WEBVTT - Jim O'Shaughnessy on How AI Will Change Everything From Arts to Stocks 0:00:02.600 --> 0:00:11.840 Bloomberg Audio Studios, Podcasts, radio News. This is Master's in 0:00:11.920 --> 0:00:15.520 Business with Barry Ridholts on Bloomberg. 0:00:15.120 --> 0:00:19.880 Radio this week on the podcast, Boy Do I have 0:00:19.960 --> 0:00:21.160 an extra special guest. 0:00:21.680 --> 0:00:23.640 I know Jim O'Shaughnessy. 0:00:23.079 --> 0:00:26.320 For I don't know, maybe twenty plus years something like that. 0:00:26.640 --> 0:00:30.240 We actually first met in the green room at CMBC 0:00:30.800 --> 0:00:35.599 like early two thousands and found we shared some similar 0:00:35.840 --> 0:00:39.760 likes and philosophies. And I've been a fan of his 0:00:39.800 --> 0:00:42.519 book What Works on Wall Street pretty much from when 0:00:42.560 --> 0:00:45.879 it came out. This is a fascinating conversation about a 0:00:45.880 --> 0:00:52.840 person who has worked through multiple locales and seats in finance, 0:00:52.960 --> 0:00:57.400 not just running a systematic investing at bear Stearn's, but 0:00:57.960 --> 0:01:05.240 creating O'Shaughnessy asset management, creating a unique custom index product 0:01:05.280 --> 0:01:09.640 that ended up attracting the attention of Franklin Templeton, who 0:01:09.720 --> 0:01:13.480 paid some undisclosed and ungodly amount of money for the 0:01:13.520 --> 0:01:17.960 whole firm, and now in a later phase of his 0:01:18.120 --> 0:01:23.200 career doing O'shaughnessee ventures and the O'shaughnessee Fellowship. I first 0:01:23.560 --> 0:01:26.320 know him from really the first pant book What Works 0:01:26.360 --> 0:01:29.480 on Wall Street? That was a half a century of 0:01:29.560 --> 0:01:32.560 data analysis. Really was never accessible to. 0:01:32.520 --> 0:01:33.360 The public before. 0:01:33.920 --> 0:01:36.400 I found the conversation to be fascinating and I think 0:01:36.440 --> 0:01:39.800 you will also. And at this point I am obligated 0:01:39.840 --> 0:01:43.640 to do a disclosure. My firm Retults Wealth Management has 0:01:43.640 --> 0:01:48.240 been working with O'Shaughnessey on their direct Index platform. Really 0:01:48.280 --> 0:01:50.480 we were one of the first beta testers. We now 0:01:50.520 --> 0:01:54.000 have over a billion dollars on that platform, maybe coming 0:01:54.120 --> 0:01:58.280 even closer to another big round number with no further ado. 0:01:58.640 --> 0:02:03.120 My discussion with O'Shaughnessy ventures Jim O'Shaughnessy. 0:02:03.880 --> 0:02:07.600 It's great to see you, Berry and congratulations. Wow, that's a. 0:02:07.760 --> 0:02:11.200 Well congratulations to you. I'm still My firm just had 0:02:11.200 --> 0:02:15.560 its tenth anniversary. You guys, anytime I see the phrase 0:02:15.960 --> 0:02:19.880 for an undisclosed amount, my brain automatically says. 0:02:19.680 --> 0:02:21.280 Wow, that has to be a lot of money. If 0:02:21.280 --> 0:02:21.880 it's if. 0:02:21.760 --> 0:02:25.640 They're not disclosing it, it's material, but undisclosed, that's a 0:02:25.639 --> 0:02:26.200 lot of casts. 0:02:26.560 --> 0:02:29.400 Or it could be like trading places and the normal 0:02:29.440 --> 0:02:30.600 bet of a dollar. 0:02:32.520 --> 0:02:36.200 The usual bet Mortimer one dollar. So we know each 0:02:36.280 --> 0:02:40.040 other from way back when you first came into my 0:02:40.200 --> 0:02:43.480 orbit from the book What Works on Wall Street. I 0:02:43.560 --> 0:02:45.360 read it from cover to cover. I was on a 0:02:45.440 --> 0:02:48.720 trading desk when that came out, and I'm like, huh, 0:02:48.760 --> 0:02:52.000 so there's some science and math behind this. It's not 0:02:52.160 --> 0:02:55.839 just rumors and whatever happens to cross TV that day. 0:02:56.360 --> 0:02:57.120 I'm intrigued. 0:02:57.600 --> 0:03:00.920 Before we get there, let's talk a little bit about 0:03:01.000 --> 0:03:04.280 what you were doing prior. Tell us about the early 0:03:04.360 --> 0:03:05.280 Jim O'Shaughnessy. 0:03:05.800 --> 0:03:10.720 Well, I was always fascinated about the markets in general, 0:03:11.320 --> 0:03:17.480 which stemmed from a very angry conversation between my uncle 0:03:17.560 --> 0:03:22.480 and father about IBM. And I had just been allowed 0:03:22.480 --> 0:03:25.480 to go to the adult table, and I was sitting 0:03:25.560 --> 0:03:28.800 next to my dad and he and my uncle John 0:03:28.880 --> 0:03:32.400 were going hammer and tong about whether IBM was a 0:03:32.440 --> 0:03:35.080 good company or not. And I was listening, and it 0:03:35.160 --> 0:03:38.760 was all about the chairman. It was all about, you know, 0:03:39.120 --> 0:03:42.600 things that I looked at as kind of soft intelligence, 0:03:42.720 --> 0:03:47.040 squishy squishy, and so I just thought I asked at 0:03:47.080 --> 0:03:50.280 the dinner, I said, well, would it make more sense 0:03:50.360 --> 0:03:52.840 to like look at how much money they're making and 0:03:52.880 --> 0:03:56.000 what their earnings are and how much you have to 0:03:56.040 --> 0:03:59.160 pay for that? And they both just literally glared at me. 0:04:00.600 --> 0:04:05.040 That's hilarious kids. They don't know anything exactly exactly. It's 0:04:05.080 --> 0:04:07.440 the chairman. How tall is he? I like to cut 0:04:07.520 --> 0:04:11.600 his gips. It's almost as if you were there that 0:04:11.680 --> 0:04:15.880 bug got implanted, that mind worm got implanted in my brain. 0:04:16.200 --> 0:04:19.120 How old were you when that? I was seventeen. Oh 0:04:19.200 --> 0:04:21.600 so you're just going into college? Yeah? 0:04:21.600 --> 0:04:24.920 Absolutely, And you were a Minnesota kid, Is that right? 0:04:24.960 --> 0:04:29.040 I grew up in Saint Paul, Minnesota and beautiful country. 0:04:29.279 --> 0:04:32.119 Certainly in the summer anyway, gorgeous. The winter's tough. 0:04:32.240 --> 0:04:36.560 Yeah. Yeah. Well, if this were the old USSR, that 0:04:36.720 --> 0:04:41.599 is where all the political prisoners would be of Minnesota. 0:04:42.400 --> 0:04:46.640 But so I started doing research on essentially the Dow 0:04:46.760 --> 0:04:51.559 thirty because it was manageable, thirty stocks I could list 0:04:51.680 --> 0:04:55.040 by hand showing how old I am, because you literally 0:04:55.200 --> 0:04:57.880 there were no computers that we could use at the time. 0:04:59.160 --> 0:05:02.640 Simple things like like what's the price, what's the dividend, 0:05:02.760 --> 0:05:06.400 what's the price to earnings, book value, etc. And I 0:05:06.560 --> 0:05:12.040 found a definite trend, right. I found that buying the 0:05:12.160 --> 0:05:15.279 ten stocks and the diw with the lowest pees from 0:05:15.400 --> 0:05:19.320 nineteen like thirty five. I think I started through when 0:05:19.360 --> 0:05:21.320 I was doing it, and this would have been about 0:05:21.400 --> 0:05:28.599 nineteen eighty, absolutely decimated the ten highest PE stocks. So wow, 0:05:28.760 --> 0:05:31.920 I love this. In the meantime, I had computers, and 0:05:32.120 --> 0:05:35.080 the only reason I actually got to write What Works 0:05:35.120 --> 0:05:39.640 on Wall Street was because Ben Graham didn't have computers. 0:05:40.279 --> 0:05:42.839 If he had had them, I would have had no 0:05:43.000 --> 0:05:45.440 chance because he would have done it. Basically, what I 0:05:45.480 --> 0:05:49.239 wanted to see was, is there any rhyme or reason 0:05:49.400 --> 0:05:52.120 to all of these reasons people say they like or 0:05:52.160 --> 0:05:55.400 hate a stock? Right? Where is the proof? Where is 0:05:55.480 --> 0:05:59.560 the empirical evidence that say, buying the low PE stocks 0:05:59.560 --> 0:06:03.120 from the die works very well over many market cycles. 0:06:03.760 --> 0:06:06.960 So I wrote a first book called invest Like the Best, 0:06:07.520 --> 0:06:10.560 in which I basically showed you how you could clone 0:06:10.600 --> 0:06:15.080 your favorite portfolio manager by taking his or her stocks, 0:06:15.440 --> 0:06:19.599 putting them on a big database like Compustat, seeing how 0:06:19.640 --> 0:06:23.360 they differed from the overall market, and then using those 0:06:23.480 --> 0:06:28.280 as factor screens to get down to a portfolio that looked, acted, 0:06:28.440 --> 0:06:32.080 and most importantly, performed like your favorite manager. 0:06:32.279 --> 0:06:37.080 Now, the average investor typically didn't have access to Compustat, 0:06:37.200 --> 0:06:40.640 to big data, to big computers, and so they relied 0:06:40.839 --> 0:06:42.039 on you who did. 0:06:42.640 --> 0:06:45.000 And if I recall what Works on Wall Street. 0:06:45.480 --> 0:06:48.239 You back tested like half a century worth of data 0:06:48.279 --> 0:06:50.920 something like that, and it was the full market, not 0:06:51.120 --> 0:06:52.880 just the thirty dove stocks. 0:06:53.080 --> 0:06:56.919 Yeah. Absolutely. And also not just the full market, it 0:06:57.040 --> 0:07:01.640 was also any company that had been but went bankrupt 0:07:01.720 --> 0:07:07.040 or got taken over, the very very needed research database 0:07:07.160 --> 0:07:13.440 on compustat. So no survivorship bias none, You back that out, Yeah, great, Yeah, 0:07:13.480 --> 0:07:19.040 because some of the early academic studies were they had 0:07:19.120 --> 0:07:24.800 a lot of survivorship bias. They didn't properly lag for 0:07:25.000 --> 0:07:29.280 when you actually knew a number, so they just assumed, right, well, 0:07:29.320 --> 0:07:32.680 there's the number on March thirty first, I'm going to 0:07:32.800 --> 0:07:35.920 use that number. Well, you didn't really know that for 0:07:36.080 --> 0:07:40.160 most of history until maybe May or June. Really interesting, 0:07:40.240 --> 0:07:44.120 so you run these numbers. What sort of strategies do 0:07:44.200 --> 0:07:48.760 you find perform best. Well, we found that on the 0:07:49.040 --> 0:07:55.040 value side, smaller value stocks that had some catalysts and 0:07:55.120 --> 0:07:58.640 had turned a corner and their prices had started to 0:07:58.640 --> 0:08:02.800 go up. A beautiful strategy. 0:08:02.320 --> 0:08:05.560 Small cap value with a touch of momentum. 0:08:05.800 --> 0:08:10.200 Yes, okay. On the growth side, we found momentum works 0:08:10.600 --> 0:08:15.480 really really well. As we continued the research, we found okay, 0:08:15.520 --> 0:08:19.520 there's all sorts of caveats. So, for example, we learned 0:08:20.120 --> 0:08:23.480 after a severe bear market i e. One in which 0:08:23.560 --> 0:08:26.960 the market had declined by forty or more percent, not 0:08:27.000 --> 0:08:29.240 a lot of those, not a lot, thank god, but 0:08:30.400 --> 0:08:35.600 momentum inverted, and the stocks with the worst six or 0:08:35.640 --> 0:08:40.440 twelve month momentum actually did vastly better than the ones 0:08:40.559 --> 0:08:42.440 with the best. And if you think about it even 0:08:42.440 --> 0:08:45.760 for a minute, it makes sense, right deepest value. But 0:08:45.960 --> 0:08:49.120 what happened was a lot of really great stocks during 0:08:49.160 --> 0:08:54.199 the bear market got pushed way low in price, and 0:08:54.320 --> 0:08:59.080 so people when the market was recovering jumped on those stocks. 0:08:59.160 --> 0:09:01.199 They were like, I can't believe I'm getting you know, 0:09:01.280 --> 0:09:05.160 these earnings at six times earnings for an IBM or 0:09:05.240 --> 0:09:07.840 a you know Qualcom, Right, that's the baby with the 0:09:07.880 --> 0:09:13.240 bathwater strategy exactly. And so but we found, you know, 0:09:13.520 --> 0:09:17.640 that value actually works now. It hasn't for a long time. 0:09:18.240 --> 0:09:23.360 But we also found that large stocks with high shareholder 0:09:23.520 --> 0:09:29.240 yield i e. Dividend yield plus buyback yield was an 0:09:29.440 --> 0:09:35.400 excellent way to identify big stocks that are obviously much 0:09:35.440 --> 0:09:39.920 more conservative than the smaller fry in the small cap world. 0:09:40.720 --> 0:09:44.200 Interesting, So let's talk a little bit about your work 0:09:44.240 --> 0:09:46.480 at bear Stearns. Really, where I first met you in 0:09:46.520 --> 0:09:50.800 the two thousands, you were head of systematic Equity at 0:09:50.800 --> 0:09:54.800 bear Stearn's asset management. I'm assuming you were applying a 0:09:54.800 --> 0:09:56.880 lot of the lessons you learned in what works on 0:09:56.920 --> 0:10:01.520 Wall Street to the Bear institutional and tel investing strategies. 0:10:01.600 --> 0:10:06.320 Absolutely, and you know, let me just say Bear was 0:10:06.960 --> 0:10:10.400 really a great company, very unfortunate what happened to it 0:10:10.520 --> 0:10:14.600 during the financial crisis. But the reason I love Bear is, 0:10:14.960 --> 0:10:18.160 you know, a lot of big banks talk about being entrepreneurial. 0:10:18.559 --> 0:10:23.080 Bear Stearns really was. And essentially, if you were doing 0:10:23.120 --> 0:10:26.520 your thing and playing by the rules and doing well, 0:10:26.679 --> 0:10:30.480 they let you alone. Which was pretty important for me 0:10:30.720 --> 0:10:34.040 because when I got there, it was right after the 0:10:34.240 --> 0:10:38.400 dot bomb, and a lot of the brokers had done 0:10:38.640 --> 0:10:41.160 pretty poorly because they were in a lot of those names. 0:10:41.760 --> 0:10:45.640 And so I convinced Steve Dantis, who was then head 0:10:45.840 --> 0:10:50.079 of Private Client Services, that wouldn't it be better if 0:10:50.120 --> 0:10:55.840 we did a packaged portfolio, a separately managed to count 0:10:56.200 --> 0:10:59.319 and we offered at one time I think we were 0:10:59.440 --> 0:11:03.920 all the way up to the brokers so that they 0:11:04.040 --> 0:11:10.120 could use a more systematic time tested way of investing 0:11:10.160 --> 0:11:11.440 for their clients. 0:11:11.160 --> 0:11:14.960 Bringing a little discipline into what had been, at least 0:11:14.960 --> 0:11:18.199 in the nineties very much a cowboy type of environment. 0:11:18.840 --> 0:11:21.480 And I'm not just for fron of Bear. The entire 0:11:21.920 --> 0:11:25.480 retail stock brokerage was wild totally. 0:11:25.720 --> 0:11:29.200 He was very open to it. We ended up putting 0:11:29.240 --> 0:11:33.840 together a separately managed to count platform that they brokers embraced. 0:11:34.080 --> 0:11:37.679 They loved it because literally they did what they did well, 0:11:37.760 --> 0:11:41.440 which was calm the client during bad times, try to 0:11:41.559 --> 0:11:44.640 keep them from getting too excited during great times. But 0:11:44.679 --> 0:11:47.960 they also loved the idea that it had a very 0:11:48.160 --> 0:11:52.760 explicit explanation for why they were putting that client in 0:11:52.840 --> 0:11:56.400 that portfolio. So that was a lot of fun. By 0:11:56.440 --> 0:12:01.320 the time I left Bear, my group controlled about seventy 0:12:01.360 --> 0:12:04.920 percent of Bear Stearn's asset management long only, and that 0:12:05.080 --> 0:12:07.240 was a lot of money, wasn't it. It was It 0:12:07.280 --> 0:12:09.480 was about fourteen billion dollars. 0:12:09.520 --> 0:12:13.040 Okay, so you mentioned you left Bear. Let's put a 0:12:13.040 --> 0:12:17.000 little flesh on those bones. Your timing was perfect. 0:12:17.040 --> 0:12:20.000 You exit Bear in two thousand and seven, Is that right? 0:12:20.840 --> 0:12:25.840 To set up O'Shaughnessy's asset management was the thinking, Hey, 0:12:25.880 --> 0:12:28.079 I want to do this out on my own shop, 0:12:28.640 --> 0:12:33.120 or were you sniffing something out in O seven that's like, hey, 0:12:33.160 --> 0:12:36.960 maybe I don't want to be attached to a giant 0:12:37.000 --> 0:12:38.679 ocean liner taking on water. 0:12:39.040 --> 0:12:42.120 You know, that's funny. I spent the next two years 0:12:42.240 --> 0:12:46.920 after that trying to convince reporters that I really didn't 0:12:46.960 --> 0:12:52.000 know anything. Why I left Bear was because I felt 0:12:52.000 --> 0:12:54.480 that I really wanted to be on my own again. 0:12:55.160 --> 0:12:58.400 I really wanted to be able to just talk about 0:12:58.480 --> 0:13:02.360 quantitative investing. Bear was a boutique, so there were a 0:13:02.360 --> 0:13:06.360 lot of different managers. Liked them all. I thought they 0:13:06.400 --> 0:13:10.160 all were great, but I really really wanted to focus 0:13:10.640 --> 0:13:15.280 just exclusively on quant And secondly, we had upgraded a 0:13:15.320 --> 0:13:20.360 lot of our systems to the idea that would become canvas, right, 0:13:20.440 --> 0:13:23.920 because remember Netfolio was our first try at that. That 0:13:24.120 --> 0:13:27.760 was nineties or ninety nine. Yeah, really, well, of course, 0:13:28.200 --> 0:13:31.840 you know the really funny story here is in April 0:13:31.960 --> 0:13:35.880 of nineteen ninety nine, I wrote a piece called the 0:13:36.000 --> 0:13:40.120 Internet Contrarian, and in that piece I said, eighty five 0:13:40.160 --> 0:13:44.000 percent of the companies currently extant in the Internet space 0:13:44.240 --> 0:13:46.440 are going to be carried out of the market. Feet First, 0:13:47.480 --> 0:13:51.079 I've never seen a bubble like this in my history 0:13:51.120 --> 0:13:54.360 of investing. And what did I do next? Berry? I 0:13:54.520 --> 0:13:56.120 started an Internet company. 0:13:57.440 --> 0:14:00.120 Well just because the stocks or a bubble, does I 0:14:00.160 --> 0:14:02.480 mean this internet thing isn't going to catch on? 0:14:02.720 --> 0:14:05.640 That's true, right, it's there are you know? 0:14:05.679 --> 0:14:09.480 It's funny we forget in the thirties, forties, fifties there 0:14:09.520 --> 0:14:13.600 was only ma bel Every company used telephones. Yep, the 0:14:13.640 --> 0:14:18.160 way we describe internet companies, if you use the Internet 0:14:18.200 --> 0:14:22.360 as a core part of your platform. There's difference between 0:14:22.400 --> 0:14:23.160 the dot. 0:14:22.880 --> 0:14:24.800 Coms and the nineties and people. 0:14:24.480 --> 0:14:29.480 Who have just really integrated the technology into their business. Right, 0:14:29.960 --> 0:14:33.560 So I think Netfolio is not a dot com but 0:14:33.800 --> 0:14:36.880 a comm that used the net as a way to 0:14:36.920 --> 0:14:39.560 reach more people and give them access to data. 0:14:39.680 --> 0:14:42.440 Well, it's really funny because I made a couple well 0:14:42.440 --> 0:14:44.840 I made more than a couple of mistakes, but one 0:14:44.880 --> 0:14:49.360 of the big ones I made was we designed Netfolio 0:14:49.440 --> 0:14:53.600 as a B two C company, so we called we 0:14:53.600 --> 0:14:56.800 were taking on at the time mutual funds, which were dominant. 0:14:56.800 --> 0:14:59.520 We didn't have ETFs while we had them, but they 0:14:59.520 --> 0:15:02.400 were there very early day, very very early days. 0:15:03.480 --> 0:15:07.000 And so what did the spiders just turned twenty five recently, Yeah, 0:15:07.000 --> 0:15:09.680 I think of something like that. Yeah, So ninety nine 0:15:09.840 --> 0:15:13.280 is like it was really the beginning. 0:15:12.880 --> 0:15:16.600 Oh totally. And basically the idea was it was the 0:15:16.640 --> 0:15:22.200 first online investment advisor. And the reason that we thought 0:15:22.240 --> 0:15:27.400 it would work so well was personalization, tax management, all 0:15:27.440 --> 0:15:30.320 of those things. So, for example, we would they were 0:15:30.360 --> 0:15:33.080 all run by quant models that we had developed, right, 0:15:35.080 --> 0:15:37.720 but it gave the user the ability to say, let's 0:15:37.720 --> 0:15:41.200 say they're anti smoking, right, and Philip Morris is one 0:15:41.240 --> 0:15:44.560 of these selections they could just check nope, don't want it. 0:15:45.120 --> 0:15:48.640 Up comes the next stock that meets the criteria, and 0:15:48.720 --> 0:15:51.560 so it had a lot of really great features, but 0:15:51.920 --> 0:15:54.080 the tech was not quite there yet. 0:15:54.120 --> 0:15:57.800 You were twenty years ahead of where you would end 0:15:57.920 --> 0:16:01.160 up in the late tens, right. 0:16:01.360 --> 0:16:01.440 I. 0:16:03.000 --> 0:16:03.120 Was. 0:16:03.760 --> 0:16:07.080 I really do have to give my son Patrick the 0:16:07.280 --> 0:16:12.480 credit for resurrecting the idea because when we were at OSAM, 0:16:13.080 --> 0:16:16.960 I said, listen, we left Bear right into the Great 0:16:17.000 --> 0:16:20.200 Financial Crisis, and I put the team together and I'm like, 0:16:20.560 --> 0:16:22.280 I don't think that we're going to be able to 0:16:22.280 --> 0:16:26.680 sell many long only portfolios after the market has collapsed 0:16:26.680 --> 0:16:31.560 by nearly fifty percent, So let's spend our time developing 0:16:32.000 --> 0:16:36.400 internal technology that works the way we work. The office 0:16:36.440 --> 0:16:40.040 shelf stuff really wasn't cutting it, and so the project 0:16:40.080 --> 0:16:44.200 to get there was multi year and Patrick oversaw that, 0:16:44.400 --> 0:16:46.680 and then he walked into my office one day and 0:16:46.720 --> 0:16:49.960 he goes, you know, Dad, we've been using the desk 0:16:50.000 --> 0:16:52.800 star to kill a mouse. And I'm like, okay, I 0:16:52.960 --> 0:16:55.840 like the metaphor, but what do you mean? And he 0:16:56.000 --> 0:16:59.840 started talking about AWS, talking about netfolio and he's like, 0:17:00.320 --> 0:17:05.360 we have the perfect tech now that our clients results 0:17:05.440 --> 0:17:09.280 being one of them, could use and I'm like, brilliant, 0:17:09.440 --> 0:17:10.199 let's go with it. 0:17:10.800 --> 0:17:13.480 So we're going to talk a little more about Canvas, 0:17:13.640 --> 0:17:16.800 but I want to stay with the launch of O 0:17:16.960 --> 0:17:20.399 SM and O seven. So A, you don't need to 0:17:20.480 --> 0:17:23.000 disclose this, but I'm going to assume you had a 0:17:23.000 --> 0:17:25.200 lot of bear Stern stock options that you had a 0:17:25.320 --> 0:17:28.840 vest on your exit, so you probably had a pretty 0:17:28.840 --> 0:17:33.840 good sale, pretty good print on those when you first 0:17:33.920 --> 0:17:39.040 set up O'Shaughnessy, you're running your traditional models, things like 0:17:39.280 --> 0:17:43.320 Cornerstone value and Cornerstone growth, and I'm a big fan 0:17:43.520 --> 0:17:49.800 of your microcap sleeve, which really operates parallel to venture 0:17:49.840 --> 0:17:53.000 capital returns, only using public stocks. 0:17:53.200 --> 0:17:55.159 Am I getting that more or less right? Actually we 0:17:55.760 --> 0:17:59.040 use that also. Yeah, we wrote a paper saying that 0:17:59.080 --> 0:18:01.919 it was the poor man's way to get exposure to 0:18:01.960 --> 0:18:05.840 private equity. Private equity or venture capital are both both 0:18:05.920 --> 0:18:10.840 really private equity closer because the the microcap I love 0:18:11.119 --> 0:18:14.639 microcap investing. The only real reason that we offered that 0:18:14.840 --> 0:18:17.600 was because I loved it so much. Well, and the 0:18:17.720 --> 0:18:22.640 data backs it up, Oh, totally, totally it is. Microcap 0:18:23.000 --> 0:18:27.760 is an amazing place if you've got the right tools 0:18:27.800 --> 0:18:31.920 to sort through the thousands of names in the microcap universe, 0:18:32.040 --> 0:18:36.479 because you would not want to buy an index of 0:18:36.600 --> 0:18:40.960 microcap stocks. For the most part, there are microcaps because 0:18:41.080 --> 0:18:46.040 they kind of suck. However, there are so many diamonds 0:18:46.080 --> 0:18:50.040 in the rough in microcap that if you have a strategy, 0:18:50.440 --> 0:18:54.480 like a quant strategy that can sort through these thousands 0:18:54.520 --> 0:18:58.439 of names, you can do extraordinarily well. I love the 0:18:58.680 --> 0:18:59.879 strategy and I know. 0:19:00.000 --> 0:19:04.040 Oh the OSAM microcap sleeve is what I call. It 0:19:04.080 --> 0:19:08.120 has just really shot the lights out, especially last year 0:19:08.160 --> 0:19:09.440 when the market was having. 0:19:09.240 --> 0:19:11.959 A pretty good year. They did pretty well, didn't they 0:19:12.040 --> 0:19:14.800 They did? They did. Now, remember you introduced me as 0:19:14.880 --> 0:19:17.919 chairman of o SAM, I'm no longer no longer. Yeah, 0:19:17.960 --> 0:19:23.600 they let me retire and actually Patrick is now chairman 0:19:23.680 --> 0:19:28.000 emeritus over at OSAM. Let's talk a little bit about Canvas, 0:19:28.040 --> 0:19:29.840 and again full disclosure, we're a client. 0:19:30.200 --> 0:19:32.480 We were a beta test. Do we love the product? 0:19:32.800 --> 0:19:36.119 Which is kind of ironic because I used to hate 0:19:36.160 --> 0:19:41.280 direct indexing every time I would demo or see a product. 0:19:41.880 --> 0:19:45.280 It was clunky, it was cludgy. You would get these 0:19:45.320 --> 0:19:48.199 statements that were like hundreds of pages long. 0:19:48.680 --> 0:19:50.240 You guys kind. 0:19:49.880 --> 0:19:53.919 Of figured out the secret sauce for how do we 0:19:53.960 --> 0:19:58.320 make this clean, usable and easier to understand. Tell us 0:19:58.320 --> 0:20:02.040 a little bit about the genesis of Canvas. 0:20:02.440 --> 0:20:06.360 Well, first of all, we call it custom indexing as 0:20:06.359 --> 0:20:10.159 opposed to direct and the reason I make that distinction 0:20:10.600 --> 0:20:14.840 is because, as you point out, the direct indexing products 0:20:14.880 --> 0:20:19.240 of that time were clunky, they were difficult. You got 0:20:19.560 --> 0:20:23.159 reams and reams of paper reports, and they were really 0:20:23.280 --> 0:20:28.359 only focusing on tax benefits. Right. What we wanted to 0:20:28.440 --> 0:20:32.600 do with Canvas, which is custom indexing, is, as the 0:20:32.680 --> 0:20:38.480 name implies, give you, as the advisor, full control over 0:20:38.800 --> 0:20:42.280 what your client portfolio wanted to look like. You got 0:20:42.320 --> 0:20:47.000 the advantages of tax harvesting. You got the advantages of 0:20:47.080 --> 0:20:51.560 being able to mix indexes in with active strategies, but 0:20:51.920 --> 0:20:55.800 you could also do a social investing fund if you 0:20:55.880 --> 0:20:58.399 want it. But the way we did it was we 0:20:58.480 --> 0:21:02.399 didn't presume what your client was going to think of 0:21:02.640 --> 0:21:06.960 as good social investing. So often when you see some 0:21:07.119 --> 0:21:11.720 of the ESG portfolios, they've been predetermined as to what 0:21:11.960 --> 0:21:15.360 is going to be included. We give you the tools 0:21:15.800 --> 0:21:19.080 to turn a dial up or down on whatever you want. 0:21:19.160 --> 0:21:22.240 I think last I looked, there were over fifty eight 0:21:22.560 --> 0:21:25.320 separate things that you could find tune around on the 0:21:25.359 --> 0:21:28.560 idea of ESG. We wanted to give the tools to 0:21:28.680 --> 0:21:33.119 you because you knew your client vastly better than we did, 0:21:33.680 --> 0:21:36.920 and we thought, let's try. As you mentioned you were 0:21:36.920 --> 0:21:39.240 one of the beta testers. That was actually one of 0:21:39.280 --> 0:21:43.000 the smartest things we did, I think, because we had 0:21:43.119 --> 0:21:45.639 really good advice from a lot of people that we 0:21:45.720 --> 0:21:49.960 knew in both venture and other places. The first thing 0:21:50.040 --> 0:21:52.720 that many of them said to us was do not 0:21:53.240 --> 0:21:57.960 try to go big with this. Originally, find advisors who 0:21:58.000 --> 0:22:01.600 you trust who will give you you real feedback. In 0:22:01.640 --> 0:22:04.200 other words, they won't shine you on if they didn't 0:22:04.320 --> 0:22:06.440 like you. Guys were very good at times. 0:22:06.480 --> 0:22:09.440 And Michael batt nicking my office, one of my partners, 0:22:09.960 --> 0:22:12.439 who was over the moon when he first saw this. 0:22:12.840 --> 0:22:15.639 Every time another product came in, it would take me 0:22:15.720 --> 0:22:18.920 thirty seconds to poke holes in it. And he came 0:22:19.400 --> 0:22:22.119 breathless into my office, Dude, you got to see this. 0:22:22.680 --> 0:22:26.080 And I'm like, yeah, yeah, okay, another garbage right, tee 0:22:26.080 --> 0:22:28.320 it up. And it took about thirty seconds to go, 0:22:28.440 --> 0:22:30.520 Oh my god, how do we get a piece of this? 0:22:30.520 --> 0:22:31.480 This is fantastic. 0:22:31.960 --> 0:22:35.840 The interface, the design, all of the bullet points that 0:22:36.000 --> 0:22:39.840 all the boxes checked were great. Let's stick with what 0:22:39.880 --> 0:22:45.359 we no longer call esg and Meyer Statman famously called 0:22:45.440 --> 0:22:49.879 values based investing. Some people have called it woke investing, 0:22:49.920 --> 0:22:53.760 but that's really the wrong phrase. I'm fascinated, for example, 0:22:54.359 --> 0:22:58.800 by the Catholic bishops whose endowment says, look, we don't 0:22:58.800 --> 0:23:01.720 want any aboard of any drugs that do that. We 0:23:01.720 --> 0:23:05.520 can't invest in those companies. We can invest in hospital 0:23:05.600 --> 0:23:09.600 chains that perform these sort of surgeries, or insurers. You 0:23:09.720 --> 0:23:13.720 have the ability to say, whatever your personal preferences are, 0:23:14.240 --> 0:23:17.560 you could just tune those out of pick an index, 0:23:17.600 --> 0:23:20.760 the S and P five hundred the Vanguard Total Market. 0:23:20.800 --> 0:23:23.879 You could say, I don't want X or Y or Z, 0:23:24.280 --> 0:23:27.080 and how it comes tell us a little bit about that. 0:23:27.520 --> 0:23:31.480 I felt that that was really really important because everybody 0:23:31.560 --> 0:23:34.840 has different ideas. As you point out, the Catholic bishops 0:23:35.320 --> 0:23:39.440 wanted to exclude certain things. Others might want to include 0:23:39.520 --> 0:23:43.000 certain things. Actually felt it would be very arrogant of 0:23:43.119 --> 0:23:48.520 us to determine what good social investing was because we 0:23:48.600 --> 0:23:53.080 had managed money for a variety of religious institutions, and 0:23:53.240 --> 0:23:57.200 guess what, they all have different takes on what they 0:23:57.240 --> 0:24:00.240 want to see. We did one where, for example, well 0:24:00.359 --> 0:24:03.880 you couldn't buy any company that did anything with animals 0:24:03.960 --> 0:24:07.480 with eyes. That was an interesting one. But then on 0:24:07.520 --> 0:24:10.479 the other hand, we had a client who wanted to 0:24:10.520 --> 0:24:15.000 see more female board members and females in the C suite, 0:24:15.040 --> 0:24:16.399 and you could you could screen for that. 0:24:16.520 --> 0:24:18.480 You can screen and there's a bunch of research that 0:24:18.560 --> 0:24:21.000 shows those companies. Now you don't know if it's posative 0:24:21.720 --> 0:24:25.280 or just merely correlated, but those companies tend to outperform. 0:24:25.600 --> 0:24:30.600 The request we probably hear the most is no gun stocks, 0:24:30.640 --> 0:24:31.800 no tobacco stocks. 0:24:31.960 --> 0:24:36.680 Yeah, kind of interesting. Yeah, the tobacco guns, those are 0:24:36.840 --> 0:24:41.959 pretty large groups where majority of investors want nothing to 0:24:41.960 --> 0:24:44.760 do with them. But the other thing that's cool about 0:24:44.840 --> 0:24:49.520 our dials on canvas you Let's say that Ritholtz has 0:24:49.800 --> 0:24:53.280 a wild eyed libertarian walk in who happens to have 0:24:53.320 --> 0:24:56.560 a billion dollars and he says, you know what I 0:24:56.720 --> 0:25:00.159 want the gun manufacturers. I want I'm a big like 0:25:00.160 --> 0:25:04.000 an amendment guy, right, Or I want the pharmaceuticals, or 0:25:04.040 --> 0:25:06.920 I mean the sinstock, I mean gambling and alcohol. Well, 0:25:07.040 --> 0:25:09.680