impossible, it's almost impossible. But there

1495
01:28:55,880 --> 01:28:58,200
Speaker 1: is a tendency and it really goes back to what

1496
01:28:58,800 --> 01:29:02,240
Speaker 1: you know, I mean in a way. You know, Buffett

1497
01:29:02,280 --> 01:29:06,679
Speaker 1: says people tend to overdo the growth stocks and various

1498
01:29:06,680 --> 01:29:09,200
Speaker 1: stocks are not interesting. They tend to That's why wouldn't

1499
01:29:09,240 --> 01:29:12,120
Speaker 1: we do seventy eight years studies on risk return and

1500
01:29:12,160 --> 01:29:14,880
Speaker 1: that was something to Farmer French found right and their

1501
01:29:14,920 --> 01:29:19,280
Speaker 1: research that on that value stocks, which is what a

1502
01:29:19,280 --> 01:29:23,960
Speaker 1: fundamental waiting system would tend to overweight, do better than

1503
01:29:24,000 --> 01:29:26,080
Speaker 1: growth stocks on a risk return basis when you go

1504
01:29:26,160 --> 01:29:29,400
Speaker 1: back over you know, so you mentioned from a French

1505
01:29:29,479 --> 01:29:31,920
Speaker 1: I'd be remiss if I didn't point out they are

1506
01:29:31,920 --> 01:29:37,640
Speaker 1: advisers to dimensional funds and dimensional funds big focus is

1507
01:29:37,720 --> 01:29:41,280
Speaker 1: the small cap premium over long periods of time. Before

1508
01:29:41,280 --> 01:29:42,960
Speaker 1: before I go on with the rest of my last

1509
01:29:43,000 --> 01:29:47,520
Speaker 1: few questions, what what are your thoughts on small cap premium, value, premium,

1510
01:29:47,520 --> 01:29:51,080
Speaker 1: momentum premium are are some of the big quality premium

1511
01:29:51,320 --> 01:29:53,320
Speaker 1: and now there's quality and momentum which I have an

1512
01:29:53,400 --> 01:29:54,840
Speaker 1: end of. These are like I canna last few years

1513
01:29:54,920 --> 01:29:57,600
Speaker 1: compared and the value goes way back. I mean the

1514
01:29:57,680 --> 01:29:59,760
Speaker 1: value premium you know from of French stuff in the

1515
01:29:59,760 --> 01:30:03,880
Speaker 1: midden nineties or even earlier. Uh showed that value premium.

1516
01:30:04,200 --> 01:30:07,360
Speaker 1: Uh that's back to Benjamin Graham. And yeah, that's really

1517
01:30:07,400 --> 01:30:10,320
Speaker 1: and uh and and I remember Buffett said people are

1518
01:30:10,400 --> 01:30:13,479
Speaker 1: hard wired. They rather they don't like boring stocks. They

1519
01:30:13,479 --> 01:30:15,559
Speaker 1: tend to undervalue them. They like the gross story. They

1520
01:30:15,680 --> 01:30:17,559
Speaker 1: want to write them up and they write them too high.

1521
01:30:17,920 --> 01:30:20,120
Speaker 1: And you know it makes for a great cocktail party.

1522
01:30:20,200 --> 01:30:21,960
Speaker 1: Cheat exactly. You want to you want to own the

1523
01:30:21,960 --> 01:30:24,240
Speaker 1: Microsoft and all the big ones that have gone way

1524
01:30:24,280 --> 01:30:27,599
Speaker 1: way now it's the apples and the teslas. It's high

1525
01:30:27,600 --> 01:30:30,640
Speaker 1: wired into the people's brain. So I definitely you know,

1526
01:30:30,720 --> 01:30:34,320
Speaker 1: I mean, I definitely understand that. Uh, the small stock

1527
01:30:34,400 --> 01:30:38,320
Speaker 1: premium is a little bit about liquidity and transaction costs.

1528
01:30:38,360 --> 01:30:40,040
Speaker 1: And one good thing df A did is that they

1529
01:30:40,040 --> 01:30:41,920
Speaker 1: were able to actually it took them a while, by

1530
01:30:41,920 --> 01:30:44,000
Speaker 1: the way, in their early years they weren't successful. They

1531
01:30:44,240 --> 01:30:47,120
Speaker 1: learned how to become a trading Yes, they have an

1532
01:30:47,200 --> 01:30:50,839
Speaker 1: unbelievable there. That's how they did it. They're able actually

1533
01:30:50,840 --> 01:30:57,040
Speaker 1: to make the mark. They're incredibly efficient as what's enabled

1534
01:30:57,120 --> 01:31:00,880
Speaker 1: them to make that slice. Uh, there is so there.

1535
01:31:00,960 --> 01:31:03,320
Speaker 1: There's a liquidity premium and there's not a lot of

1536
01:31:03,320 --> 01:31:07,880
Speaker 1: coverage on a lot of these look, liquidity is also there.

1537
01:31:07,920 --> 01:31:10,799
Speaker 1: I think wick would we know that io liquid assets

1538
01:31:10,840 --> 01:31:13,439
Speaker 1: of any sort get discounted in price. If you're a

1539
01:31:13,479 --> 01:31:16,400
Speaker 1: long term holder, that becomes a favorable thing. You know,

1540
01:31:16,439 --> 01:31:20,120
Speaker 1: this whole thing now on quality and momentum, there is evidence,

1541
01:31:20,680 --> 01:31:22,880
Speaker 1: but you know, more and more people are I think

1542
01:31:22,960 --> 01:31:25,439
Speaker 1: more and more people are riding. They ride the train,

1543
01:31:25,600 --> 01:31:29,880
Speaker 1: and that's when you get the sharp movements. Oftentimes they

1544
01:31:29,880 --> 01:31:31,960
Speaker 1: break through the they break through the two day moving

1545
01:31:31,960 --> 01:31:36,439
Speaker 1: average and they break through the channel. Everyone just gangs up.

1546
01:31:37,360 --> 01:31:39,240
Speaker 1: So let's talk about that. Because you have a chapter

1547
01:31:39,320 --> 01:31:42,559
Speaker 1: in Stocks for the long Run on technical analysis. I

1548
01:31:42,600 --> 01:31:45,920
Speaker 1: know you think that that long term trend and momentum

1549
01:31:46,000 --> 01:31:48,479
Speaker 1: is valid, but you're not really a big fan of

1550
01:31:48,880 --> 01:31:52,439
Speaker 1: the well, you know. I I said to myself, come on,

1551
01:31:52,479 --> 01:31:55,040
Speaker 1: I'm gonna go complete stuff on stock. I gotta do

1552
01:31:55,080 --> 01:31:58,559
Speaker 1: a chartists and I actually did an exhaustive test of

1553
01:31:58,600 --> 01:32:02,759
Speaker 1: the Twitter day moving average there on the dal Jones

1554
01:32:02,840 --> 01:32:06,000
Speaker 1: n N naz dat and my my fav My final

1555
01:32:06,400 --> 01:32:13,920
Speaker 1: conclusion was um after transactions cost because you're gonna be

1556
01:32:13,960 --> 01:32:15,960
Speaker 1: going in and out all that, and you need a

1557
01:32:16,000 --> 01:32:17,760
Speaker 1: band to go in and out and et cetera, and

1558
01:32:17,840 --> 01:32:21,000
Speaker 1: so on. It turns on on a risk return basis.

1559
01:32:21,680 --> 01:32:27,200
Speaker 1: It's not much different than buy and hold. The difference is, though,

1560
01:32:27,240 --> 01:32:29,400
Speaker 1: if you follow two inter day moving averages, it does

1561
01:32:29,520 --> 01:32:33,720
Speaker 1: keep you out of the worst bear markets. Now you say,

1562
01:32:33,720 --> 01:32:37,400
Speaker 1: why doesn't it do better? Because a lot you get

1563
01:32:37,400 --> 01:32:42,160
Speaker 1: whip sort, you get whipsawed in. I can two thousand

1564
01:32:42,160 --> 01:32:44,640
Speaker 1: and two urs. I forget which of them. There's a

1565
01:32:44,680 --> 01:32:47,120
Speaker 1: few of them where you're going above the average. You

1566
01:32:46,760 --> 01:32:49,400
Speaker 1: you know, you buy you go below, and you sell

1567
01:32:49,400 --> 01:32:51,320
Speaker 1: and buy and sell, and you're at the end of

1568
01:32:51,360 --> 01:32:54,000
Speaker 1: the year you're exhausted with transactions costs that are huge.

1569
01:32:54,240 --> 01:32:57,840
Speaker 1: My my buddy MEB Faber, who was on the show, said,

1570
01:32:57,880 --> 01:33:00,200
Speaker 1: and don't use the two day it's two it be

1571
01:33:00,240 --> 01:33:03,120
Speaker 1: it's too noise. You used the ten months essentially the

1572
01:33:03,240 --> 01:33:06,439
Speaker 1: same place, but not you get a signal once a

1573
01:33:06,479 --> 01:33:09,280
Speaker 1: month inst there but as you got to have but

1574
01:33:09,320 --> 01:33:12,320
Speaker 1: that also can whip it also need a band. Don't

1575
01:33:12,360 --> 01:33:15,679
Speaker 1: forget that two other day. If if if I picked

1576
01:33:15,680 --> 01:33:17,479
Speaker 1: a one percent band, when you're one percent above and

1577
01:33:17,479 --> 01:33:20,559
Speaker 1: blow because if you take whenever you go above, you

1578
01:33:20,600 --> 01:33:23,280
Speaker 1: may go above and below fifty times in one day

1579
01:33:24,280 --> 01:33:26,519
Speaker 1: when if you really compute it, so you gotta have

1580
01:33:26,560 --> 01:33:28,640
Speaker 1: a band otherwise you're gonna go crazy. And and we

1581
01:33:28,800 --> 01:33:32,520
Speaker 1: found over time you gotta use closing prices in especially

1582
01:33:32,560 --> 01:33:35,720
Speaker 1: these days with flash crashing. When I did closing, I

1583
01:33:35,760 --> 01:33:38,200
Speaker 1: did on the basis of closing price. So you you

1584
01:33:38,320 --> 01:33:40,800
Speaker 1: basically I get what I say is you know what

1585
01:33:40,920 --> 01:33:43,559
Speaker 1: I mean. It's something you can do, but realize they're

1586
01:33:43,560 --> 01:33:45,600
Speaker 1: gonna be some years you're gonna really be whips. And

1587
01:33:45,640 --> 01:33:47,479
Speaker 1: by the way, it's not so much difference on buying

1588
01:33:47,479 --> 01:33:50,559
Speaker 1: puts on the market when you do also how much

1589
01:33:50,600 --> 01:33:54,240
Speaker 1: puts you I'm just saying when I looked at the

1590
01:33:54,320 --> 01:33:57,559
Speaker 1: distribution of annual returns on a two inter day moving average,

1591
01:33:57,880 --> 01:33:59,880
Speaker 1: it didn't differ so much. I I just kept on

1592
01:34:00,000 --> 01:34:03,200
Speaker 1: buying puts protected me against downside. But I keep on

1593
01:34:03,240 --> 01:34:06,960
Speaker 1: getting the drag. But a cost. You've got cost and rags.

1594
01:34:07,240 --> 01:34:11,439
Speaker 1: That's almost like the whip sawing cost. Uh. It doesn't

1595
01:34:11,439 --> 01:34:13,920
Speaker 1: come every year and then it comes in bunches. But

1596
01:34:14,160 --> 01:34:16,400
Speaker 1: it gave when you looked at the distribution. So what

1597
01:34:16,439 --> 01:34:20,240
Speaker 1: happens cut off the bottom, you know, so it avoided

1598
01:34:20,280 --> 01:34:24,960
Speaker 1: the bad things drag the distribution all the way to

1599
01:34:25,160 --> 01:34:27,479
Speaker 1: when do you buy the puts relative to well? I

1600
01:34:27,680 --> 01:34:29,599
Speaker 1: you know, I just said it looked like a Stanton

1601
01:34:29,680 --> 01:34:32,920
Speaker 1: centered one. You know. Basically, I just said, you know,

1602
01:34:32,960 --> 01:34:35,160
Speaker 1: buy a point at ten percent under the market every

1603
01:34:35,200 --> 01:34:41,760
Speaker 1: year for did you could play with that that like

1604
01:34:41,800 --> 01:34:44,880
Speaker 1: the two day moving average without buying it? Oh, that's

1605
01:34:44,920 --> 01:34:47,960
Speaker 1: that's quite interesting. Let's talk about books. You're the author

1606
01:34:48,000 --> 01:34:52,120
Speaker 1: of three books. Um, what books have you read fiction

1607
01:34:52,240 --> 01:34:56,960
Speaker 1: or nonfiction that you thought were interesting, influential, or that

1608
01:34:57,080 --> 01:35:00,000
Speaker 1: you just enjoyed. You're reading Ben Bernanke's book right now.

1609
01:35:00,520 --> 01:35:04,960
Speaker 1: What else? What else really stayed with you? Well, you

1610
01:35:05,040 --> 01:35:10,920
Speaker 1: know it's interesting. Um, I'm reading Ben Bernanke's book right now.

1611
01:35:12,160 --> 01:35:16,759
Speaker 1: I tend to read nonfiction. My wife is the fiction reader. Uh.

1612
01:35:17,000 --> 01:35:21,519
Speaker 1: So I enjoyed books like Investment Biker, which yeah, I

1613
01:35:21,560 --> 01:35:25,120
Speaker 1: mean I enjoyed Jim Rogers and I read his books,

1614
01:35:25,160 --> 01:35:27,640
Speaker 1: and I've read others. And I read a lot of

1615
01:35:27,680 --> 01:35:31,600
Speaker 1: the historical books. Um. That has to do generally in

1616
01:35:31,640 --> 01:35:35,080
Speaker 1: the markets. Um, give me, give me one of your

1617
01:35:35,080 --> 01:35:38,320
Speaker 1: favorite Oh god, um, don't see the one who wrote

1618
01:35:38,400 --> 01:35:42,920
Speaker 1: on the short seller named uh famous short seller the

1619
01:35:42,960 --> 01:35:50,720
Speaker 1: Reminiscence of the stuff. Yeah, things like that I read. Um. Uh.

1620
01:35:50,760 --> 01:35:53,640
Speaker 1: I tend to go back and and sometimes read articles

1621
01:35:54,040 --> 01:35:57,439
Speaker 1: as they were written back when. So I go back.

1622
01:35:57,479 --> 01:36:00,599
Speaker 1: I look at the internet what were people saying that time?

1623
01:36:01,080 --> 01:36:03,320
Speaker 1: And I have some quotes on my first chapter of

1624
01:36:03,439 --> 01:36:05,200
Speaker 1: Stocks for the Long Run has a lot of quotes

1625
01:36:05,240 --> 01:36:08,120
Speaker 1: of what people were saying. I just was thumbing through

1626
01:36:08,160 --> 01:36:12,160
Speaker 1: it earlier and I saw the quote of somebody calling

1627
01:36:12,200 --> 01:36:15,799
Speaker 1: you a bad name right in the right in two thousand,

1628
01:36:16,240 --> 01:36:19,559
Speaker 1: just as the about the first chapter, I give three

1629
01:36:19,640 --> 01:36:24,080
Speaker 1: quote to the one, the last quote. What someone told

1630
01:36:24,080 --> 01:36:27,320
Speaker 1: me about this? They said, Dad, Jeremy, did you hear um?

1631
01:36:27,520 --> 01:36:31,160
Speaker 1: You know uh CNBC today? I said no, Well, they

1632
01:36:31,160 --> 01:36:34,040
Speaker 1: were talking about stocks for long Run and they had

1633
01:36:34,080 --> 01:36:38,040
Speaker 1: a call in and call in said stocks for learning?

1634
01:36:38,080 --> 01:36:40,080
Speaker 1: Are you crazy? All I have that book and all

1635
01:36:40,280 --> 01:36:43,640
Speaker 1: it is good for now is a doorstop. Right. I

1636
01:36:43,760 --> 01:36:47,000
Speaker 1: put that quote in there. I do not mind making

1637
01:36:47,040 --> 01:36:52,080
Speaker 1: fun of myself. But here we are. It's fifteen years later,

1638
01:36:52,120 --> 01:36:57,719
Speaker 1: and we're substantially above where we were in that period. Um.

1639
01:36:57,760 --> 01:37:00,920
Speaker 1: So you've been a participant in markets. You've been in

1640
01:37:01,000 --> 01:37:06,840
Speaker 1: participant in the philosophy, the thinking, the ideas that drive markets.

1641
01:37:07,000 --> 01:37:10,360
Speaker 1: You mentioned almost fifty years almost. What do you think

1642
01:37:10,360 --> 01:37:13,800
Speaker 1: of the most significant changes that you've seen over that

1643
01:37:13,960 --> 01:37:20,280
Speaker 1: arc of time. Obviously the development of index funds, no

1644
01:37:20,360 --> 01:37:25,160
Speaker 1: doubt about that. We definitely, I think it's important there.

1645
01:37:25,800 --> 01:37:29,800
Speaker 1: I think, Um, obviously the big bang when when commissions

1646
01:37:29,840 --> 01:37:34,120
Speaker 1: became deep competitive and a few young INDs commissions used

1647
01:37:34,160 --> 01:37:37,640
Speaker 1: to be fixed. Yea, that was changed in the yearly seventies.

1648
01:37:37,640 --> 01:37:41,080
Speaker 1: Schwab was actually the first to come out and slice

1649
01:37:41,520 --> 01:37:45,639
Speaker 1: fees and suddenly you had a competitive marketplace for brokeren Service.

1650
01:37:45,680 --> 01:37:50,200
Speaker 1: I think that that was extremely important. I also think

1651
01:37:50,280 --> 01:37:55,280
Speaker 1: the development of index futures um, where people, you see,

1652
01:37:55,320 --> 01:37:57,920
Speaker 1: could take a direction on the market. Now, people like

1653
01:37:58,000 --> 01:38:01,760
Speaker 1: the spider Now that came much much later, and they

1654
01:38:01,800 --> 01:38:04,200
Speaker 1: do the mini maybe if they want to do on that.

1655
01:38:04,560 --> 01:38:08,160
Speaker 1: But there was you know that that development was the

1656
01:38:08,200 --> 01:38:10,639
Speaker 1: first time that you could, you know, without going into

1657
01:38:10,720 --> 01:38:13,120
Speaker 1: the index fund, which was you know then wanted to

1658
01:38:13,160 --> 01:38:15,839
Speaker 1: trade it. You could move a big chunk of money

1659
01:38:16,760 --> 01:38:21,080
Speaker 1: in and out and hedge yourself with the entire index.

1660
01:38:21,320 --> 01:38:23,880
Speaker 1: I thought that index futures um, which was I think

1661
01:38:23,880 --> 01:38:27,879
Speaker 1: in the very early eighties two, was also a very

1662
01:38:27,920 --> 01:38:32,080
Speaker 1: significant development. And and and generally, I mean, obviously we've

1663
01:38:32,120 --> 01:38:36,200
Speaker 1: got the globalization of the markets, uh, free capital movements,

1664
01:38:36,240 --> 01:38:40,479
Speaker 1: free exchange rates that allow you know, very few firms

1665
01:38:40,479 --> 01:38:43,400
Speaker 1: have capital restrictions if they certainly want to be part

1666
01:38:43,439 --> 01:38:46,439
Speaker 1: of the global economy. Back then, even the United States

1667
01:38:46,439 --> 01:38:49,720
Speaker 1: had restrictions uh back in the fifties and sixties. So

1668
01:38:49,960 --> 01:38:52,680
Speaker 1: the freedom of the market to go globally I think

1669
01:38:52,840 --> 01:38:55,880
Speaker 1: is critical. Um, yeah, I think that those were things

1670
01:38:55,880 --> 01:38:59,560
Speaker 1: the index fund was obviously, I do think fundamental indexing

1671
01:38:59,640 --> 01:39:04,400
Speaker 1: is an their huge breakthrough um, these are all positive change,

1672
01:39:04,760 --> 01:39:08,000
Speaker 1: positive change. Anything that you see that that you think

1673
01:39:08,080 --> 01:39:11,559
Speaker 1: is negative high frequency trading derivatives, anything along those lines,

1674
01:39:11,920 --> 01:39:14,439
Speaker 1: or have they done well? You know what when they've

1675
01:39:14,479 --> 01:39:17,920
Speaker 1: done away? Okay. So not that I like the specialists,

1676
01:39:17,960 --> 01:39:21,680
Speaker 1: because there were complaints about them all the time. But

1677
01:39:21,880 --> 01:39:24,679
Speaker 1: one thing they would not have let some of these

1678
01:39:24,680 --> 01:39:28,320
Speaker 1: blue chips sell ten dollars less than the market or

1679
01:39:28,479 --> 01:39:31,200
Speaker 1: fort or whatever it was with a flash crash in

1680
01:39:31,280 --> 01:39:35,320
Speaker 1: two thousand and ten or this very recent one. We're

1681
01:39:35,320 --> 01:39:38,280
Speaker 1: doing better. They what they screwed up was the open

1682
01:39:38,320 --> 01:39:40,360
Speaker 1: that was actually the opening actually the flash crash of

1683
01:39:40,400 --> 01:39:43,280
Speaker 1: two thousand times. They put safeguards in these mini stops

1684
01:39:43,680 --> 01:39:46,240
Speaker 1: that were good. The trouble is that they weren't effective

1685
01:39:46,439 --> 01:39:48,280
Speaker 1: at the open, and that's why we had a mini

1686
01:39:48,280 --> 01:39:52,200
Speaker 1: crash at the crash. We've also had we had e

1687
01:39:52,280 --> 01:39:55,240
Speaker 1: t F crash A little bit on those one. I

1688
01:39:55,320 --> 01:39:58,839
Speaker 1: don't want to overstate that because people get all upset

1689
01:39:59,120 --> 01:40:00,760
Speaker 1: and we look at the n umber of trades at

1690
01:40:00,760 --> 01:40:04,679
Speaker 1: a crazy price. It's point o O O one percent,

1691
01:40:04,960 --> 01:40:07,920
Speaker 1: but it's what everybody's price shows up. People say, how

1692
01:40:08,000 --> 01:40:11,639
Speaker 1: why is Johnson and Johnson? So there was a hundred

1693
01:40:11,640 --> 01:40:14,880
Speaker 1: shares of J and J. That's so at that, you know,

1694
01:40:15,000 --> 01:40:18,240
Speaker 1: and don't forget they unwound the crazy, real crazy ones before,

1695
01:40:18,439 --> 01:40:20,599
Speaker 1: but even you know, in this recent one, so there

1696
01:40:20,600 --> 01:40:23,240
Speaker 1: were one or two hundred shares at crazy prices. They

1697
01:40:23,280 --> 01:40:25,320
Speaker 1: still got to work on that at the open and

1698
01:40:25,360 --> 01:40:28,519
Speaker 1: I think they will to prevent that. We have prevented

1699
01:40:28,560 --> 01:40:31,720
Speaker 1: some of those big gaps since two thousand. Listen, we

1700
01:40:31,800 --> 01:40:37,360
Speaker 1: are in an instantaneous communication world. It's going to Uh,

1701
01:40:37,560 --> 01:40:41,599
Speaker 1: rumors are gonna start. I sometimes wonder whether there you know,

1702
01:40:41,640 --> 01:40:44,719
Speaker 1: with all the Facebook and social media Twitter, of course,

1703
01:40:44,840 --> 01:40:49,120
Speaker 1: you know, whether we're we're gonna get some rumor that's

1704
01:40:49,160 --> 01:40:54,040
Speaker 1: gonna be false. That's gonna panic everyone. I mean, and

1705
01:40:54,400 --> 01:40:57,920
Speaker 1: you know back at the time, the news people would

1706
01:40:58,080 --> 01:41:02,280
Speaker 1: wait to verify it doesn't happen. Uh, that isn't happening.

1707
01:41:02,360 --> 01:41:07,400
Speaker 1: We could get some sharp movements, but I guess honestly

1708
01:41:07,880 --> 01:41:11,760
Speaker 1: that comes with the territory of communication is basically good.

1709
01:41:11,760 --> 01:41:14,840
Speaker 1: I don't want to restota anyway, so you see things generally,

1710
01:41:15,080 --> 01:41:18,000
Speaker 1: all these innovations have been improvements over time that worked

1711
01:41:18,040 --> 01:41:22,480
Speaker 1: to the to the benefit of investors. Wow, that's quite fascinating.

1712
01:41:22,640 --> 01:41:25,320
Speaker 1: Um any major shifts you see coming up? I know

1713
01:41:25,400 --> 01:41:28,760
Speaker 1: you think fundamental indexing is one of them. What what

1714
01:41:28,840 --> 01:41:32,519
Speaker 1: else do you see coming up? You know that's that

1715
01:41:32,840 --> 01:41:35,840
Speaker 1: so much has happened. I don't know whether I'm looking

1716
01:41:35,880 --> 01:41:38,639
Speaker 1: for anything. I mean, we've we've you know, we've got

1717
01:41:38,640 --> 01:41:42,040
Speaker 1: E t F s and commodities right now. E t

1718
01:41:42,200 --> 01:41:45,479
Speaker 1: F s in the foreign markets right now. And I

1719
01:41:45,520 --> 01:41:47,679
Speaker 1: think E t F s are also I should say

1720
01:41:47,680 --> 01:41:49,320
Speaker 1: E t F s are I'm gonna include that as

1721
01:41:49,400 --> 01:41:52,880
Speaker 1: one of the break huge great shoes. So we're pretty

1722
01:41:52,960 --> 01:41:57,559
Speaker 1: much we're pretty much doing that. You know, whether we

1723
01:41:57,560 --> 01:42:00,519
Speaker 1: could actually get E t fs in real estate as

1724
01:42:01,320 --> 01:42:04,639
Speaker 1: beyond reats you mean, like beyond reas. It's really hard

1725
01:42:04,680 --> 01:42:07,160
Speaker 1: to do that though, because you can't arbitrage. If you

1726
01:42:07,200 --> 01:42:10,120
Speaker 1: can't easily in and out to arbitrage to be a

1727
01:42:10,240 --> 01:42:13,519
Speaker 1: creation unit another word, just you're buying enough of the

1728
01:42:13,640 --> 01:42:17,120
Speaker 1: underlying stock to make one more et F shart. You

1729
01:42:17,160 --> 01:42:19,320
Speaker 1: can't really do that because you're's not as liquid, it

1730
01:42:19,360 --> 01:42:22,960
Speaker 1: doesn't trade. Um, the last two questions, these are these

1731
01:42:23,000 --> 01:42:27,639
Speaker 1: are always interesting. Um, you work with kids, you work

1732
01:42:27,720 --> 01:42:31,680
Speaker 1: with college students and grad students. What sort of advice

1733
01:42:32,200 --> 01:42:35,760
Speaker 1: would you give or do you give to millennials who

1734
01:42:35,760 --> 01:42:38,920
Speaker 1: were graduating at the beginning of their career if they

1735
01:42:38,960 --> 01:42:43,000
Speaker 1: were interested in going into finance. Well, there's a lot

1736
01:42:43,000 --> 01:42:44,760
Speaker 1: of different ways to go into financing. To do what

1737
01:42:44,840 --> 01:42:50,639
Speaker 1: I do is academics. Um is I just say, read,

1738
01:42:51,240 --> 01:42:57,240
Speaker 1: read widely, current events, try to understand, structure, take course,

1739
01:42:57,360 --> 01:43:00,280
Speaker 1: try to fit things into a paragigm that you feel

1740
01:43:00,320 --> 01:43:06,000
Speaker 1: comfortable in analyzing it. That's it building, building a structure

1741
01:43:06,040 --> 01:43:09,160
Speaker 1: at which you can think about the markets, and then

1742
01:43:09,160 --> 01:43:12,120
Speaker 1: when a new situation comes up, you'll have a structure

1743
01:43:12,160 --> 01:43:15,679
Speaker 1: to analyze it in. But the wealth of experience start young.

1744
01:43:15,840 --> 01:43:18,759
Speaker 1: I actually, as I said, I was fascinated with Stockbacker

1745
01:43:18,760 --> 01:43:21,240
Speaker 1: when I was a kid, And not so much which

1746
01:43:21,240 --> 01:43:24,320
Speaker 1: stocks to buy, but the whole movements of the market

1747
01:43:24,400 --> 01:43:26,719
Speaker 1: up or down? Why did it move up or down?

1748
01:43:26,720 --> 01:43:29,840
Speaker 1: Why did it? And I always try to say, can

1749
01:43:29,880 --> 01:43:34,040
Speaker 1: I learn enough to get a structure of thinking about

1750
01:43:34,040 --> 01:43:36,960
Speaker 1: the major factors that do it? So, you know, read

1751
01:43:37,000 --> 01:43:40,519
Speaker 1: as much as you can current events. Take those courses

1752
01:43:40,560 --> 01:43:44,960
Speaker 1: that you can um and and and and and and

1753
01:43:44,960 --> 01:43:48,400
Speaker 1: and and definitely take a global view. The world is

1754
01:43:49,280 --> 01:43:52,880
Speaker 1: is global now and uh, you know it's not just

1755
01:43:52,920 --> 01:43:56,960
Speaker 1: the United States. Or England. It's global, it's the whole world.

1756
01:43:57,280 --> 01:44:00,680
Speaker 1: And my last question, what do you know about investing

1757
01:44:00,760 --> 01:44:04,000
Speaker 1: today that you wish you knew when you started out

1758
01:44:04,320 --> 01:44:09,200
Speaker 1: forty four years ago. Oh, and I wish that I

1759
01:44:09,280 --> 01:44:14,600
Speaker 1: knew when I started out forty four years ago. Um,

1760
01:44:14,640 --> 01:44:22,639
Speaker 1: I wish um that I was again, I was wadded

1761
01:44:22,680 --> 01:44:26,040
Speaker 1: to cap weighted. At the same time, I said tech

1762
01:44:26,160 --> 01:44:30,679
Speaker 1: was crazy and I didn't know how to reconcile those two.

1763
01:44:31,400 --> 01:44:34,000
Speaker 1: Now I can do a fundamental waiting. I can get

1764
01:44:34,040 --> 01:44:36,880
Speaker 1: out of a sector that I think is overweighted, or

1765
01:44:37,200 --> 01:44:41,400
Speaker 1: overweight in a sector that I think it's really cheap. Now,

1766
01:44:41,640 --> 01:44:44,760
Speaker 1: not dramatically. I don't think I'm the greatest timer and

1767
01:44:44,800 --> 01:44:48,679
Speaker 1: all that, but just looking at valuations once they get

1768
01:44:48,720 --> 01:44:51,080
Speaker 1: to an extreme. You may not buy at the bottom,

1769
01:44:51,080 --> 01:44:53,280
Speaker 1: you may not sell at the top. But I think

1770
01:44:53,360 --> 01:44:57,799
Speaker 1: that you can really move better than buy and hold.

1771
01:44:58,280 --> 01:45:01,800
Speaker 1: I think fundamental waiting is one way that does it

1772
01:45:01,880 --> 01:45:04,920
Speaker 1: for you, by the rebalancing technique. So so in a

1773
01:45:05,000 --> 01:45:08,840
Speaker 1: situation like two thousand, you don't want to be overweighted

1774
01:45:09,080 --> 01:45:12,760
Speaker 1: the most expensive sector, the biggest stocks, and that'll be

1775
01:45:12,800 --> 01:45:15,680
Speaker 1: the biggest part of my potfolio. Yeah, so you know

1776
01:45:15,720 --> 01:45:18,680
Speaker 1: if I were in, you know, a fundamentally weighted my,

1777
01:45:19,240 --> 01:45:22,360
Speaker 1: they would have been selling the technology because it's price

1778
01:45:22,400 --> 01:45:25,120
Speaker 1: kept on going up relative it's fundamentals, and I would

1779
01:45:25,120 --> 01:45:28,240
Speaker 1: have been much better off rather than suffer through the

1780
01:45:28,240 --> 01:45:30,760
Speaker 1: two thousand and two even though I knew it was overrated,

1781
01:45:30,840 --> 01:45:34,639
Speaker 1: I was kind of locked into the cap weighted Professor Siegel,

1782
01:45:34,680 --> 01:45:37,320
Speaker 1: I can't begin to thank you enough. This has been

1783
01:45:38,200 --> 01:45:43,280
Speaker 1: absolutely delightful. I I appreciate all your time and generosity,

1784
01:45:43,320 --> 01:45:46,519
Speaker 1: and it's been a pleasure. Burry Well, maybe we'll do

1785
01:45:46,560 --> 01:45:50,000
Speaker 1: it again sometimes, I would love to. We've been speaking

1786
01:45:50,080 --> 01:45:53,040
Speaker 1: with Professor Jeremy Siegel of the Wharton School of the

1787
01:45:53,160 --> 01:45:57,320
Speaker 1: University of Pennsylvania, author of Stocks for the Long Run.

1788
01:45:57,960 --> 01:46:01,040
Speaker 1: If you enjoy this conversation, be sure and look up

1789
01:46:01,160 --> 01:46:03,840
Speaker 1: or down an Inch on iTunes and you can see

1790
01:46:04,160 --> 01:46:07,040
Speaker 1: all of the other chats we've had with various people

1791
01:46:07,040 --> 01:46:09,920
Speaker 1: over the years. Uh, be sure and check out my

1792
01:46:10,040 --> 01:46:12,559
Speaker 1: daily column on Bloomberg View dot com. Follow me on

1793
01:46:12,600 --> 01:46:16,559
Speaker 1: Twitter at rid Halts. I wanna I would be remiss

1794
01:46:16,840 --> 01:46:19,360
Speaker 1: if I did. In fact, if I did not think

1795
01:46:19,680 --> 01:46:23,840
Speaker 1: my engineer, Reggie Charlie Vollmer, my producer, and my Head

1796
01:46:23,840 --> 01:46:27,240
Speaker 1: of Research, Michael bat Nick. You've been listening to Masters

1797
01:46:27,240 --> 01:46:29,280
Speaker 1: in Business on Bloomberg Radio.