WEBVTT - Wealth Management and the 'Great Normalization' with Lisa Shalett 0:00:02.520 --> 0:00:11.800 Bloomberg Audio Studios, Podcasts, radio News. This is a Masters 0:00:11.840 --> 0:00:17.160 in Business with Barry Ritholts on Bloomberg Radio this week. 0:00:17.480 --> 0:00:22.840 Really an extra extra special guest. Lisa Shalitt, chief Investment 0:00:22.880 --> 0:00:26.880 Officer at Morgan Stanley, has had a number of fascinating 0:00:27.000 --> 0:00:30.960 roles in Wall Street, which is kind of amusing considering 0:00:31.360 --> 0:00:34.960 she had no interest in working on Wall Street and 0:00:35.040 --> 0:00:39.760 yet she was CEO and chairman at Sanford Bernstein. She 0:00:39.880 --> 0:00:44.320 was CIO at Merrill Lynch Asset Management, and now CIO 0:00:44.400 --> 0:00:49.120 at both Morgan Stanley Wealth Management and runs their asset 0:00:49.159 --> 0:00:54.440 on location models and their outsourced chief investment Officer model, 0:00:54.560 --> 0:00:59.240 So she's seen this industry from all sides. Not only 0:00:59.360 --> 0:01:04.840 is CEO running operations running a substantial firm, but as 0:01:04.920 --> 0:01:09.080 CIO for Morgan Stanley is over six trillion dollars, she 0:01:09.200 --> 0:01:14.120 is directly responsible for one hundred billion dollars. There are 0:01:14.160 --> 0:01:18.440 a few people in this industry who understand what it's 0:01:18.600 --> 0:01:23.319 like to work with institutions, work with families, work with 0:01:23.440 --> 0:01:28.080 individuals as well as work with advisors and brokers the 0:01:28.120 --> 0:01:32.680 way Lisa does. She absolutely has a unique background and 0:01:32.720 --> 0:01:36.560 a unique perch on wealth management and what's going on 0:01:36.640 --> 0:01:40.240 in the world. I found this conversation to be absolutely fascinating, 0:01:40.720 --> 0:01:42.920 and I think you will also, with no further ado, 0:01:43.520 --> 0:01:47.080 my conversation with Morgan Stanley's Lisa Shallion. 0:01:47.960 --> 0:01:50.120 Thank you. It's great to be here, Baik. 0:01:49.800 --> 0:01:51.600 Great to have you. I've really been looking forward to 0:01:51.640 --> 0:01:57.040 this conversation. You have an absolutely bonkers CV. We'll get 0:01:57.080 --> 0:02:00.480 into that in a little bit. I'm just old better 0:02:00.520 --> 0:02:02.720 than the alternative, I like to say it, right, But 0:02:02.840 --> 0:02:07.520 let's start with your background in your career Applied mathematics 0:02:07.520 --> 0:02:11.120 and economics from Brown and then a Harvard MBA. That 0:02:11.440 --> 0:02:14.200 sounds like you were on a career path to a 0:02:14.280 --> 0:02:17.880 Wall Street quant from early on. Tell us what what 0:02:17.919 --> 0:02:18.919 the career plans were? 0:02:19.400 --> 0:02:23.640 Not at all? Right? I in college, I was a 0:02:24.120 --> 0:02:28.960 drivetime disc jockey. I you know, abhord the idea of 0:02:29.000 --> 0:02:32.480 working on Wall Street. Uh, and so you know, coming 0:02:32.520 --> 0:02:37.040 out of school, once I realized that journalists and folks 0:02:37.120 --> 0:02:40.160 in radio don't make much money in the long run. 0:02:40.240 --> 0:02:44.360 No offense, h this is my side hustle to anyone 0:02:44.400 --> 0:02:46.720 around here. You know, I thought I was going to 0:02:46.800 --> 0:02:50.080 take the high road and be a management consultant. So 0:02:50.120 --> 0:02:52.360 that's what I did for the first job. 0:02:52.560 --> 0:02:55.080 So what changed your mind to say, all right, let 0:02:55.160 --> 0:02:57.480 me let me go see what these finance bros On 0:02:57.480 --> 0:02:58.560 Wall Street are all about. 0:02:58.880 --> 0:03:02.040 Yeah. So, you know, I did the consulting thing both 0:03:02.120 --> 0:03:06.080 before and after business school, and you know, fundamentally, I 0:03:06.160 --> 0:03:10.080 was never home. I was traveling and on an airplane 0:03:10.160 --> 0:03:13.919 all the time. I was literally arriving back home Saturday mornings, 0:03:14.000 --> 0:03:18.079 leaving Sunday nights. You know, I was starting to hit 0:03:18.200 --> 0:03:21.160 that you know those magic numbers in the thirties when 0:03:21.200 --> 0:03:23.680 women are like, if I don't get it done now, 0:03:24.240 --> 0:03:28.040 it's now or never. So I took the plunge. I quit. 0:03:28.520 --> 0:03:30.720 I did not have a job, and I said, Okay, 0:03:30.800 --> 0:03:33.160 I'm going to go out there and see what's going on. 0:03:34.160 --> 0:03:36.760 I knew that I wanted to work with clients. That 0:03:36.880 --> 0:03:39.280 was one of the pieces of the consulting gig that 0:03:39.520 --> 0:03:42.120 appealed to me. I wanted to work with super smart 0:03:42.120 --> 0:03:46.440 people also, something I had loved in that career, and 0:03:46.560 --> 0:03:49.920 I really just you know, wanted to be somewhere where 0:03:49.920 --> 0:03:53.600 I was constantly learning and growing. Right, and I'm a 0:03:53.640 --> 0:03:56.360 New Yorker, So I was coming home most of the 0:03:56.400 --> 0:03:59.080 search people at that time, you know, said to me, 0:03:59.280 --> 0:04:01.080 the only place ago if you want to do that, 0:04:01.200 --> 0:04:04.800 is Wall Street. I kind of balked, and they said, 0:04:04.840 --> 0:04:08.200 but there's just this one place. There's this one place, 0:04:08.360 --> 0:04:12.000 and the one place for those on Wall Street in 0:04:12.520 --> 0:04:15.800 the mid nineties that was very special, was very independent, 0:04:16.680 --> 0:04:20.320 was Sanford Bernstein. I walked in the door and I 0:04:20.400 --> 0:04:23.440 literally fell in love. I can honestly tell you from 0:04:23.920 --> 0:04:26.839 the minute I walked in the door, I knew I 0:04:26.960 --> 0:04:31.920 was home, and I always thought I would die there. 0:04:32.240 --> 0:04:35.800 But obviously, you know, life is long and stuff happens. 0:04:35.920 --> 0:04:38.600 But it was a wonderful, wonderful It was the seminal 0:04:38.680 --> 0:04:39.640 chapter in my career. 0:04:39.720 --> 0:04:42.520 I'm trying to remember. Did they get rolled up with 0:04:42.680 --> 0:04:47.440 Pimcohen from Alliance? Is that right? So Alliance burning? 0:04:47.560 --> 0:04:53.600 So Sanford ce Bernstein was independent. When founder mister Bernstein passed, 0:04:54.160 --> 0:04:57.280 we needed to settle his estate and a decision was 0:04:57.400 --> 0:05:01.520 made to merge with Alliance Capital, which was a growth 0:05:01.560 --> 0:05:05.240 shop at the time. We thought it would be synergistic 0:05:05.240 --> 0:05:08.520 because the asset management business of Sanford Bernstein, as everyone 0:05:08.560 --> 0:05:11.480 I think knows, was a deep value shop, right, and 0:05:11.600 --> 0:05:15.479 so that merger happened. I want to say, somewhere in 0:05:15.560 --> 0:05:19.040 the in the early two thousands, we became Alliance Spernstein, 0:05:19.480 --> 0:05:21.960 and you know then, you know, we kind of wrote 0:05:22.000 --> 0:05:26.760 it to till the Great Financial Crisis, and our deep 0:05:26.839 --> 0:05:30.600 value exposure to financials kind of helped unwind us quite 0:05:30.600 --> 0:05:34.440 a bit. And I think, you know, Alliance Spernstein really 0:05:34.520 --> 0:05:37.440 spun for quite a long time. It took, you know, 0:05:37.640 --> 0:05:40.800 a long long time to get out of that mess. 0:05:41.360 --> 0:05:44.719 I left because I got tired of firing all my friends. 0:05:45.920 --> 0:05:49.160 That's tough, Yeah, because you were not just in the 0:05:49.200 --> 0:05:54.280 investing side, you were chair and CEO, chief executive officer. Yes, 0:05:54.440 --> 0:05:57.960 that's got to be a very difficult experience right in 0:05:58.040 --> 0:05:59.720 the teeth of the financial price it. 0:05:59.800 --> 0:06:05.400 Was got awful. And really, you know, the trauma was 0:06:05.720 --> 0:06:08.440 when lu Sanders, who at the time had been the 0:06:08.480 --> 0:06:12.080 storied CEO of the firm, he had been my personal rabbi, 0:06:13.000 --> 0:06:16.640 when he was asked to step down, and you know, 0:06:16.880 --> 0:06:20.560 therein began I think the unraveling and a little bit 0:06:20.600 --> 0:06:23.480 of the the loss of that you know, cultural juice 0:06:23.520 --> 0:06:28.120 that had kind of historically made that firm special. 0:06:28.720 --> 0:06:33.920 So you leave Sanford Bernstein then, which had really become 0:06:34.839 --> 0:06:39.039 Alliance Bernstein end up at Merrill Lynch where eventually your 0:06:39.600 --> 0:06:43.840 same role chief investment officer for Bank America Merrill Lynch 0:06:43.880 --> 0:06:48.680 Wealth Management. First, was there still remnants of Mother Merrill 0:06:49.120 --> 0:06:50.839 when you joined post merger? 0:06:51.279 --> 0:06:55.360 There were certainly remnants, So you know, just to reframe, 0:06:55.720 --> 0:06:59.120 you know, folks who are Wall Street historians will understand 0:06:59.160 --> 0:07:02.839 this chapter. One of the reasons I went to meryll 0:07:03.080 --> 0:07:05.440 Is I was recruited by one of my best friends, 0:07:05.440 --> 0:07:06.600 who is Sally Crotchek. 0:07:06.960 --> 0:07:07.120 Oh. 0:07:07.160 --> 0:07:10.800 Really, Sally and I grew up at Sanford Bernstein together 0:07:11.040 --> 0:07:15.680 as baby analysts, and at that time she was running 0:07:16.160 --> 0:07:19.480 you know, the Merrill Lynch brokerage business for b of A, 0:07:20.200 --> 0:07:23.280 and she hired me to come in and be the 0:07:23.360 --> 0:07:27.000 chief investment officer at Wealth Management. If you remember, during 0:07:27.000 --> 0:07:30.080 this period of time was right after the financial crisis, 0:07:30.120 --> 0:07:32.400 the worst of it. It was twenty ten, twenty eleven, 0:07:33.040 --> 0:07:35.679 and you know, she had kind of gone to bat 0:07:35.920 --> 0:07:41.760 very controversially asking the bank to protect clients on some 0:07:41.840 --> 0:07:44.679 of the products that had gone bad, and that didn't 0:07:44.720 --> 0:07:48.040 go so well for her, and within four months of 0:07:48.080 --> 0:07:54.280 my arrival she actually heard that she was fired on TV. 0:07:54.520 --> 0:07:58.000 We were together in her office, and there was literally 0:07:58.520 --> 0:08:00.920 a cry on on the bus atom of the screen 0:08:01.080 --> 0:08:05.680 that says, you know, Crawcheck to leave Bank of America Marylynch. 0:08:05.720 --> 0:08:07.640 Well, that was sweet of them to do it that way. 0:08:07.960 --> 0:08:11.920 You know, I have a vivid recollection from the people 0:08:12.560 --> 0:08:15.720 we were talking, Yeah, Franco and Dave Roseen Kergan. I 0:08:15.760 --> 0:08:17.640 know a lot of Rich Barnstein and all these people 0:08:17.680 --> 0:08:21.360 I know from the two thousands Yes era Merrill Lynch. 0:08:22.040 --> 0:08:25.720 And one of the fascinating things about Sally Kratchek was 0:08:26.440 --> 0:08:30.920 her defense of the Merrill Lynch brands Yes post merger, 0:08:31.520 --> 0:08:36.280 and she really helped turn around a malaise just a 0:08:36.400 --> 0:08:41.080 lack of office morale amongst here. You have this storied 0:08:41.160 --> 0:08:43.120 name that was picked up on the cheap during the 0:08:43.160 --> 0:08:49.680 financial crisis and was wildly underperforming as an organization. And 0:08:49.840 --> 0:08:53.679 full credit to her for really saving Merri Lynch as 0:08:53.720 --> 0:08:58.560 a name and turning tens of thousands of people's jobs around. 0:08:58.960 --> 0:09:01.040 She really did you's work there, didn't she? 0:09:01.240 --> 0:09:01.440 Yes? 0:09:01.640 --> 0:09:06.680 Absolutely, So you become chief investment officer for Bank America 0:09:06.760 --> 0:09:10.680 Merrill Lynch Wealth Management. What did you take away from that? 0:09:10.760 --> 0:09:16.280 You've had this role in several organizations, what was really 0:09:16.400 --> 0:09:19.360 unique and special about Bank America Marill Lynch. 0:09:19.480 --> 0:09:21.880 Yeah. So what you know, when I was running the 0:09:21.920 --> 0:09:25.520 wealth management business, you know, reflecting on my experience with 0:09:25.640 --> 0:09:30.360 Sanford Bernstein, Sanford Bernstein was what we call a closed shop, right, 0:09:30.440 --> 0:09:36.760 all the clients were getting proprietary Sanford Bernstein asset management product. 0:09:37.360 --> 0:09:40.000 And when I arrived at Merrill Lynch, it was really 0:09:40.000 --> 0:09:47.839 my first exposure to really entrepreneurial, extremely talented and aggressive 0:09:47.960 --> 0:09:53.040 financial advisors who were operating with what we in the 0:09:53.040 --> 0:09:57.440 industry call an open architecture platform right where they could 0:09:57.600 --> 0:10:01.760 you know, kind of place best of brief product with 0:10:01.880 --> 0:10:05.400 their clients. And so that opened a whole new world 0:10:05.559 --> 0:10:09.960 for me in thinking about asset allocation and thinking about advice, 0:10:10.080 --> 0:10:16.080 and thinking about active and passive constructions together, thinking about alternatives, 0:10:16.120 --> 0:10:21.199 and so you know, what made Merrill extraordinarily special were 0:10:21.200 --> 0:10:25.000 the financial advisors who were just spectacular to your point, 0:10:25.080 --> 0:10:26.280 the Thundering Herd. 0:10:26.240 --> 0:10:30.320 Yep, yep, remember those those ads from like the sixties 0:10:30.320 --> 0:10:35.080 and sevenss on TV. They were absolutely unique. So culturally 0:10:35.760 --> 0:10:38.679 I have to think Sanford Bernstein and Merrill Lynch were 0:10:38.720 --> 0:10:41.560 both very different. What did you bring from those two 0:10:41.720 --> 0:10:46.280 organizations to your work at Morgan Stanley, either philosophically or cultural. 0:10:46.520 --> 0:10:50.280 Yeah. So I think from from my time at San 0:10:50.360 --> 0:10:54.560 for Bernstein, I like to think I brought, you know, 0:10:54.640 --> 0:10:59.439 kind of my love of original research, my love of 0:10:59.640 --> 0:11:04.800 you know, that independent streak, that desire to really you know, 0:11:05.040 --> 0:11:08.440 call out conflict of interest and say no, this is 0:11:08.960 --> 0:11:11.520 you know, this is what the numbers really tell you. 0:11:11.920 --> 0:11:14.320 I like to think I brought that. I think, you know, 0:11:14.480 --> 0:11:18.480 from Merrill it was really that appreciation of how do 0:11:18.559 --> 0:11:22.640 you work through financial advisor so and you know, as 0:11:22.679 --> 0:11:26.200 a chief investment officer, how do you earn the trust 0:11:26.920 --> 0:11:31.040 of financial advisors to have influence? Right, because they're what 0:11:31.240 --> 0:11:35.240 stand between you and the client. And so, you know, 0:11:35.360 --> 0:11:39.160 I think I think I started that process in my 0:11:39.280 --> 0:11:43.640 career at Meryl. I think in many ways I still 0:11:43.679 --> 0:11:45.800 wake up every day and I think I've got more 0:11:45.840 --> 0:11:48.200 to learn in terms of how to be a better 0:11:48.240 --> 0:11:52.320 partner to financial advisors today at Morgan Stanley. 0:11:52.200 --> 0:11:55.239 And what It's kind of interesting given the open architecture 0:11:55.240 --> 0:12:01.520 at Merrill and the proprietary work at Alliance Earnstein, Morgan 0:12:01.600 --> 0:12:05.680 Stanley's a little bit of both. You have consilient research 0:12:05.720 --> 0:12:09.520 and a number of people running their own funds that 0:12:09.559 --> 0:12:14.719 are specific to Morgan Stanley as well as the open architecture. 0:12:15.440 --> 0:12:18.640 How do you look at the combination of both closed 0:12:18.679 --> 0:12:19.480 and open together. 0:12:19.720 --> 0:12:23.760 Yeah, well, look, I think it does a lot of things. First, 0:12:23.800 --> 0:12:26.520 it avails me of some of the best colleagues on 0:12:26.559 --> 0:12:29.520 the planet, right, so I'm surrounded not only by folks 0:12:29.600 --> 0:12:32.320 in the wealth management business, but obviously I'm attached to 0:12:32.520 --> 0:12:37.080 one of the best equity in trading franchises globally. And 0:12:37.120 --> 0:12:40.760 then to your point, you know, connected to pms that 0:12:41.000 --> 0:12:43.720 you know are walking the floors with me. But look, 0:12:43.840 --> 0:12:45.800 you know, I want to be really clear when I 0:12:45.840 --> 0:12:50.880 think about my clients. We're arm's length, so proprietary product 0:12:51.080 --> 0:12:55.200 might be appropriate for them if they're open to it. If, 0:12:55.240 --> 0:12:57.839 on the other hand, they say conflicts of interest matter 0:12:57.880 --> 0:13:01.320 a lot to me, I want everything to totally transparent. 0:13:01.800 --> 0:13:04.880 We have those options as well. So you know, I 0:13:04.920 --> 0:13:07.600 think about it as as you know, we we work 0:13:07.640 --> 0:13:11.000 with clients. We do what clients are in their best interest. 0:13:11.600 --> 0:13:13.760 And I know it sounds a little bit like an advertisement, 0:13:13.800 --> 0:13:14.800 but I really believe that. 0:13:15.080 --> 0:13:18.640 Well, the next question, the obvious question is who are 0:13:18.640 --> 0:13:21.679 the clients? Are they institutions, are they households? Are they 0:13:21.679 --> 0:13:22.440 a little bit of both? 0:13:22.880 --> 0:13:26.760 Yeah. So, as you may know, Barry, you know, over 0:13:26.800 --> 0:13:30.800 the last you know, really decade since since Gorman acquired 0:13:30.840 --> 0:13:35.120 Smith Barney, we've been expanding our footprint in terms of 0:13:35.160 --> 0:13:39.840 the client segments that we are focused on serving really exponentially. 0:13:39.960 --> 0:13:42.640 So while you might once upon a time have thought about, 0:13:42.960 --> 0:13:46.240 you know, the Morgan Stanley Financial Advisors as as you know, 0:13:46.320 --> 0:13:50.200 serving that ultra high net worth you know, core client, 0:13:51.080 --> 0:13:54.440 you know, now we're you know, serving folks in the 0:13:54.480 --> 0:13:59.760 mass market through e trade, We're serving family offices, We're 0:13:59.760 --> 0:14:05.760 serve institutions. We've done acquisitions in the stock plan businesses 0:14:05.800 --> 0:14:11.080 and the retirement businesses. You noted in my bio that 0:14:11.559 --> 0:14:15.000 I run help run one of our ocio businesses, our 0:14:15.080 --> 0:14:19.800 outsource where we're working with foundations and endowments and family offices. 0:14:20.760 --> 0:14:24.880 So now we're everywhere, and we're serving every type of 0:14:24.920 --> 0:14:30.040 wealth client internationally, domestic, self directed through a brokerage account, 0:14:30.080 --> 0:14:33.000 all the way through complete discretionary. 0:14:33.280 --> 0:14:37.320 I recall back in the day Morgan Stanley as well, 0:14:37.360 --> 0:14:40.080 they're kind of a Goldman Sachs want to bee and 0:14:40.120 --> 0:14:43.760 that is no longer the case, it's the best of Goldman, 0:14:43.800 --> 0:14:47.720 the best of Merril and on. This is really inside 0:14:47.720 --> 0:14:51.480 baseball stuff. So I apologize to listeners, but on the 0:14:51.600 --> 0:14:55.040 league tables to say who's number one and underwriting, who's 0:14:55.080 --> 0:14:58.680 number one? In attracting new wealth management, who's number one 0:14:58.760 --> 0:15:03.280 in self directed? Like, you guys are competitive across the board, 0:15:03.440 --> 0:15:06.720 and it's not like the old days where Goldman has 0:15:06.760 --> 0:15:08.760 a good year and they you know, take the top 0:15:08.840 --> 0:15:12.520 spot everywhere. That doesn't seem to happen anymore. It seems 0:15:13.080 --> 0:15:17.240 like the industry has become so competitive you want to 0:15:17.280 --> 0:15:19.320 be in the top five or top ten. But the 0:15:19.440 --> 0:15:22.640 days of you know, taking number one with a bullet 0:15:22.680 --> 0:15:25.800 across all these different areas, they really seem to have faded. 0:15:26.160 --> 0:15:30.520 Yeah, they have. I mean, I think that ours is 0:15:30.560 --> 0:15:34.240 a business in almost every segment that requires a lot 0:15:34.240 --> 0:15:38.600 of scale, and as you know, developing scale very often 0:15:38.680 --> 0:15:43.200 means investing aggressively in tech, investing aggressively in talent, and 0:15:43.240 --> 0:15:46.920 you've got to pick your spots right. And so you know, 0:15:46.960 --> 0:15:50.320 to your point, I think every you know segment today 0:15:50.760 --> 0:15:53.840 is a little bit of a gunfight. I like to 0:15:53.880 --> 0:15:58.640 think that you know, in core wealth management, Morgan Stanley, 0:15:58.760 --> 0:16:02.360 and you know where we've come, you know, first under 0:16:02.440 --> 0:16:06.800 James Gorman and now hopefully under Ted Picks. Leadership is 0:16:06.840 --> 0:16:09.840 really you know, differentiating us and allowing us to pull 0:16:09.880 --> 0:16:12.400 away from the pack at least in wealth management. 0:16:12.800 --> 0:16:17.320 And you mentioned the investment in technology and people and 0:16:17.360 --> 0:16:21.480 the ability to scale at your size, and there's only 0:16:21.720 --> 0:16:23.920 you know, a dozen or two companies that can make 0:16:24.000 --> 0:16:29.760 this claim that flywheel begins to become very self reinforcing, 0:16:30.280 --> 0:16:33.000 and you have the ability to just continue to add 0:16:33.040 --> 0:16:36.520 divisions to fill in. Oh we're a little soft here. 0:16:36.840 --> 0:16:39.720 Let's let's bulk this up a little bit and put 0:16:39.760 --> 0:16:41.960 a little muscle on it because we have the ability 0:16:42.000 --> 0:16:45.520 to offer these services to all our clients. What's it 0:16:45.560 --> 0:16:48.440 been like watching the how long have you there? 0:16:48.480 --> 0:16:49.920 You're there almost thirteen? 0:16:50.200 --> 0:16:53.800 They're over at dteen. Yeah, so and from twenty twelve 0:16:53.840 --> 0:16:58.200 to twenty twenty five, that's a huge run. A lot 0:16:58.240 --> 0:17:01.640 of big financial players, Vanguard, black Rock going down the 0:17:01.680 --> 0:17:05.359 list have really added some heft, So is Morgan Stanley. 0:17:05.400 --> 0:17:08.360 What's been like watching that over the past decade plus. 0:17:08.560 --> 0:17:12.320 Yeah, it's been extraordinarily exciting for us. Obviously, you always 0:17:12.359 --> 0:17:15.679 want to be working in a growth business, and so 0:17:16.200 --> 0:17:22.200 you know, we've been in a situation where we're hiring people, 0:17:22.680 --> 0:17:26.520 which is always exciting. We're going after new types of clients, 0:17:26.760 --> 0:17:31.399 new problems, new situations, which keeps you on your toes 0:17:31.440 --> 0:17:36.800 and keeps you growing, and you know, really completely new 0:17:36.880 --> 0:17:41.040 business segments. I mean, I can't tell you how to 0:17:41.119 --> 0:17:45.720 your point that flywheel between moving up market into institutions 0:17:46.320 --> 0:17:49.760 feeds your self directed business. I mean, let me just 0:17:49.760 --> 0:17:54.320 give you an example. Let's assume that we are administering 0:17:54.359 --> 0:18:00.160 a stock plan for a large corporate client. Now we're 0:18:00.240 --> 0:18:03.400 going in and we're saying to that corporate client. Instead 0:18:03.440 --> 0:18:07.399 of you know, having a financial advisor going to the 0:18:07.400 --> 0:18:11.479 country club on Saturday acquiring a client, mono we mono 0:18:11.840 --> 0:18:14.919 one at a time, we're now walking into a c 0:18:15.040 --> 0:18:20.280 suite and saying to that CFO or that chief talent officer, Hey, 0:18:20.440 --> 0:18:24.480 can we provide all of your employees with a financial 0:18:24.520 --> 0:18:28.160 wellness program? Can we give every single one of your 0:18:29.320 --> 0:18:33.600 employees a free financial plan? Can we give every single 0:18:33.640 --> 0:18:38.080 one of your employees a account or advice you know, 0:18:38.119 --> 0:18:40.639 to their first you know, purchase in a five twenty 0:18:40.720 --> 0:18:45.600 nine account. Things like that where suddenly you're acquiring clients 0:18:45.720 --> 0:18:46.320 at scale. 0:18:46.680 --> 0:18:49.879 Huh, really really interesting. So let's talk a little bit 0:18:49.880 --> 0:18:53.280 about Morgan Stanley. We mentioned you a previously at Alliance 0:18:53.320 --> 0:18:56.200 Bernstein and then you were at Bank America Merrill Lynch. 0:18:57.200 --> 0:19:00.920 What led you to make the jump to Morgan Stanley. 0:19:01.240 --> 0:19:05.720 So I had when, as I noted, I'd gone to 0:19:05.800 --> 0:19:10.120 work at Meryl very much to partner with my very 0:19:10.160 --> 0:19:14.000 good friend Sally Kratchek, and after she had left, I 0:19:14.280 --> 0:19:18.359 made the decision that without her there, I kind of 0:19:18.359 --> 0:19:23.600 felt among the you know, the thundering herd without a rabbi, 0:19:23.840 --> 0:19:26.800 if you will, And I left it. At that point, 0:19:26.840 --> 0:19:28.840 I really thought I was going to do my own thing. 0:19:28.920 --> 0:19:31.800 I thought I was going to do something entrepreneurial. I 0:19:31.840 --> 0:19:35.200 thought I might join an RIA or form my own 0:19:35.320 --> 0:19:38.479 RIA at that point, and I just I got a 0:19:38.480 --> 0:19:43.639 call from Greg Fleming. Greg Fleming was one of the 0:19:43.680 --> 0:19:49.160 co presidents at Morgan Stanley at the time, and he said, look, 0:19:49.320 --> 0:19:52.160 you know, I have a lot of contacts over there 0:19:52.200 --> 0:19:56.520 at Merrill Lynch. The financial advisors really love you, you know, 0:19:56.720 --> 0:20:00.040 come on in and meet our team. And so I 0:20:00.040 --> 0:20:02.640 I did, and you know, I had a very similar 0:20:02.680 --> 0:20:04.880 feeling to that feeling I had when I first went 0:20:04.920 --> 0:20:07.520 into Bernstein of you know, these are just great people 0:20:07.720 --> 0:20:11.520 and I would enjoy working with the people. And you know, 0:20:11.640 --> 0:20:15.000 before I knew it, there I was, you know, sitting 0:20:15.040 --> 0:20:20.080 next to Mike Wilson, who I know, you know, Mike 0:20:20.280 --> 0:20:24.720 was taking a stint of rotation through wealth management, and 0:20:24.920 --> 0:20:27.720 you know I joined I joined him to build the 0:20:27.760 --> 0:20:31.480 team and and really you know, create the platform that 0:20:31.560 --> 0:20:35.680 we have today. When when Morgan Stanley and Smith Barney 0:20:35.680 --> 0:20:40.040 were merging, there was really no centralized CIO office. It 0:20:40.160 --> 0:20:43.280 was the only place that that that talent was coming 0:20:43.320 --> 0:20:47.040 from was from Smith Barney, from the Smith Barney side, 0:20:47.440 --> 0:20:50.920 And so we wanted to recraft a more Morgan Stanley 0:20:51.040 --> 0:20:55.159 integrated firm offering, and so I joined Mike Wilson to 0:20:55.520 --> 0:20:56.119 help build that. 0:20:56.480 --> 0:20:58.520 So, so let's talk a little bit about what goes 0:20:58.560 --> 0:21:04.320 into managing one hundred plus billion dollars in assets. How 0:21:04.359 --> 0:21:07.840 do you develop that, how do you think about asset allocation? 0:21:08.960 --> 0:21:12.440 And how do you think about the end clients? Given 0:21:12.480 --> 0:21:17.679 how broad your audience and clients are, how do you 0:21:17.760 --> 0:21:21.760 create a set of options that checks all the boxes 0:21:21.800 --> 0:21:23.960 that you know you need to check? To do this 0:21:24.119 --> 0:21:27.760 right but also gives a broad variety of clients what 0:21:27.800 --> 0:21:28.520 they're looking for. 0:21:28.640 --> 0:21:34.080 Yeah, so Barry for US asset allocation. All asset allocations 0:21:34.240 --> 0:21:38.960 starts with financial planning, and all financial planning starts with 0:21:39.040 --> 0:21:42.320 the client. But you can't do a financial plan without 0:21:42.359 --> 0:21:45.600 having what we call capital market assumptions. You know, what 0:21:46.119 --> 0:21:49.080 do we think every asset class is going to do 0:21:49.400 --> 0:21:54.640 over the next three, five, ten, twenty years. Our customization 0:21:54.840 --> 0:21:58.560 of asset allocation really starts with financial planning. That is 0:21:59.200 --> 0:22:03.280 the lynch pin, and we fundamentally believe that you've got 0:22:03.280 --> 0:22:05.960 to understand a client's cash flow, that the client has 0:22:06.000 --> 0:22:08.320 to understand their own cash flows. You know. One of 0:22:08.359 --> 0:22:11.280 the things that I know, you know, having worked with 0:22:11.359 --> 0:22:14.560 a lot of clients, is very often clients don't know 0:22:14.640 --> 0:22:18.680 themselves right the the good old fashion, Hey, I'm kind 0:22:18.680 --> 0:22:22.080 of aggressive, I'm kind of conservative. Those are such non 0:22:22.080 --> 0:22:25.000 normative terms. You never know, are we talking about politics, 0:22:25.040 --> 0:22:26.040 are we talking. 0:22:25.720 --> 0:22:29.040 About you know, how about whatever the market did the 0:22:29.119 --> 0:22:31.800 past six months? 0:22:31.880 --> 0:22:36.639 And so so, working through the behavioral pieces, the getting 0:22:36.680 --> 0:22:39.440 to know your client, the working through a plan with them, 0:22:39.680 --> 0:22:43.080 really getting into what are their hopes, wishes, dreams, you know, 0:22:43.720 --> 0:22:47.520 what does money mean to them? Why have they accumulated it? 0:22:47.680 --> 0:22:51.120 How have they accumulated it? H What do they hope 0:22:51.160 --> 0:22:53.520 their legacy will be? Does it have to do with 0:22:53.560 --> 0:22:57.520 a charity, you know, a cause, a family member or 0:22:57.640 --> 0:23:00.439 members and build a plan from them? 0:23:00.800 --> 0:23:06.720 Huh? Really really quite interesting. So, since you've joined Morgan Stanley, 0:23:07.280 --> 0:23:10.120 and I'm going to assume this isn't a coincidence, their 0:23:10.160 --> 0:23:14.639 focus has increasingly been on the wealth management side of 0:23:14.680 --> 0:23:17.439 the business, which was a big change to the nineteen 0:23:17.520 --> 0:23:20.280 nineties and the two thousands, tell us a little bit 0:23:20.320 --> 0:23:25.240 about why and how this focus shifted and what your role. 0:23:25.119 --> 0:23:28.040 Is in that. Sure. So look, I think you know 0:23:28.119 --> 0:23:31.919 this is I think history is going to be extraordinarily 0:23:32.080 --> 0:23:37.240 kind to James Gorman. I think James I feel so 0:23:37.440 --> 0:23:42.000 extraordinarily lucky to have served in the firm while he 0:23:42.280 --> 0:23:46.600 was the CEO. I think, you know, strategically, you know, 0:23:46.880 --> 0:23:50.800 back during the financial crisis, he developed a vision and 0:23:50.840 --> 0:23:54.480 that vision was I believe that the wealth management business 0:23:54.600 --> 0:23:57.800 is a growth oriented business. I believe it needs scale, 0:23:57.960 --> 0:24:01.640 and I believe that when combined with the more cyclical 0:24:02.400 --> 0:24:06.960 markets based businesses or the banking based businesses, can add 0:24:07.040 --> 0:24:12.040 ballast and create shareholder value. And I think that he 0:24:12.440 --> 0:24:16.359 embraced that vision, and that vision had kind of three 0:24:16.440 --> 0:24:19.760 chapters to it. The first was, you know, let's buy 0:24:19.840 --> 0:24:23.520 Smith Barney and get physical scale, right, just the physical 0:24:23.560 --> 0:24:28.080 scale of a large number of advisors. Let's invest aggressively 0:24:28.119 --> 0:24:33.880 in technology to support those advisors. I think the second 0:24:34.000 --> 0:24:39.200 part of that growth was to say, let's transform how 0:24:39.240 --> 0:24:44.160 we serve our clients and the client segments that we serve. 0:24:44.359 --> 0:24:49.439 And they started to explore these other acquisitions. First the 0:24:49.520 --> 0:24:54.159 acquisitions of these stock plan businesses, which are essentially tech businesses, 0:24:55.000 --> 0:24:59.040 tech platform businesses, but would allow us to go from 0:24:59.440 --> 0:25:03.359 acquiring clients one at a time to in groups. And 0:25:03.400 --> 0:25:06.159 then you know, the last piece of the strategy was 0:25:06.200 --> 0:25:08.879 really you know, let's let's go after E Trade and 0:25:08.920 --> 0:25:11.720 Eat Advance and acquire those and then we'll have the 0:25:11.760 --> 0:25:16.960 machinery so that you can, you know, acquire clients at 0:25:17.400 --> 0:25:20.960 the early stages of their life cycle, allow them to 0:25:20.960 --> 0:25:25.840 be self directed, and ultimately graduate to advice, so that 0:25:26.000 --> 0:25:31.119 your financial advisors actually constantly have a source of new clients, 0:25:31.119 --> 0:25:33.520 of new wealth clients that they don't have to be 0:25:34.040 --> 0:25:36.320 at the country club every single weekend. 0:25:36.560 --> 0:25:40.639 So what you're describing is you're starting with clients that 0:25:40.720 --> 0:25:44.159 have no minimum and they're self directed to d trade. 0:25:44.640 --> 0:25:48.720 I don't mean this in a negative way. They sort 0:25:48.720 --> 0:25:53.000 of move up or graduate to a little more full service. 0:25:53.440 --> 0:25:56.440 They want a financial plan, they want some advice, they 0:25:56.480 --> 0:25:59.520 want to think about whether it's saving for home or college, 0:25:59.600 --> 0:26:02.880 or or or retirement. And then the next step up 0:26:03.240 --> 0:26:07.119 seems to be full on wealth management, where you're dealing 0:26:07.240 --> 0:26:12.159 with philanthropy, generational wealth transfer, a lot of bells and whistles, 0:26:12.280 --> 0:26:15.639 including a state planning tax. You guys offer the full 0:26:15.680 --> 0:26:16.040 suite of. 0:26:16.080 --> 0:26:19.080 Services, absolutely, and I think one of the things that 0:26:19.119 --> 0:26:21.480 a lot of folks don't know about us is we're 0:26:21.520 --> 0:26:25.800 the eight hundred pound gorilla in actually offering alternatives to 0:26:25.880 --> 0:26:29.160 private wealth clients. You know, we are larger than some 0:26:29.240 --> 0:26:34.160 of our well known competitors by a factor, and so 0:26:34.359 --> 0:26:37.440 what that means is we're now in a position we're 0:26:37.600 --> 0:26:41.639 literally about eighty percent of the alternatives that I would 0:26:41.680 --> 0:26:46.280 show you as a client are either you know, first look, 0:26:46.880 --> 0:26:50.439 meaning we're getting the first look or or best price 0:26:50.680 --> 0:26:51.720 by a lot. 0:26:52.080 --> 0:26:56.879 So it's funny because you mentioned Gorman taking over from 0:26:57.600 --> 0:27:00.800 his predecessor. Yeah, John macko Mac, who I've had on 0:27:00.840 --> 0:27:04.399 the show, who was just delightful. But the Mac era 0:27:04.720 --> 0:27:09.840 of Morgan Stanley seemed to have more successfully navigated the 0:27:09.880 --> 0:27:15.320 financial crisis than many of their competitors, And part of 0:27:15.359 --> 0:27:18.919 me can't help but feel that coming out of the 0:27:18.960 --> 0:27:23.640 crisis in better shape than so many others really allowed 0:27:23.720 --> 0:27:27.120 more instantly to blow up over the next fifty when 0:27:27.160 --> 0:27:30.040 when everybody else had blown up during the financial crisis 0:27:30.280 --> 0:27:33.480 in the bad way, they really bulked up in the 0:27:33.720 --> 0:27:36.200 good way. Following that is is that a fair assessment? 0:27:36.280 --> 0:27:39.080 That that is a fair assessment, Barry, I think I 0:27:39.240 --> 0:27:42.400 look at it in a very particular way. A host 0:27:42.520 --> 0:27:47.679 of our competitors were forced quote unquote into the arms 0:27:47.680 --> 0:27:51.200 of the big banks, right, So the the b of 0:27:51.280 --> 0:27:59.280 a Meryll situation, right, Jp, Morgan exactly you had you had, 0:27:59.440 --> 0:28:03.200 you know, city had to make choices around Smith Barney. 0:28:03.240 --> 0:28:07.199 It was very, very hard what what Mac and James 0:28:07.240 --> 0:28:11.120 Gorman did to rescue Morgan Stanley. And literally they talk 0:28:11.200 --> 0:28:15.119 about it as an overnight rescue where half the employees 0:28:15.160 --> 0:28:18.480 were packing the boxes just like everybody else, uh, and 0:28:18.560 --> 0:28:22.120 the other half were were on the phone with colleagues 0:28:22.160 --> 0:28:25.439 in Japan. And as you may recall, what saved Morgan 0:28:25.520 --> 0:28:30.960 Stanley was a huge equity infusion from MUFG, from Mitsubishi 0:28:31.320 --> 0:28:35.840 Financial Group. And what was wonderful about that is, not 0:28:35.920 --> 0:28:39.800 only was it premised on a fantastic, you know, partnership, 0:28:40.080 --> 0:28:44.440 but it was an arms length partnership that allowed the 0:28:44.480 --> 0:28:48.840 business to be rescued but not devoured. And I think 0:28:48.920 --> 0:28:53.520 that for some of our competitors who were suddenly during 0:28:53.560 --> 0:28:58.720 the Great Financial Crisis inside you know, systemically important banks, 0:28:59.360 --> 0:29:04.160 their knees right just by sheer dint of size got 0:29:04.200 --> 0:29:07.840 squashed a little bit because the bank obviously had, you know, 0:29:07.960 --> 0:29:11.640 the CEOs of City, the CEO of Chase, the CEO 0:29:12.240 --> 0:29:15.000 at Wells, the CEO at b of A. You know, 0:29:15.080 --> 0:29:18.080 they're sitting there with the Fed and the SEC every 0:29:18.120 --> 0:29:20.640 five minutes. Now I'm not saying Morgan Stanley wasn't at 0:29:20.680 --> 0:29:24.320 those meetings, but the stakes were different because we weren't 0:29:24.600 --> 0:29:28.400 a commercial bank with a balance sheet the size that 0:29:28.440 --> 0:29:29.000 those guys have. 0:29:29.240 --> 0:29:33.600 But even more importantly is you're at Alliance Bernstein. Bernstein 0:29:33.640 --> 0:29:36.400 gives up control in the merger. You're at Meryl, Meryl 0:29:36.440 --> 0:29:39.360 gives up control in the merger, third times a charm 0:29:39.400 --> 0:29:42.840 when you end up at Morgan Stanley. Mitsubishi had a 0:29:42.840 --> 0:29:47.320 substantial steak, but they didn't take a controlling steak, and 0:29:47.480 --> 0:29:51.560 the local US based management were able to continue making 0:29:51.600 --> 0:29:55.560 the choices they made. I have to think that was 0:29:55.760 --> 0:30:00.160 just a giant home run investment for our MUFG. That 0:30:00.240 --> 0:30:02.320 has to be just a giant winner for them. 0:30:03.600 --> 0:30:06.080 And I And you know, I think if again, if 0:30:06.120 --> 0:30:08.920 you go back and look at it, you know where 0:30:08.960 --> 0:30:12.880 where are the Morgan Stanley stock bottomed and where we 0:30:12.960 --> 0:30:16.200 are today? Like I said, I think the history books 0:30:16.240 --> 0:30:18.719 are going to be quite kind to mister Gorman. 0:30:19.240 --> 0:30:22.120 And you know, you you talked about some of the 0:30:22.160 --> 0:30:26.400 acquisitions Smith Barney, Eating Vance. I'm trying to remember the 0:30:26.560 --> 0:30:29.480 direct indexer you bought. I didn't know if it came 0:30:29.680 --> 0:30:32.760 through Eaton Vance. Yes, what was that? Parametric? 0:30:33.000 --> 0:30:38.560 Yes? Yes, so yeah, so fantastic, Uh Memory Barry, because 0:30:39.120 --> 0:30:45.040 that has been transformational as you know, indexing, tax management, Uh, 0:30:45.240 --> 0:30:49.160 direct indexing or the ability to customize are you know, 0:30:49.320 --> 0:30:52.120 all demands and and it's a tech it's a very 0:30:52.240 --> 0:30:56.000 tech heavy business. So Parametric was buried inside of Eating Vance. 0:30:56.080 --> 0:31:00.040 It is you know definitely diamonds in the rough that 0:30:59.920 --> 0:31:05.000 we got and now is a key capability offering within 0:31:05.040 --> 0:31:05.960 the suite of products. 0:31:06.000 --> 0:31:09.440 Huh. Really fascinating. So let's talk a little bit about 0:31:09.440 --> 0:31:12.360 what's going on these days, and I want to start 0:31:12.440 --> 0:31:15.640 with a quote of yours that I really like. We're 0:31:15.720 --> 0:31:19.400 all long term investors until the market goes down, and 0:31:19.440 --> 0:31:22.640 we're recording this in the midst of a pretty healthy 0:31:22.960 --> 0:31:29.680 sell off in February and March, especially now that the 0:31:29.760 --> 0:31:35.160 new North American tariffs seem to be taking place. Tell us, 0:31:35.200 --> 0:31:38.120 what why do we give up our long term perspectives 0:31:38.120 --> 0:31:40.200 once the market starts heading south. 0:31:40.760 --> 0:31:44.680 So there's the emotions and then there's the math, right, 0:31:44.720 --> 0:31:47.440 So what I always say is that you know what 0:31:47.800 --> 0:31:51.520 the Nobel Prize winners and behavioral economics will tell you 0:31:52.280 --> 0:31:57.480 is that emotionally, losses hurt four to five times more 0:31:57.560 --> 0:32:05.880 than gains satisfy. And that's actually intuitively appropriate because typically 0:32:06.160 --> 0:32:10.280 our wealth, we feel it has taken blood, sweat and 0:32:10.360 --> 0:32:15.320 tears to acquire or accumulate. And when we experience a loss, right, 0:32:15.320 --> 0:32:19.440 a fifty percent loss can happen right in a very 0:32:19.480 --> 0:32:23.240 short period of time, But to round trip and recover 0:32:23.640 --> 0:32:26.520 our high water mark. We've got to be up one 0:32:26.600 --> 0:32:30.320 hundred percent, right, which may take us twice the three 0:32:30.360 --> 0:32:34.880 times as long. And so the math is asymmetric. The 0:32:34.920 --> 0:32:39.840 emotions are asymmetric, and fear, as we know, just the 0:32:39.880 --> 0:32:42.960 same way. When things are running hard and you feel 0:32:42.960 --> 0:32:46.200 like you've got the pomo and the missing out, it's greed. 0:32:46.760 --> 0:32:49.280 When you know there's a lot of red on the screen, 0:32:49.520 --> 0:32:53.400 people are you know, your stomach's you know, totally seizing up, 0:32:53.480 --> 0:32:56.240 and it's about fear. I don't want to experience loss. 0:32:56.360 --> 0:32:58.760 I don't want to have to make a decision of 0:32:58.800 --> 0:32:59.720 what do I do here? 0:33:00.080 --> 0:33:03.160 Yeah, the asymmetries are really fascinating. I am not a 0:33:03.160 --> 0:33:06.720 fan of Vegas or casinos, but I go there as 0:33:06.720 --> 0:33:10.320 a sociologist and I always find it amusing that right 0:33:10.360 --> 0:33:14.160 off the casino floor is a big, beautiful jewelry store 0:33:14.240 --> 0:33:19.160 filled with lots of expensive watches, and because those gains, 0:33:19.920 --> 0:33:24.160 it's house money. It's ephemeral, but losses are an existential thread. 0:33:24.200 --> 0:33:26.959 It currently feels like the world is coming to an end. 0:33:27.000 --> 0:33:31.120 Exact for get down fifty percent. We're recording this five six, 0:33:31.240 --> 0:33:34.080 seven percent off the highs and people are talking like 0:33:34.160 --> 0:33:36.680 it's the end of the world. Let's talk about another 0:33:36.680 --> 0:33:39.560 one of your quotes, that kind of quote my eye, 0:33:39.680 --> 0:33:45.040 which was discussing the Great normalization? What is the Great normalization? 0:33:45.600 --> 0:33:50.200 So, you know, we've been trying to remind clients how 0:33:50.280 --> 0:33:56.040 extraordinary in financial history the past fifteen years have been. 0:33:56.240 --> 0:34:00.440 Since the Great Financial Crisis, We've had an unprecedented level 0:34:00.920 --> 0:34:06.560 of Federal Reserve involvement. We've had markets that have been 0:34:06.760 --> 0:34:10.560 buttressed by the Federal Reserve balance sheet, that have been 0:34:10.719 --> 0:34:15.799 buttressed by a disproportioned amount of time having financial repression 0:34:15.920 --> 0:34:20.680 or low rates, rates being held down. We've had gone 0:34:20.760 --> 0:34:27.160 through the COVID crisis, which stimulated unprecedented fiscal stimulus. As 0:34:27.200 --> 0:34:33.520 a share of GDP and performance, what clients have actually 0:34:33.800 --> 0:34:37.400 experienced If you go back to March of two thousand 0:34:37.440 --> 0:34:40.680 and nine, right, and you and I remember March of 0:34:40.680 --> 0:34:44.759 two thousand and nine, the bottom we were probably looking 0:34:44.840 --> 0:34:47.040 at an S and P five hundred that was trading 0:34:47.040 --> 0:34:49.000 in the mid six hundred. 0:34:48.800 --> 0:34:51.399 Sixty six six. I remember the devil's bottom. 0:34:51.120 --> 0:34:54.200 The devil's bottom, and look at where we are now. 0:34:54.280 --> 0:34:57.680 Even though we're off, we're still up. During that time 0:34:57.880 --> 0:35:01.560 nine x nine x over fifteen years. So I tell 0:35:01.600 --> 0:35:04.600 people what, let's put this in perspective, What that kind 0:35:04.600 --> 0:35:09.120 of mathematically translates to is we've for fifteen years, we've 0:35:09.200 --> 0:35:14.000 compounded at about fifteen percent per year. So that's two 0:35:14.160 --> 0:35:18.200 times normal for a business cycle. Let's call it a 0:35:18.440 --> 0:35:21.640 you know, where we had two very short recessions, two 0:35:21.840 --> 0:35:26.080 back to back very long business cycles. Not normal. What 0:35:26.280 --> 0:35:30.800 was also not normal is during that time the degree 0:35:30.840 --> 0:35:35.600 to which US exceptionalism and the US outperformed the rest 0:35:35.640 --> 0:35:39.040 of the world. I mean, we were outperforming every year, 0:35:39.160 --> 0:35:42.360 year in year out by six hundred and seven hundred 0:35:42.360 --> 0:35:45.480 basis points per year. And so when we you know, 0:35:45.640 --> 0:35:48.719 kind of came into January of twenty twenty five, we 0:35:48.719 --> 0:35:51.040 were starting to talk to folks about, look at where 0:35:51.040 --> 0:35:56.320 the dollar is versus virtually every other currency, super strong. 0:35:56.840 --> 0:36:01.000 Look at the share of US equities versus the rest 0:36:01.000 --> 0:36:04.400 of the world. We're ten percent of the world's population, 0:36:04.800 --> 0:36:08.440 we're twenty five percent of the world's GDP, we're thirty 0:36:08.440 --> 0:36:12.560 three percent of global corporate profits, but we were sixty 0:36:12.840 --> 0:36:18.960 seven percent of all stock market gap just extreme. And 0:36:19.040 --> 0:36:22.960 so what we were starting to talk to clients about is, look, 0:36:23.320 --> 0:36:26.480 this is an extraordinary amount of large s, and a 0:36:26.560 --> 0:36:30.640 lot of it has come from FED accommodation from stimulus. 0:36:31.080 --> 0:36:33.640 Now we're on the other side of that. We have 0:36:33.840 --> 0:36:38.520 a very robust economy. We've relevered the economy, if you will. 0:36:38.560 --> 0:36:43.040 Where the leverage of the private sector, the household sector, 0:36:43.080 --> 0:36:45.560 the corporate sector that got us into the Great financial 0:36:45.640 --> 0:36:49.359 crisis that's been healed. Right. We have households that can 0:36:49.400 --> 0:36:52.760 still carry for the most part, their interest burdens. 0:36:52.560 --> 0:36:53.960 Very very low historically. 0:36:54.080 --> 0:36:54.279 Right. 0:36:54.400 --> 0:36:57.799 It's not the total debt, it's the debt relative to 0:36:57.840 --> 0:37:00.319 discretionary come exactly exactly. 0:37:00.480 --> 0:37:05.680 Corporations that still have an extraordinarily relative low locked in 0:37:05.920 --> 0:37:11.000 cost to capital. And what's become relevered is the federal 0:37:11.040 --> 0:37:14.359 balance sheet and the government balance sheet. And now here 0:37:14.400 --> 0:37:18.040 we are in every couple of decades, we have to 0:37:18.080 --> 0:37:22.360 go through these periods where there's heat in the economy, 0:37:22.360 --> 0:37:26.200 and inflation is one manifestation of the heat. Real growth 0:37:26.239 --> 0:37:29.880 and investment is another manifestation of the heat. But the 0:37:29.920 --> 0:37:33.319 other manifestation is you probably have overdone it on the 0:37:33.360 --> 0:37:35.839 stimulus and you've got to pull it back and there's 0:37:35.880 --> 0:37:38.400 going to be some pain. So when we talk about normalization. 0:37:38.520 --> 0:37:41.280 We say, look, we're not going back to two percent 0:37:41.360 --> 0:37:46.080 interest rates, normal cost of capital in an economy like 0:37:46.120 --> 0:37:50.960 Americas that has real fundamental growth of two percent and 0:37:51.120 --> 0:37:54.879 real inflation or experienced inflation of two and a half 0:37:54.920 --> 0:37:57.480 to three, which is what we've had for the last 0:37:57.520 --> 0:38:02.240 eighty years, right, not two percent target that the Fed says. Right. 0:38:02.760 --> 0:38:06.200 What that tells you is that long term rates used 0:38:06.239 --> 0:38:10.200 to be normal at five to six percent, right, that's 0:38:10.239 --> 0:38:14.640 not crazy, right, and yet the market continued to sell 0:38:14.640 --> 0:38:17.279 it at twenty two times forward multiple. So what we've 0:38:17.280 --> 0:38:19.560 been saying is part of the great normalization is over 0:38:19.560 --> 0:38:24.200 the next couple of years, we think long rates start 0:38:24.280 --> 0:38:27.200 to move towards five to six percent like they were 0:38:27.239 --> 0:38:30.640 in the aughts, in the two thousands and in the nineties, right, 0:38:31.120 --> 0:38:35.239 and multiples start mean reverting a little bit to seventeen. 0:38:35.440 --> 0:38:39.040 And that's the great normalization. Your earnings actually start growing 0:38:39.080 --> 0:38:40.279 into those multiples. 0:38:40.600 --> 0:38:43.480 You mentioned the two percent target of the Federal Reserve. 0:38:43.560 --> 0:38:47.520 Did you work with Roger Ferguson when he was at Meryl. No, 0:38:47.600 --> 0:38:51.239 I did not, But he eventually became vice chairman of 0:38:51.280 --> 0:38:55.320 the Federal Reserve. Yes, and put out this delightful research 0:38:55.400 --> 0:39:01.600 piece that said the two percent inflation target comes from 0:39:01.640 --> 0:39:04.920 a New Zealand television show in the nineteen eighties and 0:39:04.960 --> 0:39:07.560 it has nothing whatsoever to do with the modern economy. 0:39:08.080 --> 0:39:11.680 I'm to this day delighted by that. And I don't 0:39:11.760 --> 0:39:15.080 understand why the Federal Reserve continues to be so locked 0:39:15.080 --> 0:39:17.800 in on two percent, which we had in the twenty 0:39:17.840 --> 0:39:21.560 tens when yes, deflation was at risk. Correct Now that 0:39:21.600 --> 0:39:25.280 we've moved from a monetary regime to a physical regime, 0:39:26.080 --> 0:39:29.080 three percent seems to make more sense and we're there, 0:39:29.200 --> 0:39:31.600 We're there. I don't know why they're stuck on that. 0:39:32.440 --> 0:39:36.280 I think they're just afraid of making mistake Again. Part 0:39:36.320 --> 0:39:40.000 of the normalization that, hey, the Fed's a little behind 0:39:40.040 --> 0:39:43.200 the curve with what's going on in the rest of 0:39:43.239 --> 0:39:43.800 the economy. 0:39:43.960 --> 0:39:46.759 No, exactly, And I think one of the things that 0:39:47.520 --> 0:39:51.359 has the market having to adjust is this idea of 0:39:51.400 --> 0:39:55.799 a data driven FED. Right in a world where the 0:39:55.840 --> 0:39:59.920 Fed's the only headline and the FED is giving forward guidance, 0:40:00.200 --> 0:40:03.720 it's really easy to have low vall and for everyone 0:40:03.760 --> 0:40:08.520 to just ride momentum. But in a normal world where 0:40:08.560 --> 0:40:12.440 the FED has to respond to economic data, you and 0:40:12.520 --> 0:40:16.400 I know economic data is a manifestation of human behavior. 0:40:16.400 --> 0:40:19.759 It's volatile, right, So the FED is going to be 0:40:19.800 --> 0:40:23.480 more volatile. Policy is going to be more volatile. It 0:40:23.680 --> 0:40:27.759 means your interest rate curve, your yield curve, needs to 0:40:27.800 --> 0:40:31.759 have some term premium in it. Remember that. And that's 0:40:31.840 --> 0:40:35.160 part of the Great normalization. You know. I do the 0:40:35.200 --> 0:40:38.520 math when I do some of my chats with the 0:40:38.560 --> 0:40:43.480 younger folks on the team, and I say, okay, real growth, inflation, 0:40:44.120 --> 0:40:48.480 term premium, see this thing. It's been zero or negative 0:40:48.480 --> 0:40:51.000 for the last fifteen years. That's not normal. 0:40:51.200 --> 0:40:54.279 So wait, you're saying the thirty year bond should pay 0:40:54.280 --> 0:40:56.839 a higher yield than the ten year bond, higher than 0:40:56.840 --> 0:41:00.480 the two year. Yes, I'm not familiar with. It's been 0:41:00.800 --> 0:41:02.799 opposite for me, exactly. It's so hard. 0:41:02.800 --> 0:41:03.240 Exactly. 0:41:03.360 --> 0:41:07.800 So another quote of yours, which I assume is related 0:41:07.800 --> 0:41:11.000 to this, is the era of set it and forget 0:41:11.040 --> 0:41:13.600 it is over? Is that what we're saying here? 0:41:13.760 --> 0:41:17.040 Yes, exactly. So you know what comes out of this 0:41:17.239 --> 0:41:20.560 idea of the Great normalization is it's also an era 0:41:21.040 --> 0:41:25.399 where we can't just passively close our eyes. By the 0:41:25.440 --> 0:41:28.239 S and P five hundred market cap weighted index and 0:41:28.360 --> 0:41:32.320 go to bed. It was a great fifteen year run. 0:41:32.840 --> 0:41:37.120 But our view is that as cost of capital readjusts 0:41:37.360 --> 0:41:41.279 as it's actually a positive number. This is where the 0:41:41.320 --> 0:41:45.400 skill of corporate management starts to differentiate winners and losers. 0:41:45.440 --> 0:41:48.880 And we move back to a world, right, and you 0:41:48.960 --> 0:41:51.480 and I grew up in this world, that that fun 0:41:51.600 --> 0:41:55.239 world where you're actually stock picking, where the research that 0:41:55.520 --> 0:42:00.520 individual fundamental analysts were doing mattered and you had to say, hey, hey, 0:42:00.800 --> 0:42:03.399 these guys are going to win because these management teams 0:42:03.400 --> 0:42:07.880 are taking strategies that can work, and these management teams 0:42:08.040 --> 0:42:08.960 are dropping the ball. 0:42:09.320 --> 0:42:13.960 Huh. Really really super interesting given all of these changes 0:42:14.000 --> 0:42:17.640 that we're witnessing. And again this is something else you've 0:42:17.640 --> 0:42:21.960 written about, how do you separate the signal from the noise? 0:42:22.040 --> 0:42:26.680 What's your process for filtering out what's just the noisy 0:42:26.800 --> 0:42:31.000 data that's within the margin of error or just slightly 0:42:31.040 --> 0:42:35.080 beyond and genuine important market information. 0:42:35.360 --> 0:42:37.520 So this is the art, right, This is the art 0:42:37.640 --> 0:42:40.640 of all of it, is separating the noise in the signal. 0:42:40.760 --> 0:42:45.880 For us, the signal is always operates ultimately on just 0:42:45.920 --> 0:42:49.239 two axes. Is what's really going on in terms of 0:42:49.280 --> 0:42:52.479 the rate of change? In growth and what is going 0:42:52.520 --> 0:42:55.120 on in terms of the rate of change of inflation, 0:42:55.600 --> 0:42:58.120 because the rate of change of inflation is going to 0:42:58.200 --> 0:43:02.520 give you an indication of policy bias, of rate bias. 0:43:02.960 --> 0:43:05.080 And if you can focus on those two things and 0:43:05.239 --> 0:43:07.480 every single piece of data you get, you say, what 0:43:07.480 --> 0:43:09.600 does this mean for growth? What does this mean for inflation? 0:43:10.320 --> 0:43:12.640 You can try to keep yourself sane at night. 0:43:13.000 --> 0:43:18.920 Huh So, I'm curious as to February was a tough month. 0:43:19.760 --> 0:43:23.160 We've seen volatility spike now up to twenty three or so. 0:43:23.200 --> 0:43:25.960 I haven't even looked at it today with markets off 0:43:26.000 --> 0:43:30.760 a couple of percent. The questions you're getting from clients, 0:43:31.160 --> 0:43:33.560 what are you hearing, What are you hearing about tariffs, 0:43:33.640 --> 0:43:37.920 about the post election regime change, about what's going on 0:43:38.040 --> 0:43:41.719 in geopolitics, what's lighting your phone up? And what are 0:43:41.719 --> 0:43:42.640 you telling these folks? 0:43:43.120 --> 0:43:45.560 You know, obviously we would love to spend the bulk 0:43:45.600 --> 0:43:50.000 of our time talking about asset allocation as it corresponds 0:43:50.040 --> 0:43:55.000 to growth and inflation. Unfortunately, exactly to your point, Barry, 0:43:55.000 --> 0:43:58.640 we're spending a disproportionate amount of time out of our 0:43:58.680 --> 0:44:04.759 comfort zone being asked to respond to our understanding and 0:44:04.920 --> 0:44:09.840 our expectations for the economic impacts of policy, and what 0:44:10.000 --> 0:44:15.200 has complicated things, as you know, is that this administration 0:44:15.719 --> 0:44:20.319 has chosen to implement policy fast and furious, and in 0:44:20.400 --> 0:44:24.360 many cases quote unquote in parallel, right. I think that, 0:44:25.200 --> 0:44:28.680 you know, coming off of the election, coming off of 0:44:28.719 --> 0:44:33.080 the campaign season, a lot of us were trying, you know, 0:44:33.160 --> 0:44:36.400 to build models based on well, they're going to sequence 0:44:36.520 --> 0:44:39.239 things right, They're gonna you know, deliver some of the 0:44:39.280 --> 0:44:42.080 bad news early and then you know the candy will 0:44:42.160 --> 0:44:46.720 come at the end. I think what we're experiencing, especially 0:44:46.760 --> 0:44:50.200 after the last fifteen years of this kind of one 0:44:50.320 --> 0:44:53.160 or two note market right where it's been, what is 0:44:53.200 --> 0:44:57.799 the FED saying, oh generative AI looks like good headlines 0:44:58.280 --> 0:45:04.040 to seventeen lines a day of policy flood the zone. 0:45:04.280 --> 0:45:08.160 So clients are asking for certainty, they're asking for clarity, 0:45:08.200 --> 0:45:11.600 and it's hard. I'm going to be honest with you. So, look, 0:45:11.760 --> 0:45:14.480 we're in the camp and this is a pure economic view. 0:45:14.560 --> 0:45:19.239 I hope I'm not going to be accused of being political. 0:45:20.360 --> 0:45:24.719 Pure economists will tell you that tariffs, particularly if implemented 0:45:24.760 --> 0:45:27.920 over long periods of time and to the extent that 0:45:27.960 --> 0:45:33.439 they cause trade war reciprocity tend to be destructive to 0:45:33.440 --> 0:45:37.759 total global trade, and aggregate tend to be a one 0:45:37.800 --> 0:45:43.800 time inflationary problem and tend you know, to to really 0:45:44.000 --> 0:45:47.480 you know, kind of hurt the efficiency of markets, and 0:45:47.560 --> 0:45:50.120 so I think we're seeing some of that. I think 0:45:50.160 --> 0:45:54.279 it's very hard for CEOs and CFOs today to be 0:45:54.360 --> 0:45:59.359 making decisions not knowing what the policy duration is going 0:45:59.400 --> 0:46:01.520 to be. It's one thing to have a policy and say, okay, 0:46:01.520 --> 0:46:05.120 we're deregulating X, or here's the new tax policy for 0:46:05.160 --> 0:46:07.960 the next four years. I can work with that. When 0:46:08.000 --> 0:46:11.600 you tell me we're having twenty five percent tariffs on lumber, 0:46:12.800 --> 0:46:16.960 well how long, how much? Where aw's it going? You know? 0:46:17.920 --> 0:46:21.880 I think that's the big question is is the inconsistency 0:46:21.920 --> 0:46:25.040 of it and the questions of is this a negotiating tactic, 0:46:25.360 --> 0:46:29.280 what are we negotiating for? How do I model it? 0:46:29.360 --> 0:46:32.680 That kind of thing, And you know, it's really hard 0:46:32.920 --> 0:46:36.600 to get a handle on this because let's just use 0:46:36.840 --> 0:46:41.080 Canada and Mexico. The first tariff was floated and then 0:46:41.080 --> 0:46:43.799 it was quickly resolved and it felt, oh, this is 0:46:43.880 --> 0:46:49.080 just a negotiating tactic. The effect of the second twenty 0:46:49.120 --> 0:46:52.760 five percent tariffs on Mexico and Canada and ten percent 0:46:52.840 --> 0:46:59.040 tariffs on China. And it's not only surprising that it 0:46:59.120 --> 0:47:04.640 was done, it's kind of perplexing. What are we getting 0:47:04.680 --> 0:47:08.719 out of the tariffs with Canada When you look at 0:47:09.680 --> 0:47:13.520 some of the supposed bases for this. The fentanyl that 0:47:13.560 --> 0:47:16.919 comes into the United States is mostly brought in by 0:47:17.239 --> 0:47:22.520 US citizens and smugglers. It's not coming in from either 0:47:22.600 --> 0:47:28.080 Canadian lumber or oil, or televisions that are being built 0:47:28.080 --> 0:47:32.160 in Mexico and sent over the border. It's you know, 0:47:32.880 --> 0:47:37.360 it's kind of odd, especially given the North American Free 0:47:37.400 --> 0:47:44.680 Trade Agreement that was negotiated to replace NAFTA was Trump's tready. 0:47:44.880 --> 0:47:47.960 So the whole thing is kind of you know, clients 0:47:48.000 --> 0:47:50.040 don't like to hear you say I have no idea 0:47:50.120 --> 0:47:54.560 what's going on, and beware of people who say they do. 0:47:55.080 --> 0:47:59.080 But it really feels like this is sort of arbitrary 0:47:59.160 --> 0:48:02.960 and capricious, and we don't really know how this resolves. 0:48:03.000 --> 0:48:05.239 It's sort of grit your teeth and write it out. 0:48:05.440 --> 0:48:08.600 Is brace yourself, mauthora. That's what it feels like. 0:48:08.800 --> 0:48:12.640 Just hold on and the way I always frame things, 0:48:12.680 --> 0:48:15.600 as I say to people, look what kind of risk 0:48:15.719 --> 0:48:20.319 premiums are there in the markets? When stocks are very expensive, 0:48:20.560 --> 0:48:24.000 as they have been for a while, here, it tells 0:48:24.040 --> 0:48:27.480 you risk premiums are tight. Right, things are quote unquote 0:48:27.480 --> 0:48:31.479 price for perfection. When credit spreads are tight, it tells 0:48:31.520 --> 0:48:35.279 you people are not requiring a premium for fear or 0:48:35.320 --> 0:48:40.279 default or uncertainty. Right when there are no term premiums 0:48:40.400 --> 0:48:43.440 in the in the United States Treasury curve, it's telling 0:48:43.480 --> 0:48:46.520 you the same thing. So look, if this were all 0:48:46.719 --> 0:48:51.279 happening against a backdrop where stocks were selling it fifteen times, 0:48:51.760 --> 0:48:55.400 where you know we had eight hundred you know, basis points, 0:48:55.440 --> 0:48:58.799 spreads in high yield, all this kind of stuff, you 0:48:58.840 --> 0:49:02.320 and I might be saying, Hey, guys, yes there's uncertainty, 0:49:02.320 --> 0:49:05.000 but this is a buying opportunity. Look, you know things 0:49:05.000 --> 0:49:07.440 are selling off off of fifteen multiple. Where do you 0:49:07.440 --> 0:49:09.680 think they're going to land at thirteen? We're going to 0:49:09.719 --> 0:49:15.440 buy here, but we're not there. Markets hate uncertainty, and 0:49:15.480 --> 0:49:19.520 they really hate uncertainty. When things are priced for perfection. 0:49:20.000 --> 0:49:21.480 Does it give you a lot of room for error? 0:49:21.719 --> 0:49:26.640 So let's talk about something more positive. AI has been 0:49:26.640 --> 0:49:29.719 the big story for the past couple of years. Let's 0:49:29.800 --> 0:49:33.279 talk a little bit about that and other emerging technologies 0:49:33.360 --> 0:49:38.200 or innovations you think might impact the investing landscape over 0:49:38.239 --> 0:49:40.239 the next decade. What are you looking at? 0:49:40.400 --> 0:49:43.200 Yeah, so we're looking at at a lot of things. 0:49:43.239 --> 0:49:48.359 But look, clearly, generative AI is transformative, There's no doubt 0:49:48.400 --> 0:49:52.600 about it. I think the conundrum for investors is how 0:49:52.640 --> 0:49:58.400 do you stay ahead of the revolution itself? And what 0:49:58.440 --> 0:50:02.840 I mean by that is that, you know, technology innovation 0:50:03.560 --> 0:50:08.640 tends to follow very clear scripts over history, and by that, 0:50:08.800 --> 0:50:12.840 I mean you tend to get the big infrastructure build, 0:50:13.480 --> 0:50:16.800 then you get the software applications, and then you get 0:50:17.120 --> 0:50:23.800 mass economy wide deployment, and in that sequence you get 0:50:24.120 --> 0:50:27.440 new killer apps and the quote unquote the winners of 0:50:27.480 --> 0:50:32.400 that era. I'm not entirely sure that all the winners 0:50:32.400 --> 0:50:36.279 have been identified with regard to generative AI. And while 0:50:36.280 --> 0:50:41.600 the Magnificent Seven are magnificent on many, many, many financial attributes, 0:50:41.640 --> 0:50:46.440 on many innovation attributes, you know, I think the market 0:50:46.520 --> 0:50:49.720 is telling you that maybe they are not the only 0:50:49.800 --> 0:50:54.560 winners here, and that maybe the growth in the infrastructure 0:50:54.560 --> 0:50:57.880 build doesn't go on forever. And certainly our experience with 0:50:57.960 --> 0:51:01.719 the Internet validates that. So you know, what are we 0:51:01.840 --> 0:51:06.840 super excited about right now? We're we're super excited about 0:51:06.880 --> 0:51:11.560 some of these AI adopters. We're looking at areas, whether 0:51:11.640 --> 0:51:19.160 it's document recognition, voice recognition, all these various applications, the agents. 0:51:19.560 --> 0:51:22.920 You know, how we're going to deploy AI into learning 0:51:23.000 --> 0:51:27.879 agents to help human beings do things. Almost become the 0:51:28.040 --> 0:51:31.719 white collar robot, if you will. I think, you know, 0:51:31.800 --> 0:51:36.160 that's all very interesting, But where AI is likely to 0:51:36.200 --> 0:51:39.200 have some of its most profound impacts is in healthcare 0:51:39.600 --> 0:51:42.720 and the extent to which we're going to be able 0:51:42.760 --> 0:51:47.640 to use large language models just to process data and 0:51:47.760 --> 0:51:54.120 personalize medicine and personalized diagnostics and solutions, treatment plans so 0:51:54.360 --> 0:51:55.000 much faster. 0:51:55.880 --> 0:52:01.280 I saw a fascinating video the other day about AI 0:52:01.640 --> 0:52:04.960 being used. So when you look at the history of healthcare, 0:52:04.960 --> 0:52:07.160 it really started out as a little bit of chemistry, 0:52:07.280 --> 0:52:10.600 and then it became biology, and then it became genomics. 0:52:10.640 --> 0:52:14.000 And one of the challenges is trying to figure out 0:52:14.080 --> 0:52:20.160 how protein folds and how different molecules interact with the 0:52:20.200 --> 0:52:25.080 body's receptors and immune system. And it turned out that 0:52:25.560 --> 0:52:29.760 like for the prior fifty years, we've identified a few 0:52:29.960 --> 0:52:35.880 thousand different combinations of molecules and protein foldings, which is 0:52:36.400 --> 0:52:40.880 key to figuring out what the genetic code operates in 0:52:40.960 --> 0:52:43.800 actual life. And so they went from like the library 0:52:43.840 --> 0:52:49.320 of twenty five hundred protein folding protocols to using AI 0:52:49.480 --> 0:52:52.960 identifying like four hundred things exactly. Like it's an insane 0:52:53.080 --> 0:52:57.279 order of magnitude, and we've only begun figuring out how 0:52:57.320 --> 0:53:00.400 do these different proteins work on different parts of the 0:53:00.400 --> 0:53:04.319 body and response to different diseases, infections, virus. It's like, 0:53:05.200 --> 0:53:11.480 it's shocking that these aren't headlines yet. Yeah, just academic research, 0:53:11.560 --> 0:53:16.879 but it seems like when people are talking about longevity, 0:53:16.960 --> 0:53:20.239 it's not the cold plunge that's right to do it. 0:53:20.239 --> 0:53:23.160 It's going to be all of these half a million 0:53:23.239 --> 0:53:26.160 news correct protein designs tell us a little bit about 0:53:26.480 --> 0:53:29.760 the investment opportunities that exist in the healthcare space. 0:53:29.840 --> 0:53:33.200 So right now, you know, healthcare is one of the 0:53:33.200 --> 0:53:37.520 sectors that we have moved over weight. You know, clearly 0:53:37.600 --> 0:53:40.719 the healthcare sector over the last you know, decade, and 0:53:40.960 --> 0:53:43.640 much of this bull market in large part has been 0:53:43.719 --> 0:53:47.759 left behind and valuations have been you know, with the 0:53:47.800 --> 0:53:52.880 exception of some of the obesity drugs, the pharmaceutical industry 0:53:52.920 --> 0:53:57.000 has been squashed by by worries about regulation, squashed by 0:53:57.000 --> 0:54:00.000 the power of the insurance companies, you know, squashed by 0:54:00.080 --> 0:54:02.759 patent xpery, you know, squashed by a lot a lot 0:54:02.800 --> 0:54:06.640 of things. But we think that that valuations are there. 0:54:06.920 --> 0:54:08.880 We think that that's a great place to invest, and 0:54:09.239 --> 0:54:12.719 you can do it obviously through venture and in the 0:54:12.760 --> 0:54:17.160 public markets. Other themes that were super super excited about 0:54:17.200 --> 0:54:20.880 our defense and space and the and the conjoint between 0:54:20.920 --> 0:54:25.960 those two. You know, this idea that ultimately the way 0:54:26.080 --> 0:54:29.160 we think about weaponry, the way we think about defense, 0:54:29.280 --> 0:54:34.040 will be humanless, not unlike you know, some of what 0:54:34.080 --> 0:54:37.080 you see in the sci fi movies and Star Wars, 0:54:37.560 --> 0:54:42.759 unmanned vehicles doing the very surgical games of war, if 0:54:42.800 --> 0:54:45.960 you will. So I think, you know, that's something we're 0:54:46.400 --> 0:54:49.760 super excited about. Some of the innovations in the energy space, 0:54:50.640 --> 0:54:54.600 not so much purely around clean tech or powering data center, 0:54:55.320 --> 0:54:59.160 but really thinking about how do we more creatively use 0:54:59.680 --> 0:55:02.080 and we're deuced dependency on some of these rare earth 0:55:02.280 --> 0:55:09.359 materials to create battery autonomous vehicles another one. So all 0:55:09.400 --> 0:55:12.759 of these areas the very very fascinating time to be 0:55:12.840 --> 0:55:15.239 an investor in new tech. 0:55:15.760 --> 0:55:20.439 Yeah, you mentioned autonomous and defense. This giant New York 0:55:20.480 --> 0:55:24.080 Times article came out about the war in Ukraine and 0:55:24.280 --> 0:55:29.680 the transition from World War one and two type trench warfare, 0:55:30.080 --> 0:55:36.920 armored vehicles, tanks. Exactly seventy percent of the casualties inflicted 0:55:36.960 --> 0:55:41.000 in the war as of recently are being driven by 0:55:41.160 --> 0:55:46.960 drunk It's absolutely futuristic sci fi. When warfare changes that rapidly, 0:55:47.080 --> 0:55:49.759 it has to make you raise the question, how do 0:55:49.840 --> 0:55:52.040 the geopolitical alignments change? 0:55:53.040 --> 0:55:53.239 Here? 0:55:53.280 --> 0:55:56.320 We are, how we are? How do the big defense 0:55:56.360 --> 0:56:00.920 companies like there's a reason Pallanteer has been super hot 0:56:01.760 --> 0:56:06.440 and not necessarily Luckheyed Martin or Boeing correct, It's really 0:56:06.520 --> 0:56:10.520 quite fascinating. I have two personal questions yes, to ask 0:56:10.600 --> 0:56:13.640 you before we get to our favorite questions. All right, 0:56:14.040 --> 0:56:17.840 starting with you wake up every morning at five oh seven. 0:56:18.520 --> 0:56:22.719 So first, why five oh seven. It's such a specific 0:56:22.960 --> 0:56:26.120 number as opposed to just setting the alarm for five 0:56:26.280 --> 0:56:29.439 or five thirty. And then if you're up at five 0:56:29.480 --> 0:56:32.240 oh seven, give us a day in the life of Morgan, 0:56:32.280 --> 0:56:34.080 Stanley's chief investment. 0:56:33.680 --> 0:56:39.640 Oh jeez, So I'm extraordinarily superstitious about odd numbers. 0:56:39.960 --> 0:56:47.279 Really, yes, wait, you were applied mathematics undergraduate. Yeap, that doesn't. 0:56:47.400 --> 0:56:52.240 It's just screams. I guess it's part of my lived 0:56:52.360 --> 0:56:55.600 experience is that, you know, I always say to people, hey, 0:56:55.640 --> 0:56:59.080 it's an odd number year, We're good, you know, really, 0:56:59.280 --> 0:57:01.960 Oh my god, I'm very I'm very so I'm. 0:57:01.800 --> 0:57:04.680 Trying to remember the Nobel laureate in physics. I'm drawing 0:57:04.719 --> 0:57:07.720 a blank on his name. Who a grad student visited 0:57:07.800 --> 0:57:12.080 his house and there's a horseshoe over the doorway. Yeah, 0:57:12.120 --> 0:57:15.560 And the grad student says, professor, you don't you don't 0:57:15.600 --> 0:57:19.320 believe in lucky charms and things like that, And the 0:57:19.400 --> 0:57:22.480 response was maybe it was plank, I'm not sure, but 0:57:22.520 --> 0:57:25.440 the response was, I'm told it works whether you believe 0:57:25.480 --> 0:57:28.280 in it or not, which is which is pretty charming. 0:57:28.760 --> 0:57:31.640 So but I believe in it. Odd numbers. 0:57:32.800 --> 0:57:35.840 Is really so it's an odd number. So so look, 0:57:35.920 --> 0:57:39.080 it was something you know, back in the day, one 0:57:39.120 --> 0:57:41.440 of my jobs was I was a director of research, 0:57:41.480 --> 0:57:43.480 and so I always had to be at my desk 0:57:43.560 --> 0:57:46.120 right at six point thirty. So I got into the 0:57:46.200 --> 0:57:48.800 routine of, you know, up five oh seven, you know, 0:57:48.880 --> 0:57:51.520 do the quick twenty minutes on the treadmill, grabbed the 0:57:51.520 --> 0:57:54.480 coffee shower out the door, and so that's you know, 0:57:54.640 --> 0:57:57.480 still still me. You know, old dogs, new tricks. It's 0:57:57.520 --> 0:57:58.760 been it's been really hard. 0:57:59.240 --> 0:58:02.560 And how different and is every day as Cio is like, 0:58:02.960 --> 0:58:04.800 I like to sometimes ask, what's the day in the 0:58:04.880 --> 0:58:07.760 life like? But I suspect no two days are the 0:58:07.800 --> 0:58:08.680 same for you. 0:58:08.240 --> 0:58:10.800 Now, No two days are the same. But but Barry, 0:58:10.880 --> 0:58:14.880 let me just tell you. I I wake up at 0:58:14.920 --> 0:58:16.840 five h seven every day and the very first thing 0:58:17.000 --> 0:58:19.560 I say is I am blessed that I have the 0:58:19.640 --> 0:58:22.480 career that I have, that I have the seat that 0:58:22.600 --> 0:58:26.160 I have at this point in my life because I 0:58:26.200 --> 0:58:30.400 am learning every day. No two days are the same. 0:58:31.080 --> 0:58:33.960 I get to hang out with the most amazing people 0:58:34.480 --> 0:58:38.200 like you, you know, like my colleagues at Morgan Stanley, 0:58:38.440 --> 0:58:41.640 like my clients, all of whom are you know, so 0:58:41.640 --> 0:58:45.920 so interesting and successful in different ways. Going to meetings 0:58:46.000 --> 0:58:49.360 where you get to hear Scott Vaisant speak at the 0:58:49.520 --> 0:58:53.560 New York Economics Club, and you know, you're just really 0:58:53.920 --> 0:58:57.320 feel alive, You feel plugged into the world and what's 0:58:57.400 --> 0:59:01.520 going on. So I feel blessed every day and No, 0:59:01.640 --> 0:59:02.760 two days are the same. 0:59:03.000 --> 0:59:07.400 So last last career question. You've been watching the state 0:59:07.440 --> 0:59:10.560 of the economy, the markets, just what's going on in 0:59:10.560 --> 0:59:14.560 the world for just about twenty five thirty years. What's 0:59:14.600 --> 0:59:19.720 been the most significant shift you've observed in wealth management 0:59:20.280 --> 0:59:21.160 over that period. 0:59:22.040 --> 0:59:28.240 Wow, that's a fantastic question. Look, I think if there 0:59:28.280 --> 0:59:32.680 was one theme that I would say over my thirty 0:59:32.760 --> 0:59:37.200 year career that has characterized everything, it has been the 0:59:37.320 --> 0:59:45.120 democratization of reasonably sophisticated product. Right, So whether you know, 0:59:45.200 --> 0:59:48.760 you talk about you know, first coming into the business 0:59:48.840 --> 0:59:53.160 and the advent of you know, first mutual funds was 0:59:53.200 --> 0:59:58.480 about democratization of you know, diversified stock investing U and 0:59:58.520 --> 1:00:01.280 then you know passive asting as a way to get 1:00:01.320 --> 1:00:05.560 access to an index in a you know, more technology 1:00:05.640 --> 1:00:10.840 efficient way. You talk about the original rollout of quote 1:00:10.920 --> 1:00:16.080 unquote liquid alternatives or evergreen type products. Uh, and now 1:00:16.160 --> 1:00:19.120 we're at the point where, you know, we're talking about 1:00:19.640 --> 1:00:25.000 very sophisticated private equity private credit products being contemplated for 1:00:25.120 --> 1:00:29.760 four one K plans and being packaged in these structures 1:00:29.800 --> 1:00:34.920 to give folks periodic liquidity. So democratization of you know, 1:00:35.200 --> 1:00:39.680 sophisticated alpha and beta that that once upon a time, 1:00:39.800 --> 1:00:41.880 I think, you know, when I, you know, started in 1:00:41.920 --> 1:00:44.560 the industry, people would say, well, there's the market and 1:00:44.600 --> 1:00:47.280 then there's the extra stuff, and that's and you've got 1:00:47.280 --> 1:00:49.320 to figure it out. And if you don't like that, 1:00:49.520 --> 1:00:55.360 own some bonds. I think now it's it's the democratization 1:00:55.480 --> 1:01:00.880 of very sophisticated access, of access to sophistic cada products. 1:01:00.960 --> 1:01:04.680 So let's jump to my favorite questions that I ask 1:01:04.800 --> 1:01:07.960 all of my guests, starting with what are you streaming 1:01:07.960 --> 1:01:10.320 these days? What are you watching to relax or on 1:01:10.360 --> 1:01:12.880 the treadmill or just to keep you entertained? 1:01:13.280 --> 1:01:17.000 Love streaming. The most recent thing I finished was something 1:01:17.000 --> 1:01:22.600 called Shrinking Yeah, so yeah, so good. I've been watching 1:01:22.680 --> 1:01:23.560 Prime Targets. 1:01:23.880 --> 1:01:25.000 What are Prime Targets? 1:01:25.120 --> 1:01:25.240 So? 1:01:25.400 --> 1:01:31.600 Prime Target is a show about a mathematician who's working 1:01:31.640 --> 1:01:35.640 in Oxford who is working on a thesis to generate 1:01:36.400 --> 1:01:42.960 prime number combinations and permutations that supposedly, if he's able 1:01:43.040 --> 1:01:46.760 to develop this algorithm as part of his PhD thesis, 1:01:47.480 --> 1:01:52.800 would unlock or give folks the ability to hack almost 1:01:52.880 --> 1:01:58.800 any system. And so of course it becomes a scenario 1:01:58.880 --> 1:02:01.760 where you know, there's the bad guys are chasing him 1:02:01.920 --> 1:02:04.680 to try to get his thing, and of course, you know, 1:02:04.800 --> 1:02:08.400 the national security agencies are trying are chasing him, and 1:02:08.880 --> 1:02:11.120 it's kind of a spy versus spy kind of thing, 1:02:11.120 --> 1:02:13.800 and it's a poor, innocent nerd guy in the middle. 1:02:14.080 --> 1:02:15.920 And what is surface or surfacing? 1:02:16.200 --> 1:02:21.400 So Surface is a is a show also on Apple TV. 1:02:22.760 --> 1:02:26.040 It's in its second season. It's about a woman who 1:02:26.440 --> 1:02:29.240 kind of fakes her death as a way of leaving 1:02:29.360 --> 1:02:32.760 behind her life and going back to England. She'd been 1:02:32.840 --> 1:02:35.400 living in the United States. She was married in a 1:02:35.400 --> 1:02:39.200 marriage that wasn't great, and she fakes her death to 1:02:39.280 --> 1:02:43.240 go back to England to investigate what she thinks was 1:02:43.360 --> 1:02:45.880 her mother's murder when she was a kid. 1:02:46.240 --> 1:02:50.160 Huh really interesting. Let's talk about your early mentors who 1:02:50.240 --> 1:02:51.760 helped shape your career. 1:02:52.080 --> 1:02:56.280 Sure you know Bernstein was that seminal place, So the 1:02:56.360 --> 1:03:01.160 two I would I would speak to one Sanders. Lou 1:03:01.240 --> 1:03:06.600 Sanders was the CEO at Sanford Bernstein. In my humble opinion, 1:03:06.760 --> 1:03:10.640 one of the greatest value investors, uh, certainly that I 1:03:10.720 --> 1:03:16.680 ever met in my career. Just brilliant numbers person, very 1:03:16.800 --> 1:03:21.720 very high integrity. Taught me how to be objective, to 1:03:21.760 --> 1:03:24.240 get the emotions out of it, to build the model, 1:03:24.360 --> 1:03:27.800 and have the discipline to build the model. Sally Crotchek, 1:03:27.920 --> 1:03:30.560 we talked about one of my best friends in the business. 1:03:31.640 --> 1:03:34.840 You know, someone that I care a lot about, someone 1:03:34.880 --> 1:03:38.760 who showed me how to lead. Although we were peers. 1:03:38.880 --> 1:03:44.400 She has a natural charisma and natural instinct for leading people. 1:03:45.680 --> 1:03:48.600 She and I kind of worked side by side through 1:03:48.760 --> 1:03:52.360 the nine to eleven crisis. I learned a lot from 1:03:52.400 --> 1:03:57.560 her in terms of what people need from leaders when 1:03:57.600 --> 1:04:00.760 things are tough. They look to leaders to say the 1:04:00.800 --> 1:04:03.560 right things and do the right things and be strong 1:04:03.640 --> 1:04:07.880 people and not get you know, bogged into headlines or theories, 1:04:07.960 --> 1:04:11.040 but just to say, remember what we're here to do. 1:04:11.640 --> 1:04:13.960 Let's talk about books. What are some of your favorites? 1:04:14.000 --> 1:04:14.560 What are you reading? 1:04:14.600 --> 1:04:18.000 Commons? What am I reading? So now this is going 1:04:18.040 --> 1:04:21.880 to reveal my politics. The last book I finished was 1:04:21.920 --> 1:04:25.840 a book called Prequel by Rachel Maddow, and it's a 1:04:25.960 --> 1:04:30.000 very in the middle of reading, it's fantastic, she said, 1:04:30.120 --> 1:04:34.760 it's captivating, and it's fantastic. And it's captivating and fantastic 1:04:34.840 --> 1:04:39.240 not for good reasons, but it lays out some of 1:04:39.280 --> 1:04:46.480 the dynamics of American history and American political dynamics between 1:04:46.520 --> 1:04:49.160 the wars between World War One and World War Two 1:04:50.520 --> 1:04:54.560 and the First America First movement in the United States 1:04:55.560 --> 1:05:00.479 that was very much against America ever getting into World 1:05:00.560 --> 1:05:01.280 War Two. 1:05:01.840 --> 1:05:05.080 Very isolationists, very anti yes, and. 1:05:05.040 --> 1:05:08.120 It was, and it was in this a way that's 1:05:08.160 --> 1:05:12.080 similar to our current political dynamic. It ended up bringing 1:05:12.120 --> 1:05:17.480 in some very different factions right where you had, interestingly, 1:05:17.680 --> 1:05:21.680 coalitions of people who ended up being a political block 1:05:22.040 --> 1:05:24.800 who came at things from very different points of view. 1:05:24.840 --> 1:05:28.040 So you had kind of the Father Coglin part of 1:05:28.080 --> 1:05:32.240 the movement. Father Coglin, for those who know, was a 1:05:32.480 --> 1:05:40.040 very very famous Sunday radio show Catholic preacher and sacifist. Correct, Yeah, 1:05:40.120 --> 1:05:44.920 but very isolationist. That was one dimension of it. And 1:05:44.960 --> 1:05:47.439 then you had, you know, kind of the anti communist 1:05:47.560 --> 1:05:52.040 and the anti immigrant sides of the party and some 1:05:52.160 --> 1:05:56.200 other other dimensions to it. But it's fascinating book. Prequel 1:05:56.360 --> 1:05:58.160 Rachel Mattow really recommend it. 1:05:58.560 --> 1:06:02.120 Our final two questions, what sort of advice would you 1:06:02.160 --> 1:06:05.760 give to a recent college grad interested in a career 1:06:06.240 --> 1:06:10.840 in either wealth management or finance or anything related to 1:06:10.920 --> 1:06:11.440 your work? 1:06:11.760 --> 1:06:17.439 Yeah, so, and people hate when I say this because 1:06:17.480 --> 1:06:21.640 it belies the path that I took. But I'm a 1:06:21.680 --> 1:06:26.240 big believer in liberal arts education. I don't think that 1:06:26.320 --> 1:06:30.600 to work on Wall Street, to be a great portfolio manager, 1:06:30.720 --> 1:06:33.480 to be a great you know, economist, to be a 1:06:33.520 --> 1:06:38.160 great strategist, that you have to study finance or business 1:06:38.200 --> 1:06:41.680 administration or go to the Wharton School of Business. I 1:06:41.760 --> 1:06:44.320 do not believe that. I believe we live in a 1:06:44.360 --> 1:06:47.280 world where if you know how to read books, if 1:06:47.320 --> 1:06:49.480 you know how to teach yourself things, if you know 1:06:49.600 --> 1:06:52.760 how to learn how to learn, you can have a 1:06:52.800 --> 1:06:56.240 phenomenal career. And it's exactly to your point, Barry, that 1:06:56.720 --> 1:06:59.960 you and I entered the business twenty five thirty years ago. 1:07:00.080 --> 1:07:03.520 Oh nothing's the same. It's all about adapting. And so 1:07:03.720 --> 1:07:07.880 if I tell folks, study what you love, study what 1:07:07.920 --> 1:07:11.200 you're passionate about, learn how to learn, and never lose 1:07:11.240 --> 1:07:12.560 that hunger for knowledge. 1:07:12.960 --> 1:07:16.000 Become an autodidact. Learn how to learn, learn how to 1:07:16.560 --> 1:07:19.520 what's going on? Our final question, what do you know 1:07:19.560 --> 1:07:22.920 about the world of investing today that you wish you 1:07:22.960 --> 1:07:25.440 knew thirty years ago when you were first getting started. 1:07:25.600 --> 1:07:29.760 And I don't mean by Amazon at iwin Apple at one. 1:07:29.920 --> 1:07:34.360 I mean, what broad principle did you learn along the 1:07:34.360 --> 1:07:36.480 way that would have been useful to have found out 1:07:36.560 --> 1:07:37.640 much earlier that. 1:07:37.680 --> 1:07:39.880 Being right is not what matters. 1:07:40.440 --> 1:07:43.240 A you're going to have to expound on that being. 1:07:43.040 --> 1:07:46.360 Right is not what matters. What matters in the long 1:07:46.480 --> 1:07:52.240 run is what Einstein said, you know, decades ago. Remember 1:07:52.360 --> 1:07:57.480 the power of compounding. If you save, if you're disciplined, 1:07:57.680 --> 1:08:03.560 if you just have a consistent plan, you will highly 1:08:04.040 --> 1:08:08.360 likely compound your wealth at at least seven and a 1:08:08.400 --> 1:08:11.560 half to eight percent per year, which means you will 1:08:11.680 --> 1:08:16.439 double your wealth every decade, double your savings. Whatever that 1:08:16.640 --> 1:08:19.840 is for most of us, if we're lucky enough we 1:08:19.960 --> 1:08:24.679 have you know, three four doublings in us. Just do that. 1:08:25.280 --> 1:08:27.760 And it's not to say that what I do all 1:08:27.840 --> 1:08:31.000 day doesn't matter, or what you do all day doesn't matter. 1:08:31.360 --> 1:08:34.360 It's just at the end of the day, we're trying 1:08:34.400 --> 1:08:37.679 to guide people. But as I say to my team, 1:08:38.080 --> 1:08:40.200 I know, the likelihood I'm going to be right on 1:08:40.280 --> 1:08:44.120 any given decision is at best fifty to fifty. What 1:08:44.240 --> 1:08:46.360 matters is do we have a good plan and are 1:08:46.400 --> 1:08:49.200 we being disciplined and consistent about it because compounding is 1:08:49.240 --> 1:08:49.679 your friend. 1:08:50.439 --> 1:08:54.439 Really fascinating stuff, Lisa, thank you for being so generous 1:08:54.479 --> 1:08:57.879 with your time. We have been speaking with Lisa Shallatt. 1:08:58.160 --> 1:09:02.040 She is chief investment officer at Morgan Stanley Wealth Management. 1:09:02.600 --> 1:09:05.360 If you enjoy this conversation, check out any of the 1:09:05.400 --> 1:09:09.880 five hundred previous discussions we've had over the past ten years. 1:09:09.960 --> 1:09:14.120 You can find those at iTunes, Spotify, YouTube, wherever you 1:09:14.280 --> 1:09:18.240 find your favorite podcast. Be sure and check out my 1:09:18.400 --> 1:09:23.280 new book, How Not to Invest The Ideas, numbers and 1:09:23.360 --> 1:09:28.719 Behaviors That Destroy Wealth out everywhere March eighteenth. I would 1:09:28.760 --> 1:09:30.639 be remiss if I did not thank the crack team, 1:09:30.680 --> 1:09:34.200 and I'll just put these conversations together each week. Andrew 1:09:34.200 --> 1:09:38.200 Gavin is my audio engineer, and A Luke is my producer. 1:09:38.400 --> 1:09:41.880 Sage Bauman is a head of podcasts here at Bloomberg. 1:09:42.200 --> 1:09:47.519 Sean Russo is my researcher. I'm Barry Prudhos. You've been 1:09:47.560 --> 1:10:00.320 listening to Masters of Business. Oh, I'm Bloomberg Radio. Y