1 00:00:02,240 --> 00:00:06,840 Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio. 2 00:00:07,360 --> 00:00:10,200 Speaker 1: For the long holiday weekend, We're gonna try something a 3 00:00:10,240 --> 00:00:14,720 Speaker 1: little different. My Bloomberg opinion colleague John Authors has begun 4 00:00:14,840 --> 00:00:17,799 Speaker 1: an online book club. He looks at some of the 5 00:00:17,880 --> 00:00:21,880 Speaker 1: classic and new books on the world of finance and investing. 6 00:00:22,680 --> 00:00:25,759 Speaker 1: Joining us is Christine Harper. She is the editor in 7 00:00:25,840 --> 00:00:30,880 Speaker 1: chief of Bloomberg Markets. John is the quintessential Englishman in 8 00:00:30,920 --> 00:00:34,440 Speaker 1: New York. Before joining us at Bloomberg, he spent twenty 9 00:00:34,520 --> 00:00:39,159 Speaker 1: nine years at The Financial Times. The first book in 10 00:00:39,360 --> 00:00:42,800 Speaker 1: John series is from Peter Bernstein. For those of you 11 00:00:42,840 --> 00:00:45,920 Speaker 1: who are not familiar with Peter Bernstein, he is the 12 00:00:47,120 --> 00:00:50,519 Speaker 1: Michael Lewis of his day. He began writing in the 13 00:00:50,560 --> 00:00:54,920 Speaker 1: sixties and seventies. The book that we talk about today 14 00:00:55,160 --> 00:00:59,520 Speaker 1: is Capital Ideas, The Improbable Origins of Modern Wall Street. 15 00:01:00,320 --> 00:01:05,520 Speaker 1: Bernstein published this in You probably are familiar with some 16 00:01:05,600 --> 00:01:10,320 Speaker 1: of Bernstein's other work. I Just Adore Against the Gods. 17 00:01:10,360 --> 00:01:14,600 Speaker 1: The Remarkable Story of Risk Uh probably his best known work, 18 00:01:14,760 --> 00:01:19,039 Speaker 1: which tells about the rise of probabilities and statistics and 19 00:01:19,160 --> 00:01:25,520 Speaker 1: actuarial tables and the insurance industry and why modern finance Oh, 20 00:01:25,720 --> 00:01:30,480 Speaker 1: such a great debt of gratitude to the early people 21 00:01:30,480 --> 00:01:34,280 Speaker 1: who were working on statistics and mathematics. You know, back 22 00:01:34,319 --> 00:01:37,000 Speaker 1: in the day when ships would go overseas and try 23 00:01:37,040 --> 00:01:41,440 Speaker 1: and come back with spices, it was a risky and 24 00:01:41,560 --> 00:01:46,360 Speaker 1: dangerous venture. The ability to ensure those trips, the ability 25 00:01:46,400 --> 00:01:49,600 Speaker 1: to figure out the odds of safe return and build 26 00:01:49,640 --> 00:01:54,760 Speaker 1: in a reasonable um compensation for those who didn't come back, well, 27 00:01:54,880 --> 00:01:57,360 Speaker 1: that was really really important, and that was developed by 28 00:01:57,360 --> 00:02:01,760 Speaker 1: early statisticians, and probability for your risks. Eventually that becomes 29 00:02:01,760 --> 00:02:04,840 Speaker 1: the modern insurance industry. John wanted to focus on a 30 00:02:04,880 --> 00:02:09,119 Speaker 1: book of Peter Bernstein called Capital Ideas, The Improbable Origins 31 00:02:09,160 --> 00:02:12,720 Speaker 1: of Modern Wall Street. It tells the history of how 32 00:02:12,919 --> 00:02:17,560 Speaker 1: modern finance developed, and really it's quite fascinating, tracing the 33 00:02:17,600 --> 00:02:20,799 Speaker 1: pioneering work of early scholars to the development of new 34 00:02:20,919 --> 00:02:25,680 Speaker 1: theories on risk and valuation and returns. Really a very 35 00:02:25,720 --> 00:02:29,799 Speaker 1: interesting book. So let's jump right into our conversation with 36 00:02:30,000 --> 00:02:34,800 Speaker 1: John Authors and Christine Harper discussing Capital Ideas by Peter Bernstein. 37 00:02:35,480 --> 00:02:38,920 Speaker 1: What made you guys start with this book? Given the 38 00:02:39,440 --> 00:02:42,560 Speaker 1: what is it three hundred thousand books published annually plus 39 00:02:42,600 --> 00:02:46,440 Speaker 1: the seven hundred thousand self published. Uh what what made 40 00:02:46,440 --> 00:02:50,880 Speaker 1: you go back to Peter Bernstein as the first book 41 00:02:50,880 --> 00:02:55,040 Speaker 1: to experiment with this? I feel it's very important actually 42 00:02:55,120 --> 00:02:56,960 Speaker 1: to look not just at the books that have just 43 00:02:57,120 --> 00:02:59,680 Speaker 1: come out, but at the books that have been that 44 00:02:59,720 --> 00:03:02,840 Speaker 1: have come before, and that we may no longer have 45 00:03:02,960 --> 00:03:05,639 Speaker 1: been paying attention to, because often there is information that's 46 00:03:06,280 --> 00:03:09,720 Speaker 1: hidden there in in clear sight. I'll give you one 47 00:03:10,040 --> 00:03:15,400 Speaker 1: anecdote to back that up. Donald steel of the Barlat 48 00:03:15,480 --> 00:03:19,359 Speaker 1: and steel Um Investigative Journalism Partnership. They want a bunch 49 00:03:19,360 --> 00:03:22,240 Speaker 1: of bulletz is for investigati journalism at the Philadelphia Inquirer 50 00:03:23,000 --> 00:03:26,280 Speaker 1: came and gave a talk while I was at journalism 51 00:03:26,280 --> 00:03:30,280 Speaker 1: school too many years ago to think about now. Somebody asked, 52 00:03:30,400 --> 00:03:33,040 Speaker 1: where do you get most of your scoops from? Where's 53 00:03:33,040 --> 00:03:36,040 Speaker 1: your main place you get your scoops? And we were 54 00:03:36,080 --> 00:03:41,520 Speaker 1: all expecting from you know, underground, dark park car parking lots, 55 00:03:41,520 --> 00:03:45,360 Speaker 1: from anonymous sources or whatever, and he said, from rereading 56 00:03:45,400 --> 00:03:48,720 Speaker 1: my old notes, you find out you talk to people, 57 00:03:49,040 --> 00:03:51,600 Speaker 1: you talk to twenty more people, and then when you 58 00:03:51,640 --> 00:03:53,200 Speaker 1: go back to the first person you talked to, you 59 00:03:53,280 --> 00:03:56,840 Speaker 1: realize now what the critical question is and that they 60 00:03:56,840 --> 00:04:01,880 Speaker 1: answered it for you. And I then discovered I've not 61 00:04:01,880 --> 00:04:05,360 Speaker 1: written that many books myself, but I've discovered precisely that 62 00:04:05,680 --> 00:04:09,240 Speaker 1: has happened that on trying to unlock the key of 63 00:04:09,240 --> 00:04:12,240 Speaker 1: a narrative, try to say something clearly, it's often going 64 00:04:12,280 --> 00:04:16,400 Speaker 1: back to much earlier transcripts that had sort of said 65 00:04:16,600 --> 00:04:18,919 Speaker 1: your treat become a sentiment in my mind, and that 66 00:04:19,000 --> 00:04:23,080 Speaker 1: I hadn't actually re examined, actually gave me precisely the 67 00:04:23,120 --> 00:04:29,240 Speaker 1: clarity answered the questions that I was asking again forgetting 68 00:04:29,240 --> 00:04:30,919 Speaker 1: that I actually had the answer to them sitting in 69 00:04:30,960 --> 00:04:34,440 Speaker 1: my notebooks. So that's one critical part of it. I 70 00:04:34,480 --> 00:04:37,280 Speaker 1: feel very strongly that we shouldn't just be looking at 71 00:04:37,279 --> 00:04:39,760 Speaker 1: the books have just come out. In the case of 72 00:04:39,800 --> 00:04:44,360 Speaker 1: capital ideas, Partly it's very very good nobody was going 73 00:04:44,360 --> 00:04:47,760 Speaker 1: to say this isn't a very well written book, um. 74 00:04:47,839 --> 00:04:50,799 Speaker 1: And also I thought it was very important to look 75 00:04:50,920 --> 00:04:56,080 Speaker 1: at these ideas written at a time before the crisis, 76 00:04:56,240 --> 00:04:58,919 Speaker 1: because for the last ten years I'm as guilty of 77 00:04:58,960 --> 00:05:02,200 Speaker 1: this as anybody else. The crisis was the most exciting 78 00:05:02,279 --> 00:05:04,720 Speaker 1: period any of us who have been long term financial 79 00:05:04,760 --> 00:05:08,560 Speaker 1: journalists or working finance have ever known, and for the 80 00:05:08,640 --> 00:05:10,960 Speaker 1: last two years, it's been almost impossible to look at 81 00:05:11,000 --> 00:05:14,800 Speaker 1: anything other than through the prism of that crisis. And 82 00:05:14,839 --> 00:05:18,920 Speaker 1: that's particularly true of some of these ideas that are 83 00:05:18,920 --> 00:05:21,039 Speaker 1: mentioned by by BENSTI I thought it would I thought 84 00:05:21,080 --> 00:05:22,839 Speaker 1: it would might be very revealing to take a look 85 00:05:22,839 --> 00:05:27,120 Speaker 1: at them, what people were saying about them. Isn't it 86 00:05:27,160 --> 00:05:30,799 Speaker 1: true that whatever we're looking at, you know, the expression 87 00:05:30,880 --> 00:05:34,960 Speaker 1: is every general fights the last war. Don't all market 88 00:05:35,320 --> 00:05:40,760 Speaker 1: commentators and indeed traders and investors have their perspective colored 89 00:05:40,760 --> 00:05:44,920 Speaker 1: by whatever the last big disaster was. We would still 90 00:05:44,960 --> 00:05:48,000 Speaker 1: be talking about the dot com collapse and the crash 91 00:05:48,040 --> 00:05:51,360 Speaker 1: of technology and why value does so much better than technology, 92 00:05:51,920 --> 00:05:55,880 Speaker 1: but for the financial crisis intervening or am I overstating that? 93 00:05:55,880 --> 00:05:58,200 Speaker 1: That's absolutely right? And I think one of the one 94 00:05:58,240 --> 00:05:59,840 Speaker 1: of the things a lesson for me and I was 95 00:06:00,120 --> 00:06:03,800 Speaker 1: journalists covering the financial industry during the crisis, and I 96 00:06:03,839 --> 00:06:07,640 Speaker 1: think that very much colored my perspective on finance in 97 00:06:07,680 --> 00:06:12,760 Speaker 1: that I saw the reliance on financial modeling and sort 98 00:06:12,760 --> 00:06:18,760 Speaker 1: of statistical assumptions as flawed, given them flaws that were exposed. 99 00:06:19,160 --> 00:06:22,120 Speaker 1: And what was valuable to me in reading capital ideas 100 00:06:22,240 --> 00:06:25,839 Speaker 1: was recognizing in that book how important those models were 101 00:06:25,880 --> 00:06:28,320 Speaker 1: and that they just haven't been with us all forever. 102 00:06:28,480 --> 00:06:31,960 Speaker 1: They had to be created and they were very valuable. 103 00:06:32,000 --> 00:06:35,240 Speaker 1: Maybe they were taken too far. I think people would 104 00:06:35,839 --> 00:06:38,640 Speaker 1: mostly say they were, but without them we would be 105 00:06:38,680 --> 00:06:41,640 Speaker 1: in equally as much trouble. So that everything is sort 106 00:06:41,640 --> 00:06:44,760 Speaker 1: of a reaction to the last problem we had. And 107 00:06:44,760 --> 00:06:47,040 Speaker 1: with capital ideas, there were too many people who just 108 00:06:47,160 --> 00:06:51,000 Speaker 1: thought human judgment was the way to pick company stocks, 109 00:06:51,560 --> 00:06:55,040 Speaker 1: and um, you know, they showed there's actually systemic you know, 110 00:06:55,200 --> 00:06:57,800 Speaker 1: analysis that should go into it. But maybe we went 111 00:06:57,839 --> 00:07:00,120 Speaker 1: too far and there was too much systemic analysis, not 112 00:07:00,240 --> 00:07:02,839 Speaker 1: enough judgment. What what do you what models? Do you 113 00:07:02,880 --> 00:07:04,840 Speaker 1: think we're pushed too far? And it's one thing if 114 00:07:04,880 --> 00:07:09,720 Speaker 1: we talk about um, the Gaussian Coppla and things like that, 115 00:07:09,800 --> 00:07:16,240 Speaker 1: but specifically these are really very basic ideas that eventually 116 00:07:16,280 --> 00:07:19,680 Speaker 1: got implemented. It's kind of funny to read, oh, this 117 00:07:19,800 --> 00:07:22,640 Speaker 1: is the person who figured out that reward is a 118 00:07:22,680 --> 00:07:26,760 Speaker 1: function of risk. I just always assumed because it's been 119 00:07:26,800 --> 00:07:30,200 Speaker 1: so fundamental to me, it's hard for me to imagine. 120 00:07:30,240 --> 00:07:33,880 Speaker 1: So the parallel is, you know, kids today who play 121 00:07:33,920 --> 00:07:38,760 Speaker 1: with iPads and technology and apps, there is no, online 122 00:07:38,760 --> 00:07:42,160 Speaker 1: and offline. There just is if you're old enough, oh 123 00:07:42,200 --> 00:07:46,640 Speaker 1: this is online, this is offline a six year old. No, No, 124 00:07:46,760 --> 00:07:48,720 Speaker 1: that's just how the world is. It's digital, it's this, 125 00:07:48,840 --> 00:07:51,880 Speaker 1: it's that. So to me, risk and reward have always 126 00:07:51,880 --> 00:07:54,120 Speaker 1: been two sides of the same coin. It's hard to 127 00:07:54,160 --> 00:07:57,680 Speaker 1: even imagine what it was like. Wait, people didn't know 128 00:07:57,840 --> 00:08:00,520 Speaker 1: that that your reward was a fun shouldn't have how 129 00:08:00,560 --> 00:08:03,360 Speaker 1: much risk youer storm? Right? And yet there there's this 130 00:08:03,440 --> 00:08:06,840 Speaker 1: a kind of inherent belief that we can measure future 131 00:08:06,960 --> 00:08:11,160 Speaker 1: risk by looking at you know, John has had a 132 00:08:11,160 --> 00:08:14,840 Speaker 1: lot of online discussion about this. Volatility is telling you 133 00:08:15,000 --> 00:08:19,480 Speaker 1: future risk and that helps to a point, but not 134 00:08:20,120 --> 00:08:23,400 Speaker 1: maybe all the time. And then also liquidity, you know, 135 00:08:23,520 --> 00:08:28,000 Speaker 1: the assumptions about liquidity that we're going on during the 136 00:08:28,040 --> 00:08:31,440 Speaker 1: crisis or the build up to the crisis, we're very flawed. 137 00:08:32,200 --> 00:08:35,320 Speaker 1: And so those those are two things that I think 138 00:08:35,360 --> 00:08:38,920 Speaker 1: we're we're problematic. I think in finance, if we essue 139 00:08:39,040 --> 00:08:42,080 Speaker 1: the word measure and replace it with the word estimate, 140 00:08:42,840 --> 00:08:46,240 Speaker 1: we're much better off because hey, I'm guessing this is 141 00:08:46,240 --> 00:08:50,000 Speaker 1: how much liquidity will be until it evaporates, or we're 142 00:08:50,160 --> 00:08:54,079 Speaker 1: estimating how much risk there is. It creates a recognition 143 00:08:54,080 --> 00:08:57,200 Speaker 1: that this isn't a hard and fest measure the old joke, 144 00:08:57,320 --> 00:09:01,040 Speaker 1: why do why do economists for ideata to the third 145 00:09:01,040 --> 00:09:03,760 Speaker 1: decimal point to demonstrate they have a sense of humor? 146 00:09:04,679 --> 00:09:08,400 Speaker 1: How did How did people respond? I would say that 147 00:09:08,480 --> 00:09:15,000 Speaker 1: we had two main areas where people had a problem, 148 00:09:15,000 --> 00:09:18,440 Speaker 1: other than points of people pointing out particularly nice little 149 00:09:18,480 --> 00:09:23,600 Speaker 1: gems of Bernstein wisdom. The first was that many people 150 00:09:23,640 --> 00:09:26,600 Speaker 1: didn't quite grasp that risk in these models has been 151 00:09:26,600 --> 00:09:31,280 Speaker 1: defined as volatility, and many of them felt, I think, 152 00:09:31,400 --> 00:09:35,160 Speaker 1: quite accurately, that there is much more to what they 153 00:09:35,200 --> 00:09:38,280 Speaker 1: think of as risk than the version of volatility that 154 00:09:39,360 --> 00:09:43,880 Speaker 1: Sharp and others put into their their their their models. 155 00:09:43,960 --> 00:09:46,600 Speaker 1: Let's put a pin in in right there and and 156 00:09:46,720 --> 00:09:53,320 Speaker 1: digress a bit. Why do you believe people think volatility 157 00:09:53,640 --> 00:09:59,520 Speaker 1: is equivalent to risk? It's, largely speaking, that's how it's defined. 158 00:09:59,640 --> 00:10:03,440 Speaker 1: If you look in the models that in its final form, 159 00:10:03,440 --> 00:10:07,160 Speaker 1: I guess Bill Sharp comes up with, and the Sharp ratio, 160 00:10:07,200 --> 00:10:09,120 Speaker 1: which we're all used to as a risk adjusted return 161 00:10:09,280 --> 00:10:12,440 Speaker 1: is is the return divided by the standard deviation, and 162 00:10:12,480 --> 00:10:19,320 Speaker 1: so it's um And while it's plainly very important to 163 00:10:19,400 --> 00:10:22,280 Speaker 1: grasp that you get money, you're you. You get money 164 00:10:22,280 --> 00:10:24,080 Speaker 1: by taking a risk that if you really want to 165 00:10:24,080 --> 00:10:26,680 Speaker 1: make yourself rich, you're going to have to take a chance. 166 00:10:27,640 --> 00:10:34,280 Speaker 1: Um the risk that people are bothered about. For many institutions, 167 00:10:34,280 --> 00:10:37,880 Speaker 1: it's about matching their liabilities, meaning the future obligations they 168 00:10:37,960 --> 00:10:42,960 Speaker 1: have on a even surprisingly to know. Even endowments are 169 00:10:42,960 --> 00:10:46,600 Speaker 1: worried about whether they can match their commitments for the future. 170 00:10:46,880 --> 00:10:50,720 Speaker 1: And it's about to draw down. It's not about will 171 00:10:51,120 --> 00:10:55,200 Speaker 1: this return waggle around a long way over the next 172 00:10:55,200 --> 00:10:58,400 Speaker 1: thirty or forty years, but on balance particularly I don't 173 00:10:58,400 --> 00:11:00,240 Speaker 1: have to access it all at one time. We're going 174 00:11:00,280 --> 00:11:02,720 Speaker 1: to be fine. It's is it going to do very 175 00:11:02,760 --> 00:11:05,480 Speaker 1: well for a long time and then crash and I'm 176 00:11:05,559 --> 00:11:09,200 Speaker 1: never and subject me to a drawdown I never quite 177 00:11:09,280 --> 00:11:13,640 Speaker 1: recover from. Uh. And that is much closer to the 178 00:11:13,760 --> 00:11:16,760 Speaker 1: version of risk that people had in mind, and it's 179 00:11:16,800 --> 00:11:20,960 Speaker 1: not the version of risk that's enshrined in in capem. 180 00:11:21,080 --> 00:11:23,120 Speaker 1: The one from the book that I really liked was 181 00:11:23,760 --> 00:11:27,640 Speaker 1: more things can happen than will happen, which is really 182 00:11:27,679 --> 00:11:32,520 Speaker 1: a variation of the classic definition of risk, which is 183 00:11:32,600 --> 00:11:37,480 Speaker 1: the possibility that your future expected returns will not be 184 00:11:37,559 --> 00:11:41,080 Speaker 1: met and and that's a pretty simple definition as well, 185 00:11:41,120 --> 00:11:44,640 Speaker 1: but they both sum up. Hey, you know, if markets 186 00:11:44,640 --> 00:11:47,720 Speaker 1: return x a year, let's use ten percent over long 187 00:11:47,760 --> 00:11:49,920 Speaker 1: periods of time. There are certain years where you're not 188 00:11:49,960 --> 00:11:53,440 Speaker 1: going to get ten per and that's risk, at least 189 00:11:53,920 --> 00:11:55,800 Speaker 1: to an investor who may need the money at a 190 00:11:55,840 --> 00:11:58,160 Speaker 1: specific date in the future. Part of the issue, I 191 00:11:58,200 --> 00:12:01,120 Speaker 1: think is that if you're an academic and you're trying 192 00:12:01,120 --> 00:12:05,080 Speaker 1: to create a essentially a mathematical model, you need you 193 00:12:05,120 --> 00:12:07,960 Speaker 1: need some number, some input that you can put in 194 00:12:08,000 --> 00:12:11,200 Speaker 1: that model. And so what are you going to get 195 00:12:11,200 --> 00:12:14,760 Speaker 1: to measure risk? What's the number? Volatility is a number, 196 00:12:14,920 --> 00:12:18,320 Speaker 1: So maybe that's the closest you can come and it 197 00:12:18,440 --> 00:12:22,719 Speaker 1: and it responds to John's reference of of drawdowns if 198 00:12:22,720 --> 00:12:25,480 Speaker 1: you need if you have a specific liability at a 199 00:12:25,480 --> 00:12:28,839 Speaker 1: future date, and right before that date, one of these big, 200 00:12:28,920 --> 00:12:32,080 Speaker 1: ugly drawnouns of cars. Just look at what took place 201 00:12:32,080 --> 00:12:35,959 Speaker 1: in the fourth quarter and the first quarter of en 202 00:12:36,000 --> 00:12:38,440 Speaker 1: If you needed that money in December, you were in trouble. 203 00:12:38,520 --> 00:12:41,160 Speaker 1: If you could wait till April, Hey, it's all everything's 204 00:12:41,200 --> 00:12:45,080 Speaker 1: coming up roster. So it's not true risk, but it's 205 00:12:45,160 --> 00:12:49,160 Speaker 1: volatility combined with liability. Is that that a fair statement? 206 00:12:49,320 --> 00:12:52,360 Speaker 1: I think I think it is that sits following on 207 00:12:52,520 --> 00:12:56,960 Speaker 1: from what's from what Christine just says. Yes, it's important 208 00:12:57,080 --> 00:12:59,600 Speaker 1: to have a number, but there is a risk that 209 00:12:59,640 --> 00:13:02,760 Speaker 1: you drift into the fallacy. This is a comment that 210 00:13:02,800 --> 00:13:04,800 Speaker 1: all one person made you drift into the fallacy of 211 00:13:04,880 --> 00:13:09,080 Speaker 1: the street light effect. I didn't know until now where 212 00:13:09,080 --> 00:13:11,640 Speaker 1: the street light effect name comes from. It's about a 213 00:13:11,720 --> 00:13:15,280 Speaker 1: drunk who is looking for his keys underneath the street lights, 214 00:13:16,000 --> 00:13:18,320 Speaker 1: and the policeman asked, you're sure this is where you 215 00:13:18,400 --> 00:13:20,360 Speaker 1: dropped them, and he says, well, no, but this is 216 00:13:20,360 --> 00:13:22,960 Speaker 1: where I can see I mean, and that is I 217 00:13:23,000 --> 00:13:25,160 Speaker 1: mean back to the financial crisis and what were some 218 00:13:25,200 --> 00:13:27,960 Speaker 1: of the mistakes is that the data that was available 219 00:13:28,040 --> 00:13:32,120 Speaker 1: on housing prices was plugged into everybody's risk model on 220 00:13:32,840 --> 00:13:36,760 Speaker 1: you know, that's my second flag because we have multiple 221 00:13:36,920 --> 00:13:42,400 Speaker 1: examples of enormous draw downs in housing prices which nobody 222 00:13:42,440 --> 00:13:46,280 Speaker 1: wanted to answer into their system, the biggest clearly being 223 00:13:46,840 --> 00:13:51,520 Speaker 1: the Great Depression, whereby some measures, New York City real estate, 224 00:13:51,559 --> 00:13:55,960 Speaker 1: film value, and real estate collapsed around the country in price. 225 00:13:56,240 --> 00:13:58,960 Speaker 1: But there are other examples in California in the nineteen 226 00:13:59,040 --> 00:14:01,280 Speaker 1: eighties and New York. But but it wasn't the argument 227 00:14:01,320 --> 00:14:05,520 Speaker 1: that nationally housing prices have. And I agree with you 228 00:14:05,559 --> 00:14:08,240 Speaker 1: on the on the Great Depression, but they probably that's 229 00:14:08,280 --> 00:14:12,080 Speaker 1: not gonna happen on average. But real estate is local. 230 00:14:12,200 --> 00:14:14,200 Speaker 1: And the joke is if my head's in the oven 231 00:14:14,240 --> 00:14:18,000 Speaker 1: and my feet are in the freezer on average, I'm comfortable. Well, okay, 232 00:14:18,000 --> 00:14:21,080 Speaker 1: but I'll just say that the models that were employed 233 00:14:21,360 --> 00:14:24,320 Speaker 1: did not use data. Yes, whether it was available or not, 234 00:14:24,400 --> 00:14:28,880 Speaker 1: I agree, they chose to use recent data, which basically 235 00:14:28,920 --> 00:14:31,760 Speaker 1: told them what they wanted to hear, so their free 236 00:14:31,800 --> 00:14:34,560 Speaker 1: light was a little too narrow. That's that's exactly right. 237 00:14:34,640 --> 00:14:37,920 Speaker 1: But but that goes to your point that models get 238 00:14:37,960 --> 00:14:40,160 Speaker 1: pushed too far. And if it's garbage and garbage out. 239 00:14:40,200 --> 00:14:42,080 Speaker 1: If we're only going to take an era, we're not 240 00:14:42,080 --> 00:14:43,800 Speaker 1: gonna go out of sample, we're not gonna go into national, 241 00:14:43,840 --> 00:14:45,880 Speaker 1: we're not gonna go back a hundred years. We're only 242 00:14:45,880 --> 00:14:49,880 Speaker 1: going to use The ultimate back test is only use 243 00:14:50,000 --> 00:14:52,080 Speaker 1: data that gives you the result that you want. And 244 00:14:52,120 --> 00:14:54,560 Speaker 1: Burnstein makes that argument. I mean, he does say in 245 00:14:54,600 --> 00:14:57,680 Speaker 1: this book that your your models are only good as 246 00:14:57,680 --> 00:15:00,160 Speaker 1: good as the data you have, and so he was 247 00:15:00,200 --> 00:15:02,800 Speaker 1: aware of that. But it's interesting how far the models 248 00:15:02,800 --> 00:15:06,840 Speaker 1: were pushed without understanding that. One of the one other 249 00:15:06,880 --> 00:15:10,440 Speaker 1: interesting thing is how much you see in the book 250 00:15:10,840 --> 00:15:15,360 Speaker 1: how some of these models are based on simplifications which 251 00:15:15,400 --> 00:15:18,400 Speaker 1: the people know they're making in order to be able 252 00:15:18,400 --> 00:15:23,200 Speaker 1: to render it um u usable at all. Now, the 253 00:15:23,560 --> 00:15:26,440 Speaker 1: one example I'm really thinking of here is Bill Sharpen 254 00:15:26,520 --> 00:15:30,720 Speaker 1: the concept of beta, so that the idea, the idea 255 00:15:30,800 --> 00:15:34,040 Speaker 1: that the whole, the whole basis of the valuation of 256 00:15:34,040 --> 00:15:37,560 Speaker 1: a stock is based on its sensitivity to the market 257 00:15:37,760 --> 00:15:41,800 Speaker 1: as it's one most important overriding factor. And the reason 258 00:15:41,880 --> 00:15:46,880 Speaker 1: that he came up with that because yes, it is 259 00:15:46,920 --> 00:15:50,640 Speaker 1: more probably that's the single most important factor in why 260 00:15:50,960 --> 00:15:53,520 Speaker 1: most chair prices move. But the reason he came up 261 00:15:53,520 --> 00:15:56,760 Speaker 1: with that is for for to make it calculable, because 262 00:15:56,880 --> 00:16:00,640 Speaker 1: you had to have one overriding factor and then add 263 00:16:00,720 --> 00:16:04,520 Speaker 1: on others thereafter. If you wanted to make the math doable, 264 00:16:04,640 --> 00:16:09,040 Speaker 1: you need a number. And and you know, beta, particularly 265 00:16:09,080 --> 00:16:11,440 Speaker 1: with the growth of passive investing, arguably is even more 266 00:16:11,480 --> 00:16:16,320 Speaker 1: important than it used to be, but excus attention in 267 00:16:16,360 --> 00:16:20,320 Speaker 1: ways that might be dangerous, and it helps it because 268 00:16:20,760 --> 00:16:24,240 Speaker 1: it's such a nice, clear cut number. It gives us 269 00:16:24,520 --> 00:16:28,440 Speaker 1: the comfort of a clear answer that we forget that 270 00:16:28,560 --> 00:16:34,680 Speaker 1: it was based on what was knowingly a simplification when 271 00:16:34,720 --> 00:16:37,760 Speaker 1: it first came out. The reason we are calculating things 272 00:16:38,400 --> 00:16:41,040 Speaker 1: with the notion that beta is the single most important 273 00:16:41,040 --> 00:16:44,280 Speaker 1: element of the return of a stock is because it 274 00:16:44,400 --> 00:16:46,840 Speaker 1: was just too difficult to calculate if you were going 275 00:16:46,880 --> 00:16:49,440 Speaker 1: to have a number of different factors. That chapter in 276 00:16:49,480 --> 00:16:55,440 Speaker 1: a later chapter references the variance and the correlation between individuals, 277 00:16:55,800 --> 00:16:59,800 Speaker 1: variants between different parts of portfolio, but also how margin 278 00:17:00,080 --> 00:17:04,080 Speaker 1: visual stock will trade relative to the market. And something 279 00:17:04,640 --> 00:17:08,159 Speaker 1: I have been told since I first started trading stocks 280 00:17:08,160 --> 00:17:10,719 Speaker 1: a hundred years ago is that a third of the 281 00:17:10,800 --> 00:17:14,479 Speaker 1: price movement is the stock, a third is the market, 282 00:17:14,520 --> 00:17:18,240 Speaker 1: and a third is the sector that's referenced in the book. 283 00:17:18,400 --> 00:17:21,919 Speaker 1: But nobody ever bothers to define that. Has that was 284 00:17:21,960 --> 00:17:25,800 Speaker 1: that tested in here? Has anybody actually said, well, here 285 00:17:25,800 --> 00:17:28,080 Speaker 1: are all the correlations? Are we just all taking that 286 00:17:28,200 --> 00:17:33,400 Speaker 1: for granted? I think Farmer in French tested it did well. 287 00:17:33,400 --> 00:17:38,000 Speaker 1: They did enormous empirical work which basically disproved the contention 288 00:17:38,600 --> 00:17:42,439 Speaker 1: that market sufficient in my opinion, And yet reached the 289 00:17:42,520 --> 00:17:46,560 Speaker 1: conclusion that markets were efficients, but that here were all 290 00:17:46,600 --> 00:17:51,320 Speaker 1: these inefficiencies that could be explained somehow or other startastics. 291 00:17:51,400 --> 00:17:53,439 Speaker 1: I don't, I don't quite. I think they did a 292 00:17:53,440 --> 00:17:57,720 Speaker 1: brilliant piece of empirical work, and it's wonderful that they 293 00:17:57,760 --> 00:18:02,199 Speaker 1: published something which basically suggested the original hypothesis is wrong. Well, well, 294 00:18:02,280 --> 00:18:04,399 Speaker 1: I'm not quite sure that I agree with them that 295 00:18:04,720 --> 00:18:09,880 Speaker 1: the original hypotheses is right. Nevertheless, you need a catchy 296 00:18:10,119 --> 00:18:14,639 Speaker 1: nomencl you need a catchy title, and the mostly kind 297 00:18:14,680 --> 00:18:18,840 Speaker 1: of sort of eventually efficient market hypothesis. I don't know 298 00:18:18,880 --> 00:18:21,520 Speaker 1: if that's when any Nobel prizes, even though it's much 299 00:18:21,560 --> 00:18:25,600 Speaker 1: more accurate. Yes, well, I mean the problem with the 300 00:18:25,640 --> 00:18:28,560 Speaker 1: efficient market hypothesis that's it relies on a lot of 301 00:18:28,560 --> 00:18:31,560 Speaker 1: people going in and trying to beat the market. Um, 302 00:18:31,640 --> 00:18:35,040 Speaker 1: which we've seen and and some people let's talk about 303 00:18:35,080 --> 00:18:38,520 Speaker 1: Professor Andrew Low and m I T. He's argued that 304 00:18:38,640 --> 00:18:43,720 Speaker 1: you need five or six active market participants ninety plus 305 00:18:43,760 --> 00:18:47,800 Speaker 1: percent can can index, and that should be enough to 306 00:18:48,200 --> 00:18:52,159 Speaker 1: for for price discovery to work. Um, but what's in it? 307 00:18:52,240 --> 00:18:57,119 Speaker 1: At some point? What's in it for the active market participants? Well? So, 308 00:18:57,119 --> 00:18:59,440 Speaker 1: so now I'm gonna I'm just gonna keep dropping names. 309 00:18:59,440 --> 00:19:03,520 Speaker 1: Michael mob Us on the Paradox of skill, effectively says 310 00:19:03,600 --> 00:19:08,440 Speaker 1: that you it's not hard to beat the market because 311 00:19:08,880 --> 00:19:10,960 Speaker 1: people are dumb. It's that there are so many smart 312 00:19:11,000 --> 00:19:14,280 Speaker 1: talented people and there just isn't that much outpha to 313 00:19:14,320 --> 00:19:17,640 Speaker 1: go around. So maybe if many of these smart talented 314 00:19:17,640 --> 00:19:20,760 Speaker 1: people go away, it's less competitive. And I don't know 315 00:19:20,800 --> 00:19:25,400 Speaker 1: where the number is ten percent, Andrew's five percent, those 316 00:19:25,440 --> 00:19:27,800 Speaker 1: folks will have an opportunity to beat the market. And 317 00:19:28,160 --> 00:19:30,760 Speaker 1: some people say that what people believe to be a scale, 318 00:19:30,760 --> 00:19:34,639 Speaker 1: it's actually blind luck. So let's talk about Bernstein personally 319 00:19:34,760 --> 00:19:37,919 Speaker 1: for a minute, because what you just said seems so 320 00:19:38,080 --> 00:19:41,119 Speaker 1: much of an era that may or may not be 321 00:19:41,280 --> 00:19:44,960 Speaker 1: valid any longer. I was surprised in the book to 322 00:19:45,400 --> 00:19:49,800 Speaker 1: read him discuss his clients and his own participation in 323 00:19:49,840 --> 00:19:53,080 Speaker 1: the market. I had no idea that he was a 324 00:19:53,119 --> 00:19:56,720 Speaker 1: professional investor and an advisor. I assumed he was a 325 00:19:56,760 --> 00:20:01,080 Speaker 1: professor and or a historian based on how well researched 326 00:20:01,119 --> 00:20:05,199 Speaker 1: and written Um The Power of Gold and and Against 327 00:20:05,280 --> 00:20:09,239 Speaker 1: the Gods. These read like academic books that are just 328 00:20:09,359 --> 00:20:13,040 Speaker 1: beautifully written. So here's the question, for a person in 329 00:20:13,119 --> 00:20:17,040 Speaker 1: a post war era where the you know, the thundering 330 00:20:17,080 --> 00:20:20,120 Speaker 1: herd of Merrill Lynch and and all the different things 331 00:20:20,119 --> 00:20:23,199 Speaker 1: that we're taking place. In the fifties, sixties, seventies, it 332 00:20:23,320 --> 00:20:29,520 Speaker 1: seemed like stock ownership was moving from a rarefied wealthy 333 00:20:29,640 --> 00:20:35,480 Speaker 1: person's hobby too fully democratized and here we are now 334 00:20:36,240 --> 00:20:40,240 Speaker 1: back to bigger levels of of wealth inequality, and it 335 00:20:40,320 --> 00:20:44,480 Speaker 1: seems what, what's the stat everybody likes to throw out 336 00:20:44,960 --> 00:20:47,720 Speaker 1: the stocks and roun by the top ten percent something 337 00:20:47,760 --> 00:20:51,399 Speaker 1: like that the top one percent owns so have was 338 00:20:51,480 --> 00:20:56,440 Speaker 1: Bernstein of the moment in democratization and extrapolated that trend 339 00:20:56,440 --> 00:20:59,720 Speaker 1: out forever? Did he? Did he? Or am I overstating that? 340 00:20:59,760 --> 00:21:01,720 Speaker 1: And just I would just say, I mean one point 341 00:21:01,760 --> 00:21:05,680 Speaker 1: he makes is that in you know, uh, capitalist countries 342 00:21:06,080 --> 00:21:08,600 Speaker 1: like the US at the time he was writing, it's 343 00:21:08,640 --> 00:21:11,960 Speaker 1: assumed that markets are good, and the countries that were 344 00:21:12,000 --> 00:21:15,520 Speaker 1: coming out of the Soviet you know world like more. 345 00:21:15,680 --> 00:21:18,199 Speaker 1: You know that Poland was very excited about having a 346 00:21:18,240 --> 00:21:22,200 Speaker 1: stock market. So there has been a democratization of markets globally. 347 00:21:23,040 --> 00:21:25,879 Speaker 1: So what's interesting, and we've documented a little bit in 348 00:21:26,280 --> 00:21:29,560 Speaker 1: various articles we've written, is that if you look in 349 00:21:29,680 --> 00:21:32,960 Speaker 1: some what you call developing markets around the world, they're 350 00:21:33,160 --> 00:21:37,879 Speaker 1: very keenly developing these public markets, whereas some of the 351 00:21:37,960 --> 00:21:41,520 Speaker 1: more sophisticated markets are now going into more private markets. 352 00:21:41,520 --> 00:21:44,960 Speaker 1: And so I I just find that fascinating. Whether there's 353 00:21:45,000 --> 00:21:47,720 Speaker 1: a sort of a the you know, a curve at 354 00:21:47,720 --> 00:21:52,560 Speaker 1: which you know, societies go beyond private markets into this 355 00:21:52,600 --> 00:21:58,640 Speaker 1: world of making privately owned companies more you know, widely 356 00:21:58,680 --> 00:22:01,199 Speaker 1: owned or more of an investment, an opportunity. We have 357 00:22:01,359 --> 00:22:05,399 Speaker 1: a very specific legislative history with the Jobs Act under 358 00:22:05,400 --> 00:22:10,600 Speaker 1: President Bush that basically change the game for private companies. 359 00:22:10,640 --> 00:22:13,119 Speaker 1: And it's not a coincidence that what is it a 360 00:22:13,160 --> 00:22:16,719 Speaker 1: decade later we have all these unicorns billion plus doll 361 00:22:16,800 --> 00:22:19,439 Speaker 1: evaluations that haven't gone public. Well, and you would have 362 00:22:19,440 --> 00:22:21,919 Speaker 1: had no choice, but and you have you have you know, 363 00:22:22,040 --> 00:22:25,360 Speaker 1: lots of pension funds that owned venture capital, they own 364 00:22:25,400 --> 00:22:27,600 Speaker 1: private equity. Right, So in a way, even though it 365 00:22:27,680 --> 00:22:32,280 Speaker 1: through multiple layers of institution, you have the average person 366 00:22:32,480 --> 00:22:37,200 Speaker 1: owning pieces of non public companies, the average person through 367 00:22:37,440 --> 00:22:41,719 Speaker 1: I mean public they employees through their own and others, 368 00:22:41,920 --> 00:22:46,320 Speaker 1: you know you and yeah, it's still small. But I 369 00:22:46,359 --> 00:22:48,040 Speaker 1: think the question is and I think a lot of 370 00:22:48,040 --> 00:22:50,159 Speaker 1: people in the industry would say that's the future. I mean, 371 00:22:50,200 --> 00:22:53,760 Speaker 1: you hear some quant traitors talk about bringing quant strategies 372 00:22:53,800 --> 00:22:57,119 Speaker 1: to private equity. Um, I don't see why you couldn't 373 00:22:57,160 --> 00:23:00,320 Speaker 1: have an overlay of quants onto anything that could be 374 00:23:00,359 --> 00:23:05,239 Speaker 1: reduced to a mathematical basis. The problem with that is 375 00:23:05,359 --> 00:23:11,360 Speaker 1: so much of this seems to be intuitive and um, 376 00:23:11,400 --> 00:23:15,600 Speaker 1: what's the word I'm looking for, um, driven by human judgment. 377 00:23:15,640 --> 00:23:18,560 Speaker 1: There are areas where machine learning and AI and technology 378 00:23:19,359 --> 00:23:23,360 Speaker 1: are clearly supplanting human judgment. I am I'm not so 379 00:23:23,400 --> 00:23:27,280 Speaker 1: sure that that a VC and and p E or 380 00:23:27,359 --> 00:23:29,840 Speaker 1: the places where that's going to happen, although I could 381 00:23:29,880 --> 00:23:33,360 Speaker 1: be completely wrong. Well, and there's those liquidity at you. Well, 382 00:23:33,400 --> 00:23:37,119 Speaker 1: that's the always the liquidity premium for vench capital and 383 00:23:37,160 --> 00:23:40,560 Speaker 1: private equity, and the same thing with gated withdrawals and 384 00:23:40,560 --> 00:23:43,200 Speaker 1: and um, you know lock up periods for hedge funds. 385 00:23:43,240 --> 00:23:47,920 Speaker 1: You end up with, is it purely a liquidity premium 386 00:23:48,040 --> 00:23:51,399 Speaker 1: or is that just you know, something to create a 387 00:23:51,440 --> 00:23:55,760 Speaker 1: little smoothing for managers. Not On the subject of liquidity, 388 00:23:55,880 --> 00:23:58,399 Speaker 1: we've actually managed to come to the second big points 389 00:23:58,520 --> 00:24:03,480 Speaker 1: that people made in their sponsors to um. There is 390 00:24:03,720 --> 00:24:07,439 Speaker 1: very little. The word liquidity does not occur half as 391 00:24:07,560 --> 00:24:11,120 Speaker 1: much as you think it's would in a book about 392 00:24:11,160 --> 00:24:14,760 Speaker 1: all these fundamental ways in which people go about allocating 393 00:24:14,760 --> 00:24:21,000 Speaker 1: their assets in public markets, and not unreasonably a lot 394 00:24:21,040 --> 00:24:24,479 Speaker 1: of these these these people are geniuses that we're covering. 395 00:24:24,520 --> 00:24:26,720 Speaker 1: Most of them at the time they were developing their 396 00:24:26,760 --> 00:24:31,240 Speaker 1: theories had little or no experience of actually trading in markets. 397 00:24:31,280 --> 00:24:34,840 Speaker 1: They were very interestedly looking at lots of data and 398 00:24:35,160 --> 00:24:39,679 Speaker 1: bringing very fresh perspectives to it, and they were certainly 399 00:24:39,800 --> 00:24:46,240 Speaker 1: operating in an era before the degree of liquidity that 400 00:24:46,280 --> 00:24:50,959 Speaker 1: we have found in the recent years was possible, and 401 00:24:51,040 --> 00:24:57,159 Speaker 1: therefore where the sudden changes in levels of liquidity of 402 00:24:57,280 --> 00:25:02,240 Speaker 1: recent years was possible, and you could try to to say, well, 403 00:25:02,440 --> 00:25:06,840 Speaker 1: you can just add liquidity as a factor. Ipotson's suggested 404 00:25:06,880 --> 00:25:09,480 Speaker 1: that in recent years that low liquidity stocks could be 405 00:25:09,520 --> 00:25:12,520 Speaker 1: a factor along the same lines as value or momentum 406 00:25:12,640 --> 00:25:17,880 Speaker 1: or whatever. The cap size argument has been the premium 407 00:25:17,920 --> 00:25:21,199 Speaker 1: you get for small cap over large isn't is in 408 00:25:21,560 --> 00:25:25,760 Speaker 1: part a liquidly factor? Yes? But I think this is 409 00:25:25,760 --> 00:25:30,280 Speaker 1: where the where people were nervous about the discussions of risk. 410 00:25:30,400 --> 00:25:35,680 Speaker 1: The original risk models UM. The level of liquidity is 411 00:25:35,800 --> 00:25:41,240 Speaker 1: very important and it's not exogenous. If things begin to 412 00:25:41,280 --> 00:25:44,560 Speaker 1: go bad, there will be less liquidity. When there is 413 00:25:44,640 --> 00:25:50,000 Speaker 1: less liquidity, the price will move more, and that will 414 00:25:50,040 --> 00:25:54,400 Speaker 1: be get still more in liquidity UM. And We've had 415 00:25:54,400 --> 00:25:57,600 Speaker 1: some very interesting quite technical, so I'm not going to 416 00:25:57,680 --> 00:26:02,040 Speaker 1: try to summarize them, but interesting responses from options traders. Basically, 417 00:26:02,800 --> 00:26:07,320 Speaker 1: I suppose the very simplified way of putting it is 418 00:26:08,200 --> 00:26:12,800 Speaker 1: when UM, when volatility goes up, correlations go to one. 419 00:26:12,920 --> 00:26:18,040 Speaker 1: You know, all their all their clever ideas disappear, you know, 420 00:26:18,320 --> 00:26:23,920 Speaker 1: the various ways they've tried to protect against risk gets 421 00:26:24,080 --> 00:26:29,879 Speaker 1: much more, much more prejudiced, much more compromised. When liquidity 422 00:26:29,960 --> 00:26:33,280 Speaker 1: drives up. Everything comes down to the same thing. And 423 00:26:33,400 --> 00:26:37,920 Speaker 1: the concept as well that when liquidity is drying up, 424 00:26:38,080 --> 00:26:41,760 Speaker 1: you sell what you can sell, not what you think 425 00:26:42,080 --> 00:26:46,280 Speaker 1: is worth can reach a higher price than it's worth. 426 00:26:47,640 --> 00:26:50,400 Speaker 1: You sell just whatever you can sell if you need 427 00:26:50,520 --> 00:26:54,400 Speaker 1: to sell something. So let's talk about three things. One 428 00:26:54,480 --> 00:26:58,560 Speaker 1: is liquidly, one as correlations. But I but I have 429 00:26:58,720 --> 00:27:03,960 Speaker 1: to bring up the portfolio insurance which was affected via 430 00:27:04,040 --> 00:27:08,719 Speaker 1: options to be purchased in a crash. Now I know, 431 00:27:08,840 --> 00:27:11,440 Speaker 1: I have the benefit of hindsight bias when I look 432 00:27:11,480 --> 00:27:14,439 Speaker 1: back at this, But isn't it obvious that in the 433 00:27:14,480 --> 00:27:17,360 Speaker 1: midst of a crisis, in the midst of a crash, 434 00:27:18,080 --> 00:27:22,840 Speaker 1: buying put options that are in free fall are a 435 00:27:23,200 --> 00:27:26,400 Speaker 1: not going to cover your shortfall and be gonna make 436 00:27:26,440 --> 00:27:32,960 Speaker 1: the crash even worse. How did nobody point that out beforehand? 437 00:27:33,040 --> 00:27:36,720 Speaker 1: And again, Bernstein has also the benefit of hindsight bias 438 00:27:36,720 --> 00:27:40,120 Speaker 1: because he wrote this five years after the eighty seven crash. Yeah, 439 00:27:40,200 --> 00:27:42,080 Speaker 1: I mean, it's just a good idea that was taken 440 00:27:42,200 --> 00:27:46,600 Speaker 1: too far and was because I think in hindsight it 441 00:27:46,640 --> 00:27:49,040 Speaker 1: sounds like a terrible I think if it were on 442 00:27:49,080 --> 00:27:52,920 Speaker 1: a smaller scale, it wouldn't cover your losses. Well, it 443 00:27:53,000 --> 00:27:56,200 Speaker 1: might not, It might not have driven things the way 444 00:27:56,240 --> 00:28:00,040 Speaker 1: that that there was this sort of self uh, a 445 00:28:00,080 --> 00:28:02,399 Speaker 1: flexive kind of quality to it that there was, so 446 00:28:02,520 --> 00:28:05,280 Speaker 1: there was there the amount of portfolio insurance I was 447 00:28:05,320 --> 00:28:09,320 Speaker 1: owned really too much added to the problem. So if 448 00:28:09,480 --> 00:28:11,560 Speaker 1: if it was if it was done on a smaller scale, 449 00:28:11,560 --> 00:28:13,880 Speaker 1: it might have been okay. And I wonder if if 450 00:28:13,920 --> 00:28:18,760 Speaker 1: the seat belt effect applied, which is as we make 451 00:28:18,800 --> 00:28:21,080 Speaker 1: safer and safer cars and at abs and air bags 452 00:28:21,080 --> 00:28:24,720 Speaker 1: and seat belts. The death rate has fallen in plateaud 453 00:28:24,960 --> 00:28:28,120 Speaker 1: and the only explanation that seems to make any senses well, 454 00:28:28,119 --> 00:28:32,159 Speaker 1: people feel so much safer they drive faster regardless of conditions. 455 00:28:32,200 --> 00:28:34,960 Speaker 1: So all these safety devices don't help us other than 456 00:28:35,040 --> 00:28:38,840 Speaker 1: letting us behave a little more recklessly. Did portfolio insurance 457 00:28:38,880 --> 00:28:43,960 Speaker 1: have the same impact? I think it's indeed, um what 458 00:28:44,200 --> 00:28:48,200 Speaker 1: I would say if you. Because Bernstein was an extremely 459 00:28:48,240 --> 00:28:51,960 Speaker 1: bright guy. Some of the comments he makes and the 460 00:28:52,040 --> 00:28:57,560 Speaker 1: quotes he makes about the about Black Black Monday are 461 00:28:57,880 --> 00:29:02,760 Speaker 1: very telling because they make clear um what the problem 462 00:29:02,960 --> 00:29:06,080 Speaker 1: was and that the people who brought it up didn't 463 00:29:06,280 --> 00:29:10,080 Speaker 1: really grasp it themselves. So Bernstein, and I'm quoting here 464 00:29:10,120 --> 00:29:12,560 Speaker 1: that the shortfalling plan sales was a direct result of 465 00:29:12,600 --> 00:29:17,360 Speaker 1: frenzied conditions that violated the underlying assumptions of portfolio insurance 466 00:29:17,640 --> 00:29:21,200 Speaker 1: that ready buyers are always willing to accommodate the sellers 467 00:29:21,560 --> 00:29:25,680 Speaker 1: in the insurance camp, which obviously was an assumption people forget, 468 00:29:25,840 --> 00:29:29,280 Speaker 1: and liquidity is a fancy word for a ready buyers exactly. 469 00:29:29,360 --> 00:29:33,680 Speaker 1: And and they realized that the problems of portfolio insurance 470 00:29:33,720 --> 00:29:36,720 Speaker 1: in the crash were related to problems, and this is 471 00:29:36,760 --> 00:29:40,000 Speaker 1: a quote from Haye Neyland. They realized that the problems 472 00:29:40,000 --> 00:29:42,840 Speaker 1: of portfolio insurance in the crash were related to problems 473 00:29:42,920 --> 00:29:48,240 Speaker 1: of market liquidity, not to some fundamental flaw of the 474 00:29:48,320 --> 00:29:52,400 Speaker 1: underlying technique. If it's a problem with market liquidity, surely 475 00:29:52,480 --> 00:29:55,840 Speaker 1: that is by definition, if it's a technique for buying 476 00:29:55,840 --> 00:29:59,560 Speaker 1: and selling in the market, if probably with market liquidity undermines, 477 00:29:59,640 --> 00:30:04,240 Speaker 1: it sounds fundamental to me. And then this glorious quote 478 00:30:04,320 --> 00:30:10,640 Speaker 1: that Rubinstein, the other Leliand's partner in this the two 479 00:30:10,720 --> 00:30:13,720 Speaker 1: gentlemen behind Flier Insurance who have taken a lot of 480 00:30:13,760 --> 00:30:17,640 Speaker 1: the blame for Black Monday Um deservedly, Yes, bern Bernstein 481 00:30:17,760 --> 00:30:21,360 Speaker 1: quotes into this effect. As a result, it was the 482 00:30:21,400 --> 00:30:26,480 Speaker 1: market of that failed to provide conditions where portfolio insurance 483 00:30:26,600 --> 00:30:32,719 Speaker 1: could work multi market, the market mass with the model. 484 00:30:33,280 --> 00:30:39,360 Speaker 1: It's it's really stop and think about that rationalization, which 485 00:30:39,440 --> 00:30:43,560 Speaker 1: brings me to something that that is related to the 486 00:30:43,600 --> 00:30:49,800 Speaker 1: correlation and the volatility issue. So when when volatility spikes 487 00:30:49,840 --> 00:30:53,880 Speaker 1: and all correlations go to one that very much hints 488 00:30:53,960 --> 00:30:59,320 Speaker 1: at the behavioral issues of market participants, which as much 489 00:30:59,360 --> 00:31:02,760 Speaker 1: as this book talks about a lot of theories. They 490 00:31:02,800 --> 00:31:06,680 Speaker 1: all seem to predate the diverse Ky and Conman and 491 00:31:06,760 --> 00:31:09,760 Speaker 1: Sailor and Chiller and go down the list. There is 492 00:31:10,120 --> 00:31:15,960 Speaker 1: almost nothing in this book that says, hey, sometimes back 493 00:31:16,000 --> 00:31:20,880 Speaker 1: to E. M. H And and Fama French, sometimes investors 494 00:31:21,000 --> 00:31:25,200 Speaker 1: are just plumb crazy and do such stupid, self destructive 495 00:31:25,280 --> 00:31:27,600 Speaker 1: things that all bets are off and you just have 496 00:31:27,640 --> 00:31:29,400 Speaker 1: to wait for the smoke too. I think there there 497 00:31:29,440 --> 00:31:32,240 Speaker 1: is an anecdote about black Sholes and how me Merton 498 00:31:32,320 --> 00:31:35,360 Speaker 1: Black Controls tried to try to put their theory into 499 00:31:35,400 --> 00:31:39,479 Speaker 1: practice and and bought some options and and did some trades, 500 00:31:39,880 --> 00:31:42,920 Speaker 1: and they lost some money, and they realized that, Um, 501 00:31:42,960 --> 00:31:45,760 Speaker 1: sometimes the market knows things that the models don't. So 502 00:31:45,880 --> 00:31:49,240 Speaker 1: I wanna I want to ask Christina a question about 503 00:31:49,320 --> 00:31:53,960 Speaker 1: something John said earlier that the two gentlemen who won 504 00:31:54,040 --> 00:31:58,360 Speaker 1: the Pulitzers at UM Philadelphia Inquirer always go back to 505 00:31:58,480 --> 00:32:02,120 Speaker 1: their notes and later on in the conversation it's what 506 00:32:03,040 --> 00:32:08,760 Speaker 1: was written earlier but lacking context, um to be better understood. 507 00:32:09,720 --> 00:32:13,000 Speaker 1: In the early part of the book, there's a quote 508 00:32:13,080 --> 00:32:16,400 Speaker 1: from I'm sure I'm gonna mangle his name, Bachelia. How 509 00:32:16,400 --> 00:32:21,200 Speaker 1: do you pronounce okay Um? I spent a very much 510 00:32:21,240 --> 00:32:24,160 Speaker 1: less time in Paris than you did. Um, but I 511 00:32:24,240 --> 00:32:29,080 Speaker 1: love this concept from It's so far ahead of the 512 00:32:29,120 --> 00:32:33,320 Speaker 1: rest of the book, which is quote, the mathematical expectation 513 00:32:33,480 --> 00:32:37,880 Speaker 1: of the speculator are zero. Now stop and think about that. 514 00:32:38,640 --> 00:32:43,320 Speaker 1: It's it's foreshadowing what a zero sum game is in markets. 515 00:32:43,320 --> 00:32:48,600 Speaker 1: It's foreshadowing indexing, it's foreshadowing passive over active. This is 516 00:32:48,640 --> 00:32:51,720 Speaker 1: a hundred and twenty years ago. How on earth had 517 00:32:51,800 --> 00:32:55,280 Speaker 1: did that just sit there and nobody noticed it for 518 00:32:55,520 --> 00:32:59,080 Speaker 1: I don't know, almost a century. It's amazing. Yeah, and 519 00:32:59,120 --> 00:33:03,520 Speaker 1: it and it it's and fuel every investors um insight 520 00:33:03,680 --> 00:33:07,760 Speaker 1: into what they're doing every day. So we should just 521 00:33:07,800 --> 00:33:10,880 Speaker 1: haven't taped to our wealth right right to your to 522 00:33:10,960 --> 00:33:14,840 Speaker 1: your trading term. So given that we have all these 523 00:33:14,920 --> 00:33:19,000 Speaker 1: PhDs today, we have all this work from Nobel Laureates 524 00:33:19,040 --> 00:33:24,120 Speaker 1: that makes the canon of investing. What should investors be 525 00:33:24,280 --> 00:33:27,960 Speaker 1: picking up from this book today? What's what's the takeaway 526 00:33:28,040 --> 00:33:32,880 Speaker 1: that professional investors should be thinking about if they either 527 00:33:32,960 --> 00:33:35,800 Speaker 1: read or reread this book. To me, it was the 528 00:33:36,160 --> 00:33:40,160 Speaker 1: value of the economic ideas that have been um absorbed 529 00:33:40,240 --> 00:33:44,720 Speaker 1: into the financial world and the limitations it's not just 530 00:33:44,840 --> 00:33:47,640 Speaker 1: the value, it's the limitations. Hey, this is a better 531 00:33:47,640 --> 00:33:50,960 Speaker 1: idea than before, but let's not get too far out 532 00:33:51,000 --> 00:33:52,920 Speaker 1: of so you're not you shouldn't go with your gut, 533 00:33:53,800 --> 00:33:57,840 Speaker 1: but you you shouldn't assume the model is gonna fill 534 00:33:57,880 --> 00:34:00,840 Speaker 1: you with total confidence. But what are your thoughts? Do 535 00:34:00,880 --> 00:34:03,440 Speaker 1: you do? You think that's fair a fair statement? Yes, 536 00:34:05,040 --> 00:34:09,920 Speaker 1: sorry to be boring, and degree agree. But basically these 537 00:34:10,000 --> 00:34:14,359 Speaker 1: models are good models given that they're trying to model 538 00:34:14,480 --> 00:34:17,560 Speaker 1: something that all of us know from our lives. Trying 539 00:34:17,600 --> 00:34:22,440 Speaker 1: to cover markets are almost impossible to to model. Um 540 00:34:22,800 --> 00:34:25,919 Speaker 1: they are in most of the cases. There are things 541 00:34:26,000 --> 00:34:28,320 Speaker 1: that when you're trying to work out how to allocate assets, 542 00:34:28,400 --> 00:34:31,759 Speaker 1: pick a stock or whatever, you should at least take 543 00:34:31,800 --> 00:34:34,920 Speaker 1: a look at the math of them. And if they 544 00:34:34,920 --> 00:34:37,279 Speaker 1: are if they suggest that this would be a really 545 00:34:37,280 --> 00:34:41,520 Speaker 1: bad idea, you should think very hard. They are You 546 00:34:41,560 --> 00:34:45,000 Speaker 1: know that they are a systematized way to enable you 547 00:34:45,080 --> 00:34:50,360 Speaker 1: to think rationally. They aren't the kind of infallible guide 548 00:34:50,520 --> 00:34:55,080 Speaker 1: that some people felt them to be. And ultimately, the 549 00:34:55,200 --> 00:34:58,319 Speaker 1: reason they became as unpopular as they did, because they 550 00:34:58,360 --> 00:35:01,800 Speaker 1: were blamed h as much as they were for the crisis, 551 00:35:02,600 --> 00:35:07,560 Speaker 1: is due to factors of overconfidence. They did feed in, 552 00:35:07,760 --> 00:35:12,560 Speaker 1: among many other things, to this broad over confidence that 553 00:35:12,760 --> 00:35:17,800 Speaker 1: allowed the crisis to happen. So so here's a couple 554 00:35:17,840 --> 00:35:20,279 Speaker 1: of bullet points that I pulled out of the book 555 00:35:20,360 --> 00:35:24,839 Speaker 1: that I thought were fascinating and and maybe maybe you 556 00:35:24,880 --> 00:35:28,120 Speaker 1: guys can can share some thoughts on this. The first 557 00:35:28,360 --> 00:35:31,840 Speaker 1: was I had no idea that before the nineteen fifties, 558 00:35:32,840 --> 00:35:36,719 Speaker 1: if you had a trust or in a state that 559 00:35:36,840 --> 00:35:40,040 Speaker 1: was being managed by a third party, the law was 560 00:35:40,360 --> 00:35:44,000 Speaker 1: literally you can only have a fifty exposure to stocks 561 00:35:44,000 --> 00:35:47,160 Speaker 1: and the rest had to be bonds or cash instruments. 562 00:35:47,200 --> 00:35:49,600 Speaker 1: That was fascinating. Did did you did either of you 563 00:35:49,680 --> 00:35:51,600 Speaker 1: before you read this book know that that was a 564 00:35:51,680 --> 00:35:56,120 Speaker 1: substantial change in in how portfolios were managed. I I 565 00:35:56,160 --> 00:35:58,120 Speaker 1: didn't realize that. But it makes sense in the wake 566 00:35:58,160 --> 00:36:02,360 Speaker 1: of the depression that so ben those PTSD people are again, 567 00:36:02,400 --> 00:36:04,880 Speaker 1: the generals are looking back and oh there can be 568 00:36:04,920 --> 00:36:08,120 Speaker 1: a crash. So therefore no more than that was the 569 00:36:08,160 --> 00:36:11,360 Speaker 1: guard rail. Well, again, it makes sense. I I covered 570 00:36:11,400 --> 00:36:13,719 Speaker 1: Mexico for a while in the wake of the crisis. 571 00:36:14,280 --> 00:36:17,400 Speaker 1: I had to cover the moments um more than a 572 00:36:17,440 --> 00:36:20,440 Speaker 1: decade after Mexico's great financial crisis when they allowed the 573 00:36:20,440 --> 00:36:23,960 Speaker 1: state's pension system to invest in anything other than bonds 574 00:36:24,120 --> 00:36:27,440 Speaker 1: for the first time. It took huge negotiations with the 575 00:36:27,520 --> 00:36:31,000 Speaker 1: unions before they would permit them to put put retirement 576 00:36:31,040 --> 00:36:34,680 Speaker 1: money into anything other than bonds. But again, given what 577 00:36:34,719 --> 00:36:37,719 Speaker 1: happened to Mexico in ninety four, you can understand why 578 00:36:37,760 --> 00:36:40,160 Speaker 1: the unions thought this might be a bad idea. And 579 00:36:40,480 --> 00:36:43,440 Speaker 1: I don't want to give short shrift to Paul Samuelson, 580 00:36:43,560 --> 00:36:46,960 Speaker 1: John you just mentioned earlier, So let me ask this question, 581 00:36:47,080 --> 00:36:50,799 Speaker 1: why did Samuelson's work send such shock waves through the 582 00:36:50,840 --> 00:36:56,399 Speaker 1: regular community of investors. I think there's a beautiful anecdote. 583 00:36:56,719 --> 00:36:59,919 Speaker 1: Um it's actually Sharp that has the conversation with Burn's 584 00:37:00,000 --> 00:37:04,759 Speaker 1: been rather than Samuelson, but about Samuelson's work. That just 585 00:37:05,960 --> 00:37:08,920 Speaker 1: Bernstein is talking to him about the investing he does 586 00:37:09,880 --> 00:37:14,520 Speaker 1: h and Sharp says do you beat the market? And 587 00:37:15,840 --> 00:37:19,480 Speaker 1: Bernstein is slightly offended at the time and also goes, well, 588 00:37:19,480 --> 00:37:23,279 Speaker 1: how would I know? How would you judge? Which is 589 00:37:23,320 --> 00:37:26,280 Speaker 1: astonishing in and of itself. It's that's less than fifty 590 00:37:26,360 --> 00:37:30,280 Speaker 1: years ago that conversation happened, and that was the moment 591 00:37:31,000 --> 00:37:35,279 Speaker 1: that Bernstein really started looking into all these ideas and 592 00:37:35,360 --> 00:37:38,799 Speaker 1: taking them seriously. That was literally his epiphany right then, 593 00:37:38,800 --> 00:37:42,480 Speaker 1: and they're sharp forced him down this bath. And and that, 594 00:37:43,040 --> 00:37:46,840 Speaker 1: to answer your question, is also why people find found 595 00:37:46,880 --> 00:37:51,319 Speaker 1: Samuelson so shocking. It seemed obvious that people who knew 596 00:37:51,360 --> 00:37:54,600 Speaker 1: what they were doing would deliver value for you. The 597 00:37:54,600 --> 00:37:58,960 Speaker 1: the idea that they actually could not not not not 598 00:37:59,160 --> 00:38:02,560 Speaker 1: just did not could not add value in the act 599 00:38:02,760 --> 00:38:08,080 Speaker 1: was just mind blowing. What's astonishing to me about that 600 00:38:08,880 --> 00:38:11,319 Speaker 1: point in the book, which is actually fairly oh it's 601 00:38:11,440 --> 00:38:16,560 Speaker 1: a Bill Sharp chapter. There was no performance reporting. No 602 00:38:16,600 --> 00:38:19,279 Speaker 1: one said here's how we did this quarter, here's how 603 00:38:19,280 --> 00:38:23,120 Speaker 1: our benchmark. The concept of benchmark did not exist. It's 604 00:38:23,239 --> 00:38:26,840 Speaker 1: it's mind boggling, isn't that you deal with professional investors 605 00:38:26,880 --> 00:38:30,640 Speaker 1: who live and die on their quarterly benchmark and complain 606 00:38:30,680 --> 00:38:33,720 Speaker 1: about people trying to make them do monthly or weekly? 607 00:38:33,719 --> 00:38:36,200 Speaker 1: Which is But isn't it interesting how far we've come 608 00:38:36,239 --> 00:38:39,960 Speaker 1: that now? It's I think what's more commonly complained about 609 00:38:39,960 --> 00:38:43,400 Speaker 1: now is how much people look at the benchmark instead 610 00:38:43,400 --> 00:38:47,120 Speaker 1: of that, instead of looking at absolute returns. Right so 611 00:38:47,200 --> 00:38:50,200 Speaker 1: that you have funds said brag about making a minus 612 00:38:51,000 --> 00:38:54,319 Speaker 1: one percent return, you know, because the index was down 613 00:38:56,040 --> 00:38:58,760 Speaker 1: and you know obviously that wouldn't have happened in the fifties. 614 00:38:59,719 --> 00:39:03,400 Speaker 1: Well that and that that least the very strange concept. Um. 615 00:39:04,800 --> 00:39:08,040 Speaker 1: I find this this, this, this, this is the point 616 00:39:08,120 --> 00:39:11,480 Speaker 1: that somebody made me extraneously. After after reading this, you 617 00:39:12,160 --> 00:39:17,400 Speaker 1: come to the what a lot of these ideas weaken 618 00:39:17,800 --> 00:39:22,760 Speaker 1: is the concept the sense of ownership, so that now 619 00:39:23,760 --> 00:39:25,920 Speaker 1: you can be in a position where you own a 620 00:39:25,960 --> 00:39:28,520 Speaker 1: lot of a stock, but you're underweighted. So for example, 621 00:39:28,560 --> 00:39:31,040 Speaker 1: if in Britain you more or less have to have 622 00:39:31,200 --> 00:39:33,839 Speaker 1: more than ten percent of your portfolio each in BP 623 00:39:34,480 --> 00:39:36,919 Speaker 1: and SHELL. So if you decide only to have five 624 00:39:36,960 --> 00:39:40,080 Speaker 1: percent of your portfolio in BP, then you are underweighted. 625 00:39:40,239 --> 00:39:43,520 Speaker 1: You own it, but you want it to do badly 626 00:39:44,120 --> 00:39:47,560 Speaker 1: because you are betting that it will do badly even 627 00:39:47,760 --> 00:39:50,960 Speaker 1: though your clients have five percent of their money. Right, 628 00:39:51,200 --> 00:39:54,200 Speaker 1: it's about tilts, not absolute ownership. But but yeah, but 629 00:39:54,440 --> 00:39:57,279 Speaker 1: the concept of if you own it, you're rooting for 630 00:39:57,360 --> 00:40:02,080 Speaker 1: it has disappeared completely. I want to bring this forward 631 00:40:02,239 --> 00:40:05,360 Speaker 1: to the modern era. There it was a quote um 632 00:40:05,360 --> 00:40:09,480 Speaker 1: from Bernstein about industrials did not need as much capital 633 00:40:09,520 --> 00:40:14,759 Speaker 1: as transports. That makes me wonder industrials did not need 634 00:40:14,760 --> 00:40:16,880 Speaker 1: as much capital as transport. So if you're putting up 635 00:40:16,920 --> 00:40:21,200 Speaker 1: a factory, you need need less money than the transports 636 00:40:21,280 --> 00:40:24,799 Speaker 1: or the rails who had by rights of ways and 637 00:40:24,800 --> 00:40:27,840 Speaker 1: and lay all of this track and then quote unquote 638 00:40:27,960 --> 00:40:32,440 Speaker 1: rolling stock a phrase that you just don't here today. Um, 639 00:40:32,520 --> 00:40:35,000 Speaker 1: So what does that mean about tech stocks today? If 640 00:40:35,560 --> 00:40:38,840 Speaker 1: if Facebook brought Instagram for a billion dollars when it 641 00:40:38,920 --> 00:40:45,240 Speaker 1: was I think nineteen or nine, maybe programmers um follow 642 00:40:45,320 --> 00:40:48,520 Speaker 1: the progression. Rails and transports needed a ton of capital 643 00:40:48,560 --> 00:40:51,719 Speaker 1: and a lot of labor. Industrials needed a little less 644 00:40:51,760 --> 00:40:56,440 Speaker 1: capital and somewhat less labor. Modern tech companies need a 645 00:40:56,480 --> 00:41:00,000 Speaker 1: whole lot less capital and just a handful of labor. 646 00:41:00,600 --> 00:41:04,239 Speaker 1: What does that say about valuations based on the ideas 647 00:41:04,440 --> 00:41:08,280 Speaker 1: in this book? Are we looking at perhaps a shift 648 00:41:08,880 --> 00:41:12,840 Speaker 1: that has allowed pe multiples to climb for the past 649 00:41:12,840 --> 00:41:24,719 Speaker 1: half century? Interesting question? Um. Certainly the notion ideas like 650 00:41:24,719 --> 00:41:27,360 Speaker 1: like Topin's Q or trying to come to an intrinsic 651 00:41:27,400 --> 00:41:30,960 Speaker 1: value that is based on assets, need to be revised 652 00:41:31,000 --> 00:41:34,360 Speaker 1: with the notion of very much. For the notion of intangibles, 653 00:41:34,600 --> 00:41:40,040 Speaker 1: Intellectual property is different than factories and equipment there is 654 00:41:40,080 --> 00:41:45,120 Speaker 1: a concept that Bruce Greenwald, who I was taught by 655 00:41:45,360 --> 00:41:50,520 Speaker 1: my MBI that Columbia uses of franchise value and of 656 00:41:50,600 --> 00:41:54,920 Speaker 1: earnings power. I that that Facebook may not have a 657 00:41:54,960 --> 00:41:58,000 Speaker 1: lot of capital tied up in a lot of workers working, 658 00:41:58,040 --> 00:42:00,920 Speaker 1: but it does have a certain amount of franchise power, 659 00:42:01,239 --> 00:42:05,880 Speaker 1: which conceivably is weakening as we speak. But that's that 660 00:42:06,200 --> 00:42:11,000 Speaker 1: is the measure you somehow have to hear the mot Yes, 661 00:42:11,680 --> 00:42:14,080 Speaker 1: always we need to have a moat around your business 662 00:42:14,080 --> 00:42:17,800 Speaker 1: and prevents competition. So so that was the first question, 663 00:42:17,920 --> 00:42:20,560 Speaker 1: and I think you've you've sort of I don't know 664 00:42:20,560 --> 00:42:22,640 Speaker 1: if there's an answer, but at least but I think, 665 00:42:22,680 --> 00:42:24,880 Speaker 1: I mean, it's interesting that just this idea that a 666 00:42:25,200 --> 00:42:31,520 Speaker 1: company's ability to access capital should be dependent on its need, right, 667 00:42:31,600 --> 00:42:35,360 Speaker 1: because now I think people will give capital to companies 668 00:42:35,360 --> 00:42:38,000 Speaker 1: that don't need it so much and then just a 669 00:42:38,000 --> 00:42:40,000 Speaker 1: lot of executives get paid a lot of money. Well, 670 00:42:40,040 --> 00:42:42,640 Speaker 1: there is that with all the buybacks. We just saw 671 00:42:42,760 --> 00:42:47,200 Speaker 1: Netflix raise another two billion dollars at five percent, because hey, 672 00:42:47,440 --> 00:42:52,280 Speaker 1: content is expensive. Um Uber has had no problem raising 673 00:42:52,400 --> 00:42:55,560 Speaker 1: capital even though they've just burned through a ton of it. 674 00:42:55,840 --> 00:42:57,560 Speaker 1: You could you could go down the list of of 675 00:42:57,680 --> 00:43:01,080 Speaker 1: tech companies and unicorns that are so heavily cap Look 676 00:43:01,080 --> 00:43:04,520 Speaker 1: at we Works, which just filed to go public. They 677 00:43:04,560 --> 00:43:07,239 Speaker 1: bought the Lord and Taylor flagship here in New York, 678 00:43:07,280 --> 00:43:12,840 Speaker 1: which is a giant block long um department store. The 679 00:43:13,000 --> 00:43:17,320 Speaker 1: issue of capital flowing to places where maybe it'll be repaid, 680 00:43:17,360 --> 00:43:20,439 Speaker 1: maybe it won't. It's kind of shocking, isn't it. What 681 00:43:20,440 --> 00:43:23,279 Speaker 1: what does that say about that? But the question I 682 00:43:23,320 --> 00:43:27,360 Speaker 1: really have to ask, So the book has written in 683 00:43:28,920 --> 00:43:32,160 Speaker 1: all of the academics Harry Marko, It's Bill Sharp, Gene Fama, 684 00:43:32,160 --> 00:43:36,360 Speaker 1: go down the list. Are all born you know, either 685 00:43:36,680 --> 00:43:39,560 Speaker 1: certainly before World War two for the most part. In fact, 686 00:43:39,560 --> 00:43:42,239 Speaker 1: I want to say just about everybody was born before 687 00:43:42,239 --> 00:43:45,120 Speaker 1: World War two, and most of them did most of 688 00:43:45,160 --> 00:43:48,960 Speaker 1: their work in their twenties, thirties, forties, which raises the 689 00:43:49,040 --> 00:43:53,799 Speaker 1: question is there a person born after who one day 690 00:43:53,880 --> 00:43:57,799 Speaker 1: might be mentioned alongside of them? Has has all the 691 00:43:57,960 --> 00:44:01,279 Speaker 1: low hanging academic fruit been picked? And this is going 692 00:44:01,320 --> 00:44:05,040 Speaker 1: to be the pantheon? Or are new up and comers 693 00:44:05,040 --> 00:44:08,480 Speaker 1: coming about who you know from the world of millennials? 694 00:44:08,480 --> 00:44:10,560 Speaker 1: Are there going to be any academics who can put 695 00:44:10,600 --> 00:44:15,360 Speaker 1: out work of this stature and this influence when you 696 00:44:15,400 --> 00:44:19,080 Speaker 1: mentioned the behavioral economists for sure, so I would none 697 00:44:19,120 --> 00:44:25,520 Speaker 1: of whom are under fifty. Okay, Um, well, Andrew Lowe, 698 00:44:25,560 --> 00:44:28,720 Speaker 1: who is also beyond fifty at this point. But Andrew 699 00:44:28,760 --> 00:44:32,600 Speaker 1: low what he's attempting to do, which has come up 700 00:44:32,640 --> 00:44:39,439 Speaker 1: with an adaptive markets hypothesis that is advance. Yes, I'm 701 00:44:39,480 --> 00:44:41,600 Speaker 1: not sure he's quite managed to do it, although he's 702 00:44:41,960 --> 00:44:46,880 Speaker 1: written fascinatingly about his attempts to get there. If somebody 703 00:44:46,960 --> 00:44:51,440 Speaker 1: does get there, that would be very interesting. Indeed. So 704 00:44:51,480 --> 00:44:54,880 Speaker 1: that's my conversation with John Author's he's a colleague at 705 00:44:54,920 --> 00:44:58,600 Speaker 1: Bloomberg Opinion, and Christine Harper, she's the editor in chief 706 00:44:58,680 --> 00:45:03,680 Speaker 1: of Bloomberg Markets mag zine, about Peter Bernstein's book Capital Ideas, 707 00:45:04,120 --> 00:45:08,320 Speaker 1: the Improbable Origins of Modern Wall Street. If you enjoyed 708 00:45:08,400 --> 00:45:10,399 Speaker 1: this conversation, we'll be sure and look Up an Inch 709 00:45:10,480 --> 00:45:13,000 Speaker 1: or Down an Inch on Apple iTunes and you could 710 00:45:13,040 --> 00:45:16,040 Speaker 1: see any of the other two hundred and fifty such 711 00:45:16,080 --> 00:45:20,600 Speaker 1: conversations we've had over the past five years. July twelfth 712 00:45:20,680 --> 00:45:23,800 Speaker 1: is our five year podcast anniversary, so be sure in 713 00:45:24,200 --> 00:45:26,520 Speaker 1: swing by and check out some of the special features. 714 00:45:26,840 --> 00:45:30,040 Speaker 1: We will be running that week. I would be remiss 715 00:45:30,040 --> 00:45:32,359 Speaker 1: if I did not thank the Crack staff that helps 716 00:45:32,440 --> 00:45:36,239 Speaker 1: us put together these podcasts every week. Robert Bragg is 717 00:45:36,280 --> 00:45:41,239 Speaker 1: my audio engineer. Attica val Brunn is my project director. 718 00:45:41,800 --> 00:45:45,640 Speaker 1: Michael Boyle is my producer slash booker. Michael Batnick is 719 00:45:45,680 --> 00:45:49,280 Speaker 1: our head of research. I'm Barry Rehults. You've been listening 720 00:45:49,320 --> 00:45:52,000 Speaker 1: to Masters in Business on Bloomberg Radio