1 00:00:00,160 --> 00:00:03,040 Speaker 1: Masters in Business is brought to you by proper Cloth, 2 00:00:03,440 --> 00:00:07,920 Speaker 1: the leader in men's customs shirts, with proprietary smart sized 3 00:00:07,920 --> 00:00:12,319 Speaker 1: technology and top rated customer service. Ordering a custom shirt 4 00:00:12,520 --> 00:00:16,680 Speaker 1: has never been easier. Visit proper cloth dot com to 5 00:00:17,000 --> 00:00:23,360 Speaker 1: order your first custom shirt today. This is Masters in 6 00:00:23,440 --> 00:00:29,000 Speaker 1: Business with very Ridholts on Boomberg Radio. This week on 7 00:00:29,040 --> 00:00:32,080 Speaker 1: the podcast, I have an extra special guest. It's somebody 8 00:00:32,120 --> 00:00:34,839 Speaker 1: I've known for actually a good couple of years. His 9 00:00:34,960 --> 00:00:39,120 Speaker 1: name is Simon Lack. He's probably best known for the 10 00:00:39,200 --> 00:00:43,360 Speaker 1: book The Hedge Fund Mirage. He's written several others. Funny 11 00:00:43,440 --> 00:00:47,040 Speaker 1: story which we talk about in the podcast portion I 12 00:00:47,120 --> 00:00:49,880 Speaker 1: get invited to speak somewhere and I really don't want 13 00:00:49,880 --> 00:00:53,840 Speaker 1: to talk to this group because they're annoying, and I 14 00:00:54,360 --> 00:00:57,560 Speaker 1: decided to do a little counter programming. And I know 15 00:00:57,640 --> 00:01:01,920 Speaker 1: they're very, very big and fairly hedge fund investors that 16 00:01:02,000 --> 00:01:04,399 Speaker 1: can't figure out why the returns have been so terrible. 17 00:01:04,880 --> 00:01:07,440 Speaker 1: They think it's something they're doing wrong, and so I 18 00:01:07,480 --> 00:01:11,720 Speaker 1: create a presentation called romancing Alpha Forsaking Beta. And one 19 00:01:11,760 --> 00:01:14,720 Speaker 1: of the big sources I used in the book was 20 00:01:14,760 --> 00:01:20,640 Speaker 1: Simon's Hedge Fund Mirage. Based on the strength of that presentation, 21 00:01:20,800 --> 00:01:26,759 Speaker 1: which was really me being um rude. I get invited 22 00:01:26,840 --> 00:01:33,560 Speaker 1: to speak at UM the Kennedy School of Socially Responsible 23 00:01:33,600 --> 00:01:37,080 Speaker 1: Investing a couple of years ago, and I make a 24 00:01:37,120 --> 00:01:42,160 Speaker 1: presentation about why Beta for many institutional investors is better 25 00:01:42,200 --> 00:01:45,840 Speaker 1: than Alpha. Who else is presenting at the same conference, 26 00:01:46,160 --> 00:01:48,760 Speaker 1: but Simon Lack and we chatted up a conversation and 27 00:01:49,240 --> 00:01:52,760 Speaker 1: ironically we each were citing each other's research. It was 28 00:01:52,800 --> 00:01:56,160 Speaker 1: It was pretty funny. I strongly recommend the book. He 29 00:01:56,240 --> 00:02:01,200 Speaker 1: pulls no punches, especially given what he did UH in 30 00:02:01,240 --> 00:02:03,760 Speaker 1: his earlier career, which gave him a front row seat 31 00:02:03,800 --> 00:02:07,200 Speaker 1: to what was going on in hedge funds. I could 32 00:02:07,200 --> 00:02:09,880 Speaker 1: wax on for a much longer about this, but really 33 00:02:09,919 --> 00:02:12,400 Speaker 1: he is so knowledgeable and full of so much information. 34 00:02:12,680 --> 00:02:15,840 Speaker 1: Rather than me continuing to babble with no further ado 35 00:02:16,280 --> 00:02:23,079 Speaker 1: my conversation with Simon Lack. This is Masters in Business 36 00:02:23,280 --> 00:02:28,280 Speaker 1: with Barry Ridholts on Bloomberg Radio. I have a special 37 00:02:28,320 --> 00:02:31,720 Speaker 1: guest today who I have been looking forward to sitting 38 00:02:31,760 --> 00:02:34,760 Speaker 1: down and chatting with for a long time. His name 39 00:02:34,919 --> 00:02:38,919 Speaker 1: is Simon Lack. He spent twenty three years with JP 40 00:02:39,120 --> 00:02:44,120 Speaker 1: Morgan prior to founding sl advisors in two thousand and nine. 41 00:02:44,760 --> 00:02:48,200 Speaker 1: His career JP Morgan was spent uh doing fixed income 42 00:02:48,240 --> 00:02:53,440 Speaker 1: derivatives and forward FX trading before he ran the Investment 43 00:02:53,440 --> 00:02:57,320 Speaker 1: Committee in charge of allocating over a billion dollars to 44 00:02:57,560 --> 00:03:00,800 Speaker 1: hedge fund managers, as well as foul thing the JP 45 00:03:00,919 --> 00:03:05,200 Speaker 1: Morgan incubator funds and a number of private equity vehicles 46 00:03:05,240 --> 00:03:10,880 Speaker 1: that took economic stakes in emerging hedge fund managers. That 47 00:03:10,960 --> 00:03:15,080 Speaker 1: experience led him to write the first of his three books, 48 00:03:15,520 --> 00:03:19,240 Speaker 1: called The Hedge Fund Mirage, The Illusion of Big Money 49 00:03:19,280 --> 00:03:22,240 Speaker 1: and Why It's Too Good to be True. His subsequent books, 50 00:03:22,400 --> 00:03:26,040 Speaker 1: Bonds Are Not Forever and Wolf Street Potholes Are are 51 00:03:26,120 --> 00:03:29,400 Speaker 1: both must reads. Simon Lack, Welcome to Bloomberg. Thank you 52 00:03:30,440 --> 00:03:33,120 Speaker 1: so it's I've been looking forward to chatting with you, 53 00:03:33,200 --> 00:03:37,080 Speaker 1: and I have so many things UM to go over 54 00:03:37,280 --> 00:03:40,440 Speaker 1: with you. Let's let's start, given what's going on in 55 00:03:40,480 --> 00:03:43,200 Speaker 1: the world to fixed income in the Federal Reserve, Let's 56 00:03:43,240 --> 00:03:45,680 Speaker 1: start with your book on bonds and and talk a 57 00:03:45,760 --> 00:03:50,360 Speaker 1: little bit about UM. Bonds. Interest rates go all the 58 00:03:50,400 --> 00:03:54,000 Speaker 1: way back to eight hundred BC, that's about four thousand 59 00:03:54,080 --> 00:03:59,360 Speaker 1: years ago. How important our interest rates for consumer spending? Credit? 60 00:03:59,480 --> 00:04:02,920 Speaker 1: And the over all economy. I mean critical, right, I mean, 61 00:04:02,960 --> 00:04:06,040 Speaker 1: maybe the most important economic variable out there is interest 62 00:04:06,120 --> 00:04:08,160 Speaker 1: rates and people getting her favorites and on their money, 63 00:04:08,200 --> 00:04:11,040 Speaker 1: and from the investment side, or from the consumer side, 64 00:04:11,080 --> 00:04:14,440 Speaker 1: or both from the investment site, certainly, but obviously low 65 00:04:14,520 --> 00:04:17,640 Speaker 1: rates stimulate demand, allow consumers to borrow money to buy 66 00:04:17,680 --> 00:04:20,080 Speaker 1: things as well. So it's it's critical. I mean, it's 67 00:04:20,120 --> 00:04:23,240 Speaker 1: probably the most important variable. So here in the United States, 68 00:04:23,720 --> 00:04:28,400 Speaker 1: we as a nation have pretty much set rates for 69 00:04:28,600 --> 00:04:31,520 Speaker 1: much of the globe. Taking rates down to such low 70 00:04:31,640 --> 00:04:34,919 Speaker 1: levels in the early two thousands really helped set the 71 00:04:34,960 --> 00:04:39,080 Speaker 1: table for a global financial crisis. Now, the US is 72 00:04:39,120 --> 00:04:42,800 Speaker 1: a little out of step with Europe and Japan in 73 00:04:42,839 --> 00:04:47,080 Speaker 1: that Qui is over, zerp is over. We're embarking on 74 00:04:47,120 --> 00:04:50,480 Speaker 1: a reat raising regime. The rest of the world is 75 00:04:50,520 --> 00:04:53,680 Speaker 1: still cutting, still doing their version of que Does the 76 00:04:53,800 --> 00:04:57,520 Speaker 1: United States still set the interest rate for the world, 77 00:04:58,760 --> 00:05:01,919 Speaker 1: I mean, to a large agree, certainly impacts the emerging 78 00:05:01,960 --> 00:05:04,760 Speaker 1: world and clearly sets its own rates. And it's a 79 00:05:04,800 --> 00:05:07,640 Speaker 1: great situation for the US to be because the financial 80 00:05:07,680 --> 00:05:11,279 Speaker 1: crisis came about through too much debt, and the solution 81 00:05:11,480 --> 00:05:13,960 Speaker 1: to too much debt is low rates. And I've often 82 00:05:14,000 --> 00:05:17,440 Speaker 1: said to people that if Janet Yellen or Ben Banankey 83 00:05:17,560 --> 00:05:20,680 Speaker 1: before her had got up and given a speech and said, hey, listen, 84 00:05:20,720 --> 00:05:22,880 Speaker 1: here's the deal. We've borrowed too much money and we're 85 00:05:22,920 --> 00:05:25,640 Speaker 1: just going to keep rates really low and transfer real 86 00:05:25,680 --> 00:05:29,080 Speaker 1: wealth from savers to borrows. If they've given that speech, 87 00:05:29,320 --> 00:05:32,119 Speaker 1: monetary policy would have been as it's been. They haven't 88 00:05:32,160 --> 00:05:34,880 Speaker 1: given the speech, but you've had the outcome that's consistent 89 00:05:34,920 --> 00:05:37,040 Speaker 1: with that low rates are in our self interest. Well, 90 00:05:37,080 --> 00:05:40,640 Speaker 1: the political pushback to that explicit statement would have been 91 00:05:40,640 --> 00:05:44,800 Speaker 1: pretty fierce. Absolutely absolutely. So I think that although you 92 00:05:44,839 --> 00:05:48,320 Speaker 1: know in my book I'm negative on bonds, it's not 93 00:05:48,360 --> 00:05:50,680 Speaker 1: because we think bond deals are going to go up sharply. 94 00:05:50,839 --> 00:05:52,640 Speaker 1: I think you're going to see rates lower than they 95 00:05:52,640 --> 00:05:55,440 Speaker 1: should be from an investor standpoint for a long time. 96 00:05:55,480 --> 00:05:58,359 Speaker 1: I mean, the return on bonds is just inadequate to 97 00:05:58,440 --> 00:06:01,599 Speaker 1: justify putting money into them. So I want to I 98 00:06:01,640 --> 00:06:04,360 Speaker 1: want to stick with the concept of of the US 99 00:06:04,680 --> 00:06:09,000 Speaker 1: Federal Reserve Bank setting rates for the world. In your book, 100 00:06:09,040 --> 00:06:11,800 Speaker 1: you actually right, and I guess this is a little 101 00:06:11,839 --> 00:06:14,960 Speaker 1: bit of a forecast, or certainly is looking forward a 102 00:06:15,040 --> 00:06:19,160 Speaker 1: number of years ultimately, the United States may find that 103 00:06:19,200 --> 00:06:22,719 Speaker 1: it can no longer set its own interest rates. Explain, 104 00:06:23,040 --> 00:06:25,839 Speaker 1: it's possible, it's possible. We have a you know, a 105 00:06:26,000 --> 00:06:30,200 Speaker 1: very bad indebted position, and under most forecasts, it's only 106 00:06:30,240 --> 00:06:33,560 Speaker 1: going to get worse. And eventually it's quite possible that 107 00:06:33,640 --> 00:06:36,640 Speaker 1: other countries will decide what rates the lender's money at. 108 00:06:37,160 --> 00:06:39,640 Speaker 1: But I think it's actually, although that's a possibility and 109 00:06:39,680 --> 00:06:42,240 Speaker 1: it's something you worried about, I think it's more likely 110 00:06:42,560 --> 00:06:44,560 Speaker 1: that we will continue to set rates, and will continue 111 00:06:44,560 --> 00:06:47,880 Speaker 1: to set rates lower than they really should be for 112 00:06:47,920 --> 00:06:50,360 Speaker 1: the interests of the lenders. And and you know, I 113 00:06:50,400 --> 00:06:52,760 Speaker 1: have trust of the lenders, meaning to avoid default and 114 00:06:52,800 --> 00:06:55,120 Speaker 1: make sure lenders get to get a fair return. And 115 00:06:55,160 --> 00:06:58,840 Speaker 1: so I explore this idea of populism in the Bond Book, 116 00:06:58,839 --> 00:07:01,880 Speaker 1: and a couple of years the books of the Way, 117 00:07:02,040 --> 00:07:04,800 Speaker 1: hopefully ahead of the curve. And here's the thing, right, 118 00:07:04,880 --> 00:07:08,359 Speaker 1: we've had this transfer of wealth from one generation to 119 00:07:08,400 --> 00:07:10,520 Speaker 1: the next. The baby boomers have basically brought a lot 120 00:07:10,560 --> 00:07:13,680 Speaker 1: of money to pay entitlements, and the next generation is 121 00:07:13,680 --> 00:07:15,680 Speaker 1: going to be left to pay for that. So now, 122 00:07:16,120 --> 00:07:19,320 Speaker 1: just so we've got a new president, and just suppose 123 00:07:19,680 --> 00:07:23,080 Speaker 1: interest rates went to ten. Just suppose the Chinese and 124 00:07:23,160 --> 00:07:27,280 Speaker 1: Japanese who added selling bonds. What do you suppose President 125 00:07:27,280 --> 00:07:30,280 Speaker 1: Trump would say to those guys. And I think he'd say, hey, listen, 126 00:07:30,280 --> 00:07:31,840 Speaker 1: if you want to keep selling bonds, I'm just going 127 00:07:31,880 --> 00:07:33,360 Speaker 1: to cut the interest rate in half on what we 128 00:07:33,440 --> 00:07:37,160 Speaker 1: pay you as weaponized fixed income instruments. Is that it's 129 00:07:37,240 --> 00:07:39,440 Speaker 1: you know what I mean, it's it's not something that's 130 00:07:39,480 --> 00:07:41,400 Speaker 1: at all on the horizons to day. But my point 131 00:07:41,560 --> 00:07:45,920 Speaker 1: is that the moral obligation to repay what's been borrowed 132 00:07:46,320 --> 00:07:49,040 Speaker 1: with fair value is going to become more and more 133 00:07:49,080 --> 00:07:52,320 Speaker 1: tenuous over time because the people who are repaying the 134 00:07:52,320 --> 00:07:54,560 Speaker 1: dead are not the ones who made the decision to borrow. 135 00:07:55,000 --> 00:07:57,480 Speaker 1: And I think you're going to see that connection weaken, 136 00:07:57,960 --> 00:07:59,880 Speaker 1: and it's going to be at the expense of the 137 00:08:00,040 --> 00:08:02,200 Speaker 1: people who own the debt. Let me push back a 138 00:08:02,280 --> 00:08:06,200 Speaker 1: little bit on this and and just observe there is 139 00:08:06,240 --> 00:08:12,480 Speaker 1: a global shortage of high quality sovereign paper like US treasuries. 140 00:08:13,040 --> 00:08:16,440 Speaker 1: We haven't been doing the sort of tax and spend 141 00:08:16,520 --> 00:08:19,120 Speaker 1: or tax and borrow like we used to. We haven't 142 00:08:19,120 --> 00:08:24,400 Speaker 1: been doing the big infrastructure projects. It seems that demand 143 00:08:24,600 --> 00:08:30,080 Speaker 1: for quality paper absolutely overwhelms the supply. If the Japanese 144 00:08:30,200 --> 00:08:34,200 Speaker 1: or the Chinese or other holders of US treasuries decide 145 00:08:34,240 --> 00:08:37,320 Speaker 1: to suddenly hit the bit at once, how hard is 146 00:08:37,320 --> 00:08:39,640 Speaker 1: it to imagine that all the paper just gets sucked 147 00:08:39,720 --> 00:08:43,080 Speaker 1: up by foundations, pension funds and everybody else who could 148 00:08:43,160 --> 00:08:44,920 Speaker 1: be I mean, you know, they've each got over a 149 00:08:44,960 --> 00:08:47,640 Speaker 1: trillion dollars, and as a practical matter, it's hard to 150 00:08:47,640 --> 00:08:49,720 Speaker 1: see how you could sell that sort of amount in 151 00:08:49,720 --> 00:08:51,760 Speaker 1: a short period of time. But the Chinese, of course, 152 00:08:51,760 --> 00:08:55,199 Speaker 1: have been reducing their holdings recently. I think part of 153 00:08:55,320 --> 00:08:58,920 Speaker 1: without much impact to letting things roll off, and they'n not, 154 00:08:59,120 --> 00:09:00,960 Speaker 1: you know, opening at all trans the way they were, 155 00:09:01,080 --> 00:09:04,960 Speaker 1: so it hasn't caused really any discernible disruption to this point. 156 00:09:05,000 --> 00:09:08,000 Speaker 1: So I think that's true. I'm Barry Hults. You're listening 157 00:09:08,040 --> 00:09:11,360 Speaker 1: to Masters in Business on Bloomberg Radio. My guest today 158 00:09:11,400 --> 00:09:14,800 Speaker 1: is Simon Lack. He is the author of the hedge 159 00:09:14,800 --> 00:09:17,600 Speaker 1: Fund Mirage, The Illusion of Big Money and Wow, it's 160 00:09:17,600 --> 00:09:21,679 Speaker 1: too good to be true. And I have to reiterate 161 00:09:21,840 --> 00:09:25,800 Speaker 1: for listeners that you spent twenty three years at JP Morgan. 162 00:09:25,960 --> 00:09:30,199 Speaker 1: Part of that time was you sitting on an investment 163 00:09:30,200 --> 00:09:34,320 Speaker 1: committee that was responsible for allocating over a billion dollars 164 00:09:34,840 --> 00:09:38,800 Speaker 1: in hedge in money to hedge funds and emerging market 165 00:09:39,160 --> 00:09:44,079 Speaker 1: emerging managers, and you had a front row seat to 166 00:09:44,800 --> 00:09:48,600 Speaker 1: really the emergence of hedge funds as a major set 167 00:09:48,600 --> 00:09:50,679 Speaker 1: of players in the market. I mean, it was so 168 00:09:50,720 --> 00:09:52,840 Speaker 1: cool because in the early nineties, that's when I first 169 00:09:52,880 --> 00:09:55,840 Speaker 1: started investing in hedge funds, sitting on that committee, and 170 00:09:55,880 --> 00:09:58,880 Speaker 1: it was a very obscure backwater and you'd go and 171 00:09:58,920 --> 00:10:02,880 Speaker 1: see these very talented people in a small office with 172 00:10:03,040 --> 00:10:07,520 Speaker 1: very complex strategies, with leverage and Cayman vehicle, and it 173 00:10:07,600 --> 00:10:10,000 Speaker 1: all sounded quite risk and banks we're not doing that. 174 00:10:10,160 --> 00:10:12,440 Speaker 1: I mean, we were really sort of pioneers in terms 175 00:10:12,480 --> 00:10:16,240 Speaker 1: of allocating proprietary capital to that. And it was so cool. 176 00:10:16,280 --> 00:10:18,760 Speaker 1: I mean, there's never a boring meeting with their hedge 177 00:10:18,760 --> 00:10:20,920 Speaker 1: fund manager. Each one of them is interesting in their 178 00:10:20,920 --> 00:10:24,400 Speaker 1: own way. And of course the industry just completely took off. 179 00:10:24,400 --> 00:10:26,160 Speaker 1: And in the early nineties when we were doing that, 180 00:10:26,679 --> 00:10:29,400 Speaker 1: the markets were very inefficient and you could make some 181 00:10:29,559 --> 00:10:33,000 Speaker 1: very very attractive returns, and as in most things in investment, 182 00:10:33,040 --> 00:10:35,720 Speaker 1: you know, popularity is eventually going to kill it, and 183 00:10:35,760 --> 00:10:38,120 Speaker 1: that's what happened over the last ten or fifteen years. 184 00:10:38,200 --> 00:10:40,720 Speaker 1: Let me put a little flesh on the bones. And 185 00:10:40,840 --> 00:10:45,240 Speaker 1: this comes right from the hedge fund mirage. A m 186 00:10:45,440 --> 00:10:48,040 Speaker 1: for all of hedge funds was a hundred and eighteen 187 00:10:48,120 --> 00:10:52,080 Speaker 1: billion dollars ten years later, by two thousand and seven 188 00:10:52,120 --> 00:10:55,880 Speaker 1: it was two point one trillion, and last year we 189 00:10:56,000 --> 00:10:59,840 Speaker 1: just crossed three trillion. So despite all the talk about 190 00:11:00,280 --> 00:11:02,640 Speaker 1: this is the end the hedge funds, they've been under performing. 191 00:11:02,640 --> 00:11:06,160 Speaker 1: Everybody knows the fees are too high. They continue to 192 00:11:06,200 --> 00:11:11,160 Speaker 1: accumulate massive amounts of capital, and it's an extraordinary disconnect 193 00:11:11,200 --> 00:11:14,200 Speaker 1: by generally public pension plans. I mean, those are the 194 00:11:14,600 --> 00:11:17,319 Speaker 1: those are the big source of capital today for hedge funds, 195 00:11:17,320 --> 00:11:20,280 Speaker 1: not so much high net worth investors. And they what 196 00:11:20,320 --> 00:11:24,400 Speaker 1: they do is generally investors will understand that small hedge 197 00:11:24,400 --> 00:11:26,320 Speaker 1: funds are better than big ones. I mean it can 198 00:11:26,360 --> 00:11:28,480 Speaker 1: be expensive to have a portfolio of small hedge funds. 199 00:11:28,520 --> 00:11:30,840 Speaker 1: You need a lot of them. They also know that 200 00:11:30,920 --> 00:11:32,920 Speaker 1: any big hedge fund they look at was better when 201 00:11:32,920 --> 00:11:34,960 Speaker 1: it was smaller. That's why it's big today. There are 202 00:11:35,000 --> 00:11:39,800 Speaker 1: inefficiencies that can only be mortified. You can't put twenty 203 00:11:39,800 --> 00:11:42,880 Speaker 1: billion dollars into it, and so they missed the obvious 204 00:11:42,960 --> 00:11:45,360 Speaker 1: third step, which is that a small hedge fund industry 205 00:11:45,720 --> 00:11:47,920 Speaker 1: was better than a big one. And I would challenge 206 00:11:48,000 --> 00:11:52,400 Speaker 1: any institutional investment hedge funds today to ask themselves what's 207 00:11:52,400 --> 00:11:56,840 Speaker 1: the optimal size of the hedge fund industry? And generally 208 00:11:56,880 --> 00:11:59,559 Speaker 1: those investors don't even contemplate the question. They don't think 209 00:11:59,600 --> 00:12:01,959 Speaker 1: of it in terms of any sort of finite pool 210 00:12:02,480 --> 00:12:05,800 Speaker 1: of arbitrage type profits to be exploited. And it's a 211 00:12:05,960 --> 00:12:09,320 Speaker 1: huge disconnect. It's a huge error, and they're getting the 212 00:12:09,360 --> 00:12:13,400 Speaker 1: results that they deserve for such shallow analysis. The themed 213 00:12:13,600 --> 00:12:18,040 Speaker 1: short seller Jim Chanos, who himself runs hedge fund Kinnicoast Associates, 214 00:12:18,040 --> 00:12:20,640 Speaker 1: was a guest on the show and he said when 215 00:12:20,679 --> 00:12:23,040 Speaker 1: he launched his hedge fund, and I think it was 216 00:12:23,120 --> 00:12:25,960 Speaker 1: sometime in the eighties, because there was a couple of 217 00:12:26,000 --> 00:12:30,160 Speaker 1: hundred guys, they all generated alpha. Now there's eleven thousand 218 00:12:30,280 --> 00:12:33,880 Speaker 1: hedge funds, those same two or three hundred guys are 219 00:12:33,920 --> 00:12:37,800 Speaker 1: the ones generating the alpha. That's a little bit of exaggeration, 220 00:12:38,000 --> 00:12:39,720 Speaker 1: but not a whole lot, is it. I mean, the 221 00:12:39,760 --> 00:12:42,320 Speaker 1: problem is that it's very hard to forecast who's going 222 00:12:42,360 --> 00:12:45,000 Speaker 1: to do well, you know ahead of time. So there's 223 00:12:45,000 --> 00:12:46,880 Speaker 1: always going to be happy class and there's always gonna 224 00:12:46,880 --> 00:12:49,840 Speaker 1: be hedge funds that do well. But hedge fund performances 225 00:12:49,920 --> 00:12:53,000 Speaker 1: mean reverting, and so you have a set of investors 226 00:12:53,040 --> 00:12:55,839 Speaker 1: who very largely look at performance to decide where to invest. 227 00:12:55,880 --> 00:12:57,680 Speaker 1: I mean, I sat in so many meetings with hedge 228 00:12:57,679 --> 00:13:01,440 Speaker 1: fund managers and you have the whole discussion about security 229 00:13:01,480 --> 00:13:05,240 Speaker 1: selection of portfolio construction. So one manager leaves your caucus 230 00:13:05,559 --> 00:13:07,320 Speaker 1: and we talk about it, and then somebody says, you 231 00:13:07,400 --> 00:13:09,400 Speaker 1: know what, he was up fifty last year. Yeah he's 232 00:13:09,400 --> 00:13:11,320 Speaker 1: pretty good. Yeah, I like him. He's pretty good as 233 00:13:11,360 --> 00:13:15,640 Speaker 1: opposed tone you want to take your money off of that, Yeah, 234 00:13:15,840 --> 00:13:18,240 Speaker 1: so hege. So you've got this the way hedge fund 235 00:13:18,280 --> 00:13:24,480 Speaker 1: investors are helplessly momentum driven hedge funds are mean reverting investments. 236 00:13:24,640 --> 00:13:27,120 Speaker 1: This is never going to be a good combination. They're 237 00:13:27,160 --> 00:13:30,439 Speaker 1: always buying what worked yesterday and it's actually less likely 238 00:13:30,520 --> 00:13:34,200 Speaker 1: to work tomorrow. But they're generally institutional investors in hedge 239 00:13:34,200 --> 00:13:36,600 Speaker 1: funds are not that sophisticated. In my experience, my head 240 00:13:36,600 --> 00:13:40,439 Speaker 1: of research gave me a little tidbit which I found fascinating. 241 00:13:40,920 --> 00:13:45,199 Speaker 1: In America today, there are more hedge funds than taco bells. Amazing. 242 00:13:45,440 --> 00:13:48,839 Speaker 1: Do we have either too many hedge funds or none 243 00:13:48,920 --> 00:13:51,719 Speaker 1: enough taco bells. What's the takeaway? I think you get 244 00:13:51,760 --> 00:13:54,480 Speaker 1: better value for money taco bell. There's no question about that. 245 00:13:54,559 --> 00:13:56,880 Speaker 1: Given the choice, I'd picked the Taco Bell. So here's 246 00:13:56,920 --> 00:14:00,199 Speaker 1: the fascinating anything about this. There are a small all 247 00:14:00,280 --> 00:14:03,800 Speaker 1: group of of the alpha generators that chainos referred to. 248 00:14:04,440 --> 00:14:07,360 Speaker 1: And whether it's Jim Simons or Cliff ast Nests or 249 00:14:08,200 --> 00:14:11,120 Speaker 1: d Shore or Steve Cohen or go down the list, 250 00:14:11,720 --> 00:14:18,760 Speaker 1: the concept of the significantly outperforming manager seems to keep 251 00:14:18,800 --> 00:14:22,480 Speaker 1: everybody else in pursuit of that alpha. They're willing to 252 00:14:22,560 --> 00:14:26,080 Speaker 1: forsake beta in order to chase alpha. Is it just 253 00:14:26,240 --> 00:14:29,360 Speaker 1: that simple. It's a problem with the accounting treatment that 254 00:14:29,440 --> 00:14:31,800 Speaker 1: public pension plans use, and it's a little bit of 255 00:14:31,760 --> 00:14:35,560 Speaker 1: an obscure issue, but basically, with a pension fund, normally 256 00:14:35,680 --> 00:14:37,600 Speaker 1: use a corporate bond rate to figure out what your 257 00:14:37,600 --> 00:14:41,480 Speaker 1: liabilities are. Pension plans used the expected return on their 258 00:14:41,520 --> 00:14:45,520 Speaker 1: investment portfolio, which is a made up number. It's yes, 259 00:14:45,560 --> 00:14:48,120 Speaker 1: it's an estimate, right, And that's the account of standards 260 00:14:48,200 --> 00:14:51,280 Speaker 1: that government entities have to use. And the result is 261 00:14:51,320 --> 00:14:55,720 Speaker 1: it biases them towards hedge funds because of their historic performance. 262 00:14:55,800 --> 00:14:57,720 Speaker 1: Let's let's put more flesh on this. So if you're 263 00:14:57,760 --> 00:15:01,160 Speaker 1: a public pension fund that let's use Jersey is an example, 264 00:15:01,200 --> 00:15:04,240 Speaker 1: because there's such a mess anyway. So the New Jersey 265 00:15:04,280 --> 00:15:07,920 Speaker 1: pension funds sets up what they're expected returns are, and 266 00:15:07,960 --> 00:15:11,440 Speaker 1: they create that number by saying, here's the historical returns 267 00:15:11,480 --> 00:15:14,880 Speaker 1: of stocks, here's restored historical returns of bonds. And oh 268 00:15:15,040 --> 00:15:20,600 Speaker 1: look how giant there are expected returns are for hedge funds. 269 00:15:20,680 --> 00:15:24,200 Speaker 1: And that means that New Jersey has a smaller tax 270 00:15:24,240 --> 00:15:28,600 Speaker 1: obligation to put money into the state pension. That's entirely correct, 271 00:15:28,640 --> 00:15:32,360 Speaker 1: and so taking hedge funds out would cause their unfunded 272 00:15:32,400 --> 00:15:35,880 Speaker 1: position to be worse and put more pressure on the 273 00:15:35,960 --> 00:15:38,800 Speaker 1: governor to add, you know, to raise taxes. Even though 274 00:15:38,800 --> 00:15:41,560 Speaker 1: hedge funds have been as a group, have been significantly 275 00:15:41,640 --> 00:15:47,040 Speaker 1: underperforming mutual funds and certainly underperforming the index. Aren't we 276 00:15:47,080 --> 00:15:51,200 Speaker 1: just creating a giant, bigger problem down the road. Aren't 277 00:15:51,200 --> 00:15:53,440 Speaker 1: we just kicking the can? Yeah? The can is totally wrong. 278 00:15:53,480 --> 00:15:55,440 Speaker 1: And in fact, the other end of that is if 279 00:15:55,640 --> 00:15:58,280 Speaker 1: if a pension fund own treasury bills, which they wouldn't, 280 00:15:58,320 --> 00:16:00,680 Speaker 1: but if they did, and they pay what quarter percent, 281 00:16:01,560 --> 00:16:04,480 Speaker 1: and that affects they're expected return and the discover rate 282 00:16:04,560 --> 00:16:07,720 Speaker 1: on their liabilities. If they burned the cash that was 283 00:16:07,720 --> 00:16:10,840 Speaker 1: in those trosury bills as opposed to keeping them, if 284 00:16:10,840 --> 00:16:13,200 Speaker 1: they literally if they burned on my fire, it would 285 00:16:13,280 --> 00:16:16,200 Speaker 1: drive up their expected return because cash is a drag, 286 00:16:16,600 --> 00:16:19,720 Speaker 1: and that higher expected return would translate into a lower 287 00:16:19,760 --> 00:16:22,920 Speaker 1: present value of their obligations. And so that actually look 288 00:16:22,960 --> 00:16:25,520 Speaker 1: as if they're in better shape even after destroying some 289 00:16:25,600 --> 00:16:28,000 Speaker 1: of the assets that they would use to meet those obligations. 290 00:16:28,000 --> 00:16:31,400 Speaker 1: And it's obviously, you know, an unrealistic example, but the 291 00:16:31,480 --> 00:16:34,160 Speaker 1: math is what it is. You put in an asset 292 00:16:34,160 --> 00:16:37,040 Speaker 1: with a high expected return, it makes your funny position 293 00:16:37,080 --> 00:16:40,960 Speaker 1: look better regardless of how those assets do. And so 294 00:16:41,080 --> 00:16:43,920 Speaker 1: it's a huge problem and it's unlikely to be a 295 00:16:43,960 --> 00:16:47,160 Speaker 1: crisis because it unfolds over time, but it's to the 296 00:16:47,320 --> 00:16:51,520 Speaker 1: cost of taxpayers in any state, including New Jersey where 297 00:16:51,560 --> 00:16:55,040 Speaker 1: I live, who have that. I'm very ritolts. You're listening 298 00:16:55,120 --> 00:16:58,400 Speaker 1: to Master's in Business on Bloomberg Radio. My special guest 299 00:16:58,440 --> 00:17:02,760 Speaker 1: today is Simon lack of sl Advisors. He previously spent 300 00:17:02,800 --> 00:17:06,199 Speaker 1: twenty three years with JP Morgan, where he spent a 301 00:17:06,240 --> 00:17:09,840 Speaker 1: good part of his time allocating money to hedge funds 302 00:17:09,880 --> 00:17:14,720 Speaker 1: and other alternative investments. Let's talk a little bit about 303 00:17:15,160 --> 00:17:17,439 Speaker 1: something that has come up in one of your books, 304 00:17:17,440 --> 00:17:23,080 Speaker 1: Wall Street Potholes, about what is now called the fiduciary rule. 305 00:17:23,440 --> 00:17:27,000 Speaker 1: When when we look at people like your attorney, or 306 00:17:27,040 --> 00:17:31,240 Speaker 1: your accountant, or even your doctor, they're all obligated by 307 00:17:31,359 --> 00:17:36,119 Speaker 1: law to serve your interests. Why shouldn't financial advisors have 308 00:17:36,240 --> 00:17:38,840 Speaker 1: that same obligation. Yeah, I mean it's a fair question. 309 00:17:39,119 --> 00:17:42,320 Speaker 1: I think that a lot of investors think they aren't 310 00:17:42,359 --> 00:17:45,600 Speaker 1: dealing with the fiduciary when they're really not. And I 311 00:17:45,680 --> 00:17:49,040 Speaker 1: think that the easiest solution is to just ensure fair 312 00:17:49,080 --> 00:17:51,879 Speaker 1: disclosure that if you're not a fiducier, that your business 313 00:17:51,880 --> 00:17:54,520 Speaker 1: card says I'm not a fiduciary. Because there's also a 314 00:17:54,520 --> 00:17:57,760 Speaker 1: big segment of the investor market who perceives that dinner 315 00:17:58,000 --> 00:18:00,960 Speaker 1: with the fiduciary is more expensive because the fiduciary is 316 00:18:00,960 --> 00:18:04,080 Speaker 1: going to charge an asset fee and there's a lot 317 00:18:04,119 --> 00:18:05,639 Speaker 1: of ass who say, look, I don't want to just 318 00:18:05,760 --> 00:18:07,760 Speaker 1: pay you a fee every quarter just for my money 319 00:18:07,800 --> 00:18:09,440 Speaker 1: sitting now. I want to pay you a fee when 320 00:18:09,440 --> 00:18:12,520 Speaker 1: I do a transaction, which is the non fiduciary model. 321 00:18:12,560 --> 00:18:15,680 Speaker 1: And I think that the regulations should be flexible enough 322 00:18:15,840 --> 00:18:19,240 Speaker 1: to allow both of those to exist. But I certainly 323 00:18:19,240 --> 00:18:21,680 Speaker 1: think it should be disclosed. People should know whether they're 324 00:18:21,680 --> 00:18:23,960 Speaker 1: dealing with a fiduciary or not. What what about twelve 325 00:18:24,000 --> 00:18:28,080 Speaker 1: B one fees? Where advisors and and and we you know, 326 00:18:28,119 --> 00:18:34,080 Speaker 1: we run into a nomenclature title issue when we have brokers, advisors, 327 00:18:34,160 --> 00:18:38,200 Speaker 1: registered representatives, go down the list of names. Not all 328 00:18:38,240 --> 00:18:41,280 Speaker 1: of these people are fiduciaries. And some of these people 329 00:18:41,920 --> 00:18:45,679 Speaker 1: are both brokers and fiduciaries depending on what had they 330 00:18:45,680 --> 00:18:49,760 Speaker 1: happen to be wearing at that moment. It's still relatively complicated, 331 00:18:49,840 --> 00:18:52,600 Speaker 1: isn't it. It's complicated for people don't understand and and 332 00:18:52,640 --> 00:18:57,040 Speaker 1: so it's a very very highly regulated industry barriers, you know, 333 00:18:57,240 --> 00:18:59,840 Speaker 1: and it's hard for me to believe that even more regulations, 334 00:18:59,880 --> 00:19:03,159 Speaker 1: the answer it should be just explained clearly to people. 335 00:19:03,280 --> 00:19:06,679 Speaker 1: So you're in favor of transparency and disclosure, not full 336 00:19:06,760 --> 00:19:11,200 Speaker 1: on fiduciary obligation. Right, But disclosure doesn't mean that it's 337 00:19:11,200 --> 00:19:15,320 Speaker 1: buried in a document. Disclosure means it's on your business card. Really, 338 00:19:15,480 --> 00:19:18,440 Speaker 1: I mean, really it should be really. So if I'm so, 339 00:19:18,520 --> 00:19:22,239 Speaker 1: I've I've previously had a Series seven, which I gave up, 340 00:19:22,280 --> 00:19:25,720 Speaker 1: and I've also had a sixty five. The series seven 341 00:19:25,800 --> 00:19:29,280 Speaker 1: is the brokerage license. The sixty five is the advisory license, 342 00:19:29,840 --> 00:19:34,720 Speaker 1: and I found complying with all of the rules as 343 00:19:34,720 --> 00:19:40,480 Speaker 1: an advisor. The fiduciary standard is incredibly simple. The governing 344 00:19:40,560 --> 00:19:43,359 Speaker 1: question is what's in the client's best interest. You have 345 00:19:43,440 --> 00:19:45,639 Speaker 1: a lot more room as a broker to do things, 346 00:19:46,080 --> 00:19:49,359 Speaker 1: but the compliance is much more complex, absolutely right. And 347 00:19:49,440 --> 00:19:52,359 Speaker 1: in my business, I'm a fiduciary, and it's dead simple. 348 00:19:52,440 --> 00:19:54,560 Speaker 1: You just do what's right for the clan. As you say, 349 00:19:55,080 --> 00:19:57,480 Speaker 1: the broker dealer model, where you're not where you have 350 00:19:57,520 --> 00:20:00,560 Speaker 1: the lower standard, there's so much potential for conflicts. So 351 00:20:00,600 --> 00:20:03,440 Speaker 1: there's so many more rules and regulations. So let's let's 352 00:20:03,440 --> 00:20:06,240 Speaker 1: talk about that a little bit. How if you want 353 00:20:06,280 --> 00:20:10,240 Speaker 1: to have a disclosure obligation on non fiduciaries, do you 354 00:20:10,280 --> 00:20:13,520 Speaker 1: simply want their business card to include the word non fiduciary. 355 00:20:13,640 --> 00:20:15,840 Speaker 1: Is it that simple? I mean, maybe it would say, 356 00:20:15,920 --> 00:20:18,159 Speaker 1: you know, my responsibility is to act as an agent 357 00:20:18,200 --> 00:20:21,480 Speaker 1: of the company I work for. Some wording non fiduciary 358 00:20:21,560 --> 00:20:23,560 Speaker 1: might be you're telling me that wouldn't be in six 359 00:20:23,640 --> 00:20:27,720 Speaker 1: point tiny text. They can regularly sec regulation fund size 360 00:20:27,760 --> 00:20:30,840 Speaker 1: as we do. So I'm thinking about things like twelve 361 00:20:30,920 --> 00:20:35,040 Speaker 1: B one rules where mutual funds and this goes way 362 00:20:35,040 --> 00:20:39,000 Speaker 1: back to two when this wasn't an especial lucrative business. 363 00:20:39,680 --> 00:20:44,880 Speaker 1: Um mutual funds were paying brokerage firms for carrying their 364 00:20:44,880 --> 00:20:48,760 Speaker 1: product line, just like various food companies pay for shelf 365 00:20:48,800 --> 00:20:51,359 Speaker 1: space in a supermarket. Hey, you want to be eye level, 366 00:20:51,359 --> 00:20:53,280 Speaker 1: You want to be at the end of the row. 367 00:20:53,359 --> 00:20:55,280 Speaker 1: You don't want to be on the bottom shelf in 368 00:20:55,280 --> 00:20:58,200 Speaker 1: the middle of your lost So various fun families would 369 00:20:58,280 --> 00:21:03,640 Speaker 1: pay these fees, and it really wasn't well understood, and 370 00:21:03,720 --> 00:21:07,959 Speaker 1: whatever disclosure there was, we're buried in pages and pages 371 00:21:07,960 --> 00:21:11,080 Speaker 1: of fine print. Nobody really understood that, And so the 372 00:21:11,160 --> 00:21:15,879 Speaker 1: disclosure can always be better. But also investors have a 373 00:21:15,920 --> 00:21:19,960 Speaker 1: responsibility to invest the time to understand that. I mean, 374 00:21:20,400 --> 00:21:22,800 Speaker 1: it doesn't have to be that expensive to invest money 375 00:21:22,840 --> 00:21:25,000 Speaker 1: and you don't have to be paying twelve B one 376 00:21:25,080 --> 00:21:27,400 Speaker 1: fees or loads. You know, we run a mutual fund 377 00:21:27,440 --> 00:21:29,560 Speaker 1: in my business, and you can access it very cheaply 378 00:21:29,640 --> 00:21:33,000 Speaker 1: through SHOUB and Fidelity with I shares with no upfront fees, 379 00:21:33,359 --> 00:21:35,840 Speaker 1: or you can access it for a financial advisor, where 380 00:21:35,840 --> 00:21:37,960 Speaker 1: there will be some fees. And so it really is 381 00:21:38,040 --> 00:21:40,679 Speaker 1: up to the investor to decide do I want to 382 00:21:40,720 --> 00:21:43,080 Speaker 1: go into this fund through an advisor and pay for 383 00:21:43,119 --> 00:21:45,720 Speaker 1: him for the advice and that may be justified, or 384 00:21:45,760 --> 00:21:48,200 Speaker 1: am I happy doing my own research? And I think 385 00:21:48,240 --> 00:21:51,600 Speaker 1: that that, you know, the vast majority of retail investors 386 00:21:51,640 --> 00:21:55,240 Speaker 1: don't do enough hard work and research on who's going 387 00:21:55,280 --> 00:21:57,919 Speaker 1: to be investing the money and how and the economics 388 00:21:57,960 --> 00:22:01,200 Speaker 1: around that. They're so focused on warching an individual stock 389 00:22:01,680 --> 00:22:06,359 Speaker 1: they forget that there's alpha creation outside of just assets. 390 00:22:06,400 --> 00:22:09,639 Speaker 1: So we call that organizational alpha. It's absolutely right. I 391 00:22:09,680 --> 00:22:12,159 Speaker 1: mean a case in point is, you know, we we 392 00:22:12,240 --> 00:22:16,119 Speaker 1: specialize in energy infrastructure, and there's fifty billion dollars of 393 00:22:16,200 --> 00:22:20,080 Speaker 1: mutual funds and ETFs that are taxed as corporations, and 394 00:22:20,200 --> 00:22:23,160 Speaker 1: so only sixty of the return on those assets goes 395 00:22:23,200 --> 00:22:26,480 Speaker 1: to the class MLP or something like that. That's I mean, 396 00:22:26,640 --> 00:22:29,800 Speaker 1: so investors are paying, they're investing in funds where only 397 00:22:29,880 --> 00:22:32,920 Speaker 1: two thirds of the return goes back to them, and 398 00:22:33,080 --> 00:22:35,639 Speaker 1: I can tell you the vast majority don't even realize 399 00:22:35,840 --> 00:22:38,119 Speaker 1: that they're subject of this tax, and it just shows 400 00:22:38,160 --> 00:22:41,160 Speaker 1: that they don't read the prospectuses. I'm very redults. You're 401 00:22:41,200 --> 00:22:44,480 Speaker 1: listening to Masters in Business on Bloomberg Radio. My guest 402 00:22:44,560 --> 00:22:48,040 Speaker 1: today is Simon lack of sl Advisors. He spent twenty 403 00:22:48,080 --> 00:22:51,520 Speaker 1: three years in the trenches at JP Morgan, where, amongst 404 00:22:51,560 --> 00:22:55,439 Speaker 1: other things, he allocated a ton of money to various 405 00:22:55,480 --> 00:22:59,920 Speaker 1: hedge fund managers and UH founded a few incubator funds 406 00:23:00,119 --> 00:23:04,280 Speaker 1: that specialized in emerging managers. Let's let's talk about your 407 00:23:04,320 --> 00:23:10,560 Speaker 1: most recent book, Wall Street Potholes. You are very critical 408 00:23:10,920 --> 00:23:14,639 Speaker 1: of the industry where we apply our trades. Tell me 409 00:23:15,160 --> 00:23:17,879 Speaker 1: what the pushback to the book was. I think generally 410 00:23:17,960 --> 00:23:21,199 Speaker 1: has been well received. I mean, Wall Street's got mostly 411 00:23:21,280 --> 00:23:23,960 Speaker 1: honest people, but not everybody, and it's certainly a very 412 00:23:24,040 --> 00:23:27,399 Speaker 1: expensive place to do business at its worst. And so 413 00:23:27,680 --> 00:23:30,240 Speaker 1: the goal of that book was to try and educate 414 00:23:30,359 --> 00:23:32,600 Speaker 1: the clients, not to get Wall Street to change what 415 00:23:32,680 --> 00:23:35,679 Speaker 1: it's doing, but make the clients better educated, so they 416 00:23:35,720 --> 00:23:38,840 Speaker 1: can be more discriminating and ask better questions about what 417 00:23:38,960 --> 00:23:41,399 Speaker 1: they're paying for. I'm so glad you say that you 418 00:23:41,520 --> 00:23:44,199 Speaker 1: said that, because I've said this to people and they 419 00:23:44,280 --> 00:23:47,280 Speaker 1: look at me like I have two heads. My reputation 420 00:23:47,400 --> 00:23:50,080 Speaker 1: has been a critic of Wall Street, and when I say, 421 00:23:50,200 --> 00:23:52,320 Speaker 1: most of the people I know who are can finance 422 00:23:52,359 --> 00:23:57,040 Speaker 1: are completely honest. Some of them have their compensation system 423 00:23:57,359 --> 00:24:02,000 Speaker 1: missile misaligned, but it's always us a handful of bad Yeah. 424 00:24:02,040 --> 00:24:04,919 Speaker 1: Absolutely absolutely. I mean, like you, I've got a lot 425 00:24:04,960 --> 00:24:07,040 Speaker 1: of friends in the business, right, These are honest people. 426 00:24:07,119 --> 00:24:09,680 Speaker 1: I mean, it's not that the industry is dishonest. You 427 00:24:09,800 --> 00:24:13,119 Speaker 1: get some bad actors, and you get I think you know, 428 00:24:13,320 --> 00:24:17,720 Speaker 1: complexity and insufficient research by investors, and you get people 429 00:24:17,800 --> 00:24:20,320 Speaker 1: being charged too much for things or inappropriate products, and 430 00:24:20,400 --> 00:24:24,680 Speaker 1: the subsequent effects when people are dishonest in this industry 431 00:24:24,840 --> 00:24:28,560 Speaker 1: are outsized. It's billions of dollars and the spillover effect 432 00:24:28,600 --> 00:24:31,600 Speaker 1: of the real economy can be very destential. Yeah. So 433 00:24:31,720 --> 00:24:34,360 Speaker 1: let's talk about about some of the potholes you reference 434 00:24:34,440 --> 00:24:38,280 Speaker 1: in the book Non Traded Reads. Let's discuss this a 435 00:24:38,440 --> 00:24:43,040 Speaker 1: security that should not exist. It's a disgusting product it really, 436 00:24:43,119 --> 00:24:45,600 Speaker 1: I mean that might say that might be one of 437 00:24:45,800 --> 00:24:48,040 Speaker 1: that might be the worst investment that could ever be 438 00:24:48,119 --> 00:24:51,959 Speaker 1: sold to retail. Really, So the fees fifteen points, I mean, 439 00:24:52,080 --> 00:24:54,800 Speaker 1: if you think hedge funds are expensive, fifteen points of 440 00:24:54,960 --> 00:24:59,639 Speaker 1: upfront fees. Now, I saw one piece of two and 441 00:24:59,720 --> 00:25:03,080 Speaker 1: twent fifty. You put in a hundred dollars, you've got 442 00:25:03,119 --> 00:25:06,520 Speaker 1: eighty five dollars on day One's working for you. I 443 00:25:06,600 --> 00:25:08,560 Speaker 1: saw one. At least it's liquid and you could sell 444 00:25:08,600 --> 00:25:10,639 Speaker 1: at anytime you want. Yeah. I saw one piece of 445 00:25:10,720 --> 00:25:13,159 Speaker 1: research saying non traded reachs, which of course are not 446 00:25:13,359 --> 00:25:16,240 Speaker 1: liquid and can't be solved, and being sarcastic, I understand, 447 00:25:16,640 --> 00:25:19,840 Speaker 1: and non traded reads are better than the publicly traded 448 00:25:19,880 --> 00:25:23,159 Speaker 1: reads because they have less volatility. Sure, and they have 449 00:25:23,320 --> 00:25:26,920 Speaker 1: less volatility because the prices don't move because they're not traded. 450 00:25:27,320 --> 00:25:30,680 Speaker 1: My house has no volatility, so it doesn't trade every so. Yes. 451 00:25:30,840 --> 00:25:34,760 Speaker 1: So so this fellow said that the illiquidity of non 452 00:25:34,840 --> 00:25:38,040 Speaker 1: traded reachs benefited the long term investor because it prevents 453 00:25:38,119 --> 00:25:41,159 Speaker 1: you from making an impulsive and self destructive decision to 454 00:25:41,240 --> 00:25:45,320 Speaker 1: sell it because you can't. And it's so stupid. I mean, 455 00:25:45,400 --> 00:25:48,480 Speaker 1: it's so self serving. I couldn't believe that this fellow 456 00:25:48,720 --> 00:25:53,119 Speaker 1: was much less volatility. You know, that's we build a 457 00:25:53,240 --> 00:25:57,080 Speaker 1: gate in that prevents you from selling this for your 458 00:25:57,119 --> 00:26:00,760 Speaker 1: own your own good and then of also littered with 459 00:26:00,880 --> 00:26:03,480 Speaker 1: conflicts of interest. And it seems to be that if 460 00:26:03,560 --> 00:26:06,640 Speaker 1: you tell investors how many ways you're going to screw them, 461 00:26:07,119 --> 00:26:10,000 Speaker 1: it's okay to go and screw them. Disclose, disclose it. 462 00:26:10,080 --> 00:26:11,800 Speaker 1: So what I'll say, well, how you're going to lose 463 00:26:11,880 --> 00:26:14,080 Speaker 1: your fortune? So even though a reat is supposed to 464 00:26:14,119 --> 00:26:16,800 Speaker 1: invest in real estate, they charge you additional fees to 465 00:26:16,880 --> 00:26:19,000 Speaker 1: buy real estate, to manage it, and to sell it. 466 00:26:19,400 --> 00:26:22,359 Speaker 1: There's extra incentive fees paid to the management. There's there's 467 00:26:22,400 --> 00:26:25,200 Speaker 1: granting of extra shares to the management. I mean, it's 468 00:26:25,640 --> 00:26:30,320 Speaker 1: utterly anybody who has sold non traded reads honestly should 469 00:26:30,359 --> 00:26:32,240 Speaker 1: not feel that good about what they've been. So two 470 00:26:32,359 --> 00:26:34,959 Speaker 1: questions about this, and and by the way, I've had 471 00:26:35,000 --> 00:26:37,600 Speaker 1: some friends who have written about it very very negatively, 472 00:26:37,760 --> 00:26:41,600 Speaker 1: very disparagingly. Two questions. First, how much money is in 473 00:26:41,760 --> 00:26:44,960 Speaker 1: non traded reads? Oh? Today, I don't know it's going 474 00:26:45,000 --> 00:26:47,920 Speaker 1: to be in the it's going to be in the 475 00:26:47,960 --> 00:26:50,159 Speaker 1: hunters of billions. Oh really, I think it's Yeah, I 476 00:26:50,240 --> 00:26:51,720 Speaker 1: think it's going to be in the low hunt. My 477 00:26:51,840 --> 00:26:54,240 Speaker 1: guests would be a couple hundred billion dollars. And I 478 00:26:54,320 --> 00:26:57,480 Speaker 1: may be confusing this vehicle with another one, but wasn't. 479 00:26:57,800 --> 00:27:01,120 Speaker 1: Non traded reads are writtenly set up for a very 480 00:27:01,280 --> 00:27:04,359 Speaker 1: very unique and specific purpose, and now it's just been 481 00:27:04,440 --> 00:27:08,560 Speaker 1: completely morphed into something else. Like what who who said? 482 00:27:08,960 --> 00:27:12,720 Speaker 1: What was the thinking behind the original non traded I 483 00:27:12,880 --> 00:27:15,760 Speaker 1: think I don't know the answer, but I believe that 484 00:27:15,960 --> 00:27:18,879 Speaker 1: they are sort of arbitrage in the regular system because 485 00:27:19,280 --> 00:27:22,919 Speaker 1: non traded rates are registered securities, and the register they 486 00:27:22,960 --> 00:27:27,240 Speaker 1: could be sold to anybody, but by no accreditation requirements, 487 00:27:27,960 --> 00:27:31,680 Speaker 1: any suitability issues, not there for your suitability lament. But 488 00:27:31,760 --> 00:27:35,200 Speaker 1: they're basically their their public securities. But because they're not 489 00:27:35,320 --> 00:27:38,960 Speaker 1: publicly traded, they don't draw any research because there's no commissions. 490 00:27:39,760 --> 00:27:42,240 Speaker 1: And so if you're going to design a security that 491 00:27:42,400 --> 00:27:45,159 Speaker 1: really does fleece investors, you don't want sell side resource 492 00:27:45,200 --> 00:27:46,960 Speaker 1: to write about it. So if it's not traded, there's 493 00:27:46,960 --> 00:27:49,359 Speaker 1: no commissions, there's no incentive to write research about it, 494 00:27:49,520 --> 00:27:52,680 Speaker 1: so you can stay in the shadows because there's no 495 00:27:52,760 --> 00:27:54,760 Speaker 1: money to be made being critical of non traded rich 496 00:27:54,880 --> 00:27:58,720 Speaker 1: has the SEC looked into making these sec to their credit? 497 00:27:58,920 --> 00:28:02,360 Speaker 1: Has an investor Alerts page on their website which has 498 00:28:02,480 --> 00:28:05,520 Speaker 1: non traded rates on there. Don't buy this. So you 499 00:28:05,720 --> 00:28:09,720 Speaker 1: could ask your own investment advisor do you push products 500 00:28:09,840 --> 00:28:12,879 Speaker 1: that are the subject of an SEC investor alert? And 501 00:28:13,080 --> 00:28:15,399 Speaker 1: if yes, why that would be a fair question. That 502 00:28:15,520 --> 00:28:19,080 Speaker 1: is a fair question. Let's talk about structured notes. Why, 503 00:28:19,359 --> 00:28:21,960 Speaker 1: what are structured notes and why are they rarely the 504 00:28:22,080 --> 00:28:27,640 Speaker 1: best choice? So structured notes are basically securities that give 505 00:28:27,680 --> 00:28:31,000 Speaker 1: you exposure to the return on an asset class, generally 506 00:28:31,119 --> 00:28:34,720 Speaker 1: with some barrier or some protection against losing more than 507 00:28:34,760 --> 00:28:38,200 Speaker 1: a certain amount of money. And of course structured notes 508 00:28:38,280 --> 00:28:41,520 Speaker 1: are created by Wall Street banks issuing them and then 509 00:28:41,600 --> 00:28:44,000 Speaker 1: hedging the risk out, generally with options, and so you 510 00:28:44,080 --> 00:28:46,640 Speaker 1: can always create the same exposure yourself with options if 511 00:28:46,680 --> 00:28:51,760 Speaker 1: you want to counter party risk. Counterparty risk because there 512 00:28:51,760 --> 00:28:54,120 Speaker 1: will be three to five points of fees that are 513 00:28:54,200 --> 00:28:57,960 Speaker 1: taken out that are very hard to discern after you've 514 00:28:58,000 --> 00:29:00,360 Speaker 1: done the transaction, and so almost anything you can do 515 00:29:00,440 --> 00:29:02,960 Speaker 1: with a structured note you could do more cheaply elsewhere. 516 00:29:03,440 --> 00:29:06,520 Speaker 1: So a previous guest was Ken Fisher of Fisher Investments, 517 00:29:06,560 --> 00:29:08,920 Speaker 1: and if you go anywhere on the internet you'll see 518 00:29:09,000 --> 00:29:12,640 Speaker 1: Ken's ads. I hate a nuties, but not all types. 519 00:29:13,040 --> 00:29:15,680 Speaker 1: Click here to find out why. Tell me what your 520 00:29:15,720 --> 00:29:19,719 Speaker 1: thoughts are on both fixed and variable and nuities. I mean, 521 00:29:19,760 --> 00:29:22,120 Speaker 1: annuity is generally a terrible because once you're in, you 522 00:29:22,200 --> 00:29:25,600 Speaker 1: can't get out, and you can't see what the fees are. Right, 523 00:29:25,680 --> 00:29:27,880 Speaker 1: it's not even visible to what the fees are, and 524 00:29:28,000 --> 00:29:30,920 Speaker 1: there's exit cost if you want to cancel it, and 525 00:29:31,240 --> 00:29:32,880 Speaker 1: you can't see what the return is going to be 526 00:29:32,920 --> 00:29:35,360 Speaker 1: relative to the index. So their whole products, and of 527 00:29:35,480 --> 00:29:38,440 Speaker 1: course the people who issue anuities are just investing your 528 00:29:38,480 --> 00:29:41,120 Speaker 1: money in stocks and bonds to create that return, taking 529 00:29:41,160 --> 00:29:44,400 Speaker 1: out several points of fees in the process. People don't 530 00:29:44,400 --> 00:29:47,680 Speaker 1: realize that annuity is just a wrapper around whatever portfolio 531 00:29:47,760 --> 00:29:51,200 Speaker 1: you wanted to be exactly. By the way, if you 532 00:29:51,400 --> 00:29:54,800 Speaker 1: look at um the nonprofit version of four in one 533 00:29:54,920 --> 00:29:57,800 Speaker 1: case four or three b s, and you drill down 534 00:29:57,840 --> 00:30:02,960 Speaker 1: into what's offered for teachers at various public schools, it's 535 00:30:03,040 --> 00:30:07,200 Speaker 1: something like seventy plus percent our annuities and the only 536 00:30:07,560 --> 00:30:09,840 Speaker 1: the best reason to own an annuity is because you've 537 00:30:09,840 --> 00:30:13,360 Speaker 1: already exhausted all your other tax deferrals. But a four 538 00:30:13,440 --> 00:30:15,480 Speaker 1: H three B is a tax deferdentity. Why are you 539 00:30:15,520 --> 00:30:18,320 Speaker 1: putting a tax de ferdentity in a tax to ferdentity 540 00:30:18,400 --> 00:30:25,280 Speaker 1: with a giant fee. It's a bad name. It's well, 541 00:30:25,440 --> 00:30:28,440 Speaker 1: this is mostly insurance, not so much. That's true. That's true, 542 00:30:28,720 --> 00:30:31,520 Speaker 1: and there's a proper usage of annuities, but I assure 543 00:30:31,600 --> 00:30:36,520 Speaker 1: you that is not it. So so what about high 544 00:30:36,560 --> 00:30:40,800 Speaker 1: frequency trading? You've you've called it a tax. Other people. 545 00:30:41,000 --> 00:30:43,680 Speaker 1: Bill McNab a Vanguard says that there's a way to 546 00:30:43,840 --> 00:30:47,200 Speaker 1: work within it. It narrow spreads and makes everything cheaper. 547 00:30:47,920 --> 00:30:50,360 Speaker 1: I tend to be more in your camp. Someone's got 548 00:30:50,440 --> 00:30:53,000 Speaker 1: to pay for that, and it's really the investor. Yeah, 549 00:30:53,080 --> 00:30:56,200 Speaker 1: I mean, it's a very complex topic. I thought Michael 550 00:30:56,280 --> 00:30:59,320 Speaker 1: Lewis wrote a fantastic book about that with Flashboys. What. 551 00:31:00,080 --> 00:31:04,000 Speaker 1: He's a terrific writer anyway. But um, there may be 552 00:31:04,200 --> 00:31:07,920 Speaker 1: some liquidity benefits from high frequency trading, but the fact 553 00:31:08,000 --> 00:31:11,520 Speaker 1: that it's in many cases based on faster access to 554 00:31:11,600 --> 00:31:15,840 Speaker 1: the markets and using connectivity and fiber optics to beat 555 00:31:15,880 --> 00:31:18,080 Speaker 1: you to the price. I mean, Michael Lewis goes through 556 00:31:18,120 --> 00:31:21,440 Speaker 1: the example of essentially front running h f T algorithms 557 00:31:21,920 --> 00:31:25,560 Speaker 1: front running you know, a human driven order. I mean, 558 00:31:25,640 --> 00:31:27,680 Speaker 1: if a human was doing what these algorithms are doing 559 00:31:27,720 --> 00:31:30,480 Speaker 1: to be illegal, and so clearly they shouldn't be allowed 560 00:31:30,520 --> 00:31:34,160 Speaker 1: to do that. In in Flesh In Flesh Boys, he 561 00:31:34,400 --> 00:31:37,120 Speaker 1: describes as soon as you come out of the Holland 562 00:31:37,160 --> 00:31:40,840 Speaker 1: Tunnel on the New Jersey side, opposite Wall Street is 563 00:31:40,880 --> 00:31:43,280 Speaker 1: a whole run of buildings and they're essentially ghost buildings, 564 00:31:43,360 --> 00:31:46,240 Speaker 1: just filled with floors of servers. And the reason they're 565 00:31:46,240 --> 00:31:50,000 Speaker 1: there is it's physically closest to the street without actually 566 00:31:50,080 --> 00:31:54,240 Speaker 1: being in Manhattan. You can actually get space because the 567 00:31:54,520 --> 00:31:58,440 Speaker 1: latency the closer you are, the faster the thing. It's 568 00:31:58,480 --> 00:32:00,760 Speaker 1: the speed of way. And the New York's Stock Exchange 569 00:32:01,360 --> 00:32:05,440 Speaker 1: renting out space for service to reduce latency is clearly 570 00:32:05,480 --> 00:32:07,000 Speaker 1: not in the public interest. I mean, I think the 571 00:32:07,040 --> 00:32:09,080 Speaker 1: New York's docquestration should be utility. It should never have 572 00:32:09,160 --> 00:32:11,840 Speaker 1: been converted into it for profit entity anyway, couldn't possibly 573 00:32:11,880 --> 00:32:14,960 Speaker 1: agree more. Let's let's talk about leveraged e T F. 574 00:32:16,000 --> 00:32:19,280 Speaker 1: I really am interested in this three time leveraged inverse 575 00:32:19,520 --> 00:32:22,080 Speaker 1: s and P funds. Tell me why I'm an idiot 576 00:32:22,160 --> 00:32:26,000 Speaker 1: from wanting to buy that. I mean, there's no way 577 00:32:26,160 --> 00:32:29,360 Speaker 1: that anybody achieves their investment objectives with with two or 578 00:32:29,440 --> 00:32:32,600 Speaker 1: three times levered e t s. And in fact they're 579 00:32:32,680 --> 00:32:35,920 Speaker 1: designed if you read through the perspectives is it tells 580 00:32:36,000 --> 00:32:39,320 Speaker 1: you that they're designed to eventually go to zero. So 581 00:32:39,480 --> 00:32:42,360 Speaker 1: the course of explain why, because people really don't understand, 582 00:32:42,600 --> 00:32:45,400 Speaker 1: it's because of the negative effect of compounding. It's sort 583 00:32:45,440 --> 00:32:47,400 Speaker 1: of like, if you imagine a security goes up by 584 00:32:47,480 --> 00:32:50,080 Speaker 1: ten percent, by a security a hundred dollars goes up 585 00:32:50,080 --> 00:32:53,000 Speaker 1: by ten hundred ten if it goes down by ten percent, 586 00:32:53,040 --> 00:32:55,240 Speaker 1: it goes to So it's gone up and down by 587 00:32:55,320 --> 00:32:57,840 Speaker 1: ten percent, but you're a dollar worse off. That's what 588 00:32:58,080 --> 00:33:02,480 Speaker 1: compounding does. We have been speaking with Simon lack of 589 00:33:02,800 --> 00:33:06,520 Speaker 1: sl Advisers. If you enjoy this conversation, be sure and 590 00:33:06,600 --> 00:33:09,760 Speaker 1: stick around and check out the podcast extras, where we 591 00:33:09,880 --> 00:33:14,720 Speaker 1: continue chatting about all things financial and Wall Street. Be 592 00:33:14,800 --> 00:33:17,520 Speaker 1: sure and check out my daily column on Bloomberg View 593 00:33:17,600 --> 00:33:21,360 Speaker 1: dot com. You can follow me on Twitter at rid Halts. 594 00:33:22,080 --> 00:33:26,560 Speaker 1: We love your comments, feedback and suggestions right to us 595 00:33:26,840 --> 00:33:30,520 Speaker 1: at m IB podcast at Bloomberg dot net. I'm Barry 596 00:33:30,600 --> 00:33:33,840 Speaker 1: rid Halts. You've been listening to Masters in Business on 597 00:33:33,920 --> 00:33:37,440 Speaker 1: Bloomberg Radio. Hey guys, let me ask you a question. 598 00:33:37,920 --> 00:33:41,120 Speaker 1: Do you have trouble finding dress shirts that fit well? 599 00:33:41,280 --> 00:33:45,960 Speaker 1: Thanks to proper Cloth, ordering custom shirts has never been easier. 600 00:33:46,480 --> 00:33:50,000 Speaker 1: At proper cloth dot com, you can literally order a 601 00:33:50,120 --> 00:33:54,800 Speaker 1: high quality, perfect fitting custom shirt in less than five minutes. 602 00:33:55,320 --> 00:33:59,200 Speaker 1: Create your custom size by answering just ten simple questions, 603 00:33:59,800 --> 00:34:02,760 Speaker 1: no need for measuring tape or trips to the tailor. 604 00:34:03,360 --> 00:34:07,720 Speaker 1: Perfect fit is guaranteed, remakes are completely free, and expert 605 00:34:07,800 --> 00:34:11,840 Speaker 1: staff are standing by to help. For premium quality, perfect 606 00:34:11,880 --> 00:34:17,520 Speaker 1: fitting shirts, visit proper cloth dot com Custom Shirts made Smarter. 607 00:34:18,320 --> 00:34:20,320 Speaker 1: Welcome to the podcast. I don't know why I do that. 608 00:34:20,400 --> 00:34:22,239 Speaker 1: I do that every time, Simon, thank you so much 609 00:34:22,360 --> 00:34:25,239 Speaker 1: for doing this. I've been looking forward to this for 610 00:34:25,320 --> 00:34:28,360 Speaker 1: a long time. And and a little background. I have 611 00:34:28,520 --> 00:34:32,279 Speaker 1: to share the story because it's it's so true. I 612 00:34:32,800 --> 00:34:34,840 Speaker 1: won't mention the name of the group, but there's a 613 00:34:35,040 --> 00:34:39,920 Speaker 1: wealthy group that is notorious for inviting people to speak 614 00:34:40,000 --> 00:34:43,719 Speaker 1: to present to their conference, and they don't want to 615 00:34:43,719 --> 00:34:46,680 Speaker 1: pay anybody for it. And my you know, if you're 616 00:34:46,680 --> 00:34:50,040 Speaker 1: a nonprofit. If your school, I've spoken, we actually met. 617 00:34:50,880 --> 00:34:53,520 Speaker 1: We met at the Harvard Kendidy, I've spoken an n 618 00:34:53,600 --> 00:34:56,800 Speaker 1: y U, Columbia, m I T University, Wash, I've spoken 619 00:34:56,840 --> 00:34:59,640 Speaker 1: all over. If you're a nonprofit, I don't feel the 620 00:34:59,719 --> 00:35:01,879 Speaker 1: needs to stick my hand in your pocket. If you're 621 00:35:01,880 --> 00:35:04,640 Speaker 1: a billion dollar entity and you're not a client and 622 00:35:04,760 --> 00:35:07,239 Speaker 1: I want to you want me to come chat, I'm 623 00:35:07,320 --> 00:35:11,239 Speaker 1: happy to just share of the right. I think it's 624 00:35:11,239 --> 00:35:16,320 Speaker 1: pretty So this group was hounding me. I don't remember 625 00:35:16,400 --> 00:35:19,879 Speaker 1: what happened, but for whatever reason, maybe it was bail 626 00:35:19,920 --> 00:35:24,440 Speaker 1: Out Nation, for whatever reason, suddenly my phones are lighting up, 627 00:35:25,080 --> 00:35:31,239 Speaker 1: and I know their audience. I know who their clientele is, 628 00:35:32,360 --> 00:35:35,839 Speaker 1: very very wealthy people who I think should read your 629 00:35:35,920 --> 00:35:42,000 Speaker 1: book because they're there. Their capital is malinvested, misinvested, and 630 00:35:42,480 --> 00:35:47,279 Speaker 1: they don't Professor Meyer Stateman would say they're investing for 631 00:35:47,440 --> 00:35:55,880 Speaker 1: expressive reasons, not utilitarian return on capital. And so I 632 00:35:56,080 --> 00:36:04,560 Speaker 1: finally say, Okay, I'm gonna do your conference, but it's 633 00:36:04,640 --> 00:36:06,560 Speaker 1: it's gonna be my presentation. It's not going to be 634 00:36:06,680 --> 00:36:10,239 Speaker 1: what you want. And they said fine, So I created 635 00:36:10,320 --> 00:36:14,520 Speaker 1: the presentation called Romancing Alpha Forsaking Beta. We happen to 636 00:36:14,560 --> 00:36:20,000 Speaker 1: be recording this the day after Valentine's Day, and all 637 00:36:20,080 --> 00:36:23,080 Speaker 1: of the data points or much of the data points 638 00:36:23,480 --> 00:36:27,799 Speaker 1: from within your book ended up in my presentation. Really 639 00:36:27,840 --> 00:36:30,560 Speaker 1: it's the other way around. Most of the presentation data 640 00:36:30,640 --> 00:36:34,600 Speaker 1: points came from you, or or certainly at least the start. 641 00:36:34,719 --> 00:36:39,680 Speaker 1: And and some of my favorite um numbers that that 642 00:36:39,880 --> 00:36:43,200 Speaker 1: I brought into the presentation. I just have to share 643 00:36:43,280 --> 00:36:47,239 Speaker 1: two of these because they're insane. In two thousand and eight, 644 00:36:47,520 --> 00:36:50,759 Speaker 1: the hedge fund industry lost more money than all the 645 00:36:50,920 --> 00:36:55,279 Speaker 1: profits it had generated during the prior decade, possibly more 646 00:36:55,400 --> 00:36:59,120 Speaker 1: than it had generated. Ever, how on earth is that? 647 00:36:59,239 --> 00:37:02,680 Speaker 1: Possibly it's amazing, isn't it. I think that's just amazing, 648 00:37:03,080 --> 00:37:05,879 Speaker 1: And for his for an industry that used to call 649 00:37:05,960 --> 00:37:09,520 Speaker 1: itself the absolute return industry. I mean, a R magazine 650 00:37:10,239 --> 00:37:12,480 Speaker 1: is called that because of the industry it covers. But 651 00:37:12,600 --> 00:37:15,360 Speaker 1: hedge funds, of course, over time moved the goalposts or 652 00:37:15,400 --> 00:37:18,560 Speaker 1: the consultants moved because it was an absolute return, because 653 00:37:18,600 --> 00:37:20,920 Speaker 1: obviously they lost the huture amount in two thousand and eight, 654 00:37:21,400 --> 00:37:24,680 Speaker 1: and then it was relative return. But then their relative 655 00:37:24,719 --> 00:37:27,239 Speaker 1: returns have also been pretty bad, so now it's an 656 00:37:27,320 --> 00:37:30,400 Speaker 1: uncorrelated returns that you're looking for, and they are uncorrelated 657 00:37:30,440 --> 00:37:32,480 Speaker 1: because they're pretty bad and the worst the most other 658 00:37:32,560 --> 00:37:35,359 Speaker 1: things you can invest in. So they just got too big. 659 00:37:35,560 --> 00:37:38,920 Speaker 1: I mean, the industry showed that at a trillion dollars 660 00:37:39,320 --> 00:37:43,160 Speaker 1: there's enough opportunities to generate attractive returns, and you go 661 00:37:43,239 --> 00:37:46,520 Speaker 1: above a trillion dollars, there aren't. And it's a form 662 00:37:46,600 --> 00:37:50,719 Speaker 1: of sort of cognitive dittizens by investors that they don't recognize. 663 00:37:50,760 --> 00:37:53,480 Speaker 1: This driven in part by the consultants and the mechanic 664 00:37:53,560 --> 00:37:56,320 Speaker 1: treament that we discussed a little earlier. I've found that 665 00:37:56,880 --> 00:38:02,000 Speaker 1: the errata of the pension ones are different than the 666 00:38:02,239 --> 00:38:07,840 Speaker 1: rata of the meaning the misunderstanding and misallocation of the 667 00:38:07,920 --> 00:38:11,359 Speaker 1: high net worth individual. There is a lot of bragging rights, 668 00:38:11,640 --> 00:38:15,239 Speaker 1: even to say on the links my hedgephone money, this 669 00:38:15,320 --> 00:38:17,520 Speaker 1: guy is killing me. He used to be so hard, 670 00:38:17,920 --> 00:38:19,880 Speaker 1: you know, he's crushing me this year. I don't know 671 00:38:19,880 --> 00:38:21,840 Speaker 1: what I'm gonna do with this guy. That is a 672 00:38:22,040 --> 00:38:26,480 Speaker 1: form of social signaling and bragging, and I didn't realize 673 00:38:26,520 --> 00:38:28,719 Speaker 1: that until fairly I think that's true. But you know, 674 00:38:29,120 --> 00:38:32,720 Speaker 1: the high net worth investors are generally smart people. Because 675 00:38:32,800 --> 00:38:35,480 Speaker 1: you have to be smart to be to get rich. No, 676 00:38:35,840 --> 00:38:38,680 Speaker 1: not not always. You can be lucky, right, But they're 677 00:38:38,719 --> 00:38:41,000 Speaker 1: not the big attention investors that, no, they're not. And 678 00:38:41,160 --> 00:38:44,800 Speaker 1: you know what, when you hear this term sophisticated institutional investor, 679 00:38:45,120 --> 00:38:47,960 Speaker 1: I'm telling you public pension plans are some of the 680 00:38:48,040 --> 00:38:50,839 Speaker 1: least sophisticated people I've ever met. I have to share 681 00:38:50,880 --> 00:38:53,960 Speaker 1: a quick war story, and I may have shared this previously. 682 00:38:54,880 --> 00:38:58,560 Speaker 1: After the presentation. You and I each gave a presentation 683 00:38:58,600 --> 00:39:03,600 Speaker 1: at the Kennedy School, which was filled with um representatives 684 00:39:03,719 --> 00:39:08,759 Speaker 1: of various endowments and state pension funds. Apparently someone went 685 00:39:08,840 --> 00:39:11,920 Speaker 1: back to their state pension fund to trustee and said, hey, 686 00:39:12,080 --> 00:39:15,200 Speaker 1: you know this guy Ridholtz told an interesting story. You 687 00:39:15,280 --> 00:39:18,640 Speaker 1: might want to have him come speak to the advisory board. 688 00:39:19,239 --> 00:39:23,120 Speaker 1: So I get an invitation, and you know, again, nonprofit. 689 00:39:23,239 --> 00:39:26,080 Speaker 1: I'm happy to do it for free. And I won't 690 00:39:26,120 --> 00:39:29,000 Speaker 1: identify them, but I'm sitting I get arrived early, and 691 00:39:29,040 --> 00:39:30,560 Speaker 1: I'm sitting in the back of the room, and I'm 692 00:39:31,040 --> 00:39:36,440 Speaker 1: listening to one hedge fund consultant after another do their presentation, 693 00:39:36,600 --> 00:39:42,640 Speaker 1: and and my carefully crafted bullet points throw them out 694 00:39:42,719 --> 00:39:46,560 Speaker 1: the window and I immediately figured out these guys are 695 00:39:46,719 --> 00:39:49,160 Speaker 1: never going to do business with me until there's a 696 00:39:49,200 --> 00:39:52,239 Speaker 1: wholesale slaughter and replacement of every person in that room. 697 00:39:52,800 --> 00:39:56,640 Speaker 1: They're doomed. They're just going to cost the taxpayer billions 698 00:39:56,680 --> 00:40:00,239 Speaker 1: of dollars down down the road. So I basically said, 699 00:40:00,640 --> 00:40:03,880 Speaker 1: I prepared a nice, tidy presentation, but you don't want 700 00:40:03,920 --> 00:40:06,560 Speaker 1: to hear it. I'm going to tell you something else. 701 00:40:06,600 --> 00:40:10,160 Speaker 1: And I proceeded to destroy all the nonsense that I 702 00:40:10,239 --> 00:40:13,239 Speaker 1: had heard in the previous hour and said said, I 703 00:40:13,280 --> 00:40:15,920 Speaker 1: don't understand why you would believe. And I used this 704 00:40:16,160 --> 00:40:20,839 Speaker 1: that's where that metaphor comes when when you're uh, when 705 00:40:20,920 --> 00:40:22,840 Speaker 1: your scouts come out and tell you this guy is 706 00:40:22,880 --> 00:40:25,520 Speaker 1: the greatest picture ever, this is the greatest batter we've 707 00:40:25,560 --> 00:40:28,080 Speaker 1: ever seen. And year after year they're sending you one 708 00:40:28,160 --> 00:40:30,279 Speaker 1: bumb after another, and all these guys wash out of 709 00:40:30,320 --> 00:40:33,560 Speaker 1: the league. Why do you keep listening to them? All 710 00:40:33,600 --> 00:40:36,440 Speaker 1: I heard was here's why we did so terribly last year. 711 00:40:37,040 --> 00:40:39,160 Speaker 1: But at least you're you know you're you're paying a 712 00:40:39,239 --> 00:40:40,879 Speaker 1: lot for it. And here's why we're gonna do better 713 00:40:40,960 --> 00:40:44,879 Speaker 1: next year. It's it's come for the under performance, stay 714 00:40:44,920 --> 00:40:47,240 Speaker 1: for the high fees. And I don't mean to imply 715 00:40:47,360 --> 00:40:50,120 Speaker 1: that there aren't hedge funds that do really, really well. 716 00:40:50,960 --> 00:40:54,000 Speaker 1: It's that these guys have no ability to find them, 717 00:40:54,080 --> 00:40:57,440 Speaker 1: to manage them, and to know how to say, okay, 718 00:40:57,480 --> 00:41:00,000 Speaker 1: it's time to move on. Well, that's absolutely right. Unless 719 00:41:00,000 --> 00:41:02,680 Speaker 1: an interesting thing about how you should use hedge funds 720 00:41:02,719 --> 00:41:06,040 Speaker 1: because hedge fund returns on average of poor. So generally, 721 00:41:06,360 --> 00:41:08,879 Speaker 1: if you're investing in an asset class, you want diversification. 722 00:41:09,120 --> 00:41:11,920 Speaker 1: That's the only free lunch. But that's assuming that the 723 00:41:12,000 --> 00:41:14,520 Speaker 1: asset class has an average return that you want. Now, 724 00:41:14,920 --> 00:41:17,400 Speaker 1: because with hedge funds, you don't want the average return. 725 00:41:18,000 --> 00:41:21,120 Speaker 1: Diversification is going to make it more likely that you 726 00:41:21,239 --> 00:41:24,279 Speaker 1: get the average. The only way to be a hedge 727 00:41:24,320 --> 00:41:26,799 Speaker 1: fund investor and be successful is to be good at 728 00:41:26,840 --> 00:41:31,680 Speaker 1: picking funds. And certainly less than half the people, right 729 00:41:31,880 --> 00:41:34,920 Speaker 1: I mean I say less, I would say it's a 730 00:41:35,040 --> 00:41:38,080 Speaker 1: very small percentage. Maybe you know there's a quote I've 731 00:41:38,120 --> 00:41:41,800 Speaker 1: been trying to chase down, and the earliest mention I 732 00:41:41,960 --> 00:41:43,840 Speaker 1: found of it, I want to say in the ft, 733 00:41:44,600 --> 00:41:46,959 Speaker 1: and I don't remember was the late nineties or early 734 00:41:47,040 --> 00:41:51,960 Speaker 1: two thousand's, and the quote goes something like a hedge 735 00:41:52,040 --> 00:41:58,160 Speaker 1: fund is a wealth transference vehicle masquerading as an asset class. Yeah, well, 736 00:41:58,280 --> 00:42:00,480 Speaker 1: I mean that sounds like something buff it would say 737 00:42:00,480 --> 00:42:04,040 Speaker 1: your Charlie Manga, right, But I've never been able to 738 00:42:04,120 --> 00:42:08,080 Speaker 1: track the first one. I want to say it was 739 00:42:08,160 --> 00:42:11,000 Speaker 1: early two thousands or late nineties, and I know I'm 740 00:42:11,040 --> 00:42:13,640 Speaker 1: sorry it was the economist, not the f T. But 741 00:42:13,880 --> 00:42:17,880 Speaker 1: I've never been able to find the original quote for that. 742 00:42:18,200 --> 00:42:20,120 Speaker 1: I mean, you've got to love that bet the Buffett 743 00:42:20,200 --> 00:42:24,080 Speaker 1: had with Protege, right, genius, I mean not even close. 744 00:42:24,920 --> 00:42:27,640 Speaker 1: And they went through the financial crisis with that bat 745 00:42:27,800 --> 00:42:29,879 Speaker 1: right he was in. This bet was done before two 746 00:42:30,480 --> 00:42:32,279 Speaker 1: so he had the whole collapse in stocks as well 747 00:42:32,280 --> 00:42:34,720 Speaker 1: as part of that. Vanguard has this wonderful chart showing 748 00:42:34,760 --> 00:42:37,640 Speaker 1: the effect of a two percent mutual fund versus a 749 00:42:37,760 --> 00:42:42,160 Speaker 1: ten basis point hedge fund and how that compounds over time, 750 00:42:42,560 --> 00:42:47,240 Speaker 1: and it was it was insane. The gap was huge. 751 00:42:47,600 --> 00:42:49,439 Speaker 1: So they redid it it one and a half percent, 752 00:42:49,520 --> 00:42:51,879 Speaker 1: and then they redid it a one percent, so it's 753 00:42:51,960 --> 00:42:55,319 Speaker 1: ten basis points versus one, and it's still enormous. How 754 00:42:55,440 --> 00:42:58,359 Speaker 1: on earth can you capture how can you make up 755 00:42:58,800 --> 00:43:02,160 Speaker 1: for the loss of two percent up front and then 756 00:43:03,280 --> 00:43:06,919 Speaker 1: of the net gains. Another data point from you that's 757 00:43:06,960 --> 00:43:12,239 Speaker 1: astonishing says that all right, total hedge fund profits two 758 00:43:12,280 --> 00:43:15,920 Speaker 1: thousand and ten, we're four hundred and fifty billion dollars 759 00:43:16,000 --> 00:43:20,799 Speaker 1: four nine billion dollars. Seventy billion of that went to investors, 760 00:43:21,440 --> 00:43:24,440 Speaker 1: three hundred and seventy nine billion were fees paid to 761 00:43:24,520 --> 00:43:29,640 Speaker 1: hedge funds. That's sixteen percent to the investors and to 762 00:43:29,800 --> 00:43:32,160 Speaker 1: the fund managers. Yeah, and I mean it's all based 763 00:43:32,239 --> 00:43:34,839 Speaker 1: on public data. I mean, anybody can figure this out. 764 00:43:34,920 --> 00:43:36,719 Speaker 1: You just take the assets on the manager for the 765 00:43:36,760 --> 00:43:39,640 Speaker 1: industry assumed two and twenty the returns of public and 766 00:43:39,800 --> 00:43:43,480 Speaker 1: so public I thought a lot of the routine industry returns, 767 00:43:43,840 --> 00:43:46,360 Speaker 1: so for those for that for those data, and it 768 00:43:46,520 --> 00:43:50,440 Speaker 1: was done very very conservatively, because we assume, for example, 769 00:43:50,520 --> 00:43:54,120 Speaker 1: that all hedge funds were charging incentive fee when CENTI fees, 770 00:43:54,120 --> 00:43:56,319 Speaker 1: and then they all stopped after the financial crisis, when 771 00:43:56,400 --> 00:43:59,440 Speaker 1: some still were, So we didn't adjust for survivor bias, 772 00:43:59,520 --> 00:44:03,920 Speaker 1: which the numbers it's something like a year wink out 773 00:44:03,960 --> 00:44:06,719 Speaker 1: of existence and a new batte because of the high 774 00:44:06,719 --> 00:44:09,040 Speaker 1: water mone. We didn't make any adjusts that, so that 775 00:44:09,560 --> 00:44:12,400 Speaker 1: worse than it's worse. It's definitely worse than that. And 776 00:44:12,920 --> 00:44:16,799 Speaker 1: and anybody recommending hedge funds should have to justify why 777 00:44:16,960 --> 00:44:19,439 Speaker 1: with those numbers it's a good place to put your money. 778 00:44:19,520 --> 00:44:22,320 Speaker 1: So here's my pushback, and let me anticipate the angry 779 00:44:22,440 --> 00:44:26,320 Speaker 1: emails there. And we mentioned this earlier. There are a 780 00:44:26,440 --> 00:44:31,200 Speaker 1: handful of managers who are spectacular, whether it's Jim Simons 781 00:44:31,360 --> 00:44:34,960 Speaker 1: or d Shaw or David Tepper or I could give 782 00:44:35,000 --> 00:44:37,760 Speaker 1: you a list, and what makes that list of cliff 783 00:44:37,760 --> 00:44:40,880 Speaker 1: astness is another one in Ray Dalio. What makes the 784 00:44:41,040 --> 00:44:45,560 Speaker 1: list so special, isn't that, Hey, these fifty guys are spected, 785 00:44:45,560 --> 00:44:49,400 Speaker 1: and it's almost all guys are spectacular managers representing the 786 00:44:49,480 --> 00:44:53,640 Speaker 1: hedge funds. They're the outliers. It's the other Yeah, And 787 00:44:53,760 --> 00:44:56,200 Speaker 1: you know, Berry, the people who are happiest with their 788 00:44:56,239 --> 00:45:00,560 Speaker 1: hedge fund investments recognize that the diversified, poor folio of 789 00:45:00,680 --> 00:45:03,880 Speaker 1: thirty forty hedge funds is never gonna be good. The 790 00:45:04,040 --> 00:45:06,240 Speaker 1: people that are happiest have a couple of hedge funds. 791 00:45:06,800 --> 00:45:09,000 Speaker 1: They have a couple, maybe they've got Ray Dahlio or 792 00:45:09,120 --> 00:45:12,160 Speaker 1: David Tepper, and they're not relying on hedge funds to 793 00:45:12,239 --> 00:45:15,160 Speaker 1: solve their underfunded pension problem. Right, They were relying on 794 00:45:15,200 --> 00:45:17,480 Speaker 1: hedgephones to add a little bit of something extra to 795 00:45:17,520 --> 00:45:20,560 Speaker 1: the portfolio. And those are the intelligent people. And that's 796 00:45:20,640 --> 00:45:23,200 Speaker 1: not the institutional approach to hedge fund invested, but that's 797 00:45:23,239 --> 00:45:25,719 Speaker 1: how the people who actually are successful of picking hedge 798 00:45:25,719 --> 00:45:28,640 Speaker 1: funds do it. I have to another war story. So 799 00:45:28,800 --> 00:45:30,600 Speaker 1: we review a lot of four and one ks in 800 00:45:30,640 --> 00:45:36,600 Speaker 1: the office for people, and I'm I'm reviewing. I'm reviewing 801 00:45:36,640 --> 00:45:38,320 Speaker 1: the four oh one K. I won't even mention the 802 00:45:38,440 --> 00:45:42,680 Speaker 1: field the persons in and I can't figure out. Wait, 803 00:45:44,000 --> 00:45:46,440 Speaker 1: First of all, the foreign K is immense for a 804 00:45:46,560 --> 00:45:49,840 Speaker 1: firm with a handful of people, Like how do you 805 00:45:49,920 --> 00:45:53,239 Speaker 1: have so much money? In this long story short when 806 00:45:53,280 --> 00:45:58,120 Speaker 1: the firm was forming and they formed their um from 807 00:45:58,360 --> 00:46:01,960 Speaker 1: form firm, their forgh one care the founders of the 808 00:46:02,040 --> 00:46:05,680 Speaker 1: firm we're working with. I think it was D sure, 809 00:46:05,800 --> 00:46:08,959 Speaker 1: I'm not positive. Which is a fund that has done 810 00:46:09,640 --> 00:46:12,279 Speaker 1: fabulously well. I left out Howard Marks is another guy. 811 00:46:12,719 --> 00:46:17,759 Speaker 1: Spectacular returns, d Shore, spectacular turns. And apparently when you're 812 00:46:18,080 --> 00:46:21,080 Speaker 1: when it's just a partnership, you can have hedge funds 813 00:46:21,480 --> 00:46:23,760 Speaker 1: in a four oh one k up to a certain point, 814 00:46:24,480 --> 00:46:27,960 Speaker 1: and then once you have a whole bunch of other employees, 815 00:46:28,200 --> 00:46:33,160 Speaker 1: it becomes complicated and hard to do. So the founding 816 00:46:33,320 --> 00:46:38,640 Speaker 1: partners original investment in d show the returns are mind boggling, 817 00:46:39,280 --> 00:46:43,080 Speaker 1: like a year for twenty years and they didn't touch it. 818 00:46:43,120 --> 00:46:46,160 Speaker 1: They left it alone. It grows tax free home run. 819 00:46:46,480 --> 00:46:49,560 Speaker 1: But but if you're not in the that sort of situation, 820 00:46:50,239 --> 00:46:54,000 Speaker 1: I think that situation is is the lottery ticket that 821 00:46:55,360 --> 00:46:58,719 Speaker 1: tempts everybody because there's always when it's just like in 822 00:46:58,760 --> 00:47:00,960 Speaker 1: a casino, there's always paid that are winning. Right, it's 823 00:47:01,040 --> 00:47:03,239 Speaker 1: very hard to That's why the bells and lights, they 824 00:47:03,280 --> 00:47:06,239 Speaker 1: make a lot of noise when the food machines play out, right. So, yeah, 825 00:47:06,280 --> 00:47:08,759 Speaker 1: there's always going to be hedge funds that are successful, 826 00:47:09,080 --> 00:47:11,840 Speaker 1: but there's not enough that a're libably successful to justify 827 00:47:11,920 --> 00:47:15,440 Speaker 1: having thirty or fourt These guys have been successful for decades. 828 00:47:16,280 --> 00:47:19,120 Speaker 1: How many hedge funds you know? Again it's that top fifty, 829 00:47:19,320 --> 00:47:21,799 Speaker 1: top hundred. And then of course when they're successful, they 830 00:47:21,800 --> 00:47:23,560 Speaker 1: don't need your money anymore, right, because they've made so 831 00:47:23,640 --> 00:47:25,719 Speaker 1: much in fees. They start to close and you know, 832 00:47:25,920 --> 00:47:29,120 Speaker 1: just managed to My favorite story is Jim Simmons of 833 00:47:29,160 --> 00:47:35,600 Speaker 1: Renaissance Technology. The Medallion Fund is their biggest, best a 834 00:47:35,680 --> 00:47:38,799 Speaker 1: year for thirty years. Stop and think about how insane 835 00:47:38,920 --> 00:47:44,040 Speaker 1: that is. And we know we know that's true because 836 00:47:44,200 --> 00:47:46,359 Speaker 1: I think it was eight or ten or twelve years 837 00:47:46,400 --> 00:47:49,600 Speaker 1: in they said to their outside investors, Hey, thanks a lot, 838 00:47:50,320 --> 00:47:53,720 Speaker 1: here's your capital back. We unfortunately can't use it anymore. 839 00:47:54,400 --> 00:47:58,279 Speaker 1: And that fun that Medallion Fund is only Simmons and 840 00:47:58,480 --> 00:48:02,160 Speaker 1: his employees. Yeah, so he's great and he's made a 841 00:48:02,239 --> 00:48:06,839 Speaker 1: normal huge fortune. I mean, it's it's mind box. That's 842 00:48:06,840 --> 00:48:09,239 Speaker 1: the only word for it. There's just nothing else. There 843 00:48:09,280 --> 00:48:11,239 Speaker 1: are funds that have been up a hundred percent for 844 00:48:11,320 --> 00:48:14,719 Speaker 1: a year or or triple digits, but that's a one off. 845 00:48:15,040 --> 00:48:20,200 Speaker 1: It's some crazy situations, extraordinary. But investors overestimate their ability 846 00:48:20,200 --> 00:48:23,680 Speaker 1: to access funds like that, right, and when they are good, 847 00:48:23,840 --> 00:48:25,560 Speaker 1: then they make so much money that I need yours. 848 00:48:25,680 --> 00:48:29,000 Speaker 1: So you were allocating billions of dollars to this asset 849 00:48:29,120 --> 00:48:33,200 Speaker 1: class for a long time. Did any of them, you know, 850 00:48:34,960 --> 00:48:36,920 Speaker 1: light up and have the bells and whistles go off, 851 00:48:36,960 --> 00:48:39,080 Speaker 1: Did any of them really hit the cover of the 852 00:48:39,120 --> 00:48:42,759 Speaker 1: ball or or what was what was in the nineties. Yeah, 853 00:48:42,800 --> 00:48:45,239 Speaker 1: in the nineties, Yeah, we we had some some great 854 00:48:45,320 --> 00:48:48,040 Speaker 1: funds that we're doing things that were very obscure at 855 00:48:48,080 --> 00:48:50,880 Speaker 1: the time. And then when I got into the seating business, 856 00:48:51,640 --> 00:48:54,200 Speaker 1: the hedge fund seating was all about making money from 857 00:48:54,239 --> 00:48:56,960 Speaker 1: the business of hedge funds. So in two thousands, in 858 00:48:57,120 --> 00:48:59,520 Speaker 1: other words, you're part of the You're not an LP, 859 00:48:59,760 --> 00:49:02,520 Speaker 1: you're we're GP. We were part of the general party 860 00:49:02,920 --> 00:49:06,080 Speaker 1: economic interest in the g P because we we we 861 00:49:06,239 --> 00:49:09,240 Speaker 1: felt at that time that institutions were going to start 862 00:49:09,360 --> 00:49:11,400 Speaker 1: looking for hedge funds and there was a lot of 863 00:49:11,440 --> 00:49:13,880 Speaker 1: money and the business of hedge funds was going to 864 00:49:13,920 --> 00:49:16,120 Speaker 1: be so much better than being a client of hedge funds. 865 00:49:16,160 --> 00:49:18,440 Speaker 1: And so that was how we say that again the 866 00:49:18,680 --> 00:49:21,600 Speaker 1: business of hedge funds. Being being a partner with hedge 867 00:49:21,600 --> 00:49:24,640 Speaker 1: funds was better than being an investor. And absolutely, So 868 00:49:24,800 --> 00:49:29,160 Speaker 1: what's the typical structure you want the back in those days, 869 00:49:29,480 --> 00:49:32,080 Speaker 1: we would put in twenty five million dollars in exchange 870 00:49:32,120 --> 00:49:36,960 Speaker 1: for the economics of the funds, so you were owner 871 00:49:37,040 --> 00:49:41,279 Speaker 1: of the g P x y Z Capital, Inc. And 872 00:49:41,480 --> 00:49:44,520 Speaker 1: then they would go out and using hey, GP Morgan 873 00:49:45,080 --> 00:49:48,880 Speaker 1: because is hard. So we'd be the first investor in 874 00:49:49,000 --> 00:49:51,399 Speaker 1: and so we wanted hedge funds obviously that could make money, 875 00:49:51,440 --> 00:49:54,600 Speaker 1: but that could grow as well. And in that strategy 876 00:49:55,080 --> 00:49:57,360 Speaker 1: we made so much more of our return from the 877 00:49:57,480 --> 00:50:00,680 Speaker 1: economics of the business. You know, the hedge returns ourselves 878 00:50:00,719 --> 00:50:02,360 Speaker 1: are kind of mediocre, but they were good enough to 879 00:50:02,440 --> 00:50:05,759 Speaker 1: raise assets, and it was sharing in the fees that 880 00:50:05,960 --> 00:50:10,120 Speaker 1: drove our returns. Performance. The performance was just it was 881 00:50:10,360 --> 00:50:13,480 Speaker 1: was okay, it wasn't great, but the fees really boosted 882 00:50:13,560 --> 00:50:15,600 Speaker 1: ours else up better than they would have been otherwise. 883 00:50:15,920 --> 00:50:20,080 Speaker 1: That that's similar to you you're selling the pics and 884 00:50:20,320 --> 00:50:23,200 Speaker 1: and shovels to the golden exactly. You're not out looking 885 00:50:23,280 --> 00:50:27,359 Speaker 1: for gold. You're absolutely that's absolutely fascinating. There's some other 886 00:50:27,520 --> 00:50:31,239 Speaker 1: questions I did not get to. I don't want to keep. 887 00:50:31,320 --> 00:50:34,200 Speaker 1: By the way, I have many friends who run hedge funds. 888 00:50:34,520 --> 00:50:37,800 Speaker 1: I am a fan of some of the biggest and 889 00:50:37,880 --> 00:50:40,120 Speaker 1: best hedge funds in the country. People always write me 890 00:50:40,160 --> 00:50:43,600 Speaker 1: and say, why do you spend so much time busting 891 00:50:43,680 --> 00:50:46,040 Speaker 1: on hedge funds. I don't mean to. I mean to 892 00:50:46,160 --> 00:50:49,800 Speaker 1: bust on people who make big promises and fail to 893 00:50:49,880 --> 00:50:52,160 Speaker 1: deliver and charge a big fee for film. I mean 894 00:50:52,200 --> 00:50:55,280 Speaker 1: you know what, I don't really blame the hedge fund managers. 895 00:50:55,560 --> 00:50:58,560 Speaker 1: I blame the investors and the consultants, because all the 896 00:50:58,600 --> 00:51:01,319 Speaker 1: hedge fund manager is doing is saying I think I've 897 00:51:01,360 --> 00:51:04,080 Speaker 1: got the best hedge fund, and any business owner is 898 00:51:04,200 --> 00:51:07,040 Speaker 1: entitled to say that. Hedge fund managers don't walk around 899 00:51:07,160 --> 00:51:11,120 Speaker 1: saying everybody should have a big hedge fund portfolio. They say, look, 900 00:51:11,160 --> 00:51:12,680 Speaker 1: I don't know about the industry. I just think I 901 00:51:12,760 --> 00:51:15,560 Speaker 1: want a great hedge fund. Did they contain thirty times 902 00:51:15,640 --> 00:51:19,880 Speaker 1: the earnings that are corporate executive retain for themselves? Meaning? 903 00:51:19,920 --> 00:51:23,759 Speaker 1: What why the feast? It's the greatest structure in the 904 00:51:23,800 --> 00:51:26,960 Speaker 1: world if you're side of it. But hedge fund managers 905 00:51:27,160 --> 00:51:29,920 Speaker 1: were the wrong business. Yes, yes, yeah, I don't want 906 00:51:29,920 --> 00:51:31,879 Speaker 1: a hedge fund. Obviously, you can't write the hedge fund 907 00:51:31,880 --> 00:51:34,080 Speaker 1: mirage and run a hedge fund. That wouldn't look too cool. 908 00:51:34,840 --> 00:51:39,160 Speaker 1: I want I want to I've actually joked about this privately, 909 00:51:39,280 --> 00:51:41,919 Speaker 1: but I'll out myself. I want to form a hedge 910 00:51:41,960 --> 00:51:46,640 Speaker 1: fund called bad Idea Capital. And the disclosure documents, every 911 00:51:46,680 --> 00:51:50,480 Speaker 1: paragraph is not like a warning, not like the usual 912 00:51:50,560 --> 00:51:54,920 Speaker 1: boiler print risk. This is a horrible idea right on 913 00:51:55,040 --> 00:51:57,920 Speaker 1: the fees. This hedge fund is designed to transfer as 914 00:51:58,000 --> 00:52:01,040 Speaker 1: much wealth as possible from you, the ignorant investor, to me, 915 00:52:01,280 --> 00:52:04,960 Speaker 1: the savvy manager, Like I want the private placement memorandum 916 00:52:05,080 --> 00:52:09,319 Speaker 1: and to be hilarious but legally enforced. Nobody will read 917 00:52:09,360 --> 00:52:15,120 Speaker 1: it anyway. That's that's I think bad idea capital should 918 00:52:15,160 --> 00:52:19,160 Speaker 1: be a warning, but I don't know if it would be. Yeah, 919 00:52:19,760 --> 00:52:23,520 Speaker 1: it's it's an amazing somebody would do it. So here's 920 00:52:23,880 --> 00:52:28,399 Speaker 1: before we leave hedge funds um and again, I don't 921 00:52:28,440 --> 00:52:31,640 Speaker 1: like bad hedge funds. I love great hedge Yeah, I 922 00:52:32,200 --> 00:52:34,320 Speaker 1: believe it or not. I I still have all my 923 00:52:34,440 --> 00:52:37,080 Speaker 1: hedge fund industry friends and more. Because of the book, 924 00:52:37,400 --> 00:52:39,280 Speaker 1: I had a lot of people say, to be Simon, 925 00:52:39,360 --> 00:52:41,440 Speaker 1: you're right, there's a lot of mediocrity in the business. 926 00:52:41,560 --> 00:52:43,239 Speaker 1: Not my fund, of course, but there's a lot of 927 00:52:43,320 --> 00:52:47,399 Speaker 1: media will be absolutely everybody, And so the hedge fund 928 00:52:47,400 --> 00:52:50,640 Speaker 1: industry is populated by a lot of smart people. And 929 00:52:50,719 --> 00:52:52,239 Speaker 1: people said, yeah, you know what, you make some good 930 00:52:52,280 --> 00:52:55,279 Speaker 1: points in the book and so on, and so I yeah, 931 00:52:55,440 --> 00:52:58,880 Speaker 1: Michael Mobisockle is at the paradox of skill that there 932 00:52:58,920 --> 00:53:03,480 Speaker 1: are so many smart, hard working, well incentivized really savvy 933 00:53:03,640 --> 00:53:08,200 Speaker 1: people looking to invest there and looking to run of funds, 934 00:53:08,760 --> 00:53:13,680 Speaker 1: that the opportunities for alpha are essentially competed away and 935 00:53:13,880 --> 00:53:16,719 Speaker 1: so so so you end up it's not that these 936 00:53:16,760 --> 00:53:19,400 Speaker 1: are dumb guys by any stretch imagining these are. You 937 00:53:19,480 --> 00:53:22,000 Speaker 1: don't want to be competing with with these guys. They're 938 00:53:22,120 --> 00:53:25,040 Speaker 1: that good. There's just so many some of the smartest 939 00:53:25,040 --> 00:53:26,840 Speaker 1: paper in finance one hedge funds, because that's where the 940 00:53:26,840 --> 00:53:29,920 Speaker 1: money is. That's and that's absolutely right. It's amazing. So 941 00:53:30,160 --> 00:53:33,680 Speaker 1: here's a quote from from I think this is Wall 942 00:53:33,719 --> 00:53:36,520 Speaker 1: Street potholes, but I have to ask, if you want 943 00:53:36,560 --> 00:53:40,440 Speaker 1: to defraud people, a slightly mysterious trading strategy with an 944 00:53:40,480 --> 00:53:45,960 Speaker 1: apparent strong history of performance in an LP structure, generally 945 00:53:46,120 --> 00:53:49,600 Speaker 1: outside the regulatory framework, is one of the best ways 946 00:53:49,680 --> 00:53:53,960 Speaker 1: to do it. Now, what that describes is either a 947 00:53:54,080 --> 00:53:56,879 Speaker 1: run of the mill hedge funds or Bernie made off. 948 00:53:57,600 --> 00:53:59,319 Speaker 1: And it's an amazing thing. And I think that's something 949 00:53:59,320 --> 00:54:01,359 Speaker 1: the hedge fund right that quote. But you know, there's 950 00:54:01,400 --> 00:54:05,920 Speaker 1: a book called the Hedge Fund Fraud Casebook. Really just 951 00:54:06,080 --> 00:54:09,440 Speaker 1: think about this, but there's enough material to fill a 952 00:54:09,560 --> 00:54:12,919 Speaker 1: book on frauds of hedge funds. Now, the hedge fund 953 00:54:12,960 --> 00:54:18,239 Speaker 1: industry is very largely run by honest people. However, if 954 00:54:18,360 --> 00:54:21,040 Speaker 1: you want to defraud people, you're not going to start 955 00:54:21,080 --> 00:54:23,880 Speaker 1: a mutual fund because it's impossible to DeFord people with 956 00:54:23,920 --> 00:54:27,040 Speaker 1: a mutual fund. You're so, I would say it's impossible, 957 00:54:27,120 --> 00:54:29,719 Speaker 1: but it's hard, it's really hard, right, So if you 958 00:54:29,840 --> 00:54:32,920 Speaker 1: want to to afford people, hedge funds the place to 959 00:54:32,960 --> 00:54:36,320 Speaker 1: do it. So, unfortunately, the hedge fund industry attracts people 960 00:54:36,360 --> 00:54:38,279 Speaker 1: who want to do that. So it's not that it's 961 00:54:38,320 --> 00:54:41,440 Speaker 1: got a lot of crooks, it's just that attracts the crooks. Well, 962 00:54:41,480 --> 00:54:43,640 Speaker 1: you know what Willie Sutton said, right, go where the 963 00:54:43,680 --> 00:54:45,960 Speaker 1: money is right? Why do you write that what rob banks? 964 00:54:46,040 --> 00:54:48,319 Speaker 1: Well for all the months that's right, doesn't make sense 965 00:54:48,400 --> 00:54:51,920 Speaker 1: to robbed gas stations. Of course there's no money there. Um, 966 00:54:52,719 --> 00:54:55,960 Speaker 1: So there's an issue I haven't I'm gonna I'm gonna 967 00:54:56,120 --> 00:54:59,440 Speaker 1: challenge you on something that that you said before, and 968 00:54:59,520 --> 00:55:03,400 Speaker 1: I want to repeat it precisely. The fault lies squarely 969 00:55:03,520 --> 00:55:07,759 Speaker 1: with the many sophisticated investors who have applied a far 970 00:55:07,920 --> 00:55:13,279 Speaker 1: less critical analysis and cynicism to their allocation decisions. So 971 00:55:13,800 --> 00:55:19,200 Speaker 1: you're you're blaming to some degree, you're blaming the investors. 972 00:55:19,719 --> 00:55:23,800 Speaker 1: Shouldn't all of the various regulators, and shouldn't the entire 973 00:55:24,000 --> 00:55:28,360 Speaker 1: industry be a little better at self policing? Aren't we 974 00:55:28,480 --> 00:55:30,680 Speaker 1: burden shifting here a little bit? I mean it's no, 975 00:55:30,840 --> 00:55:33,279 Speaker 1: it's definitely the investors and the consultants that help them. 976 00:55:33,320 --> 00:55:36,799 Speaker 1: And I mean it's as simple as any investor should 977 00:55:36,880 --> 00:55:39,040 Speaker 1: force themselves to ask the question how big should the 978 00:55:39,080 --> 00:55:41,320 Speaker 1: hedgephone industry be? And how big is too big? And 979 00:55:41,440 --> 00:55:43,960 Speaker 1: if they don't ask that question, that very sort of 980 00:55:44,040 --> 00:55:47,400 Speaker 1: fundamental question, they're just not working hard enough. So, in 981 00:55:47,480 --> 00:55:49,759 Speaker 1: other words, it's your money you're putting at risk. You 982 00:55:49,880 --> 00:55:51,920 Speaker 1: better know what the heck you're doing with it? Right, 983 00:55:52,080 --> 00:55:54,800 Speaker 1: How could you not ask that questions? Okay's three trillion 984 00:55:54,840 --> 00:55:58,279 Speaker 1: dollars the right size for the hedgephond industry, and it's 985 00:55:58,280 --> 00:56:00,200 Speaker 1: fair enough for investors to say, I have analyzed, said 986 00:56:00,239 --> 00:56:01,960 Speaker 1: I think they can manage up to five trillion. And 987 00:56:02,080 --> 00:56:04,759 Speaker 1: here's why has anyone really said that? No, they don't 988 00:56:04,800 --> 00:56:07,200 Speaker 1: even ask the question. They don't even ask the question. 989 00:56:07,520 --> 00:56:10,520 Speaker 1: So your number is a trillion? Is about well, because 990 00:56:10,600 --> 00:56:12,720 Speaker 1: that's what the evidence says, right, add a trillion dollars 991 00:56:12,800 --> 00:56:15,600 Speaker 1: and lower. The returns were good. Now was it the 992 00:56:15,800 --> 00:56:18,520 Speaker 1: size of assets or was it the number of funds? 993 00:56:19,160 --> 00:56:23,000 Speaker 1: Because it was well, I think it's funds. It's the 994 00:56:23,160 --> 00:56:28,280 Speaker 1: size of assets most clearly, because there's a finite pool 995 00:56:28,360 --> 00:56:31,440 Speaker 1: of inefficiencies to exploit. But I'm sure the number of 996 00:56:31,520 --> 00:56:33,239 Speaker 1: funds is a factor as well. But the size of 997 00:56:33,280 --> 00:56:37,400 Speaker 1: the industry is a bigger problem. The size of the industry. Um, 998 00:56:37,520 --> 00:56:40,480 Speaker 1: I'm going through. Uh oh, we we're talking about the 999 00:56:40,600 --> 00:56:43,880 Speaker 1: wealth transfer earlier. Let's let's put some flesh on those bones. 1000 00:56:44,480 --> 00:56:48,400 Speaker 1: So the baby boomer generation, which are people just a 1001 00:56:48,480 --> 00:56:50,879 Speaker 1: little older than me, I'm I just kind of I'm 1002 00:56:50,880 --> 00:56:56,600 Speaker 1: in between generations. Um, they're sitting on a pile of 1003 00:56:56,680 --> 00:57:01,080 Speaker 1: about thirty something trillion dollars and they're retiring at some 1004 00:57:01,239 --> 00:57:05,440 Speaker 1: ungodly number, sixty five thousand a day, a week, some 1005 00:57:05,600 --> 00:57:11,680 Speaker 1: crazy number. The millennial generation, the twentysomething generation, everybody who 1006 00:57:12,040 --> 00:57:15,120 Speaker 1: was born I don't I don't know what that number is. 1007 00:57:15,239 --> 00:57:20,320 Speaker 1: After I think, Um, they're now a bigger demographic group 1008 00:57:20,400 --> 00:57:22,800 Speaker 1: than the boomers. So the first time a we had 1009 00:57:22,880 --> 00:57:24,760 Speaker 1: Gen X, we had Gen Y. This is the first 1010 00:57:24,800 --> 00:57:29,800 Speaker 1: time a defined group are bigger than Remember, not a 1011 00:57:29,840 --> 00:57:32,120 Speaker 1: whole lot of babies during the war, and then when 1012 00:57:32,160 --> 00:57:33,960 Speaker 1: all the g I is forty million g i's come 1013 00:57:34,000 --> 00:57:40,120 Speaker 1: home in nineteen forty five six, suddenly, uh, everybody moves 1014 00:57:40,120 --> 00:57:44,960 Speaker 1: to the suburbs. We developed the automobile culture, the rise 1015 00:57:45,000 --> 00:57:48,120 Speaker 1: of interstate highways and and the rise of suburbia, and 1016 00:57:48,800 --> 00:57:52,320 Speaker 1: boom a ton of kids. That was a giant demographic 1017 00:57:53,560 --> 00:57:56,320 Speaker 1: and now the here it is fifty years later. Now 1018 00:57:56,400 --> 00:58:00,320 Speaker 1: the millennial generation is bigger than that. So this already 1019 00:58:00,360 --> 00:58:04,200 Speaker 1: plus thirty one trillion dollar wealth transfer that's going to 1020 00:58:04,320 --> 00:58:08,840 Speaker 1: take place, first to the surviving spouses, typically the wives 1021 00:58:08,920 --> 00:58:12,360 Speaker 1: who tend to outlive the husbands, then to the children 1022 00:58:12,400 --> 00:58:17,200 Speaker 1: in the next generation. What should this coming generation be 1023 00:58:17,480 --> 00:58:22,120 Speaker 1: doing thinking about preparing themselves for when this wealth transfer 1024 00:58:22,200 --> 00:58:27,000 Speaker 1: takes place. How should they be educating themselves to become 1025 00:58:27,120 --> 00:58:32,280 Speaker 1: stewards of capital. Well, they should clearly be taking a 1026 00:58:32,400 --> 00:58:35,880 Speaker 1: much longer term focus on investing than it's prevalent today. 1027 00:58:35,960 --> 00:58:38,800 Speaker 1: I mean, it just seems that people are more short 1028 00:58:38,960 --> 00:58:42,320 Speaker 1: term in focus every year than the year before. So 1029 00:58:42,480 --> 00:58:45,120 Speaker 1: that would be the first thing. Average holding period is 1030 00:58:45,440 --> 00:58:48,160 Speaker 1: some days or something. It's it's even if you're back 1031 00:58:48,200 --> 00:58:51,160 Speaker 1: at h f T it's still it's getting shorter and 1032 00:58:51,200 --> 00:58:54,000 Speaker 1: shorter and Chris, and when you think about it, the 1033 00:58:54,080 --> 00:58:57,680 Speaker 1: whole point of investing is to give yourself the ability 1034 00:58:57,760 --> 00:58:59,720 Speaker 1: to consume more in the future. You need to stay 1035 00:58:59,720 --> 00:59:03,080 Speaker 1: ahead of inflation after taxes. And yet so much of 1036 00:59:03,280 --> 00:59:07,000 Speaker 1: all the media is focused on short term out performance, 1037 00:59:07,000 --> 00:59:10,640 Speaker 1: whereas the market going tomorrow, and the media presents that 1038 00:59:10,760 --> 00:59:13,920 Speaker 1: because the people, because the viewers want that. That's just 1039 00:59:14,080 --> 00:59:17,840 Speaker 1: that's just supplying demand working. But at the same time, 1040 00:59:17,960 --> 00:59:20,120 Speaker 1: it's clearly not the right way to say for the 1041 00:59:20,200 --> 00:59:23,920 Speaker 1: long run. I mean, transaction costs and taxes and churning 1042 00:59:24,360 --> 00:59:27,160 Speaker 1: are all going to destroy wealth over time. So I 1043 00:59:27,360 --> 00:59:30,360 Speaker 1: think the first advice I give people is is have 1044 00:59:30,520 --> 00:59:34,880 Speaker 1: a long term investment plan that doesn't rely on having 1045 00:59:34,920 --> 00:59:36,800 Speaker 1: to figure out where the market is going tomorrow or 1046 00:59:36,840 --> 00:59:39,680 Speaker 1: even next month, and stick with that long term plan. 1047 00:59:40,600 --> 00:59:44,120 Speaker 1: So we talked earlier about the fiduciary rule. My question 1048 00:59:44,240 --> 00:59:47,480 Speaker 1: for you is is isn't the genie really out of 1049 00:59:47,520 --> 00:59:50,120 Speaker 1: the bottle. If we look at how fast a firm 1050 00:59:50,240 --> 00:59:53,680 Speaker 1: like Vanguard has grown. There were barely a trillion dollars 1051 00:59:53,840 --> 00:59:57,560 Speaker 1: before the financial crisis. They are now four trillion dollars. 1052 00:59:57,680 --> 01:00:00,920 Speaker 1: We look at black Rock, which is also another giant 1053 01:00:01,080 --> 01:00:06,560 Speaker 1: index are five trillion dollars. Haven't much of the investing 1054 01:00:06,640 --> 01:00:10,080 Speaker 1: public figured out I'm done with market timing, I'm done 1055 01:00:10,120 --> 01:00:13,880 Speaker 1: with wacky non traded reads. I'm not picking stocks. I'm 1056 01:00:13,920 --> 01:00:16,920 Speaker 1: just going to buy a portfolio of indexes and put 1057 01:00:16,960 --> 01:00:20,440 Speaker 1: it away for a few decades. It has that taken 1058 01:00:20,560 --> 01:00:24,320 Speaker 1: rude enough that the Fiducier rule is here no matter 1059 01:00:24,440 --> 01:00:26,440 Speaker 1: what the d L does. I mean, I don't know 1060 01:00:26,520 --> 01:00:30,160 Speaker 1: that clearly. Vanguard's growth has been a good thing in 1061 01:00:30,400 --> 01:00:32,400 Speaker 1: terms of people invested in the long run, but that 1062 01:00:32,520 --> 01:00:35,160 Speaker 1: doesn't necessarily mean just because the index funds are big, 1063 01:00:35,200 --> 01:00:36,960 Speaker 1: doesn't mean people are not going in and out of them. 1064 01:00:37,240 --> 01:00:39,600 Speaker 1: And market timing as well well, when we look at 1065 01:00:39,760 --> 01:00:43,360 Speaker 1: firms like Dimensional Funds or Vanguard, their clients tend to 1066 01:00:43,440 --> 01:00:47,040 Speaker 1: be pretty stable and they're not. So it's a good thing. 1067 01:00:47,200 --> 01:00:49,880 Speaker 1: That's absolutely a good thing in terms of wealth creation 1068 01:00:50,000 --> 01:00:53,200 Speaker 1: for their customers. Definitely, that's that's good. So more of 1069 01:00:53,320 --> 01:00:56,800 Speaker 1: that would be better. And the thing is in investing, 1070 01:00:57,240 --> 01:00:59,280 Speaker 1: it's very hard to people to accept that. I just 1071 01:00:59,360 --> 01:01:01,440 Speaker 1: want to get the average return because average seem client 1072 01:01:01,640 --> 01:01:03,480 Speaker 1: you know who wants to be averaged. That's an ad 1073 01:01:03,680 --> 01:01:05,840 Speaker 1: that we see on TV all the time. And yet 1074 01:01:06,080 --> 01:01:10,080 Speaker 1: average and investing is better than if you just get 1075 01:01:10,200 --> 01:01:12,400 Speaker 1: the index return. Obviously you're doing better than the average 1076 01:01:12,440 --> 01:01:14,800 Speaker 1: because the average includes people who are always trading and 1077 01:01:15,080 --> 01:01:18,439 Speaker 1: spending money. Most people don't, you know, most people fail 1078 01:01:18,520 --> 01:01:22,200 Speaker 1: to keep up. Howard Marks tells a wonderful story about 1079 01:01:22,240 --> 01:01:26,000 Speaker 1: the early part of his career where he's talking to 1080 01:01:26,480 --> 01:01:29,680 Speaker 1: a UM I want to say, a client or a 1081 01:01:29,800 --> 01:01:36,040 Speaker 1: pension funds and the person basically gives him this fascinating insight, 1082 01:01:37,120 --> 01:01:39,760 Speaker 1: don't be in the top ten percent because the only 1083 01:01:39,840 --> 01:01:41,760 Speaker 1: people who were in the top ten percent in any 1084 01:01:41,840 --> 01:01:45,160 Speaker 1: given year. In order to achieve that, you're gonna end 1085 01:01:45,240 --> 01:01:47,960 Speaker 1: up in the bottom ten percent another years. Where you 1086 01:01:48,040 --> 01:01:52,480 Speaker 1: want to be is the second quartile. If you're and 1087 01:01:52,560 --> 01:01:56,960 Speaker 1: you do that consistently over time, your gross returns over 1088 01:01:57,080 --> 01:02:00,120 Speaker 1: that over twenty years will put you in I want 1089 01:02:00,120 --> 01:02:02,880 Speaker 1: to say, top five percent. That's interesting, So he's saying 1090 01:02:02,920 --> 01:02:04,760 Speaker 1: to be in the top deck all over the long 1091 01:02:04,840 --> 01:02:07,480 Speaker 1: run to if you want to find your way in 1092 01:02:07,560 --> 01:02:10,960 Speaker 1: the top deck, don't have any blow ups. So don't 1093 01:02:11,000 --> 01:02:15,560 Speaker 1: be bottom ten percent ever, and target the second quartile 1094 01:02:15,640 --> 01:02:20,000 Speaker 1: because you compound that over twenty years and the up ten. 1095 01:02:20,640 --> 01:02:24,080 Speaker 1: If you're top five percent one year and bottom the 1096 01:02:24,200 --> 01:02:27,360 Speaker 1: next year, that does much worse than that's good advice. Yes, 1097 01:02:27,960 --> 01:02:31,480 Speaker 1: it's fascinating. Yeah, I can see that. So so when 1098 01:02:31,560 --> 01:02:33,640 Speaker 1: we look at Vanguard, by the way, they're about a 1099 01:02:33,800 --> 01:02:38,200 Speaker 1: third active, two thirds passive. But they're big focus is 1100 01:02:39,160 --> 01:02:42,640 Speaker 1: not so much passive as low cost. If you keep 1101 01:02:42,720 --> 01:02:46,560 Speaker 1: your costs under control, that you eliminate that direct we 1102 01:02:46,640 --> 01:02:48,760 Speaker 1: get to win twenty And you know, it's a fascinating 1103 01:02:48,800 --> 01:02:50,800 Speaker 1: company because they asked me to go and give a 1104 01:02:50,880 --> 01:02:53,640 Speaker 1: presentation on the hedge umbrage a few years ago, and 1105 01:02:53,720 --> 01:02:57,280 Speaker 1: I drove out that to Valley Forge and they totally, 1106 01:02:57,440 --> 01:02:59,880 Speaker 1: it's a campus. It's it's a campus. But if you 1107 01:03:00,120 --> 01:03:02,320 Speaker 1: you might have been that. I interviewed Jack Bogel there. 1108 01:03:03,320 --> 01:03:05,400 Speaker 1: So yeah, so you go in and I joked with 1109 01:03:05,480 --> 01:03:06,919 Speaker 1: them and I said, you know, I'm glad to see 1110 01:03:06,920 --> 01:03:08,480 Speaker 1: that the only German car in the park and lot 1111 01:03:08,560 --> 01:03:11,800 Speaker 1: was mine. Right, everybody's got a domestic guy. They are 1112 01:03:11,960 --> 01:03:14,600 Speaker 1: known for really watching their first of all, the reason 1113 01:03:14,600 --> 01:03:17,200 Speaker 1: they're in Valley Forge, Pennsylvan. They're not even forget New York. 1114 01:03:17,720 --> 01:03:21,400 Speaker 1: They won't even be in Philly Philly expense, so they 1115 01:03:21,960 --> 01:03:24,640 Speaker 1: you know, before they were there, this was just this 1116 01:03:24,800 --> 01:03:29,560 Speaker 1: wasn't even suburbs. It was excerbs to the invest in 1117 01:03:29,600 --> 01:03:32,440 Speaker 1: public totally. I mean, I have money with Vanguard. My 1118 01:03:32,560 --> 01:03:35,560 Speaker 1: kids are investment Vanguards, so I think it's full disclosure 1119 01:03:35,600 --> 01:03:38,760 Speaker 1: from my wife's four three B is all Vanguard, and 1120 01:03:38,920 --> 01:03:42,200 Speaker 1: my portfolio is a mix of Vanguard, d f A 1121 01:03:42,560 --> 01:03:45,000 Speaker 1: and a handful of other Black Clock, Wisdom Tree, but 1122 01:03:45,080 --> 01:03:50,600 Speaker 1: it's mostly Vanguard. Good that they they have Jack Bogel, um, 1123 01:03:51,160 --> 01:03:55,160 Speaker 1: so I've worked my way through Vanguard, Jack Brennan, the 1124 01:03:55,240 --> 01:04:01,280 Speaker 1: previous CEO. That's a guest. Bill McNabb was twice and 1125 01:04:01,480 --> 01:04:04,680 Speaker 1: Jack Bogel. Let me tell you that was a thrill. 1126 01:04:05,320 --> 01:04:10,560 Speaker 1: First of all, you've seen the campuses. It's a campus. Yeah, absolutely, 1127 01:04:10,840 --> 01:04:14,160 Speaker 1: You're like, I can't believe this is a financial services firm. 1128 01:04:14,640 --> 01:04:18,120 Speaker 1: I thought I was walking through, you know, uh, like 1129 01:04:18,240 --> 01:04:21,520 Speaker 1: a Vermont Liberal Arts very tight security though ye get 1130 01:04:21,600 --> 01:04:26,520 Speaker 1: into absolutely absolutely. And then Bogel, I think he's eighty six. 1131 01:04:26,960 --> 01:04:29,600 Speaker 1: He we should all be as sharp as he is 1132 01:04:30,200 --> 01:04:34,280 Speaker 1: at a sharp as attack. And just you can hear 1133 01:04:34,400 --> 01:04:40,040 Speaker 1: his voice, he's passionate, he's incredibly knowledgeable. He built a 1134 01:04:40,120 --> 01:04:47,040 Speaker 1: four trillion dollar Definitely, it's it's really quite fascinating. I 1135 01:04:47,080 --> 01:04:49,920 Speaker 1: don't even know. I don't even know where else to go. 1136 01:04:50,040 --> 01:04:53,480 Speaker 1: My own Vanguard. Most of my money's in energy infrastructure. 1137 01:04:53,560 --> 01:04:56,760 Speaker 1: But so let's talk about that. So because that's really fascinating. 1138 01:04:57,840 --> 01:05:02,160 Speaker 1: We we have a new president and both candidates during 1139 01:05:02,200 --> 01:05:08,240 Speaker 1: the campaign talked about building infrastructure. My definition of infrastructure 1140 01:05:08,480 --> 01:05:13,080 Speaker 1: and other people's definition are very, very different. Tell me 1141 01:05:13,200 --> 01:05:18,320 Speaker 1: what your definition of energy infrastructure. Well, energy infrastructure is pipelines, 1142 01:05:18,800 --> 01:05:22,560 Speaker 1: storage assets, it's compressor stations, it's all of the hardware 1143 01:05:22,640 --> 01:05:26,920 Speaker 1: that moves hydrocarbons from under the ground to the consumer 1144 01:05:26,960 --> 01:05:30,600 Speaker 1: who ultimately needs them. And it's just a really really 1145 01:05:30,680 --> 01:05:34,880 Speaker 1: cool place to be invested. Because America is heading towards 1146 01:05:35,040 --> 01:05:38,600 Speaker 1: energy independence and I think we're just about there. We 1147 01:05:38,880 --> 01:05:43,640 Speaker 1: export on natural gas, we were net exporters. In November. Basically, 1148 01:05:44,200 --> 01:05:48,640 Speaker 1: OPEC took on the American private sector and lost. That's 1149 01:05:48,840 --> 01:05:51,560 Speaker 1: that's the headline. Say that again. I love that OPEC 1150 01:05:51,800 --> 01:05:56,320 Speaker 1: took on the American energy sector and they lost. Two 1151 01:05:56,400 --> 01:05:58,680 Speaker 1: years ago, OPEC said, Okay, we're going to let the 1152 01:05:58,720 --> 01:06:01,640 Speaker 1: price of oil collapse. We're going to keep pumping and 1153 01:06:01,720 --> 01:06:04,720 Speaker 1: we're going to crush those shale producers in America, those 1154 01:06:04,800 --> 01:06:09,000 Speaker 1: high cost producers, and that industry did what the American 1155 01:06:09,120 --> 01:06:13,080 Speaker 1: private sector does so fantastically well. They innovated, they found 1156 01:06:13,160 --> 01:06:16,960 Speaker 1: new technologies, productivity enhancements, They've had all kinds of ways 1157 01:06:17,000 --> 01:06:20,840 Speaker 1: to bring down their break even and OPEC basically conceded 1158 01:06:20,880 --> 01:06:22,960 Speaker 1: defeat in November said we can't do it. We just 1159 01:06:23,080 --> 01:06:25,400 Speaker 1: can't afford to keep the price this low. And so 1160 01:06:25,560 --> 01:06:30,360 Speaker 1: America today is the swing producer, which is amazing. It 1161 01:06:30,640 --> 01:06:35,200 Speaker 1: is absolutely from from the oil embargo in ninety three 1162 01:06:35,840 --> 01:06:40,080 Speaker 1: to forty years later. It took four decades for this 1163 01:06:40,240 --> 01:06:42,840 Speaker 1: country to basically say we are not going to be 1164 01:06:42,920 --> 01:06:45,880 Speaker 1: dependent on anybody else for energy. I mean, two years ago, 1165 01:06:46,000 --> 01:06:48,720 Speaker 1: we weren't even thinking about energy independence, and now there's 1166 01:06:48,760 --> 01:06:52,360 Speaker 1: a very real pathway to energy independence over the next 1167 01:06:52,400 --> 01:06:56,200 Speaker 1: five to ten years, where will be met natural gas 1168 01:06:56,280 --> 01:06:59,680 Speaker 1: ex borders. Still importing some crude oil, but less than 1169 01:06:59,680 --> 01:07:01,960 Speaker 1: we you us to and in a much much more. 1170 01:07:02,200 --> 01:07:04,200 Speaker 1: I mean, we've fought wars in the Middle East in 1171 01:07:04,360 --> 01:07:08,400 Speaker 1: part because we spent five trillion dollars or maybe more 1172 01:07:08,600 --> 01:07:12,640 Speaker 1: between Afghanistan and Iright, it's a fantastic story for America. 1173 01:07:12,920 --> 01:07:16,320 Speaker 1: And it's just you know, America has the labor force 1174 01:07:16,520 --> 01:07:21,120 Speaker 1: in the energy sector, the access to capital, the technology, technology, 1175 01:07:21,680 --> 01:07:24,640 Speaker 1: also the fact that mineral rights belong to the landowner 1176 01:07:24,760 --> 01:07:27,560 Speaker 1: in America, which is very very un as opposed to 1177 01:07:27,640 --> 01:07:30,400 Speaker 1: the sovereign, as opposed to the government. Right, So that 1178 01:07:30,600 --> 01:07:34,760 Speaker 1: facilitates expratio production. And it's just a financial incentive to 1179 01:07:34,800 --> 01:07:37,440 Speaker 1: get because it's it's easy to you know, you just 1180 01:07:37,560 --> 01:07:40,720 Speaker 1: have the e MP company, the drilling company, and the landowner. 1181 01:07:40,960 --> 01:07:43,920 Speaker 1: I mean, I was in Pennsylvania last year given a 1182 01:07:44,000 --> 01:07:46,560 Speaker 1: presentation and I met somebody who's who's got you know, 1183 01:07:46,760 --> 01:07:49,680 Speaker 1: one percent of their property has some drilling equipment. Again 1184 01:07:49,800 --> 01:07:52,520 Speaker 1: a six thousand dollar monthly check. They're growing corn on 1185 01:07:52,600 --> 01:07:54,840 Speaker 1: the rest of the land. They're happy. Right, So let 1186 01:07:54,920 --> 01:07:56,440 Speaker 1: me push back on this because I want to talk 1187 01:07:56,480 --> 01:07:59,840 Speaker 1: more about Allen g And and nat Gas and in 1188 01:08:00,480 --> 01:08:07,240 Speaker 1: the industrial production of energy. Um. So it's great they're 1189 01:08:07,280 --> 01:08:09,400 Speaker 1: getting six thousand dollars a month. What about when they 1190 01:08:09,440 --> 01:08:13,120 Speaker 1: turn on the tap water and flaming water comes out? Yeah, 1191 01:08:13,240 --> 01:08:15,880 Speaker 1: So when you when you frag, when you drill down, 1192 01:08:15,920 --> 01:08:18,960 Speaker 1: and for a natural gas include all, you're going much 1193 01:08:19,040 --> 01:08:21,799 Speaker 1: farther down than the than the water table. Typically aquifers 1194 01:08:21,840 --> 01:08:24,920 Speaker 1: are a few hundred feet down and drilling goes down 1195 01:08:25,120 --> 01:08:29,760 Speaker 1: thousands or five and so accidents can happen. But there 1196 01:08:29,840 --> 01:08:34,320 Speaker 1: isn't anything about the overall technology of fracking that is 1197 01:08:34,360 --> 01:08:36,680 Speaker 1: bad for drinking water. And yes, of course there was 1198 01:08:36,760 --> 01:08:39,479 Speaker 1: that gas Land movie, but I think generally, you know, 1199 01:08:39,560 --> 01:08:42,599 Speaker 1: we drill thousands of wells a year in America. It's 1200 01:08:42,600 --> 01:08:47,040 Speaker 1: another very very highly regulated industry, and I think that 1201 01:08:47,200 --> 01:08:50,360 Speaker 1: that's the exception. What about all the earthquakes in Oklahoma. 1202 01:08:50,760 --> 01:08:52,280 Speaker 1: I used to get three or four a year, Now 1203 01:08:52,280 --> 01:08:54,760 Speaker 1: they're getting thousands. I think that's an example of where 1204 01:08:54,840 --> 01:08:57,200 Speaker 1: there's certain geologies that you learned maybe we shouldn't be 1205 01:08:57,280 --> 01:09:00,280 Speaker 1: tracking there, right, And so we learned right. But America 1206 01:09:00,400 --> 01:09:04,080 Speaker 1: has been fracking for decades really wells, thousands and thousands 1207 01:09:04,080 --> 01:09:06,800 Speaker 1: of wells, and so there's always this feedback loop and 1208 01:09:07,439 --> 01:09:10,360 Speaker 1: you're learning, and that's the learning process is going on there. 1209 01:09:11,200 --> 01:09:14,360 Speaker 1: What about the pushback that now I just converted my 1210 01:09:14,400 --> 01:09:18,439 Speaker 1: house to natural gas from oil, it's cheaper, it's it's 1211 01:09:18,439 --> 01:09:21,360 Speaker 1: supposed to be much cleaner, much cleaner. But the pushback 1212 01:09:21,439 --> 01:09:24,720 Speaker 1: that I've gotten from some of my environmental bodies is, hey, 1213 01:09:24,840 --> 01:09:27,360 Speaker 1: when you use natural gas to get that out, a 1214 01:09:27,439 --> 01:09:30,360 Speaker 1: lot of methane and other very big chemicals get released 1215 01:09:30,360 --> 01:09:33,400 Speaker 1: into the atmosphere, and it's effectively the same as coal 1216 01:09:34,120 --> 01:09:37,120 Speaker 1: or oil. I think that overstates it, but you do 1217 01:09:37,280 --> 01:09:40,640 Speaker 1: release methane when methane is what you're burning, right, so 1218 01:09:40,840 --> 01:09:43,240 Speaker 1: I think it is what goes into the natural supply. 1219 01:09:43,479 --> 01:09:46,719 Speaker 1: So there can be leaks and so on. So there's 1220 01:09:46,720 --> 01:09:49,920 Speaker 1: a lot of regulations around capturing that, and clearly there's 1221 01:09:49,920 --> 01:09:53,120 Speaker 1: an economic incentive for the companies to capture that so well, 1222 01:09:53,160 --> 01:09:55,200 Speaker 1: not if the cost of capturing it is more than 1223 01:09:55,240 --> 01:09:56,960 Speaker 1: the value of the guests, but then they wouldn't drill 1224 01:09:57,000 --> 01:09:59,519 Speaker 1: because methane is the basic commodity that you're getting out 1225 01:09:59,560 --> 01:10:03,439 Speaker 1: of the ground. And so methane captures improved and leaks 1226 01:10:03,479 --> 01:10:06,479 Speaker 1: have gone down dramatically as a percentage of natural gas 1227 01:10:06,560 --> 01:10:09,439 Speaker 1: extracted over the years. So there's lots of data to 1228 01:10:09,479 --> 01:10:11,639 Speaker 1: show that we're getting more efficient than that. I'm better 1229 01:10:11,720 --> 01:10:13,760 Speaker 1: at it over time. I can tell you this is 1230 01:10:13,800 --> 01:10:16,599 Speaker 1: our first winter and it's been a with natural gas, 1231 01:10:17,560 --> 01:10:23,280 Speaker 1: and it's been not as cheap as I expected, but 1232 01:10:23,520 --> 01:10:27,080 Speaker 1: so much cheaper than oil we we have. We used 1233 01:10:27,120 --> 01:10:30,200 Speaker 1: to have a thousand gallon tank, and I get these deliveries. 1234 01:10:30,640 --> 01:10:32,840 Speaker 1: I'll get a bill for eighteen hundred dollars and then 1235 01:10:32,840 --> 01:10:35,560 Speaker 1: the next month there'd be another. Wait, how did I 1236 01:10:35,680 --> 01:10:38,200 Speaker 1: go through a thousand My house isn't that big, and 1237 01:10:38,520 --> 01:10:42,160 Speaker 1: it was cheaper. Um, so you get bills in the winter, 1238 01:10:42,240 --> 01:10:46,280 Speaker 1: it's three and four and that's running everything in the 1239 01:10:46,400 --> 01:10:50,200 Speaker 1: house on it, including the fireplace, which used to be 1240 01:10:50,280 --> 01:10:52,320 Speaker 1: a pin in the neck to clean up. I love 1241 01:10:52,479 --> 01:10:55,400 Speaker 1: lighting the fire, cleaning up after it. And now I 1242 01:10:55,439 --> 01:10:57,960 Speaker 1: grabbed the remoment I go, all right, fire. So here's 1243 01:10:58,000 --> 01:11:01,760 Speaker 1: a cool thing, right. We've explored natural gas from Pennsylvania 1244 01:11:02,360 --> 01:11:05,400 Speaker 1: food pipeline down in Louisiana to the Sabine Pass where 1245 01:11:05,479 --> 01:11:07,599 Speaker 1: it's liquefied and put on one of those big tankers, 1246 01:11:07,640 --> 01:11:10,519 Speaker 1: and that to the United Arab Emirates in the Middle 1247 01:11:10,560 --> 01:11:14,639 Speaker 1: East where they are awash in natural gas. And why 1248 01:11:14,720 --> 01:11:17,960 Speaker 1: are they buying our gas because it's cheap, Because we're 1249 01:11:18,160 --> 01:11:21,320 Speaker 1: really good at produce cheaper than they are producing enough 1250 01:11:21,400 --> 01:11:24,840 Speaker 1: to cover the transportation cost. That's amazing because look at 1251 01:11:24,920 --> 01:11:28,519 Speaker 1: the cost. So it's a big difference between oil and gas. 1252 01:11:28,960 --> 01:11:32,240 Speaker 1: I think a lot of people don't realize not every 1253 01:11:32,280 --> 01:11:36,759 Speaker 1: barrel of oil clus the same. You go to Saudi Arabia, 1254 01:11:37,080 --> 01:11:41,320 Speaker 1: hundreds of grades Saudi Arabia, the oil is as cheap 1255 01:11:41,360 --> 01:11:44,200 Speaker 1: and can as can be defined. It's easily accessible, it's 1256 01:11:44,280 --> 01:11:46,880 Speaker 1: not too hard to find, it's not too deep, and 1257 01:11:46,960 --> 01:11:52,200 Speaker 1: it's fairly um it's fairly clean, it's not heavy right process, 1258 01:11:52,360 --> 01:11:54,920 Speaker 1: it's it's all good. On the other hand, you're going 1259 01:11:55,040 --> 01:12:00,680 Speaker 1: eight thousand feet below the ocean. That's expensive oil to find. Well, 1260 01:12:00,760 --> 01:12:03,400 Speaker 1: and here's the thixt draft. You've had a trillion dollars 1261 01:12:03,680 --> 01:12:07,280 Speaker 1: of cutbacks in exploration budgets for crude oil because of 1262 01:12:07,320 --> 01:12:10,439 Speaker 1: the price collapse a roe over what time period between 1263 01:12:10,520 --> 01:12:16,759 Speaker 1: now and three or four years of exploration. Yes, basically 1264 01:12:16,880 --> 01:12:20,040 Speaker 1: that's a huge drop, and so it takes a while 1265 01:12:20,120 --> 01:12:22,200 Speaker 1: to bring new cruds that crude I'll supply on Right 1266 01:12:22,640 --> 01:12:26,040 Speaker 1: in America, shale production happens very quickly. And when the 1267 01:12:26,080 --> 01:12:28,559 Speaker 1: price goes down, they still stop drilling. They have these 1268 01:12:28,640 --> 01:12:32,360 Speaker 1: drilled uncompleted, well, they start drilling again. Ninety days is 1269 01:12:32,439 --> 01:12:34,880 Speaker 1: the is the payback time typically from when you first 1270 01:12:34,920 --> 01:12:37,240 Speaker 1: start the really too, when you get enough cash back 1271 01:12:37,320 --> 01:12:39,800 Speaker 1: to pay for the cost that you've incurred. And so 1272 01:12:40,560 --> 01:12:44,960 Speaker 1: that's put America in a fantastically strong position in terms 1273 01:12:45,040 --> 01:12:47,960 Speaker 1: of providing more and more of our own energy, and 1274 01:12:48,080 --> 01:12:50,880 Speaker 1: as you said, for gas, for for oil, for both, 1275 01:12:51,360 --> 01:12:54,040 Speaker 1: for both. I mean, let's talk about gas for a minute. 1276 01:12:54,760 --> 01:12:57,799 Speaker 1: It's been said that the United States is the Saudi 1277 01:12:57,800 --> 01:13:01,920 Speaker 1: Arabia of coal, the Saudi Arabia of gas, but not 1278 01:13:02,080 --> 01:13:07,040 Speaker 1: the Saudi Arabia of oil. Why is that, Well, North America. 1279 01:13:07,320 --> 01:13:09,760 Speaker 1: A lot of that depends on the price. And so 1280 01:13:10,680 --> 01:13:14,559 Speaker 1: North America, which is obviously including Alberta and British Columbia 1281 01:13:14,600 --> 01:13:17,080 Speaker 1: with all the tar stands at a high enough price. 1282 01:13:17,680 --> 01:13:20,760 Speaker 1: There are Saudi type reserves of crude oil there, but 1283 01:13:20,880 --> 01:13:24,479 Speaker 1: it's very expensive to extract. So typically those estimates of 1284 01:13:24,760 --> 01:13:29,080 Speaker 1: what's available at ultimate recovery depends on the price and 1285 01:13:29,200 --> 01:13:31,640 Speaker 1: the technology and so they so they can change. I 1286 01:13:31,720 --> 01:13:35,320 Speaker 1: would say that recoverable oil in the United States, estimates 1287 01:13:35,360 --> 01:13:39,360 Speaker 1: for that keep going up every year because of new technologies. 1288 01:13:39,400 --> 01:13:41,759 Speaker 1: I mean, look at the Permian Basin in West Texas. 1289 01:13:42,120 --> 01:13:44,800 Speaker 1: We've been drilling there for almost a hundred years, and 1290 01:13:44,920 --> 01:13:48,760 Speaker 1: it seems in thesest growing place there's a land rush 1291 01:13:48,800 --> 01:13:51,760 Speaker 1: crying on there. They get in because the new technology 1292 01:13:52,400 --> 01:13:54,960 Speaker 1: is making it impossible to extract crude or from areas 1293 01:13:55,040 --> 01:13:58,560 Speaker 1: that were thought to be basically non economic anymore. Describe 1294 01:13:58,600 --> 01:14:01,400 Speaker 1: the new technology because I find some of this stuff 1295 01:14:02,040 --> 01:14:06,800 Speaker 1: fascinating and full disclosure, my now retired brother in law 1296 01:14:06,960 --> 01:14:10,719 Speaker 1: for many years was a senior attorney in the legal 1297 01:14:10,800 --> 01:14:14,200 Speaker 1: department of Amaco. That little b p Amico thing he was, 1298 01:14:14,800 --> 01:14:19,360 Speaker 1: he was involved in, and he has been telling me 1299 01:14:19,600 --> 01:14:23,320 Speaker 1: for a long long time the way technology is changing 1300 01:14:23,439 --> 01:14:26,120 Speaker 1: is going to change as much as the alternatives have 1301 01:14:26,280 --> 01:14:29,719 Speaker 1: their own attractiveness. What's going on in carbon based stuff 1302 01:14:29,760 --> 01:14:33,040 Speaker 1: I've been hearing for a long time is just mind boggling, 1303 01:14:33,520 --> 01:14:37,400 Speaker 1: including the ability to drill sideways. Yeah, I mean, who 1304 01:14:37,400 --> 01:14:40,440 Speaker 1: would think you could do that? So, yeah, drilling sideways 1305 01:14:40,560 --> 01:14:44,280 Speaker 1: longer laterals. They'll have spider formations now where you drill 1306 01:14:44,360 --> 01:14:47,160 Speaker 1: down a well and then go laterally in multiple directions 1307 01:14:47,800 --> 01:14:51,000 Speaker 1: so you can be more efficient. They used the drills 1308 01:14:51,040 --> 01:14:53,559 Speaker 1: for less time, so they finish a well more quickly, 1309 01:14:53,600 --> 01:14:55,920 Speaker 1: So obviously that cost lester. Drill gees in they get 1310 01:14:55,960 --> 01:15:00,320 Speaker 1: out and there they'll they'll use actually more sad. So 1311 01:15:00,479 --> 01:15:02,360 Speaker 1: sand is one of the things they pump down into 1312 01:15:02,400 --> 01:15:05,040 Speaker 1: the ground when they do the fracking and the grains. 1313 01:15:05,280 --> 01:15:08,240 Speaker 1: So it was water another chemics. It's mostly water. I 1314 01:15:08,280 --> 01:15:11,560 Speaker 1: mean it's water by volume. There's some other chemicals, but 1315 01:15:11,680 --> 01:15:14,280 Speaker 1: the sand is critical because when they push the water down, 1316 01:15:14,800 --> 01:15:18,040 Speaker 1: it fractures the rock and the grains of sand prop 1317 01:15:18,120 --> 01:15:21,240 Speaker 1: open all of these tiny little cracks. So now one 1318 01:15:21,280 --> 01:15:24,679 Speaker 1: of the innovations has been that more sand with finer grains, 1319 01:15:25,439 --> 01:15:30,400 Speaker 1: really even smaller cracks open and allows better production from well. 1320 01:15:30,520 --> 01:15:36,520 Speaker 1: So there's lots of innovation and and and technological improvements 1321 01:15:36,560 --> 01:15:39,000 Speaker 1: that are happening all of the time. And it's less 1322 01:15:39,040 --> 01:15:41,639 Speaker 1: than five million dollars to drill a well, which sounds 1323 01:15:41,680 --> 01:15:44,240 Speaker 1: like five million dollars five million dollars. And what is 1324 01:15:44,280 --> 01:15:47,240 Speaker 1: that produce in terms of income? I mean, it depends 1325 01:15:47,280 --> 01:15:49,200 Speaker 1: on the play, but you could easily have wells that 1326 01:15:49,240 --> 01:15:51,240 Speaker 1: will pay you back in thirty days if it's a 1327 01:15:51,320 --> 01:15:56,240 Speaker 1: very high producing well. So I'm trying to be respectful 1328 01:15:56,320 --> 01:15:58,720 Speaker 1: of whatever compliance rules you have. So I don't want 1329 01:15:58,720 --> 01:16:01,400 Speaker 1: to go any place you can't go. But you run 1330 01:16:01,479 --> 01:16:04,840 Speaker 1: an MLP, right, Yeah, we run an MLP mutual fund. 1331 01:16:04,920 --> 01:16:08,040 Speaker 1: The name of it is the Catalyst MLP and Infrastructure Fund. 1332 01:16:08,040 --> 01:16:12,040 Speaker 1: And so what do you buy? You're obviously really knowledgeable about. Well, 1333 01:16:12,080 --> 01:16:14,400 Speaker 1: you know what's really cool about that strategy is we 1334 01:16:14,520 --> 01:16:17,479 Speaker 1: found an analogy with hedge funds, believe or not. So. 1335 01:16:17,960 --> 01:16:23,400 Speaker 1: MLPs Master limited partnerships are partnerships that own pipelines, and 1336 01:16:23,920 --> 01:16:27,840 Speaker 1: they're organized like hedge funds legally now mean that you're 1337 01:16:27,880 --> 01:16:31,839 Speaker 1: the general partner and everybody else, right, so the investors 1338 01:16:31,920 --> 01:16:34,759 Speaker 1: have no liability and you have all whatever liability there's 1339 01:16:34,880 --> 01:16:38,799 Speaker 1: right now. It turns out that an MLP general partner 1340 01:16:39,240 --> 01:16:41,840 Speaker 1: runs an MLP the same way that a hedge fund 1341 01:16:41,960 --> 01:16:44,800 Speaker 1: manager hedge fund GP runs the hedge fund, And you 1342 01:16:44,920 --> 01:16:48,360 Speaker 1: can buy MLP general partners and they have the same 1343 01:16:48,640 --> 01:16:52,280 Speaker 1: type of preferential economics that hedge fund managers have. So 1344 01:16:52,320 --> 01:16:54,280 Speaker 1: it's sort of like if you could buy hedge fund 1345 01:16:54,320 --> 01:16:56,120 Speaker 1: managers or hedge funds, what would you buy? When you 1346 01:16:56,240 --> 01:16:59,439 Speaker 1: buy the hedge fund managers, you just can't because they're private. 1347 01:16:59,800 --> 01:17:03,040 Speaker 1: In the mlppers this you can actually buy the MLP 1348 01:17:03,240 --> 01:17:06,360 Speaker 1: general partners and that's what we do. And the beauty 1349 01:17:06,400 --> 01:17:09,080 Speaker 1: of that is that MLPs are growing. MLPs are growing 1350 01:17:09,120 --> 01:17:12,679 Speaker 1: their assets because we need more infrastructure because the oil 1351 01:17:12,720 --> 01:17:15,479 Speaker 1: and gas is in places it wasn't always. North Dakota 1352 01:17:15,560 --> 01:17:17,640 Speaker 1: was not a big place for crude or Pennsylvania is 1353 01:17:17,640 --> 01:17:20,160 Speaker 1: not a big place for natural gas. So m LPs 1354 01:17:20,200 --> 01:17:24,200 Speaker 1: are growing their assets. And you know, if you invest 1355 01:17:24,280 --> 01:17:26,479 Speaker 1: in hedge fund managers, when hedge fund assets are growing, 1356 01:17:26,520 --> 01:17:28,639 Speaker 1: you know that's going to be good because more assets, 1357 01:17:28,760 --> 01:17:31,320 Speaker 1: it's more fees. And it's the same thing with MLP 1358 01:17:31,479 --> 01:17:35,200 Speaker 1: general partners. So our mutual fund which was last year's 1359 01:17:35,240 --> 01:17:37,920 Speaker 1: best before mutual funds up sixty five, you allowed to 1360 01:17:37,960 --> 01:17:41,360 Speaker 1: say that, I can say that's public information. So I 1361 01:17:41,479 --> 01:17:43,479 Speaker 1: had a conversation with someone who runs an et F 1362 01:17:43,600 --> 01:17:47,040 Speaker 1: shop who said he couldn't say that because there's certain 1363 01:17:47,080 --> 01:17:49,519 Speaker 1: hoops he has to jump through, even though one of 1364 01:17:49,600 --> 01:17:53,200 Speaker 1: their funds was had generated the highest return in the 1365 01:17:53,280 --> 01:17:55,840 Speaker 1: calendar year. What do you need to be able to 1366 01:17:55,920 --> 01:17:58,120 Speaker 1: do in order to say our MLP was the best 1367 01:17:58,160 --> 01:18:01,479 Speaker 1: performing energy MLP last year. I mean, I think if 1368 01:18:01,520 --> 01:18:05,759 Speaker 1: I'm just studying public information, I feel pretty comfortable with that. Um. Okay, 1369 01:18:05,840 --> 01:18:07,719 Speaker 1: the e t F folks, who I think are governed 1370 01:18:07,760 --> 01:18:10,679 Speaker 1: by Finnrott told me. They can't just say here's the math. 1371 01:18:11,080 --> 01:18:13,000 Speaker 1: Somebody else has to say it and then they could 1372 01:18:13,080 --> 01:18:16,360 Speaker 1: quote them. I don't know. I don't know SEC regulations. 1373 01:18:16,479 --> 01:18:18,519 Speaker 1: So you don't deal with the finn Ren sense, which 1374 01:18:18,600 --> 01:18:25,200 Speaker 1: is good for you. And they're but but it's the 1375 01:18:25,240 --> 01:18:28,120 Speaker 1: catalyst MLP and infrastructure fund investors canna look at up. 1376 01:18:28,200 --> 01:18:31,880 Speaker 1: So the holdings are other MLPs, the MLPs and the 1377 01:18:32,000 --> 01:18:35,760 Speaker 1: general partners on MLPs. The MLP general partner looks like 1378 01:18:35,880 --> 01:18:38,760 Speaker 1: a hedge fund manager, got it, And so that's so 1379 01:18:38,840 --> 01:18:40,640 Speaker 1: it's not a fund of funds, it's a fund that 1380 01:18:40,720 --> 01:18:45,120 Speaker 1: holds other MLPs. Absolutely, So I know the restructure is 1381 01:18:45,760 --> 01:18:50,920 Speaker 1: really tax advance advantageous tax wise, because so long as 1382 01:18:51,040 --> 01:18:55,559 Speaker 1: N of the net gains passed through, there's no tax 1383 01:18:55,680 --> 01:18:59,240 Speaker 1: at that level. Am I stating that correctly? How is 1384 01:18:59,760 --> 01:19:03,320 Speaker 1: how MLP structured relative to two tax I mean, there's 1385 01:19:03,320 --> 01:19:07,400 Speaker 1: similar MLPs don't pay tax and that's why. But they 1386 01:19:07,479 --> 01:19:11,320 Speaker 1: do issue a K one and lots of investors they 1387 01:19:11,400 --> 01:19:13,599 Speaker 1: hate k ones. They hate the fact that the MLPs 1388 01:19:13,600 --> 01:19:16,040 Speaker 1: don't pay tax, but they hate the k ones and 1389 01:19:16,200 --> 01:19:18,720 Speaker 1: so their accountants have taught them to hate the Yeah, 1390 01:19:18,840 --> 01:19:21,480 Speaker 1: and I think that the problem with k ones of overstated. 1391 01:19:21,560 --> 01:19:24,160 Speaker 1: But the world is you're right. I think you're right. Um, so, 1392 01:19:24,840 --> 01:19:27,439 Speaker 1: so the K one passed through shows up. It's almost 1393 01:19:27,520 --> 01:19:30,000 Speaker 1: like getting a ten ninety nine. Well, fund gives a 1394 01:19:30,080 --> 01:19:32,000 Speaker 1: ten ninety nine, so we masually we take the K 1395 01:19:32,160 --> 01:19:34,519 Speaker 1: one out of it. For the client. The client gets 1396 01:19:34,560 --> 01:19:37,200 Speaker 1: at ten ninety nine, but they get exposure to m 1397 01:19:37,280 --> 01:19:39,040 Speaker 1: LPs but they don't have to deal with the k 1398 01:19:39,200 --> 01:19:41,880 Speaker 1: ones that happens at the fund level. Oh really, yeah, 1399 01:19:42,080 --> 01:19:44,559 Speaker 1: I had no idea about that. That's interesting. I don't 1400 01:19:44,560 --> 01:19:46,639 Speaker 1: have an issue with k ones because they get one 1401 01:19:46,720 --> 01:19:48,240 Speaker 1: and I have to deal with it. Of course, if 1402 01:19:48,240 --> 01:19:51,639 Speaker 1: you're dealing with one, alright, one or ten doesn't exactly 1403 01:19:52,080 --> 01:19:54,479 Speaker 1: what are zero is a big different. Accountants overstate it. 1404 01:19:54,560 --> 01:19:56,320 Speaker 1: I've talked to a canist who complained about it, and 1405 01:19:56,320 --> 01:19:58,040 Speaker 1: I said, why don't you just charge more for that? 1406 01:19:59,080 --> 01:20:00,560 Speaker 1: How much do you charge to do the Well? I 1407 01:20:00,640 --> 01:20:02,080 Speaker 1: don't know. I just don't like the words. Well, they 1408 01:20:02,200 --> 01:20:04,720 Speaker 1: charge hourly, so if it takes longer, they're going to 1409 01:20:04,840 --> 01:20:08,920 Speaker 1: charge more. Everybody spends a hundred grand preparing their taxes, right, 1410 01:20:09,000 --> 01:20:11,479 Speaker 1: isn't that what your I got to talk to my 1411 01:20:12,439 --> 01:20:15,519 Speaker 1: that's um, hey, listen. You know everybody has the thing 1412 01:20:15,640 --> 01:20:18,280 Speaker 1: that they're naturally good at. And I know if I 1413 01:20:18,360 --> 01:20:20,479 Speaker 1: had to do my taxes myself, I would be in 1414 01:20:20,640 --> 01:20:24,519 Speaker 1: tears before I was finished. Whatever they charge me, and 1415 01:20:24,640 --> 01:20:27,040 Speaker 1: in anywhere near that sort of money, I'm happy to 1416 01:20:27,080 --> 01:20:30,519 Speaker 1: pay it because I don't The greatest thing about Henry 1417 01:20:30,560 --> 01:20:34,559 Speaker 1: Ford was was the assembly line, where each person did 1418 01:20:34,640 --> 01:20:38,679 Speaker 1: what they specialized in. And I'm happy to say, please 1419 01:20:38,720 --> 01:20:41,719 Speaker 1: do my talk. I just don't want to. Just trying 1420 01:20:41,800 --> 01:20:45,519 Speaker 1: to check that it's correct is complicated. You have to. 1421 01:20:46,320 --> 01:20:48,519 Speaker 1: I'm a big picture guy. I'm not a detailed guy 1422 01:20:49,479 --> 01:20:51,360 Speaker 1: as much as I get into the weeds with number 1423 01:20:51,439 --> 01:20:55,040 Speaker 1: and data, numbers and data and stuff. Being able to 1424 01:20:55,240 --> 01:20:59,640 Speaker 1: track all that is and the people who do it 1425 01:20:59,720 --> 01:21:02,479 Speaker 1: well are worth their win and goals, and it's a 1426 01:21:02,720 --> 01:21:07,520 Speaker 1: it's appalling that it's so complex. So the original concept 1427 01:21:07,720 --> 01:21:11,439 Speaker 1: of submitting your taxes on a postcard from Steve Forbes, 1428 01:21:12,400 --> 01:21:14,080 Speaker 1: We're never going to see anything like that. It's so 1429 01:21:14,200 --> 01:21:16,320 Speaker 1: hard because with tax reform, the losers know who they 1430 01:21:16,360 --> 01:21:19,759 Speaker 1: are and the winners don't, right, and so the winners 1431 01:21:19,800 --> 01:21:25,519 Speaker 1: don't appreciate let me, let me qualify that lots of 1432 01:21:25,600 --> 01:21:28,519 Speaker 1: people who pass through these doors. One of the themes 1433 01:21:28,560 --> 01:21:30,840 Speaker 1: that come up over and over again is I know 1434 01:21:31,120 --> 01:21:34,439 Speaker 1: how how lucky I have been in my career life 1435 01:21:35,479 --> 01:21:38,479 Speaker 1: profession I've heard time and time again for people that 1436 01:21:38,800 --> 01:21:42,080 Speaker 1: this happened and it was serendipitous and it changed my 1437 01:21:42,160 --> 01:21:46,040 Speaker 1: whole life. So I think some of the people who 1438 01:21:46,120 --> 01:21:49,160 Speaker 1: are the tax winners are very much aware of that. 1439 01:21:49,880 --> 01:21:52,560 Speaker 1: Maybe not enough, but my point is in terms of 1440 01:21:52,760 --> 01:21:58,120 Speaker 1: tax reform, change the tax for sure, there's winners and losers, right, 1441 01:21:58,560 --> 01:22:01,759 Speaker 1: and the problem with the change is that the losers 1442 01:22:01,800 --> 01:22:06,200 Speaker 1: of vocals may not really know that winners. And that's 1443 01:22:06,280 --> 01:22:09,280 Speaker 1: that I completely misspoken. And it's tax reform that's that's 1444 01:22:09,360 --> 01:22:12,000 Speaker 1: needed to simplify it so at least it might fit 1445 01:22:12,360 --> 01:22:14,599 Speaker 1: on a couple of postcards. So you're a little more 1446 01:22:14,640 --> 01:22:16,880 Speaker 1: plugged into what's going on in d C than I am. 1447 01:22:17,439 --> 01:22:19,719 Speaker 1: Are we really going to see any form of corporate 1448 01:22:19,760 --> 01:22:23,920 Speaker 1: tax return in our lifetime or personal tax reform or 1449 01:22:24,320 --> 01:22:28,040 Speaker 1: closing of loopholes? Or is that just election year? I 1450 01:22:28,080 --> 01:22:30,320 Speaker 1: mean it looks that way, right. The consensus is that 1451 01:22:30,400 --> 01:22:35,960 Speaker 1: work at some simplification, lower corporate tax rates, fewer personal 1452 01:22:36,720 --> 01:22:40,240 Speaker 1: brackets for taxes, and so, so you think that's going 1453 01:22:40,280 --> 01:22:45,560 Speaker 1: to actually happen. I would say it's better than but 1454 01:22:46,040 --> 01:22:49,160 Speaker 1: I couldn't say probability, but it's probably. You know, the 1455 01:22:49,240 --> 01:22:53,559 Speaker 1: odds seem to favor that. I since Donald Trump seems 1456 01:22:53,600 --> 01:22:57,439 Speaker 1: to only appreciate tweets. Just this morning, I exhorted him, 1457 01:22:57,720 --> 01:23:00,639 Speaker 1: can we please stop with the National Secure the nonsense 1458 01:23:00,720 --> 01:23:04,240 Speaker 1: and the immigration junk, and why don't you not your 1459 01:23:04,280 --> 01:23:07,160 Speaker 1: win and clean up the tax code and stop with 1460 01:23:07,520 --> 01:23:10,000 Speaker 1: all this other stuff which I'm waiting for the hate 1461 01:23:10,040 --> 01:23:12,320 Speaker 1: mail to come. Wouldn't that be great? I mean, Reagan 1462 01:23:12,439 --> 01:23:15,240 Speaker 1: was the last president who really oversaw any sort of 1463 01:23:15,320 --> 01:23:19,800 Speaker 1: big tax reform, and so I think that it's well 1464 01:23:19,920 --> 01:23:25,320 Speaker 1: well overdue. And what's amazing is Reagan, unlike Trump, had 1465 01:23:25,360 --> 01:23:28,840 Speaker 1: to deal with an opposing party. Not that Trump doesn't 1466 01:23:28,840 --> 01:23:31,799 Speaker 1: have to deal with it, but currently the Republicans controlled 1467 01:23:32,400 --> 01:23:35,960 Speaker 1: the House the Senate, and it would be great if 1468 01:23:36,040 --> 01:23:39,720 Speaker 1: we got bipartisan approval of tax form. That might be 1469 01:23:39,920 --> 01:23:41,720 Speaker 1: naive to assume that we'll get that, but un least 1470 01:23:41,720 --> 01:23:44,360 Speaker 1: they get some Democrats on board. I think that you 1471 01:23:44,439 --> 01:23:47,440 Speaker 1: don't have to do a whole lot to get Democrats 1472 01:23:47,520 --> 01:23:51,000 Speaker 1: on board, especially if you dangle a two trillion dollar 1473 01:23:51,560 --> 01:23:56,519 Speaker 1: infrastructure plan. Hey we're gonna repatriate to trillion. That could 1474 01:23:56,600 --> 01:23:58,439 Speaker 1: be done. That right, But it's been there for a 1475 01:23:58,520 --> 01:24:02,080 Speaker 1: long time, using the time, maybe this, this is the 1476 01:24:02,120 --> 01:24:05,160 Speaker 1: time it'll get done. And and I'm not talking about 1477 01:24:06,920 --> 01:24:13,639 Speaker 1: income distribution. I'm talking about making the task code simpler, fairer, better, 1478 01:24:14,120 --> 01:24:16,360 Speaker 1: not saying Okay, we're gonna take money from billionaires and 1479 01:24:16,400 --> 01:24:20,559 Speaker 1: give it to piece or vice versa. I'm talking about 1480 01:24:20,920 --> 01:24:24,160 Speaker 1: making it a little less complex and a little more 1481 01:24:24,280 --> 01:24:27,360 Speaker 1: the complex and the Yesne Parkling, I mean you're probably 1482 01:24:27,439 --> 01:24:29,880 Speaker 1: like me that I have a tax return that's probably 1483 01:24:29,920 --> 01:24:32,679 Speaker 1: two d pages. I mean, it's amazing they get any money. 1484 01:24:32,720 --> 01:24:36,160 Speaker 1: It's so complicated. I send them all my money and 1485 01:24:36,200 --> 01:24:38,040 Speaker 1: they send me back what they think I should get. 1486 01:24:38,120 --> 01:24:40,640 Speaker 1: So it's a one pager and they say here's what 1487 01:24:40,760 --> 01:24:43,479 Speaker 1: you're gonna live on this, and I say things. So 1488 01:24:43,680 --> 01:24:46,479 Speaker 1: it's I work it and I have. All my accountant 1489 01:24:46,520 --> 01:24:49,160 Speaker 1: does is double check their work. And so far that 1490 01:24:49,200 --> 01:24:51,760 Speaker 1: seems to be. It seems to be working out. I 1491 01:24:51,840 --> 01:24:54,240 Speaker 1: know I only have you for a finite amount of time. 1492 01:24:55,000 --> 01:24:58,280 Speaker 1: Let me get to some of my standard questions, my 1493 01:24:58,360 --> 01:25:01,800 Speaker 1: favorite questions I ask all of my guests. So we 1494 01:25:01,920 --> 01:25:05,000 Speaker 1: know you spent twenty three years at JP Morgan. What 1495 01:25:05,120 --> 01:25:08,080 Speaker 1: did you do before that? Well, I worked in London 1496 01:25:08,160 --> 01:25:10,000 Speaker 1: for a couple of years. I worked you originally from 1497 01:25:10,040 --> 01:25:12,400 Speaker 1: the from the UK. I worked in the Stock Exchange 1498 01:25:12,439 --> 01:25:16,280 Speaker 1: in London. So so, so you're from London. Where did 1499 01:25:16,280 --> 01:25:19,080 Speaker 1: the Australian accent come from? I don't know. That's that's 1500 01:25:19,080 --> 01:25:21,120 Speaker 1: start that I've only spent a week there in my life. 1501 01:25:21,200 --> 01:25:24,160 Speaker 1: Is that true? Um? So you were in London, who 1502 01:25:24,200 --> 01:25:26,040 Speaker 1: did you work for? In London? I worked for a 1503 01:25:26,080 --> 01:25:28,760 Speaker 1: company called Desert and Bevan, which became part of Barclays, 1504 01:25:29,280 --> 01:25:31,599 Speaker 1: and I was a money broker for a short period 1505 01:25:31,600 --> 01:25:33,920 Speaker 1: of time and I transferred with them to New York. 1506 01:25:34,160 --> 01:25:37,000 Speaker 1: Explained to us ugly Americans what a money broker? Well, 1507 01:25:37,080 --> 01:25:40,360 Speaker 1: money broker deals with big banks and other institutions trading 1508 01:25:40,400 --> 01:25:44,240 Speaker 1: currencies or derivatives or eurodollar deposits, and that's what I 1509 01:25:44,320 --> 01:25:46,120 Speaker 1: did for a short time. I did that for a 1510 01:25:46,200 --> 01:25:48,400 Speaker 1: few years, and then I moved over to banking and 1511 01:25:48,760 --> 01:25:52,160 Speaker 1: joined what became JP Morgan in the age. So what 1512 01:25:52,320 --> 01:25:55,479 Speaker 1: motivated you to come to the United States? Uh? You know, 1513 01:25:55,560 --> 01:25:57,680 Speaker 1: I was born in Canada, and so I spent some 1514 01:25:57,760 --> 01:25:59,920 Speaker 1: time in Canada with my dad. My parents split up. 1515 01:26:00,040 --> 01:26:04,880 Speaker 1: I was young, so maybe it's Canadian accent. So I 1516 01:26:05,080 --> 01:26:06,960 Speaker 1: always had this idea that would be nice to move 1517 01:26:07,000 --> 01:26:09,080 Speaker 1: back to North America and New York. It was obviously 1518 01:26:09,120 --> 01:26:11,960 Speaker 1: a much bigger financial center in Toronto. So I moved 1519 01:26:12,000 --> 01:26:15,479 Speaker 1: to New York and and at the time I thought 1520 01:26:15,520 --> 01:26:18,000 Speaker 1: maybe I'll move up to Toronto at some point, but 1521 01:26:18,160 --> 01:26:20,080 Speaker 1: dropped that idea because once I got here, it was 1522 01:26:20,160 --> 01:26:22,360 Speaker 1: just like how why would you be anywhere else? That 1523 01:26:22,600 --> 01:26:25,160 Speaker 1: is a question a lot of people wrestle with um, 1524 01:26:25,360 --> 01:26:28,880 Speaker 1: and the answer is weather. Weather is right. So so 1525 01:26:29,720 --> 01:26:32,040 Speaker 1: I'm here. I have no interest in going anywhere else. 1526 01:26:32,360 --> 01:26:34,439 Speaker 1: But whenever anyone says, why would you want to leave 1527 01:26:34,439 --> 01:26:37,400 Speaker 1: New York City, it's the way it's feywhere for the 1528 01:26:37,479 --> 01:26:41,240 Speaker 1: climate right, it's it's I walked the dogs early in 1529 01:26:41,280 --> 01:26:43,680 Speaker 1: the morning. This morning it was twenty two degrees. It's 1530 01:26:43,720 --> 01:26:46,320 Speaker 1: going to be forty five today. Maybe it was, maybe 1531 01:26:46,360 --> 01:26:49,960 Speaker 1: it was twenty seven today. Yesterday it was twenty two. 1532 01:26:50,000 --> 01:26:53,040 Speaker 1: I have a have an I pad on the wall, 1533 01:26:53,439 --> 01:26:55,040 Speaker 1: and all of those is run the weather app. There 1534 01:26:55,080 --> 01:26:57,360 Speaker 1: are a bunch of other apps that I can access there. 1535 01:26:57,439 --> 01:26:59,320 Speaker 1: But when I walk out that door, I'm like, look 1536 01:26:59,360 --> 01:27:01,839 Speaker 1: at the temperature outside, and then I have the thermometer 1537 01:27:01,960 --> 01:27:05,160 Speaker 1: outside and I could check if the iPad app is accurate, 1538 01:27:05,560 --> 01:27:09,719 Speaker 1: and it is. It's mostly um, let's talk about mentors. 1539 01:27:09,760 --> 01:27:13,160 Speaker 1: Who were the people who influenced the way you think 1540 01:27:13,240 --> 01:27:16,240 Speaker 1: about finance. Yeah, I get you know, I spent a 1541 01:27:16,280 --> 01:27:18,960 Speaker 1: lot of years in trading and as a follical Don Layton, 1542 01:27:19,000 --> 01:27:21,040 Speaker 1: who's now the CEO of Freddie Mack who ran the 1543 01:27:21,080 --> 01:27:26,679 Speaker 1: trading JP Morgan, and he he was he was just tremendous. 1544 01:27:26,720 --> 01:27:28,960 Speaker 1: He was a great leader. He's a great leader. Um, 1545 01:27:29,680 --> 01:27:36,440 Speaker 1: He's he really exemplified integrity and strategy with detail orientation. 1546 01:27:37,000 --> 01:27:40,120 Speaker 1: There's another fellow who's retired now, Bill Pike, used to 1547 01:27:40,120 --> 01:27:43,120 Speaker 1: around government bond trading when I was there. He's about 1548 01:27:44,120 --> 01:27:46,600 Speaker 1: thirteen or fourteen years older than me, and I was 1549 01:27:46,680 --> 01:27:48,960 Speaker 1: in my twenties when I was first working there, and 1550 01:27:49,040 --> 01:27:50,920 Speaker 1: he was running government bond trading, and it was just 1551 01:27:51,080 --> 01:27:56,720 Speaker 1: always fascinating listening to his interpretation of market psychology and 1552 01:27:56,880 --> 01:27:59,240 Speaker 1: how people were thinking about bonds because that's what I 1553 01:27:59,320 --> 01:28:02,200 Speaker 1: was trading at the right. And so you know, there 1554 01:28:02,240 --> 01:28:05,360 Speaker 1: are two people that I work with in those days 1555 01:28:05,400 --> 01:28:08,040 Speaker 1: when I was a lot younger, and I have still 1556 01:28:08,120 --> 01:28:11,680 Speaker 1: have a tremendous respect for both of them. Let's talk 1557 01:28:11,720 --> 01:28:15,080 Speaker 1: about investors. One. Investors have colored the way you look 1558 01:28:15,120 --> 01:28:19,599 Speaker 1: at the world of investing. I mean, obviously Buffett has 1559 01:28:19,680 --> 01:28:24,519 Speaker 1: a has a that's a fault setting everybody, everybody cannot 1560 01:28:24,720 --> 01:28:28,160 Speaker 1: not see. And we don't invest in necessarily the things 1561 01:28:28,240 --> 01:28:30,640 Speaker 1: that he invests in because that he doesn't you know, 1562 01:28:30,720 --> 01:28:33,479 Speaker 1: he's but his process is fascinating. Well, just the idea 1563 01:28:33,520 --> 01:28:34,960 Speaker 1: that you want to have a mote and that you 1564 01:28:35,080 --> 01:28:37,759 Speaker 1: want to be holding things that you'd want to own forever. 1565 01:28:38,439 --> 01:28:41,240 Speaker 1: And that's a hard thing to do because that's not 1566 01:28:41,400 --> 01:28:43,320 Speaker 1: the time frame that a lot of investors have. And 1567 01:28:43,439 --> 01:28:45,920 Speaker 1: we found that two years ago when energy infrastructure was 1568 01:28:46,000 --> 01:28:50,599 Speaker 1: down a lot. Yeah, and we found just just how 1569 01:28:50,760 --> 01:28:54,400 Speaker 1: high quality our investors really are because they stayed with 1570 01:28:54,560 --> 01:28:56,840 Speaker 1: us and in many cases they added money. We picked 1571 01:28:56,920 --> 01:28:59,120 Speaker 1: up new clients, but that's sort of a self selection 1572 01:28:59,560 --> 01:29:02,360 Speaker 1: that we add clients who understood that we're not going 1573 01:29:02,400 --> 01:29:03,840 Speaker 1: to get you out of the high we're going to 1574 01:29:03,920 --> 01:29:06,880 Speaker 1: be invested for the long run. So that that really 1575 01:29:06,920 --> 01:29:10,880 Speaker 1: helped a lot. That that is Ah, that is quite fascinating. 1576 01:29:11,479 --> 01:29:16,959 Speaker 1: Let's talk about any other anybody else besides Buffett, especially 1577 01:29:17,000 --> 01:29:21,400 Speaker 1: You're you're an energy. Who else besides Buffett catches your attention? 1578 01:29:22,920 --> 01:29:27,360 Speaker 1: Who else in there? It's interesting? No, he's probably the 1579 01:29:27,439 --> 01:29:31,599 Speaker 1: one you could do a lot worse. Yeah, exactly, that's right. 1580 01:29:32,280 --> 01:29:34,200 Speaker 1: You can't get it that, you can't get hurt, saying 1581 01:29:34,240 --> 01:29:37,560 Speaker 1: Laarren Buffett. How about books you you mentioned, um a 1582 01:29:37,640 --> 01:29:40,960 Speaker 1: couple of books earlier. You mentioned Flashboys by Michael Lewis. 1583 01:29:41,200 --> 01:29:45,080 Speaker 1: Anything by Michael Lewis, I totally Can I tell you something? 1584 01:29:45,200 --> 01:29:49,479 Speaker 1: I have blind Side, The blind Side tied up for vacation. 1585 01:29:49,560 --> 01:29:52,200 Speaker 1: It's the only book of his I haven't read. How 1586 01:29:52,360 --> 01:29:54,920 Speaker 1: is there? I'm looking forward to that. Yeah, I mean listen, 1587 01:29:55,080 --> 01:29:59,240 Speaker 1: I read Moneyball. Listen to me, right, Baseball? I mean 1588 01:29:59,320 --> 01:30:02,599 Speaker 1: it's fascinating. You've forgotten more than I know about baseball. 1589 01:30:02,880 --> 01:30:05,360 Speaker 1: And I loved Moneyball. It was it was fast, it 1590 01:30:05,520 --> 01:30:09,519 Speaker 1: was a great book. I just read The Undoing Project amazing, 1591 01:30:10,040 --> 01:30:15,320 Speaker 1: which is all about behavior, finance and Traversky and Daniel Cannerman. 1592 01:30:15,560 --> 01:30:20,160 Speaker 1: I love the digression in the beginning about the basketball. Yes, yes, yes, 1593 01:30:20,479 --> 01:30:22,600 Speaker 1: And it's the same thing. It has nothing to do 1594 01:30:22,720 --> 01:30:26,719 Speaker 1: with the sport. It's about what assumptions are everybody making 1595 01:30:26,960 --> 01:30:32,879 Speaker 1: that's wrong. Yes, So, Michael Lewis, I'm reading Finding Pixar Today, 1596 01:30:33,360 --> 01:30:36,920 Speaker 1: which is by former CFO of Pixar, Lawrence Leaving, Lawrence 1597 01:30:37,000 --> 01:30:41,920 Speaker 1: Leaving previous and it's wonderful. They've just done the I 1598 01:30:42,080 --> 01:30:44,920 Speaker 1: p O. Okay, so you're you're deep into it. Yeah, 1599 01:30:45,680 --> 01:30:48,160 Speaker 1: it's fastening book. Well, you know what caught my attention 1600 01:30:48,360 --> 01:30:51,679 Speaker 1: is Andrew Ross Saukin commented on it and he said, 1601 01:30:51,760 --> 01:30:55,120 Speaker 1: like every great Pixar movie has a happy ending as well, 1602 01:30:55,400 --> 01:30:57,559 Speaker 1: and I'm looking forward to that. So so I'm reading 1603 01:30:57,640 --> 01:31:00,639 Speaker 1: that here's a guy who were closely with Steve Jobs. Yeah, 1604 01:31:00,760 --> 01:31:02,880 Speaker 1: nobody really I never heard of this guy? Did you 1605 01:31:02,920 --> 01:31:07,080 Speaker 1: ever heard? And he tells stories about Steve Jobs that 1606 01:31:07,200 --> 01:31:11,439 Speaker 1: are I learned from the book that Steve Jobs became 1607 01:31:11,479 --> 01:31:16,400 Speaker 1: a billionaire not because of Apple, because yes, he made 1608 01:31:16,400 --> 01:31:18,759 Speaker 1: so much more money out of Pixel in the beginning anyway, 1609 01:31:20,200 --> 01:31:22,599 Speaker 1: So that's what I'm reading to that became the biggest 1610 01:31:22,600 --> 01:31:27,080 Speaker 1: shareholder in Disney through the Pixel of the acquisition. Yes, absolutely, absolutely, Yeah, 1611 01:31:27,280 --> 01:31:29,679 Speaker 1: So that's great. Who else? Who else do you enjoy reading? 1612 01:31:29,720 --> 01:31:31,160 Speaker 1: What are the books do you like? Well, you know, 1613 01:31:31,240 --> 01:31:36,160 Speaker 1: I read Finance Misbehaving by Richard Taler last year, which 1614 01:31:36,280 --> 01:31:39,760 Speaker 1: builds on the work by Cannaman and first and so 1615 01:31:42,360 --> 01:31:46,360 Speaker 1: I read all the books on the financial crisis. They're 1616 01:31:46,400 --> 01:31:49,080 Speaker 1: still coming out. I mean, I thought Hank Paulson's book 1617 01:31:49,520 --> 01:31:53,080 Speaker 1: was Back from the Hank Paulson's was I forget that 1618 01:31:53,320 --> 01:31:56,360 Speaker 1: his but that was terrific um Back from the brink, 1619 01:31:56,400 --> 01:31:59,799 Speaker 1: I think was his my list to read. But Nankees 1620 01:32:00,000 --> 01:32:01,920 Speaker 1: it was good as well. I mean, we were so 1621 01:32:02,320 --> 01:32:05,720 Speaker 1: fortunate to have people like Paulson and Bernanke in the 1622 01:32:05,840 --> 01:32:08,240 Speaker 1: positions that we were in at that time. Howard Marks 1623 01:32:08,240 --> 01:32:11,040 Speaker 1: said the same thing you did. I really because imagine 1624 01:32:11,080 --> 01:32:13,840 Speaker 1: that meeting where Paulson gets all the CEOs in the 1625 01:32:13,920 --> 01:32:15,880 Speaker 1: room and says, here's the deal. You're all going to 1626 01:32:16,000 --> 01:32:18,519 Speaker 1: take ten to twenty five billion dollars of capital and 1627 01:32:18,560 --> 01:32:21,000 Speaker 1: you're not leaving until you get So he's got you know, 1628 01:32:21,240 --> 01:32:25,080 Speaker 1: Jamie Diamond in there, and and and Lloyd Blank find 1629 01:32:25,760 --> 01:32:28,160 Speaker 1: and people who are not used to being told that, 1630 01:32:29,360 --> 01:32:31,800 Speaker 1: and who else could pull that off? One or two 1631 01:32:31,880 --> 01:32:33,960 Speaker 1: people said, we don't need the money, we don't want 1632 01:32:34,000 --> 01:32:35,720 Speaker 1: to take it. Why do we have to take this 1633 01:32:36,600 --> 01:32:39,200 Speaker 1: And the answer was, well, you're gonna need it, and 1634 01:32:39,360 --> 01:32:41,479 Speaker 1: even if you don't need it, we have to hide 1635 01:32:41,800 --> 01:32:44,720 Speaker 1: who does need it exactly. It was fascinating. It was 1636 01:32:44,880 --> 01:32:48,080 Speaker 1: absolutely the right strategy, and so few people could have 1637 01:32:48,160 --> 01:32:52,120 Speaker 1: executed that. The former CEO of Goldman that's what it took. 1638 01:32:52,600 --> 01:32:55,880 Speaker 1: He was one of their peers. Right. So, um, so, 1639 01:32:56,120 --> 01:32:58,680 Speaker 1: all of the books under Financial Crisis I thought were 1640 01:32:58,720 --> 01:33:01,759 Speaker 1: really good. I find so that there are three books 1641 01:33:01,800 --> 01:33:06,920 Speaker 1: that I feel obligated to read Paulson's, Bernanke's and Gethner. 1642 01:33:07,560 --> 01:33:11,160 Speaker 1: And I can't bring myself to read Bernanke or Guythaner 1643 01:33:11,960 --> 01:33:15,840 Speaker 1: because they were kind of they were there beforehands and 1644 01:33:16,000 --> 01:33:20,040 Speaker 1: helped contribute to the crisis. Paulson say what you will 1645 01:33:20,040 --> 01:33:22,599 Speaker 1: about Goldman Sacks. You can bash Goldman Sacks all you want. 1646 01:33:23,120 --> 01:33:25,880 Speaker 1: You can't really say they were a major cause of 1647 01:33:25,920 --> 01:33:30,040 Speaker 1: the crisis. Well, they created some synthetic c d os 1648 01:33:30,080 --> 01:33:35,320 Speaker 1: and they did stuff for John Paulson, but you can't 1649 01:33:35,360 --> 01:33:38,400 Speaker 1: say these guys were the approximate cause of of the 1650 01:33:38,520 --> 01:33:40,880 Speaker 1: there was I had. I had a list of about 1651 01:33:41,160 --> 01:33:47,479 Speaker 1: twenty five people, and Goldman Sacks people, organizations, institutions, they 1652 01:33:47,520 --> 01:33:53,719 Speaker 1: don't even make the top um. I've pushed back against 1653 01:33:53,800 --> 01:33:57,439 Speaker 1: that argument, and it goes something like this, if lending 1654 01:33:57,560 --> 01:34:00,760 Speaker 1: to the poor caused the crisis, then the boom and 1655 01:34:00,840 --> 01:34:03,360 Speaker 1: bust should take place in places where the poor are. 1656 01:34:04,240 --> 01:34:06,400 Speaker 1: The boom and bust wasn't in Harlem, it wasn't in 1657 01:34:06,520 --> 01:34:08,639 Speaker 1: South Philly, it wasn't in the bad parts of Chicago. 1658 01:34:09,080 --> 01:34:13,000 Speaker 1: It was in California, Arizona, Nevada, and Florida. It had 1659 01:34:13,080 --> 01:34:15,360 Speaker 1: nothing what's over to do with lending to the poor. 1660 01:34:15,520 --> 01:34:18,639 Speaker 1: So that's been my counter argument. But it was increasing 1661 01:34:18,680 --> 01:34:22,240 Speaker 1: home ownership to open to the high sixties, for sure. 1662 01:34:22,360 --> 01:34:25,280 Speaker 1: But you had you had Clinton, you would Bush, you 1663 01:34:25,439 --> 01:34:32,360 Speaker 1: had every Republican and both parties, both parties of bipartisans. However, however, 1664 01:34:33,520 --> 01:34:37,240 Speaker 1: look at the Democrats in California and the Republicans on 1665 01:34:37,360 --> 01:34:41,200 Speaker 1: the Federal Reserve. When you had all of these non 1666 01:34:41,360 --> 01:34:45,759 Speaker 1: bank lenders not covered by uh Fannie and Freddie unable 1667 01:34:45,760 --> 01:34:50,000 Speaker 1: to buy their stuff because it's nonconforming loans and not 1668 01:34:50,240 --> 01:34:52,519 Speaker 1: covered by the fdi C, you have a whole run 1669 01:34:52,600 --> 01:34:59,400 Speaker 1: of like four hundred lend to securities UM mortgage underwriters 1670 01:35:00,040 --> 01:35:04,799 Speaker 1: located in California. People started to complain about them. William 1671 01:35:04,840 --> 01:35:08,040 Speaker 1: Poole went to Alan Greenspan, then chair of the Fed. 1672 01:35:08,520 --> 01:35:12,439 Speaker 1: Greenspan called them innovators. Leave them alone. People went to 1673 01:35:12,520 --> 01:35:18,280 Speaker 1: the Democratic controlled UH Congress, California Senate, an Assembly and 1674 01:35:18,520 --> 01:35:21,760 Speaker 1: same thing. Hey, these are our business owners, these are 1675 01:35:22,400 --> 01:35:26,360 Speaker 1: thriving businesses in California. Leave them alone. So it is 1676 01:35:26,600 --> 01:35:31,280 Speaker 1: fairly bipartisans. It was an oversight and a public policy 1677 01:35:31,360 --> 01:35:35,080 Speaker 1: failure that allowed that behavior to take and some missincentivize, 1678 01:35:35,400 --> 01:35:39,880 Speaker 1: some miss or were My favorite was the I'll be gone, 1679 01:35:39,920 --> 01:35:43,639 Speaker 1: You'll be gone bonuses, where you take the bonus you leave, 1680 01:35:43,680 --> 01:35:45,479 Speaker 1: and if it blows up after you're gone, it doesn't 1681 01:35:45,520 --> 01:35:49,679 Speaker 1: matter someone else. So let me keep plowing through any 1682 01:35:49,720 --> 01:35:52,000 Speaker 1: other books you want to bring up before So the 1683 01:35:52,040 --> 01:35:55,800 Speaker 1: Pulsing book is also on my list. How about nonfiction? 1684 01:35:55,840 --> 01:35:57,080 Speaker 1: Do you ever, I mean, how about fiction? Do you 1685 01:35:57,120 --> 01:36:00,800 Speaker 1: ever read anything that's not nonfiction? I'm in the same 1686 01:36:00,920 --> 01:36:04,080 Speaker 1: loop as you. Everything I read as nonfish and well, 1687 01:36:04,520 --> 01:36:07,519 Speaker 1: Pillars of the Earth, Pillars of the Earth. Who is 1688 01:36:07,600 --> 01:36:10,280 Speaker 1: of the Earth? Yeah, you're asking me, you know you 1689 01:36:10,360 --> 01:36:12,400 Speaker 1: can look that up after what type of book is? 1690 01:36:12,479 --> 01:36:16,920 Speaker 1: It's a novel based in medieval Britain without the construction 1691 01:36:17,000 --> 01:36:24,439 Speaker 1: of a cathedral, and um that is a and there 1692 01:36:24,520 --> 01:36:28,559 Speaker 1: was and then there was a sequel ken Ken Filets, 1693 01:36:28,640 --> 01:36:33,200 Speaker 1: Ken Filet. That is sort of an epic story Pillars. 1694 01:36:33,320 --> 01:36:35,680 Speaker 1: I don't read a lot of nonficxure, don't a lot 1695 01:36:35,680 --> 01:36:39,120 Speaker 1: of fixture. This thing is one all manners of award. Yeah. Look, 1696 01:36:40,360 --> 01:36:43,920 Speaker 1: that's a fascinating It's one of those stories that you 1697 01:36:44,080 --> 01:36:47,240 Speaker 1: were sorry when it's finished because you were so into 1698 01:36:47,320 --> 01:36:51,960 Speaker 1: the characters. It's sort of a multi generational story all 1699 01:36:52,040 --> 01:36:54,800 Speaker 1: around the building of this cathedral in medieval Britain, and 1700 01:36:55,120 --> 01:36:58,519 Speaker 1: it's and the characters are well developed, but it also 1701 01:36:58,760 --> 01:37:01,080 Speaker 1: tries to give you a flavor what everyday life was 1702 01:37:01,200 --> 01:37:04,360 Speaker 1: like for people who are not you know, royalty, but 1703 01:37:04,560 --> 01:37:08,799 Speaker 1: regular people living in sixteenth century Britain. Enormous and brilliant, 1704 01:37:08,880 --> 01:37:13,439 Speaker 1: A great epic tale, crammed with characters unbelievably alive across 1705 01:37:13,640 --> 01:37:17,560 Speaker 1: the gulf of centuries. Wow, that's a hell of it. Yeah. So, 1706 01:37:17,680 --> 01:37:18,880 Speaker 1: like I said, I don't mean a lot of fiction, 1707 01:37:18,960 --> 01:37:21,360 Speaker 1: but that's one of my favorite. I need I need 1708 01:37:21,439 --> 01:37:25,439 Speaker 1: one more fiction book to bring a vacation that this one. 1709 01:37:25,520 --> 01:37:29,640 Speaker 1: Maybe it um so since you've joined the industry, what 1710 01:37:29,760 --> 01:37:31,439 Speaker 1: do you what do you see as having been the 1711 01:37:31,640 --> 01:37:35,840 Speaker 1: major changes that have had the most impact. Well, it's 1712 01:37:35,920 --> 01:37:38,439 Speaker 1: the speed, isn't it. And it's and it's a lot 1713 01:37:38,600 --> 01:37:41,439 Speaker 1: less personal. I mean it used to be when I 1714 01:37:41,520 --> 01:37:45,160 Speaker 1: started the business, transactions happened face to face. In many 1715 01:37:45,240 --> 01:37:47,240 Speaker 1: cases are over the phone with people that you knew, 1716 01:37:47,280 --> 01:37:50,280 Speaker 1: So you had a lot of iteritive transactions with familier people. 1717 01:37:51,080 --> 01:37:54,839 Speaker 1: And of course exchange flaws have largely gone and everything 1718 01:37:54,920 --> 01:37:58,599 Speaker 1: about trading is so impersonal. Now software is eating every 1719 01:37:58,680 --> 01:38:01,479 Speaker 1: software is doing everything. So there's a there's you know, 1720 01:38:01,960 --> 01:38:04,320 Speaker 1: it's a whole global community where you don't know the 1721 01:38:04,400 --> 01:38:06,479 Speaker 1: people that you're training with, and that's had all kinds 1722 01:38:06,520 --> 01:38:10,160 Speaker 1: of ramifications. That and the speed has led to an 1723 01:38:10,280 --> 01:38:13,240 Speaker 1: even greater focus on the short term. I get this 1724 01:38:13,400 --> 01:38:15,519 Speaker 1: question from from readers all the time. What do you 1725 01:38:15,600 --> 01:38:17,760 Speaker 1: what do you ask your guests what they do to 1726 01:38:17,840 --> 01:38:22,360 Speaker 1: relax or for enjoyment out of the office. Um, I 1727 01:38:22,479 --> 01:38:25,640 Speaker 1: play golf. That's the time you're in Florida part of 1728 01:38:25,680 --> 01:38:27,960 Speaker 1: the year. Yeah, so I belong to a club down 1729 01:38:28,000 --> 01:38:30,519 Speaker 1: in Florida as well. Um I used to play a 1730 01:38:30,520 --> 01:38:34,080 Speaker 1: lot of chess. Um New York's a fantastic place for chess. 1731 01:38:34,120 --> 01:38:35,759 Speaker 1: Now I can play on walk right over to Washington 1732 01:38:35,800 --> 01:38:39,880 Speaker 1: Square Park, get embarrassed by some twelve years. Oh yeah, 1733 01:38:39,960 --> 01:38:42,800 Speaker 1: there's some good players there. Um. I just started doing 1734 01:38:42,840 --> 01:38:46,040 Speaker 1: the New York Times crossword on my wife my tablet, 1735 01:38:46,240 --> 01:38:48,920 Speaker 1: you know, and and and that's a lot of fun. 1736 01:38:49,160 --> 01:38:53,200 Speaker 1: So so you know, it's an odd thought process. I 1737 01:38:53,520 --> 01:38:55,920 Speaker 1: find the cross words. I've never been into crosswords, and 1738 01:38:56,000 --> 01:38:57,560 Speaker 1: I just, hey, this is easy. I get on my 1739 01:38:57,640 --> 01:39:02,519 Speaker 1: tablet anyway in bed, and yeah, it's it's it's pretty cool. 1740 01:39:02,520 --> 01:39:04,600 Speaker 1: I think it's good to have. It's good to to 1741 01:39:04,760 --> 01:39:07,560 Speaker 1: test your brain and to and to work on new challenges. 1742 01:39:07,760 --> 01:39:09,600 Speaker 1: One of the ways that you just you know that 1743 01:39:09,680 --> 01:39:12,000 Speaker 1: you don't age as quickly to what otherwise. It's a 1744 01:39:12,240 --> 01:39:15,720 Speaker 1: different thought process I find. So I hate looking at 1745 01:39:15,720 --> 01:39:19,720 Speaker 1: a blank crossword. I despise them. My wife will take 1746 01:39:19,760 --> 01:39:23,160 Speaker 1: a hard crossword puzzle and get stuck nine tenths of 1747 01:39:23,200 --> 01:39:27,120 Speaker 1: the way through. Come right, and that's the easy. But 1748 01:39:27,360 --> 01:39:31,040 Speaker 1: I need the cross word is terrible, and you have 1749 01:39:31,120 --> 01:39:33,120 Speaker 1: to know geography, and I don't know the name of 1750 01:39:33,240 --> 01:39:36,200 Speaker 1: that river in this stage. But it's fascinating and it 1751 01:39:36,320 --> 01:39:38,240 Speaker 1: is does keep them mind well, earlier in the week 1752 01:39:38,400 --> 01:39:41,880 Speaker 1: is easier. The Sunday Monday, it's fabulous. Anybody could do 1753 01:39:41,920 --> 01:39:44,560 Speaker 1: the Monday, right. I used to take the train with 1754 01:39:44,640 --> 01:39:48,800 Speaker 1: someone who was retired, and her greatest pleasure was if 1755 01:39:48,880 --> 01:39:52,519 Speaker 1: she can finish the Friday New York Times crossword puzzle 1756 01:39:52,960 --> 01:39:55,639 Speaker 1: before the train pulls in. I mean it's like at 1757 01:39:55,720 --> 01:39:59,840 Speaker 1: eight minute, right, that's she She's really had pretty good Monday. 1758 01:40:00,000 --> 01:40:03,080 Speaker 1: It's before we're half with it, right. Um, So let's 1759 01:40:03,120 --> 01:40:06,479 Speaker 1: talk a little bit about millennials and people just graduating 1760 01:40:06,479 --> 01:40:09,679 Speaker 1: in college. What sort of advice would you give somebody 1761 01:40:09,720 --> 01:40:13,479 Speaker 1: who says, hey, I'm interested in finance. What would you 1762 01:40:13,520 --> 01:40:16,519 Speaker 1: tell them through Instident of Finance. Well, the first thing 1763 01:40:16,640 --> 01:40:19,280 Speaker 1: is have a have a career strategy. I mean, one 1764 01:40:19,320 --> 01:40:21,479 Speaker 1: of the ironies I've found for myself is I've I've 1765 01:40:21,520 --> 01:40:23,639 Speaker 1: had more of a career strategy as I've got older. 1766 01:40:24,080 --> 01:40:26,439 Speaker 1: But of course, the time to really develop a strategies 1767 01:40:26,439 --> 01:40:28,080 Speaker 1: when you're young and you've got your whole career ahead 1768 01:40:28,080 --> 01:40:31,120 Speaker 1: of you. Have a strategy, stay focused. The people who 1769 01:40:31,160 --> 01:40:34,719 Speaker 1: are successful pick the right goals and they stay focused 1770 01:40:34,920 --> 01:40:40,799 Speaker 1: on achieving those goals. I think that going into finance totally. 1771 01:40:40,880 --> 01:40:44,000 Speaker 1: Make sure you're doing things that that are going to 1772 01:40:44,040 --> 01:40:47,800 Speaker 1: be demonsibly good for clients. Make sure that whatever you're 1773 01:40:47,840 --> 01:40:50,719 Speaker 1: doing there's a there's a clear value add for the client, 1774 01:40:50,880 --> 01:40:53,519 Speaker 1: and it's and it's got some meaning for the client, 1775 01:40:53,680 --> 01:40:57,040 Speaker 1: because then it's more likely to be sustainable. And my 1776 01:40:57,200 --> 01:40:59,840 Speaker 1: final question, what is it that you know about in 1777 01:41:00,080 --> 01:41:03,840 Speaker 1: vesting in the world of finance today that you wish 1778 01:41:03,880 --> 01:41:06,080 Speaker 1: you knew twenty five years ago when you were starting. 1779 01:41:06,439 --> 01:41:09,840 Speaker 1: I mean, I think behavioral finance is so fascinating. I mean, 1780 01:41:09,920 --> 01:41:13,320 Speaker 1: it explains so much more. This is under Richard Tyler 1781 01:41:13,360 --> 01:41:15,720 Speaker 1: talks about in finance misbehaving. Is that so much of 1782 01:41:16,000 --> 01:41:21,240 Speaker 1: economic theory assumes people are just these agents rational products, right, 1783 01:41:21,360 --> 01:41:24,400 Speaker 1: he calls them e cons Right, these theoretical people, and 1784 01:41:24,560 --> 01:41:26,800 Speaker 1: of course you get booms and busts and all kinds 1785 01:41:26,840 --> 01:41:32,000 Speaker 1: of emotion because of human activity. And really appreciating the 1786 01:41:32,120 --> 01:41:35,160 Speaker 1: impact of human decision making on markets is something that 1787 01:41:35,520 --> 01:41:39,559 Speaker 1: I've come to appreciate much more in the last five 1788 01:41:39,680 --> 01:41:43,880 Speaker 1: or ten years relative to when I started out earlier. On, Simon, 1789 01:41:44,000 --> 01:41:47,160 Speaker 1: thank you so much for being so generous with your time. 1790 01:41:47,240 --> 01:41:51,080 Speaker 1: We have been speaking to Simon lack of sl advisors. 1791 01:41:51,680 --> 01:41:54,439 Speaker 1: If you enjoy this conversation, be sure and look up 1792 01:41:54,479 --> 01:41:56,040 Speaker 1: an inch, ro down an inch at any of the 1793 01:41:56,120 --> 01:42:00,439 Speaker 1: other hundred and thirty nine or so such previous conversation sations. 1794 01:42:01,040 --> 01:42:02,760 Speaker 1: I believe you will find most of them to be 1795 01:42:03,040 --> 01:42:08,200 Speaker 1: absolutely fascinating. If you want more information about Simon, go 1796 01:42:08,360 --> 01:42:12,639 Speaker 1: to Amazon or any fine bookstore and you can get 1797 01:42:12,840 --> 01:42:16,360 Speaker 1: the Hedge Fund, mirage, Wall Street, potholes or bonds are 1798 01:42:16,400 --> 01:42:20,880 Speaker 1: not forever you publish house where, don't you? What? So 1799 01:42:21,120 --> 01:42:24,120 Speaker 1: if someone else wants more information about you, what's the 1800 01:42:24,160 --> 01:42:28,120 Speaker 1: best online? Go to our website s l dash advisors 1801 01:42:28,200 --> 01:42:30,519 Speaker 1: dot com. Well just google me, Just google Simon Lack, 1802 01:42:30,720 --> 01:42:34,519 Speaker 1: Google Simon Lack Um. I would be remiss if I 1803 01:42:34,680 --> 01:42:42,160 Speaker 1: did not thank our staff. My recording engineer is Medina Parwana. 1804 01:42:42,680 --> 01:42:46,840 Speaker 1: Taylor Riggs handles all of our booking, Charlie Volmer as 1805 01:42:46,880 --> 01:42:49,880 Speaker 1: our producer, and Michael bat Nick is the head of 1806 01:42:50,200 --> 01:42:55,120 Speaker 1: our research. Our research team, our crack research team. We 1807 01:42:55,280 --> 01:43:00,720 Speaker 1: love your comment, comments, feedback and suggestions right to me 1808 01:43:01,000 --> 01:43:05,040 Speaker 1: at m IB podcast at Bloomberg dot net. I'm Barry 1809 01:43:05,080 --> 01:43:08,680 Speaker 1: results You've been listening to Masters in Business on Bloomberg 1810 01:43:08,840 --> 01:43:12,920 Speaker 1: Radio Masters in Business is brought to you by proper Cloth, 1811 01:43:13,520 --> 01:43:17,920 Speaker 1: the leader in men's custom shirts. 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