1 00:00:02,080 --> 00:00:05,600 Speaker 1: You're listening to Mensters in Business with Barry Ridholts on 2 00:00:05,800 --> 00:00:09,320 Speaker 1: Bloomberg Radio. This week on the podcast, I have a 3 00:00:09,400 --> 00:00:13,600 Speaker 1: special guest and his name is Chris Brightman. He is 4 00:00:13,680 --> 00:00:18,600 Speaker 1: the chief investment officer of Research Affiliates, better known as Raffie, 5 00:00:19,160 --> 00:00:22,840 Speaker 1: the firm which is one of the prime drivers behind 6 00:00:22,880 --> 00:00:27,400 Speaker 1: the trend towards smart beta or fundamental indexing as it 7 00:00:27,440 --> 00:00:31,520 Speaker 1: is more accurately called. We go off into the weeds 8 00:00:31,560 --> 00:00:36,640 Speaker 1: about portfolio construction, What drives returns? What are the best 9 00:00:36,640 --> 00:00:43,720 Speaker 1: ways to approach constructing a portfolio? Research Affiliates their models 10 00:00:44,159 --> 00:00:48,800 Speaker 1: run about two billion dollars worth of offerings. Uh. This 11 00:00:48,880 --> 00:00:51,960 Speaker 1: is quite a fascinating conversation and I think you'll find 12 00:00:52,000 --> 00:00:56,760 Speaker 1: it very intriguing. So, with no further ado, my conversation 13 00:00:57,480 --> 00:01:03,640 Speaker 1: with Chris Brightman of Research Affiliates. This is Masters in 14 00:01:03,720 --> 00:01:08,000 Speaker 1: Business with Barry Ridholts on Bloomberg Radio. My special guest 15 00:01:08,040 --> 00:01:12,200 Speaker 1: today is Chris Brightman. He is the chief investment officer 16 00:01:12,360 --> 00:01:17,280 Speaker 1: of Research Affiliates, whose investment strategies currently manage over two 17 00:01:17,400 --> 00:01:20,840 Speaker 1: hundred billion dollars. He's previously he was the board chair 18 00:01:20,880 --> 00:01:24,280 Speaker 1: at the Investment Fund for Foundations. UH. He was the 19 00:01:24,319 --> 00:01:28,480 Speaker 1: CEO of the Strategic Investment Group and director of Global 20 00:01:28,520 --> 00:01:34,119 Speaker 1: Equity Strategy at UBS Asset Management. Chris Brightman, Welcome to Bloomberg. 21 00:01:34,800 --> 00:01:38,200 Speaker 1: Thank you for having me. So that's a really interesting 22 00:01:38,800 --> 00:01:43,840 Speaker 1: um resume. You've worked at some very storied places. What 23 00:01:44,120 --> 00:01:48,320 Speaker 1: first attracted you to the field of investment management. I 24 00:01:48,520 --> 00:01:54,760 Speaker 1: arrived at my university, Virginia Tech, having been accepted into 25 00:01:54,840 --> 00:02:00,240 Speaker 1: the Liberal Arts UH School, and after listening to the 26 00:02:00,360 --> 00:02:03,520 Speaker 1: dean of the Liberal Arts School address the auditorium of 27 00:02:03,520 --> 00:02:09,000 Speaker 1: new students explaining why you'd made the right choice, I 28 00:02:09,040 --> 00:02:12,280 Speaker 1: approached the podium and said, I think I'm in the 29 00:02:12,320 --> 00:02:14,960 Speaker 1: wrong place. I want to go to the School of Business. 30 00:02:15,560 --> 00:02:18,519 Speaker 1: And without missing a beat or even seeming to notice 31 00:02:18,560 --> 00:02:20,959 Speaker 1: the irony, the dean said, oh, yeah, well you walk 32 00:02:21,040 --> 00:02:24,239 Speaker 1: down three you know buildings over that way, and and 33 00:02:24,520 --> 00:02:30,639 Speaker 1: I changed before I even began classes to the business program, 34 00:02:30,680 --> 00:02:33,720 Speaker 1: mostly because I figured, you have to understand, this is 35 00:02:33,720 --> 00:02:38,280 Speaker 1: the seventies. I wanted a job when I graduated, and 36 00:02:38,320 --> 00:02:43,239 Speaker 1: I felt like majoring in business would would be more 37 00:02:43,320 --> 00:02:46,760 Speaker 1: likely to lead to a job than Liberal Arts. I 38 00:02:46,760 --> 00:02:48,440 Speaker 1: don't know if that was right, but that's that's what 39 00:02:48,520 --> 00:02:52,040 Speaker 1: I did, and then I chose, and I chose finance 40 00:02:52,120 --> 00:02:55,560 Speaker 1: because it was more interesting than accounting. And for some 41 00:02:55,680 --> 00:02:58,760 Speaker 1: of our younger listeners, the nineties seventies was a period 42 00:02:58,800 --> 00:03:04,080 Speaker 1: of stagflation, high inflation, and high unemployment. Um, what was 43 00:03:04,120 --> 00:03:09,720 Speaker 1: it like coming out of school into that environment. The 44 00:03:10,919 --> 00:03:14,520 Speaker 1: I graduated in the early eighties, and the early eighties 45 00:03:14,520 --> 00:03:17,200 Speaker 1: were an awful time. There was a nasty recession and 46 00:03:17,240 --> 00:03:24,200 Speaker 1: I was really lucky. Actually right two was horrible. Eighty 47 00:03:24,280 --> 00:03:26,160 Speaker 1: three was a little better, and I was lucky to 48 00:03:26,240 --> 00:03:29,120 Speaker 1: graduate in eighty four and eighty five was boom times. 49 00:03:29,160 --> 00:03:33,280 Speaker 1: It was great. But the but I graduated in eighty three. 50 00:03:33,360 --> 00:03:37,560 Speaker 1: And what I think really got me into the investment 51 00:03:37,600 --> 00:03:40,800 Speaker 1: management industry was an internship that I had with the 52 00:03:41,400 --> 00:03:46,440 Speaker 1: First Chicago in nine over the summer. And uh, my 53 00:03:46,640 --> 00:03:50,520 Speaker 1: internship was with the institutional trust department at First Chicago, 54 00:03:51,000 --> 00:03:54,440 Speaker 1: which later became First Chicago Investment Advisors, which later became 55 00:03:54,640 --> 00:04:00,000 Speaker 1: Brinson Partners. And Gary Brinson, the founder of Brinson Partners, 56 00:04:00,600 --> 00:04:02,760 Speaker 1: was one of my was really my first mentor in 57 00:04:02,800 --> 00:04:06,400 Speaker 1: the business, beginning in two So you were working on 58 00:04:06,440 --> 00:04:10,920 Speaker 1: the endowment side of the street. How does the endowment 59 00:04:11,040 --> 00:04:15,840 Speaker 1: side differ from working with retail investors and people whose 60 00:04:15,880 --> 00:04:19,000 Speaker 1: money is with four O one ks and iras, etcetera. 61 00:04:19,800 --> 00:04:22,360 Speaker 1: I've had about a three and a half decade career, 62 00:04:22,440 --> 00:04:25,119 Speaker 1: thirty five years in the business of which I took 63 00:04:25,160 --> 00:04:30,200 Speaker 1: a rather brief five year detour into the nonprofit area 64 00:04:30,320 --> 00:04:37,680 Speaker 1: managing the University of Virginia Endowment, and it differs in 65 00:04:38,200 --> 00:04:45,240 Speaker 1: a number of ways. Probably the m most interesting to 66 00:04:45,320 --> 00:04:49,200 Speaker 1: an outsider is the access that one gains two elite 67 00:04:49,800 --> 00:04:53,920 Speaker 1: investment managers. How big was the endowment at the time, 68 00:04:55,560 --> 00:05:00,279 Speaker 1: over five billion? Okay, so that's real money, I think, interestingly, though, 69 00:05:00,320 --> 00:05:05,839 Speaker 1: it's less challenging. It's an easier job. I'm so surprised 70 00:05:05,920 --> 00:05:08,880 Speaker 1: you say that. And maybe this is me projecting, but 71 00:05:08,960 --> 00:05:11,919 Speaker 1: I would imagine that running an endowment, and and my 72 00:05:12,000 --> 00:05:15,200 Speaker 1: frame of references all the craziness we've seen with the 73 00:05:15,279 --> 00:05:19,039 Speaker 1: Harvard Endowment over the past twenty years and what recently 74 00:05:19,080 --> 00:05:22,200 Speaker 1: happened with the Yale Endowment and Swanson, I would imagine 75 00:05:22,200 --> 00:05:26,280 Speaker 1: there are so many political constituencies to deal with. You 76 00:05:26,400 --> 00:05:32,440 Speaker 1: were the c i O at the Virginia University of 77 00:05:32,520 --> 00:05:38,080 Speaker 1: Virginia Endowment, and that covered what school or schools? There's 78 00:05:38,120 --> 00:05:43,440 Speaker 1: just one endowment five billion dollars. Actually, fascinatingly enough, Uh, 79 00:05:43,560 --> 00:05:47,800 Speaker 1: it's much more complicated than that. The University of Virginia 80 00:05:47,960 --> 00:05:53,120 Speaker 1: has dozens of nonprofit organizations, all of whom have their 81 00:05:53,120 --> 00:05:59,160 Speaker 1: own fundraising staff, their own endowments, and the University of 82 00:05:59,240 --> 00:06:02,880 Speaker 1: Virginia Investment Management Company, a five oh one three c 83 00:06:03,279 --> 00:06:08,359 Speaker 1: nonprofit corporation with its own board and its own audit, 84 00:06:08,400 --> 00:06:13,479 Speaker 1: its own charter, etcetera, serves as an investment advisor to 85 00:06:14,080 --> 00:06:18,760 Speaker 1: those various uh pools of money. So in many ways, 86 00:06:18,800 --> 00:06:22,960 Speaker 1: while I was there, I did have to address many 87 00:06:23,040 --> 00:06:26,880 Speaker 1: different clients. Uh. And it is very political. You're quite 88 00:06:26,920 --> 00:06:29,880 Speaker 1: correct about that. Do they all invest the same way? 89 00:06:30,000 --> 00:06:32,960 Speaker 1: Or does each of them have a different investment philosophy 90 00:06:33,640 --> 00:06:35,919 Speaker 1: and in a different set of goals and therefore a 91 00:06:35,920 --> 00:06:39,640 Speaker 1: different portfolio. Look, you VIMCO, the University of Virginia Investment 92 00:06:39,640 --> 00:06:44,320 Speaker 1: Management Company, pools the money and invested in one, uh fashion. 93 00:06:44,480 --> 00:06:48,400 Speaker 1: That said, all of the different pools of money don't 94 00:06:48,440 --> 00:06:51,760 Speaker 1: have to invest with the University of Virginia Investment Management Company. 95 00:06:51,800 --> 00:06:54,440 Speaker 1: They can if they choose, or they cannot, or they 96 00:06:54,440 --> 00:06:57,360 Speaker 1: can invest part of the money. For many years, the 97 00:06:57,440 --> 00:07:00,360 Speaker 1: law school wasn't convinced that it wanted all of its 98 00:07:00,360 --> 00:07:03,680 Speaker 1: money in the in the pool. So just part of 99 00:07:03,680 --> 00:07:06,880 Speaker 1: the law school endowment was invested in yu Bimka. So 100 00:07:07,000 --> 00:07:11,960 Speaker 1: I would imagine that investing on behalf an endowment today 101 00:07:12,200 --> 00:07:16,360 Speaker 1: is even more challenging and complex, given everything we've seen 102 00:07:16,480 --> 00:07:22,400 Speaker 1: with socially responsible investing low carbon pick pick your poison. 103 00:07:22,960 --> 00:07:26,680 Speaker 1: I can imagine that's what I meant by the constituencies UM, 104 00:07:26,720 --> 00:07:28,400 Speaker 1: because when I would you and I are about the 105 00:07:28,440 --> 00:07:31,680 Speaker 1: same age. When I was in college, I remember um 106 00:07:31,840 --> 00:07:35,400 Speaker 1: divestment from apartheid and people wanted to pull money away 107 00:07:35,440 --> 00:07:39,880 Speaker 1: from South Africa. I can't imagine what it's like today 108 00:07:39,920 --> 00:07:43,480 Speaker 1: in the college atmosphere. It seems to be everybody is 109 00:07:43,600 --> 00:07:47,360 Speaker 1: much more sensitive to specific causes than perhaps when you 110 00:07:47,400 --> 00:07:50,720 Speaker 1: and I went to school. It was that was present 111 00:07:50,800 --> 00:07:52,760 Speaker 1: when I was there. I don't know that if I 112 00:07:52,800 --> 00:07:55,600 Speaker 1: really can't say whether it's gotten better or worse. You 113 00:07:55,640 --> 00:07:59,280 Speaker 1: brought up the interesting example of the Harvard Management Company. 114 00:08:00,120 --> 00:08:07,960 Speaker 1: Uh Jack Meyer, truly a great investor, was essentially chased 115 00:08:08,000 --> 00:08:14,000 Speaker 1: out by alumni who thought it was obscene that investment 116 00:08:14,040 --> 00:08:17,880 Speaker 1: managers were at the Harvard Management Company were compensated as 117 00:08:17,920 --> 00:08:23,680 Speaker 1: they were uh. And that's probably the highest profile political 118 00:08:24,640 --> 00:08:30,880 Speaker 1: UH snaffoo, but it's by no means um limited. I 119 00:08:31,040 --> 00:08:35,720 Speaker 1: recall UH you Timco University of Texas investment management company 120 00:08:35,760 --> 00:08:39,080 Speaker 1: renegging on their incentive compensation plan that they had promised 121 00:08:39,080 --> 00:08:43,439 Speaker 1: to their staff that would be get litigation at least 122 00:08:44,280 --> 00:08:48,640 Speaker 1: not now. The staff they were very high integrity people. 123 00:08:48,720 --> 00:08:52,360 Speaker 1: They just they just sucked it up and took the 124 00:08:52,440 --> 00:08:55,840 Speaker 1: hit to their compensation and really continued on. Yeah. See, 125 00:08:55,880 --> 00:08:58,640 Speaker 1: I think you encourage bad behavior when you allow people 126 00:08:58,720 --> 00:09:02,440 Speaker 1: to not honor their it in contracts. So I don't 127 00:09:02,440 --> 00:09:05,760 Speaker 1: want to be that moral hazard is a problem for me. 128 00:09:06,480 --> 00:09:09,959 Speaker 1: I uh. But when I said, getting back to why, 129 00:09:09,960 --> 00:09:12,839 Speaker 1: I said, I think it's a little less challenging. The 130 00:09:13,440 --> 00:09:18,959 Speaker 1: job is very straightforward. You understand who is the beneficiary 131 00:09:19,040 --> 00:09:22,160 Speaker 1: of the assets being managed, You understand what the objective is, 132 00:09:22,600 --> 00:09:25,960 Speaker 1: and you have a very clear notion that I'm I'm 133 00:09:26,000 --> 00:09:33,160 Speaker 1: investing for the university to generate funds to pay scholarships, 134 00:09:33,240 --> 00:09:38,200 Speaker 1: to advance research, to support the university's general mission. And 135 00:09:38,320 --> 00:09:45,360 Speaker 1: you're not uh competing uh every day for a fickle 136 00:09:45,440 --> 00:09:50,160 Speaker 1: group of UH clients and investors. The for profit investment 137 00:09:50,160 --> 00:09:53,240 Speaker 1: management industry where I've spent thirty years as opposed to 138 00:09:53,880 --> 00:09:57,760 Speaker 1: UH five years. You have all of the same complexities 139 00:09:58,000 --> 00:10:01,480 Speaker 1: and difficulties and challenges of investing, which makes the job 140 00:10:01,559 --> 00:10:06,560 Speaker 1: so fun and interesting, but a whole additional layer of 141 00:10:06,640 --> 00:10:11,679 Speaker 1: complexity of competing in the business of the investment management industry. 142 00:10:12,000 --> 00:10:15,520 Speaker 1: My special guest today is Chris Brightman. He is the 143 00:10:15,600 --> 00:10:20,760 Speaker 1: chief investment officer of Research Affiliates, whose strategies run about 144 00:10:20,800 --> 00:10:25,280 Speaker 1: a hundred and seventy billion dollars in assets. Let's talk 145 00:10:25,320 --> 00:10:28,880 Speaker 1: a little bit about smart beta, which is really a 146 00:10:28,960 --> 00:10:35,080 Speaker 1: phrase Research Affiliates founder Rob are Not is credited with. 147 00:10:35,240 --> 00:10:40,800 Speaker 1: If not inventing, will certainly um publicizing UH tell us 148 00:10:40,840 --> 00:10:45,400 Speaker 1: what smart data is and why investors should be thinking 149 00:10:45,400 --> 00:10:49,959 Speaker 1: about it well. Smart beta is a fun and provocative 150 00:10:50,120 --> 00:10:56,840 Speaker 1: label for a substantial and important evolution in the investment 151 00:10:56,840 --> 00:11:02,840 Speaker 1: management industry. We are able today to take well researched 152 00:11:02,920 --> 00:11:10,079 Speaker 1: and well understood principles of investment management and use that 153 00:11:10,200 --> 00:11:17,000 Speaker 1: information to create simple, transparent, low cost investment strategies that 154 00:11:17,080 --> 00:11:23,079 Speaker 1: deliver more of the return to the end investor and 155 00:11:23,679 --> 00:11:28,240 Speaker 1: consume less of the return in the fees and expenses 156 00:11:28,320 --> 00:11:32,280 Speaker 1: charged to a typical active manager. So so here's the 157 00:11:32,320 --> 00:11:36,559 Speaker 1: pushback that that the there's a group of folks who 158 00:11:36,920 --> 00:11:40,160 Speaker 1: look at UM smart data and say, well, it's going 159 00:11:40,200 --> 00:11:44,320 Speaker 1: to be a little more expensive than just straight up indexing. 160 00:11:44,840 --> 00:11:46,880 Speaker 1: Up until the fourth quarter, anyway, the S and P 161 00:11:47,040 --> 00:11:51,160 Speaker 1: five hundred, a market cap weighted index, has been on 162 00:11:51,200 --> 00:11:55,120 Speaker 1: a legendary streak from the lows and oh nine until 163 00:11:55,400 --> 00:12:00,440 Speaker 1: let's let's call it September. That's a solid decade, market 164 00:12:00,520 --> 00:12:05,599 Speaker 1: effectively tripled. Why should an investor go with a fundamental 165 00:12:05,679 --> 00:12:08,480 Speaker 1: weighted index as opposed to a market cap weight and 166 00:12:08,520 --> 00:12:15,520 Speaker 1: index like the SMP. That's a great question, and it depends, 167 00:12:15,840 --> 00:12:21,800 Speaker 1: I believe, on what an investor is trying to achieve. 168 00:12:24,040 --> 00:12:28,080 Speaker 1: The advice given by many, For example, one of my heroes, 169 00:12:29,400 --> 00:12:34,439 Speaker 1: Jack Bogel from Vanguard, that most investors would be better 170 00:12:34,559 --> 00:12:43,079 Speaker 1: off investing in a very simple portfolio of mutual funds 171 00:12:43,120 --> 00:12:51,800 Speaker 1: that track capitalization weighted indices and do nothing else. Would 172 00:12:51,800 --> 00:12:54,319 Speaker 1: be far better off. If we look at what investors 173 00:12:54,720 --> 00:12:58,880 Speaker 1: actually do, and there's considerable research on this subject, they 174 00:12:58,920 --> 00:13:05,640 Speaker 1: tend to chase ads, chase performance, and generate returns that 175 00:13:05,679 --> 00:13:12,360 Speaker 1: are approximately two per year below simple cap weighted indices 176 00:13:12,920 --> 00:13:17,520 Speaker 1: Before high fees and expenses. They do that bad. That's 177 00:13:17,559 --> 00:13:23,920 Speaker 1: what the typical individual investor does, and Jack vocals quite 178 00:13:24,000 --> 00:13:27,560 Speaker 1: right that they would be far better off simply having 179 00:13:27,600 --> 00:13:34,120 Speaker 1: a completely passive investment in low UH low cost capitalization 180 00:13:34,160 --> 00:13:38,400 Speaker 1: weighted index funds. However, there are people on the other 181 00:13:38,480 --> 00:13:40,840 Speaker 1: side of that trade. Where does that two percent go 182 00:13:41,240 --> 00:13:45,400 Speaker 1: That that that some investors are underperforming the market, somebody 183 00:13:45,400 --> 00:13:48,160 Speaker 1: else has to be outperforming the market zero some gain 184 00:13:48,320 --> 00:13:50,920 Speaker 1: for every loser that's a winner, and vice versa correct 185 00:13:51,600 --> 00:13:54,160 Speaker 1: and we know where it goes. It goes to the 186 00:13:54,200 --> 00:13:58,400 Speaker 1: re balancers, the people that are selling the market what 187 00:13:58,480 --> 00:14:01,199 Speaker 1: the market wants to buy when market wants to buy it, 188 00:14:01,280 --> 00:14:04,360 Speaker 1: and buying from the market what the market wants to 189 00:14:04,440 --> 00:14:07,600 Speaker 1: sell when the market wants to sell it. And the 190 00:14:07,600 --> 00:14:17,120 Speaker 1: fundamental index is a simple, elegant way of automatically pursuing 191 00:14:17,160 --> 00:14:22,960 Speaker 1: that contrarian trading approach of rebalancing against the market. So 192 00:14:23,000 --> 00:14:26,920 Speaker 1: that's very much a value driven strategy. You're you're selling 193 00:14:26,960 --> 00:14:30,400 Speaker 1: what everybody wants, which probably means it's pricey and it's 194 00:14:30,440 --> 00:14:33,120 Speaker 1: had a good run, and you're buying what everybody hates, 195 00:14:33,240 --> 00:14:37,080 Speaker 1: which means it's probably cheap because it's so disliked fit 196 00:14:37,120 --> 00:14:41,720 Speaker 1: fair statement, it's exactly correct, and the market has to 197 00:14:41,760 --> 00:14:45,680 Speaker 1: pay a premium for that rebalancing, thinking of it as 198 00:14:45,800 --> 00:14:50,200 Speaker 1: market making or being the house providing insurance. In order 199 00:14:50,240 --> 00:14:53,360 Speaker 1: for the market to clear, there has to be that premium. Now, 200 00:14:53,560 --> 00:14:58,040 Speaker 1: it's easy to say, and it's straightforward to do, but 201 00:14:58,160 --> 00:15:01,600 Speaker 1: it's not easy to do. It's not easily, it's not 202 00:15:01,640 --> 00:15:06,640 Speaker 1: easy emotionally to do. And that's why having simple, transparent 203 00:15:06,880 --> 00:15:11,920 Speaker 1: rules based process aids in that kind of rebalancing and 204 00:15:11,920 --> 00:15:16,240 Speaker 1: and those investors earn a return over the market. But 205 00:15:16,320 --> 00:15:20,440 Speaker 1: unless you understand and unless you can stick with the approach, 206 00:15:20,680 --> 00:15:23,320 Speaker 1: it's probably not right for you. So so let let 207 00:15:23,360 --> 00:15:25,800 Speaker 1: me let me jump in here, because um I want 208 00:15:25,800 --> 00:15:29,640 Speaker 1: to address that unless you can withstand, unless you can 209 00:15:29,680 --> 00:15:33,960 Speaker 1: stay with it. Value goes through these periodic cycles where 210 00:15:34,160 --> 00:15:39,800 Speaker 1: it's underperforming the broad indices UH and up until September, 211 00:15:41,280 --> 00:15:44,400 Speaker 1: what was it a decade of underperformance by value over 212 00:15:44,480 --> 00:15:47,680 Speaker 1: growth that seemed to have begun to reverse in the 213 00:15:47,720 --> 00:15:52,360 Speaker 1: fourth quarter. So first question is, is the under performance 214 00:15:52,400 --> 00:15:55,840 Speaker 1: period of value always seeing that regression to the mean 215 00:15:55,920 --> 00:15:58,720 Speaker 1: where value is going to catch up and pass growth. 216 00:15:59,200 --> 00:16:03,040 Speaker 1: How do you see the an environment um for value 217 00:16:03,120 --> 00:16:06,239 Speaker 1: given the long term under performance. And by the way, 218 00:16:06,320 --> 00:16:10,680 Speaker 1: on a regular basis, valuable lag growth and then catch 219 00:16:10,800 --> 00:16:13,120 Speaker 1: up and pass it. We've seen it in every bear market. 220 00:16:13,600 --> 00:16:17,280 Speaker 1: What all the hot stocks get crushed? Value blows right 221 00:16:17,280 --> 00:16:19,720 Speaker 1: by it. How many times have we heard Warren Buffett 222 00:16:19,760 --> 00:16:22,440 Speaker 1: is washed up and it never turns out to be true. 223 00:16:24,400 --> 00:16:26,760 Speaker 1: I think you said it well. Over the long run, 224 00:16:26,920 --> 00:16:33,280 Speaker 1: history teaches that a value investment strategy outperforms growth. That's 225 00:16:33,280 --> 00:16:38,760 Speaker 1: been confirmed in every long term study of every market 226 00:16:38,800 --> 00:16:44,120 Speaker 1: around the world. However, the market will test your patients. 227 00:16:44,280 --> 00:16:48,400 Speaker 1: There there will be long and difficult periods of underperformance 228 00:16:48,440 --> 00:16:50,920 Speaker 1: for a value strategy, and only by sticking with it 229 00:16:50,960 --> 00:16:54,480 Speaker 1: over the long run will you actually succeed. If you 230 00:16:54,640 --> 00:17:00,920 Speaker 1: throw in the towel in and and I you know 231 00:17:01,000 --> 00:17:04,280 Speaker 1: A O. L and Cisco, as lots of folks did 232 00:17:04,600 --> 00:17:10,240 Speaker 1: right um to their great regret. What I can say 233 00:17:10,600 --> 00:17:15,159 Speaker 1: is that the dispersion between the pricing of value and 234 00:17:15,200 --> 00:17:22,240 Speaker 1: growth stocks reached in the last year or two extremes 235 00:17:22,280 --> 00:17:26,359 Speaker 1: that we almost never see, not quite to the extreme 236 00:17:26,600 --> 00:17:31,920 Speaker 1: of the tech bubble, but about as significant as we see. 237 00:17:31,960 --> 00:17:35,080 Speaker 1: That's perhaps an indicator that the cycle is about to turn, 238 00:17:35,440 --> 00:17:40,720 Speaker 1: and then, of course we've seen a lot of market turmoil, uh, 239 00:17:40,800 --> 00:17:47,240 Speaker 1: suggestive of an inflection point. So I I wouldn't confidently 240 00:17:47,320 --> 00:17:51,040 Speaker 1: predict that the cycle has turned and value is going 241 00:17:51,080 --> 00:17:54,840 Speaker 1: to go on a a long terror of out performance, 242 00:17:55,840 --> 00:17:59,320 Speaker 1: but the environment does seem to suggest that that's a 243 00:17:59,400 --> 00:18:04,080 Speaker 1: distinct post ability and and less smart beta question. Some 244 00:18:04,119 --> 00:18:08,440 Speaker 1: folks have said the advantage of smart data and fundamental 245 00:18:08,480 --> 00:18:13,480 Speaker 1: indexing is that the outperformance comes from taking additional risk. 246 00:18:13,840 --> 00:18:16,840 Speaker 1: Burton Malkiel other folks like that have said that what 247 00:18:16,840 --> 00:18:22,200 Speaker 1: what are your thoughts on that? I find the debate 248 00:18:22,720 --> 00:18:29,040 Speaker 1: about whether factor returns and of course the most uh, 249 00:18:30,000 --> 00:18:36,360 Speaker 1: the largest, most persistent and longest discovered factor is value 250 00:18:37,160 --> 00:18:44,600 Speaker 1: are generated by risk or generated by behavior and inefficiency. 251 00:18:45,080 --> 00:18:49,639 Speaker 1: The truth of the matter is it's both. They're intertwined. 252 00:18:50,200 --> 00:18:54,760 Speaker 1: There's feedback. The real world is much more interesting than 253 00:18:54,840 --> 00:19:01,760 Speaker 1: these dry theories and models. UM, and I guess I 254 00:19:01,800 --> 00:19:05,320 Speaker 1: would say there is a risk component, and we should 255 00:19:05,320 --> 00:19:09,040 Speaker 1: be thankful that there's a risk component to the value 256 00:19:09,080 --> 00:19:12,359 Speaker 1: factor returned because it means that it can't be and 257 00:19:12,400 --> 00:19:16,000 Speaker 1: won't be arbitraged away. So let's talk a little bit 258 00:19:15,960 --> 00:19:20,880 Speaker 1: about institutional and retail investors. You've worked with both. You've 259 00:19:20,920 --> 00:19:25,480 Speaker 1: alluded that there are some differences previously. What is the 260 00:19:25,520 --> 00:19:31,200 Speaker 1: most consequential difference between how institutional investors operate and how 261 00:19:31,280 --> 00:19:36,879 Speaker 1: mom and pop retail investors. I think institutional investors operate 262 00:19:37,160 --> 00:19:42,600 Speaker 1: in a governance structure and an environment that prevents the 263 00:19:42,640 --> 00:19:52,600 Speaker 1: worst investment mistakes UH. Retail investors don't. UM. There are 264 00:19:52,800 --> 00:19:57,520 Speaker 1: many advisors that try to bring UH this sort of 265 00:19:58,119 --> 00:20:05,560 Speaker 1: discipline and structure to the practice of retail investing, and 266 00:20:06,119 --> 00:20:11,880 Speaker 1: I think some many have great success, but not as 267 00:20:12,000 --> 00:20:16,439 Speaker 1: much as the institutional context. Let me give you a 268 00:20:18,760 --> 00:20:22,240 Speaker 1: general concept of what the results look like. The results 269 00:20:22,600 --> 00:20:27,440 Speaker 1: look like. Retail investors, on average, through being too emotional 270 00:20:27,840 --> 00:20:32,000 Speaker 1: trading too much UH, generally lose on the order of 271 00:20:32,040 --> 00:20:36,320 Speaker 1: two percent a year of their returns relative to the 272 00:20:36,400 --> 00:20:43,920 Speaker 1: broad markets. Institutional investors, after fees and expenses, generally get 273 00:20:44,160 --> 00:20:47,480 Speaker 1: about market returns. If you look at the returns before 274 00:20:47,560 --> 00:20:51,800 Speaker 1: their fees, expensive and costs, they beat the market, but 275 00:20:52,000 --> 00:20:57,800 Speaker 1: most of that is absorbed by the fees, expenses and costs, 276 00:20:57,920 --> 00:21:03,800 Speaker 1: the staff, the investment management fee these UH that absorbs most, 277 00:21:04,000 --> 00:21:09,240 Speaker 1: if not all, of the outperformance UM, but that's two 278 00:21:09,240 --> 00:21:12,520 Speaker 1: percent better than the retail investor, and I think that's 279 00:21:12,560 --> 00:21:18,680 Speaker 1: from superior government structures that prevent the worst mistakes. So now, 280 00:21:18,720 --> 00:21:20,840 Speaker 1: there have been a number of studies that have come 281 00:21:20,880 --> 00:21:25,359 Speaker 1: out about both retail and institutional UM. I recently saw 282 00:21:25,480 --> 00:21:29,240 Speaker 1: something out of n y U Stern School of Business 283 00:21:29,359 --> 00:21:36,679 Speaker 1: about the underperformance of foundations and endowments versus a simple 284 00:21:36,720 --> 00:21:41,840 Speaker 1: sixty forty portfolio. And according to to that research, the 285 00:21:41,920 --> 00:21:46,080 Speaker 1: institutions are barely doing a whole lot better than individuals, 286 00:21:46,400 --> 00:21:53,359 Speaker 1: at least at these nonprofit foundations, endowments, etcetera. So cost 287 00:21:53,480 --> 00:21:57,199 Speaker 1: is clearly a factor. What else is the driving factor? 288 00:21:57,280 --> 00:22:00,119 Speaker 1: You you brought up? It's a zero sum. So for 289 00:22:00,160 --> 00:22:03,919 Speaker 1: every win or there's a loser. Are the institutions winning 290 00:22:04,040 --> 00:22:07,720 Speaker 1: at the expense of the retail investors? Or is there 291 00:22:07,760 --> 00:22:12,960 Speaker 1: a um a win and lost component between different endowments. 292 00:22:12,960 --> 00:22:15,880 Speaker 1: Some do well, some do poorly, but on average they 293 00:22:15,920 --> 00:22:20,080 Speaker 1: get as you said, market based returns. Well, there's a 294 00:22:20,480 --> 00:22:26,080 Speaker 1: cyclical and a secular UH time horizon. On the secular 295 00:22:26,119 --> 00:22:33,880 Speaker 1: time horizon, I think we find nonprofits, particularly large university endowments, 296 00:22:34,359 --> 00:22:39,080 Speaker 1: tend to get the best results. Pension funds, UH, public 297 00:22:39,119 --> 00:22:42,680 Speaker 1: pension funds get as I said just a moment ago, 298 00:22:43,440 --> 00:22:46,840 Speaker 1: about the market return after their fees and expenses, and 299 00:22:46,880 --> 00:22:51,120 Speaker 1: retail investors lose about two percent a year. That two 300 00:22:51,119 --> 00:22:55,720 Speaker 1: percent a year is mostly paid to UH professional UH 301 00:22:56,280 --> 00:23:01,760 Speaker 1: investors and value investors. Now that gets to the cyclical component. UH. 302 00:23:01,920 --> 00:23:07,320 Speaker 1: If we evaluated the performance of the endowments up until 303 00:23:08,160 --> 00:23:12,959 Speaker 1: the global financial crisis, UH, there were many books written 304 00:23:13,760 --> 00:23:19,879 Speaker 1: about their remarkable decades of outperformance. We've been in a 305 00:23:20,240 --> 00:23:24,520 Speaker 1: cycle a ten year horizon where growth is outperformed value, 306 00:23:24,680 --> 00:23:29,960 Speaker 1: and to oversimplify, most endowments are going to be value investors. 307 00:23:29,960 --> 00:23:34,840 Speaker 1: So I think you've seen a period where value investors 308 00:23:34,840 --> 00:23:39,120 Speaker 1: have struggled, and it's been a difficult time for the 309 00:23:39,240 --> 00:23:43,960 Speaker 1: value oriented endowment model. But I think it twenty five 310 00:23:44,040 --> 00:23:48,040 Speaker 1: years from now, looking back, you'll still see the success 311 00:23:48,080 --> 00:23:49,800 Speaker 1: of that model. So I'm gonna ask you to go 312 00:23:49,880 --> 00:23:53,680 Speaker 1: a little outside of your comfort zone using that same 313 00:23:53,760 --> 00:23:59,680 Speaker 1: secular versus cyclical time period. The pre crisis era, we 314 00:24:00,000 --> 00:24:02,800 Speaker 1: are a lot of investments in venture capital and private 315 00:24:02,800 --> 00:24:06,040 Speaker 1: equity and hedge funds that actually had done pretty well. 316 00:24:06,560 --> 00:24:09,960 Speaker 1: And since the mid two thousand's, you know, the venture 317 00:24:10,000 --> 00:24:12,600 Speaker 1: capital has lost a little bit of its shine. None 318 00:24:12,640 --> 00:24:15,600 Speaker 1: of the big, well known names are performing as well 319 00:24:15,640 --> 00:24:18,040 Speaker 1: as they did previously. Same with a lot of the 320 00:24:18,080 --> 00:24:20,480 Speaker 1: hedge fund guys that used to shoot the lights out, 321 00:24:20,880 --> 00:24:24,239 Speaker 1: they seem to be struggling. What is it about this 322 00:24:24,320 --> 00:24:28,280 Speaker 1: past decade that's been so difficult for so many different 323 00:24:28,680 --> 00:24:32,120 Speaker 1: styles of investment invest Well, there's a couple of things. One, 324 00:24:32,359 --> 00:24:38,000 Speaker 1: we've had just a stupendous roaring bull market. Uh, And 325 00:24:38,440 --> 00:24:43,320 Speaker 1: so it just is easy to comprehend from first logical 326 00:24:43,400 --> 00:24:47,920 Speaker 1: principles that a strategy that is a long stocks is 327 00:24:47,960 --> 00:24:51,480 Speaker 1: going to outperform a strategy that is both long and 328 00:24:51,640 --> 00:24:57,960 Speaker 1: short stocks during a monumental bull market. So that basically 329 00:24:58,040 --> 00:25:03,239 Speaker 1: explains the difficult perform it's environment for hedge funds. Uh. 330 00:25:04,240 --> 00:25:08,159 Speaker 1: What has worked? What kind of alternative investment if you 331 00:25:08,160 --> 00:25:12,680 Speaker 1: want to use that label, has worked over the last 332 00:25:12,680 --> 00:25:16,920 Speaker 1: ten years? Well, private equity, Why, Well, because they don't 333 00:25:17,000 --> 00:25:19,760 Speaker 1: just go a hundred percent long, They go hundred percent 334 00:25:19,840 --> 00:25:23,199 Speaker 1: long with some leverage. So that works pretty well in 335 00:25:23,280 --> 00:25:29,600 Speaker 1: a roaring bull market. I would guess if I had 336 00:25:29,640 --> 00:25:32,600 Speaker 1: to uh put my money on who outperforms over the 337 00:25:32,640 --> 00:25:35,040 Speaker 1: next ten years, it would be on the hedge funds 338 00:25:35,160 --> 00:25:40,800 Speaker 1: rather than the private equity UH funds because markets don't 339 00:25:40,840 --> 00:25:44,480 Speaker 1: always go in straight lines. Up. A lot of your 340 00:25:44,520 --> 00:25:48,760 Speaker 1: research and commentary um that I find quite fascinating. You're 341 00:25:48,840 --> 00:25:54,320 Speaker 1: very good at crafting a headline that is intriguing, and 342 00:25:54,359 --> 00:25:55,760 Speaker 1: I want to just throw a few of them at 343 00:25:55,800 --> 00:25:58,639 Speaker 1: you and see what you, uh, what you have to 344 00:25:58,640 --> 00:26:01,240 Speaker 1: say about that. One of them was are we at 345 00:26:01,280 --> 00:26:03,919 Speaker 1: peak profits? And I have to ask the question because 346 00:26:03,920 --> 00:26:06,720 Speaker 1: people have been saying we're a peak profits for I 347 00:26:06,720 --> 00:26:09,639 Speaker 1: don't know, four or five six years. This whole run up, 348 00:26:10,000 --> 00:26:13,400 Speaker 1: we've been hearing people say that are we at peak profits? 349 00:26:13,400 --> 00:26:17,000 Speaker 1: We we discussed all of the monopoly rents and the 350 00:26:17,040 --> 00:26:22,360 Speaker 1: other issues with chrony capitalism earlier. Organically speaking, Have we 351 00:26:23,080 --> 00:26:26,480 Speaker 1: hit the point where profitability can't go higher? Or can 352 00:26:26,520 --> 00:26:32,560 Speaker 1: this trend continue for the foreseeable future Until policy changes, 353 00:26:32,840 --> 00:26:36,879 Speaker 1: the trend will continue, and I see no evidence of 354 00:26:37,000 --> 00:26:40,920 Speaker 1: policy change coming out of the divided government we presently 355 00:26:41,000 --> 00:26:48,640 Speaker 1: have in Washington. However, UH markets are forward discounting the 356 00:26:48,720 --> 00:26:52,480 Speaker 1: amount of the value of the SMP five hundred or 357 00:26:52,520 --> 00:26:56,920 Speaker 1: any given stock in the SMP five hundred, that is, 358 00:26:57,080 --> 00:26:59,359 Speaker 1: the dividends that are going to be paid over the 359 00:26:59,400 --> 00:27:02,800 Speaker 1: next two or three years is trivial. Most of the 360 00:27:02,960 --> 00:27:10,000 Speaker 1: value is discounting future cash flows over the decades. And 361 00:27:10,080 --> 00:27:15,680 Speaker 1: I believe that we are seeing an increasing likelihood of 362 00:27:16,080 --> 00:27:22,119 Speaker 1: a very significant change in policy, perhaps as soon as 363 00:27:22,400 --> 00:27:30,960 Speaker 1: the UH one new administration, I would expect, And this 364 00:27:31,040 --> 00:27:33,919 Speaker 1: is an interesting forecast. I if you want to, if 365 00:27:33,920 --> 00:27:36,960 Speaker 1: you want a handicap, who's going to be our next president? 366 00:27:37,359 --> 00:27:41,639 Speaker 1: Take a look at who seems like a twenty one 367 00:27:41,640 --> 00:27:46,120 Speaker 1: century Teddy Roosevelt, meaning a trust buster? Correct, someone who's 368 00:27:46,119 --> 00:27:49,600 Speaker 1: gonna come in and say, hey, you know of the 369 00:27:49,760 --> 00:27:54,200 Speaker 1: search being with Google? Who I'm okay welcoming Google as 370 00:27:54,200 --> 00:27:57,639 Speaker 1: our new overlords, but I understand the antitrust argument against it. 371 00:27:58,080 --> 00:28:02,440 Speaker 1: Or half of all on line retail transactions being with Amazon, 372 00:28:02,880 --> 00:28:06,199 Speaker 1: that's an immense concentration of power in a in a 373 00:28:06,359 --> 00:28:11,639 Speaker 1: very small number of hands. Uh There's been almost no 374 00:28:11,800 --> 00:28:17,720 Speaker 1: appetite for antitrust enforcement. There's been no appetite for preventing 375 00:28:17,880 --> 00:28:20,640 Speaker 1: these giant mergers. The f When was the last time 376 00:28:21,119 --> 00:28:25,280 Speaker 1: somebody other than CNN and I forgot who it was 377 00:28:25,320 --> 00:28:28,800 Speaker 1: even the merger was with that UM the president was 378 00:28:28,880 --> 00:28:31,879 Speaker 1: unhappy with because he doesn't like the CNN coverage, but 379 00:28:32,040 --> 00:28:36,600 Speaker 1: that whole time Warner CNN, whatever, the last broadband merger. Um. 380 00:28:36,640 --> 00:28:39,960 Speaker 1: Other than that one political example, has there really been 381 00:28:40,120 --> 00:28:43,640 Speaker 1: much in the way of stopping big companies from becoming 382 00:28:43,680 --> 00:28:49,280 Speaker 1: giant companies in order to preserve a fair and competitive landscape. No, 383 00:28:49,360 --> 00:28:55,880 Speaker 1: there has not been, and and we have a strange 384 00:28:58,600 --> 00:29:01,440 Speaker 1: economy as a result, one that is not working for 385 00:29:01,640 --> 00:29:09,719 Speaker 1: the average worker. Let's we're known at research affiliates for 386 00:29:10,440 --> 00:29:13,760 Speaker 1: being leaders and factor investing. Let me talk to you 387 00:29:13,800 --> 00:29:18,920 Speaker 1: about the most recently discovered factor and how it relates 388 00:29:19,040 --> 00:29:28,760 Speaker 1: to this issue of monopoly profits and stagnating wages. Among 389 00:29:29,120 --> 00:29:35,400 Speaker 1: academic researchers, we all understand this new factor called investment. 390 00:29:36,520 --> 00:29:41,480 Speaker 1: Not not many retail investors, I think are aware of this. 391 00:29:42,280 --> 00:29:47,520 Speaker 1: The this new factor that was uh researched by many 392 00:29:47,560 --> 00:29:51,280 Speaker 1: and popularized by Fama and French. Fama and French now 393 00:29:51,800 --> 00:29:55,560 Speaker 1: the famous inventors of the three factor model the market 394 00:29:56,280 --> 00:29:59,800 Speaker 1: value and size, now have a five factor model. They've 395 00:29:59,840 --> 00:30:03,320 Speaker 1: had to two factors, profitability and investment. And investments the 396 00:30:03,360 --> 00:30:07,760 Speaker 1: one I want to talk about, Investment, refers to a 397 00:30:07,960 --> 00:30:12,800 Speaker 1: very strong empirical relationship but scientific finding that the more 398 00:30:12,840 --> 00:30:17,040 Speaker 1: a company invests, the lower the returns are meeting. Capital 399 00:30:17,080 --> 00:30:22,480 Speaker 1: expenditure actually works against the returns. Right as Warren Buffett 400 00:30:22,480 --> 00:30:24,360 Speaker 1: has been telling you for a long time, you don't 401 00:30:24,360 --> 00:30:27,040 Speaker 1: want companies that have to invest to create their profits. 402 00:30:27,080 --> 00:30:30,680 Speaker 1: You want companies that have a moat and generate monopoly profits. 403 00:30:31,240 --> 00:30:35,880 Speaker 1: And the less a company invests, the more that rewarded 404 00:30:35,880 --> 00:30:38,400 Speaker 1: in the stock market. And so we have don't have 405 00:30:38,520 --> 00:30:41,040 Speaker 1: much investment. We don't have much capital investment. You get 406 00:30:41,080 --> 00:30:42,800 Speaker 1: some cash, what do you do. You buy back your 407 00:30:42,800 --> 00:30:45,600 Speaker 1: shares or you buy your competitor, maybe you do a 408 00:30:45,600 --> 00:30:50,400 Speaker 1: little both, but you don't invest for the future. That's 409 00:30:50,440 --> 00:30:53,600 Speaker 1: this is a scientific finding that comes out of the academy, 410 00:30:53,680 --> 00:30:56,760 Speaker 1: that comes out of finance professors. It's the new factor 411 00:30:56,920 --> 00:30:59,920 Speaker 1: in the FAMA French five factor model is go find 412 00:31:00,080 --> 00:31:04,840 Speaker 1: companies that don't do any investing. Uh. That's responding to 413 00:31:05,240 --> 00:31:09,000 Speaker 1: the environment that's been created. The the the environment, the 414 00:31:09,080 --> 00:31:12,480 Speaker 1: rules of the game that we have is not competitive capitalism, 415 00:31:12,560 --> 00:31:18,280 Speaker 1: where innovating and investing for the future creates wealth. It's 416 00:31:18,320 --> 00:31:22,720 Speaker 1: manipulating the system to create monopoly rents. That's how you 417 00:31:22,840 --> 00:31:26,880 Speaker 1: create wealth. And until we change that system, uh, we're 418 00:31:26,920 --> 00:31:31,320 Speaker 1: not going to change the results? How do we change 419 00:31:31,320 --> 00:31:34,760 Speaker 1: that system? Is it simply just a matter of saying, hey, 420 00:31:35,200 --> 00:31:39,520 Speaker 1: your capex expenditure UM is a separate line that doesn't 421 00:31:39,520 --> 00:31:43,760 Speaker 1: affect your profitability, but your shared by backs does. How 422 00:31:43,800 --> 00:31:47,840 Speaker 1: can the rules? How can the regulatory and tax environment. 423 00:31:48,760 --> 00:31:51,800 Speaker 1: I'm assuming you're saying, we want more capital expendatory, we 424 00:31:51,840 --> 00:31:55,200 Speaker 1: want more investment in the future. How can we encourage 425 00:31:55,240 --> 00:31:59,280 Speaker 1: companies to think long term when the market is rewarding 426 00:31:59,320 --> 00:32:02,640 Speaker 1: companies that don't. I don't know if I'm overstating it's sure. 427 00:32:02,720 --> 00:32:05,680 Speaker 1: I think the biggest, the simplest way to describe the 428 00:32:05,680 --> 00:32:12,120 Speaker 1: problem is regulatory capture. Uh the indo, pharmaceutical, oil and energy. 429 00:32:12,160 --> 00:32:15,200 Speaker 1: Go down the list finance for sure, finance and banking 430 00:32:15,240 --> 00:32:19,600 Speaker 1: for sure, And I'll loop back to the longer version 431 00:32:19,600 --> 00:32:22,400 Speaker 1: if you want to. If you want to understand the economics, 432 00:32:22,520 --> 00:32:26,960 Speaker 1: I think you can do find no better uh discussion 433 00:32:27,080 --> 00:32:30,360 Speaker 1: than Edmund Phelps mass flourishing. And if you want to 434 00:32:30,440 --> 00:32:34,600 Speaker 1: understand the legal tools to address the issue, UH read 435 00:32:34,800 --> 00:32:39,560 Speaker 1: Tim Woo Uh that there there are tools we can 436 00:32:39,640 --> 00:32:44,200 Speaker 1: do this. I mean the robber barons were running the 437 00:32:44,360 --> 00:32:48,200 Speaker 1: economy before Teddy Roosevelt showed up. There is going road 438 00:32:48,280 --> 00:32:52,880 Speaker 1: electricity going on the list. Yeah, Telegraph quite fascinating. I 439 00:32:52,920 --> 00:32:56,400 Speaker 1: have to tell you, that's an intriguing um thesis you've 440 00:32:56,480 --> 00:32:59,400 Speaker 1: laid out. I don't disagree with it. I'm I'm a 441 00:32:59,440 --> 00:33:04,760 Speaker 1: little prized at how forcefully you articulated. I certainly think 442 00:33:04,800 --> 00:33:08,720 Speaker 1: you're You're right. And I've heard this from both the 443 00:33:08,840 --> 00:33:11,760 Speaker 1: left and the right. Scott Galloway at at and while 444 00:33:11,800 --> 00:33:17,640 Speaker 1: you Stern wrote the Foreign and his recommendation was that Apple, Amazon, 445 00:33:17,680 --> 00:33:21,200 Speaker 1: Google and Facebook get broken up they're too powerful. That's correct. 446 00:33:21,240 --> 00:33:24,240 Speaker 1: It's quite quite amazing. So let's jump to our favorite 447 00:33:24,320 --> 00:33:27,680 Speaker 1: questions while while we still have you, um tell us 448 00:33:27,720 --> 00:33:31,880 Speaker 1: the most important thing most people don't know about your background? 449 00:33:32,480 --> 00:33:36,280 Speaker 1: Um boy, I was gonna go with you from West 450 00:33:36,320 --> 00:33:41,040 Speaker 1: Germany Originally I was. I was born in West Germany, 451 00:33:41,080 --> 00:33:45,640 Speaker 1: but I was born to uh my dad and mom 452 00:33:45,680 --> 00:33:48,280 Speaker 1: who my dad was serving in the military at the time, 453 00:33:48,800 --> 00:33:51,360 Speaker 1: So that's really much less interesting than it sounds. How 454 00:33:51,360 --> 00:33:58,600 Speaker 1: about I have never lived uh in one house for 455 00:33:58,640 --> 00:34:01,400 Speaker 1: as long as I've lived in Newport Beach, California, where 456 00:34:01,440 --> 00:34:03,560 Speaker 1: I've lived for eight years. This is the longest I've 457 00:34:03,560 --> 00:34:05,560 Speaker 1: ever lived in a house in my entire life. Well, 458 00:34:05,720 --> 00:34:08,600 Speaker 1: every Army brat tells the story of getting moved around 459 00:34:08,719 --> 00:34:11,800 Speaker 1: from uh, you know, assignment to assignment, and I guess 460 00:34:11,800 --> 00:34:13,920 Speaker 1: that that stays with you. So you met. Let's talk 461 00:34:13,920 --> 00:34:16,480 Speaker 1: about your mentors. You mentioned one of your early mentors 462 00:34:17,080 --> 00:34:20,919 Speaker 1: who helped shape and guard your career over time. Yeah, 463 00:34:20,920 --> 00:34:26,399 Speaker 1: i'd said. I have had the privilege of learning from 464 00:34:26,400 --> 00:34:30,000 Speaker 1: a number of charismatic leaders. One and the first was 465 00:34:30,080 --> 00:34:33,440 Speaker 1: Gary Brinson. I don't think I would be nearly as 466 00:34:33,480 --> 00:34:39,279 Speaker 1: successful in the investment management industry today without without Gary's example. Uh. 467 00:34:39,440 --> 00:34:45,200 Speaker 1: Second was a fascinating woman named Hilda o Chewa. Hilda 468 00:34:45,480 --> 00:34:50,440 Speaker 1: was a refugee from Venezuela who ended up at in 469 00:34:50,520 --> 00:34:54,640 Speaker 1: the PhD program at Harvard University, ran the pension fund 470 00:34:54,640 --> 00:34:58,200 Speaker 1: of the World Bank, spun that out into Strategic Investment Group, 471 00:34:58,440 --> 00:35:01,080 Speaker 1: and when I left Brinson Partners, I ended up at 472 00:35:01,120 --> 00:35:04,520 Speaker 1: Strategic Investment Group as the as the eventually the c 473 00:35:04,680 --> 00:35:11,840 Speaker 1: I oh they are held us in fascinating innovator and entrepreneur. Uh. 474 00:35:11,880 --> 00:35:14,839 Speaker 1: And while I was the chair at TIFF, I had 475 00:35:14,840 --> 00:35:20,400 Speaker 1: the privilege of working with a fascinating individual named David Salem, 476 00:35:20,400 --> 00:35:23,839 Speaker 1: probably less known than some of these others, but nonetheless 477 00:35:24,280 --> 00:35:30,040 Speaker 1: a fascinating figure in the nonprofit investment world. And now 478 00:35:30,120 --> 00:35:34,040 Speaker 1: finally Rob are Not who uh quite well known, So 479 00:35:34,080 --> 00:35:36,480 Speaker 1: I've really had the privilege of getting to know a 480 00:35:36,480 --> 00:35:41,879 Speaker 1: lot of fantastic investors. Welcome to the podcast, Chris, Thank 481 00:35:41,920 --> 00:35:44,600 Speaker 1: you so much for doing this. We met some time 482 00:35:44,640 --> 00:35:47,319 Speaker 1: ago and I've been looking forward to having this conversation. 483 00:35:47,960 --> 00:35:51,120 Speaker 1: I know Rob are Not the founder of raffie UM 484 00:35:51,200 --> 00:35:54,120 Speaker 1: for a long time. He's a fascinating guy. Must be 485 00:35:54,160 --> 00:35:57,200 Speaker 1: fun to work with. Um you're in Are you here? 486 00:35:57,239 --> 00:36:00,719 Speaker 1: Are you Newport Beach? Located Newport Beach? Yeah, that's quite that. 487 00:36:00,880 --> 00:36:03,080 Speaker 1: That might be one of the most beautiful places in 488 00:36:03,120 --> 00:36:06,480 Speaker 1: America to uh to go to work every day. I 489 00:36:07,120 --> 00:36:08,879 Speaker 1: joke with people, I asked them, do you know why 490 00:36:09,040 --> 00:36:13,040 Speaker 1: we're headquartered in Newport Beach? Because you can? That's right. 491 00:36:14,680 --> 00:36:17,200 Speaker 1: For For those listeners who may not have ever been 492 00:36:17,280 --> 00:36:20,319 Speaker 1: to that part about an hour south of l A, 493 00:36:20,560 --> 00:36:24,040 Speaker 1: maybe the little less depending on traffic. It's just this 494 00:36:24,640 --> 00:36:27,919 Speaker 1: Balbo Island right over there. It's just this gorgeous part 495 00:36:27,960 --> 00:36:32,640 Speaker 1: of southern everything you imagine southern California is, but nicer. 496 00:36:32,880 --> 00:36:35,440 Speaker 1: I mean, it really is kind of ridiculous. Everything is 497 00:36:35,480 --> 00:36:40,240 Speaker 1: wonderful except for the traffic. No, they traffic is almost 498 00:36:40,239 --> 00:36:42,359 Speaker 1: non existent in Newport. If you live in Newport Beach 499 00:36:42,400 --> 00:36:45,399 Speaker 1: and work in Newport Beach, it's wonderful. The problems are 500 00:36:45,719 --> 00:36:48,560 Speaker 1: the price of real estate and the Texas price of 501 00:36:48,640 --> 00:36:52,200 Speaker 1: real estate. So funny you say that a friend who 502 00:36:52,280 --> 00:36:56,440 Speaker 1: I won't mention, was having a conversation with Rob about 503 00:36:56,480 --> 00:36:59,640 Speaker 1: you know, if you move to uh Nevada, you live 504 00:36:59,680 --> 00:37:03,640 Speaker 1: in Vegas, you won't have to pay state taxes. And 505 00:37:03,719 --> 00:37:05,640 Speaker 1: his answer was yeah, but then I have to live 506 00:37:05,680 --> 00:37:07,960 Speaker 1: in Nevada, and he goes, I'm in what might be 507 00:37:08,000 --> 00:37:11,000 Speaker 1: the most beautiful place in the world. I'm gonna have 508 00:37:11,040 --> 00:37:13,960 Speaker 1: to pay the the viig first thing there. You know, 509 00:37:14,000 --> 00:37:16,520 Speaker 1: I spent a decade in Chicago, and I have a 510 00:37:16,520 --> 00:37:19,440 Speaker 1: lot of friends in the business in Chicago, and I 511 00:37:19,480 --> 00:37:25,400 Speaker 1: was there not too long ago, saying, boy, higher taxes 512 00:37:25,440 --> 00:37:28,840 Speaker 1: are in your future. I I've been paying attention to 513 00:37:28,920 --> 00:37:33,759 Speaker 1: what's going on with the pension problems in Illinois, sure, 514 00:37:33,960 --> 00:37:37,000 Speaker 1: and the only Jersey and a few other places. So 515 00:37:37,000 --> 00:37:39,719 Speaker 1: you're gonna get California like taxes in your future. To 516 00:37:40,320 --> 00:37:42,120 Speaker 1: fill this hole in the pension fun and he says, 517 00:37:42,120 --> 00:37:44,200 Speaker 1: you know, we can't do that. Chris I said, whatnot. 518 00:37:44,280 --> 00:37:47,280 Speaker 1: We've got we have the thirteen percent state income tax 519 00:37:47,600 --> 00:37:52,800 Speaker 1: UH in in California. It's that high. Wow, that's a lot. 520 00:37:52,880 --> 00:37:54,920 Speaker 1: And he says, you don't understand. You can raise the 521 00:37:54,960 --> 00:37:58,960 Speaker 1: taxes to you know, ten fifteen percent in California and nobody. 522 00:37:59,040 --> 00:38:01,719 Speaker 1: They're not going to move to Vada. Some people, of course, 523 00:38:01,719 --> 00:38:06,000 Speaker 1: do move to Nevada. But but but there's a magnet 524 00:38:06,160 --> 00:38:11,520 Speaker 1: to the west coast in California. He said, Illinois doesn't 525 00:38:11,560 --> 00:38:15,279 Speaker 1: have that. People will move to anyway, Wisconsin, they'll move 526 00:38:15,360 --> 00:38:18,759 Speaker 1: to Indiana. We can't take taxes up to UH to 527 00:38:18,880 --> 00:38:22,040 Speaker 1: that level. Chicago happens to be a very reasonable city. 528 00:38:22,920 --> 00:38:25,680 Speaker 1: It's a reasonable it's big enough that it has whatever 529 00:38:25,719 --> 00:38:28,800 Speaker 1: you want UM, but it's not as big as New York's, 530 00:38:28,800 --> 00:38:32,480 Speaker 1: where it's completely overwhelming, and their prices are much more 531 00:38:32,480 --> 00:38:36,320 Speaker 1: reasonable than the coasts. The problem is your weather is 532 00:38:36,440 --> 00:38:40,080 Speaker 1: much nicer. When you have southern California weather, you could 533 00:38:40,160 --> 00:38:44,160 Speaker 1: charge and in Chicago. If they in Illinois they raised it. 534 00:38:44,280 --> 00:38:46,480 Speaker 1: At a certain point, people will say, all right, I'm 535 00:38:46,520 --> 00:38:50,279 Speaker 1: going to Arizona. This is UH, this high taxes plus 536 00:38:50,360 --> 00:38:53,400 Speaker 1: terrible winter's equals I'm out. And and that's been the 537 00:38:53,440 --> 00:38:58,240 Speaker 1: shift southward across the whole country. People have been making 538 00:38:58,239 --> 00:39:01,640 Speaker 1: the argument it's political. I really think it's weather based. 539 00:39:03,560 --> 00:39:05,839 Speaker 1: I think it's both. I think it's taxes. I think 540 00:39:05,920 --> 00:39:11,080 Speaker 1: it's a regulatory environment, and I think it's uh, the weather. Um, 541 00:39:11,200 --> 00:39:14,520 Speaker 1: so let's talk a little about you mentioned some books. Um, 542 00:39:14,600 --> 00:39:17,560 Speaker 1: you mentioned Tim Woo and Edmund Phelps books. What other 543 00:39:17,560 --> 00:39:20,360 Speaker 1: books do you think are essential reading or what do 544 00:39:20,440 --> 00:39:22,280 Speaker 1: you just like to read if you want to relax. 545 00:39:25,360 --> 00:39:28,239 Speaker 1: By the way, this is everybody's favorite question. People want 546 00:39:28,719 --> 00:39:32,279 Speaker 1: reading suggestions more than anything. They don't know which of 547 00:39:32,320 --> 00:39:34,640 Speaker 1: the three hundred thousand books that come out each year 548 00:39:34,760 --> 00:39:37,920 Speaker 1: to read, so they take these very seriously. Yeah. Sure, 549 00:39:39,880 --> 00:39:42,120 Speaker 1: if you want to understand the future of markets and 550 00:39:42,239 --> 00:39:45,680 Speaker 1: the intersection of public policy and markets. The three books 551 00:39:45,719 --> 00:39:48,760 Speaker 1: that I just mentioned are the ones of the dozens 552 00:39:48,760 --> 00:39:50,560 Speaker 1: that I've read over the last few years that I 553 00:39:50,560 --> 00:39:53,399 Speaker 1: think are most important Phelps, Woo And what's the third one? 554 00:39:53,600 --> 00:40:00,640 Speaker 1: Jonathan Tepper? Okay, it's the myth of capitalism. Uh. When 555 00:40:00,680 --> 00:40:07,279 Speaker 1: I want to escape, I don't read about economics and policy. 556 00:40:08,360 --> 00:40:13,960 Speaker 1: I read science fiction, but so nothing wrong with that. 557 00:40:14,040 --> 00:40:16,719 Speaker 1: What do you like under sci fi? I guess under 558 00:40:16,760 --> 00:40:20,719 Speaker 1: fantasy instead of sci fi. I loved the Game of 559 00:40:20,800 --> 00:40:23,680 Speaker 1: Thrones and I loved to do it it so much that 560 00:40:23,760 --> 00:40:28,200 Speaker 1: after watching the series, I then read all of the books, 561 00:40:28,600 --> 00:40:34,040 Speaker 1: and then I went back and rewatched all of the series. Um. 562 00:40:34,120 --> 00:40:38,000 Speaker 1: I also read uh, one of one of my favorites. 563 00:40:38,080 --> 00:40:41,600 Speaker 1: Although you're seeing less get published as in a sort 564 00:40:41,640 --> 00:40:47,240 Speaker 1: of sub genre called cyberpunk. Are you a Neil Stevenson fan? Absolutely, 565 00:40:47,640 --> 00:40:50,640 Speaker 1: I just got I haven't read it yet, but I 566 00:40:50,960 --> 00:40:55,840 Speaker 1: have sitting on my desktop seven eaves, that's what is 567 00:40:55,920 --> 00:40:59,080 Speaker 1: literally sitting on my night table. I read it. It's fabulous, really. 568 00:40:59,200 --> 00:41:01,719 Speaker 1: And then also on my list that I'm going to 569 00:41:01,800 --> 00:41:04,160 Speaker 1: throw you books that people have recommended to me that 570 00:41:04,280 --> 00:41:07,640 Speaker 1: I haven't gotten to yet, The Three Body Problem. People 571 00:41:07,719 --> 00:41:11,160 Speaker 1: have raved about that trilogy from the author out of China. 572 00:41:11,280 --> 00:41:15,000 Speaker 1: I'm really fascinated by by your list. So what are 573 00:41:15,000 --> 00:41:17,600 Speaker 1: you most excited about right now? What? What is the 574 00:41:18,160 --> 00:41:22,719 Speaker 1: part of the industry that has you really enthusiastic. I 575 00:41:22,800 --> 00:41:27,120 Speaker 1: am very enthusiastic about the opportunity to use twenty one 576 00:41:27,239 --> 00:41:31,960 Speaker 1: century technology, and part of it is financial technology. Part 577 00:41:32,000 --> 00:41:35,160 Speaker 1: of it is financial modeling and predicting what's going to happen, 578 00:41:35,200 --> 00:41:39,359 Speaker 1: but importantly a lot of it is communication technology. What 579 00:41:39,400 --> 00:41:44,120 Speaker 1: we're doing right now to help educate investors to achieve 580 00:41:44,560 --> 00:41:50,560 Speaker 1: better outcomes, and I am very pleased to see the 581 00:41:50,600 --> 00:41:57,520 Speaker 1: costs being reduced in the industry. The provision of investment 582 00:41:57,600 --> 00:42:00,799 Speaker 1: strategies at a couple of basis points right. It used 583 00:42:00,800 --> 00:42:03,320 Speaker 1: to be a hundred basis points. A hundred and fifty 584 00:42:03,360 --> 00:42:07,120 Speaker 1: basis points was the cost of investment strategy. Now it's 585 00:42:07,200 --> 00:42:10,200 Speaker 1: twenty basis points or ten basis points are five basis 586 00:42:10,239 --> 00:42:17,440 Speaker 1: points and providing the average investor the ability to compound 587 00:42:17,520 --> 00:42:24,319 Speaker 1: wealth for their retirement without intermediaries gobbling up so much 588 00:42:24,360 --> 00:42:28,040 Speaker 1: of the UH. The returns tell us about a time 589 00:42:28,080 --> 00:42:32,000 Speaker 1: you failed and what you learned from the experience. I 590 00:42:32,160 --> 00:42:35,640 Speaker 1: left UBS so Brents and Partners, where I kind of 591 00:42:35,640 --> 00:42:38,520 Speaker 1: got my start what we sold ourselves. I was a 592 00:42:38,560 --> 00:42:40,480 Speaker 1: partner of the firm. I made a little money on 593 00:42:40,480 --> 00:42:44,719 Speaker 1: that sale to ubs UH, and I learned after a 594 00:42:44,719 --> 00:42:47,040 Speaker 1: time there that that was not the place for me. 595 00:42:47,120 --> 00:42:51,480 Speaker 1: I'm I'm better off and smaller employee owned investment management 596 00:42:51,520 --> 00:42:57,320 Speaker 1: firms than large UH institutions. God God loved the people 597 00:42:57,360 --> 00:43:00,799 Speaker 1: that thrive in large institutions because the world appears to 598 00:43:00,840 --> 00:43:02,640 Speaker 1: need them. But it's not a good fit for me. 599 00:43:03,560 --> 00:43:08,160 Speaker 1: And I tried to start a UM quantitative equity market 600 00:43:08,160 --> 00:43:15,440 Speaker 1: neutral hedge fund in UH thousand with some backing from 601 00:43:15,440 --> 00:43:18,680 Speaker 1: a firm called Greenwich Capital. Grantwich Capital isn't around anymore, 602 00:43:18,719 --> 00:43:20,680 Speaker 1: but I had some friends at the top of that 603 00:43:21,040 --> 00:43:25,320 Speaker 1: organization that we're interested in exploring getting into the asset 604 00:43:25,360 --> 00:43:30,720 Speaker 1: management industry, and market neutral should have done not too bad, right, 605 00:43:31,000 --> 00:43:34,839 Speaker 1: it would have been a wonderful time. But as the 606 00:43:35,000 --> 00:43:41,680 Speaker 1: environment turned less conducive to risk taking UH or perhaps 607 00:43:41,760 --> 00:43:44,520 Speaker 1: I was just not as persuasive as I had been 608 00:43:44,600 --> 00:43:47,400 Speaker 1: the year before, they decided to pull the plug on 609 00:43:47,480 --> 00:43:53,120 Speaker 1: that endeavor. But I learned a lot in that period 610 00:43:53,120 --> 00:43:58,920 Speaker 1: of time. UM, I'll give you a lesson about marriage 611 00:43:58,960 --> 00:44:05,320 Speaker 1: and a a lesson about the structure of the quantitative 612 00:44:05,360 --> 00:44:10,200 Speaker 1: investment management industry. After I determined I was going to 613 00:44:10,200 --> 00:44:12,919 Speaker 1: be unsuccessful in starting that business, I just hung around 614 00:44:12,920 --> 00:44:16,040 Speaker 1: the house for a while. I helped coach my son's 615 00:44:16,080 --> 00:44:18,799 Speaker 1: soccer team, and I got a lot of cycling in 616 00:44:18,920 --> 00:44:21,040 Speaker 1: and I just spent a lot of time around the house, 617 00:44:21,080 --> 00:44:23,759 Speaker 1: and my wife explained to me, you know, Chris, for 618 00:44:23,840 --> 00:44:25,799 Speaker 1: better or worse, but not for lunch. You need to 619 00:44:25,800 --> 00:44:29,040 Speaker 1: go back and get a job better or worse, but 620 00:44:29,080 --> 00:44:34,759 Speaker 1: not for lunch. UH. One of the fascinating discoveries as 621 00:44:34,800 --> 00:44:38,560 Speaker 1: I was recruiting people to join my UH never to 622 00:44:38,600 --> 00:44:44,360 Speaker 1: be quantitative equity market neutral global hedge fund was how 623 00:44:44,400 --> 00:44:48,000 Speaker 1: many of the best staff I was recruiting, how many 624 00:44:48,120 --> 00:44:53,000 Speaker 1: people I was interviewing didn't work at what you and 625 00:44:53,040 --> 00:44:56,440 Speaker 1: I think of as an investment management organization, but worked 626 00:44:56,600 --> 00:45:01,799 Speaker 1: at family offices right here in Manhattan, and family offices 627 00:45:02,520 --> 00:45:07,400 Speaker 1: of former prop traders, people that would leave Goldman Sachs 628 00:45:07,520 --> 00:45:13,799 Speaker 1: Prop Desk or Lehman Brothers or Morgan Stanley with enough 629 00:45:13,880 --> 00:45:16,840 Speaker 1: money that they didn't need to manage money for anybody else, 630 00:45:17,360 --> 00:45:22,600 Speaker 1: and they would hire these incredibly gifted quants from India 631 00:45:22,680 --> 00:45:27,800 Speaker 1: or from China. And I think people don't realize that 632 00:45:28,480 --> 00:45:36,160 Speaker 1: most of the money that is made by arbitraging inefficiencies 633 00:45:36,160 --> 00:45:41,319 Speaker 1: in the capital markets these days is not in funds 634 00:45:41,360 --> 00:45:48,040 Speaker 1: that are invested. UH investing the money of Harvard University 635 00:45:48,239 --> 00:45:53,680 Speaker 1: or the UH State of California's pension fund it's mostly 636 00:45:53,840 --> 00:45:58,360 Speaker 1: private money. Uh and and that's where those uh, those 637 00:45:58,400 --> 00:46:03,600 Speaker 1: profits go. There's a new ormous amount of professional investment 638 00:46:03,719 --> 00:46:11,080 Speaker 1: expertise applied to the management of individual family money, not 639 00:46:11,239 --> 00:46:14,560 Speaker 1: investable to the public, not investable to the public. They're 640 00:46:14,560 --> 00:46:17,759 Speaker 1: not even they're not even registered investment management companies. They're 641 00:46:17,800 --> 00:46:22,680 Speaker 1: just the office. Uh and and they don't want to 642 00:46:22,760 --> 00:46:27,280 Speaker 1: tract attention. My favorite part of the Renaissance technology story 643 00:46:27,360 --> 00:46:31,000 Speaker 1: with Jim Simons was at a certain point they realized 644 00:46:31,040 --> 00:46:35,040 Speaker 1: their ability to generate alpha was limited and only scaled 645 00:46:35,160 --> 00:46:38,680 Speaker 1: up so large. And when their own investments hit that point, 646 00:46:39,120 --> 00:46:41,960 Speaker 1: they told their outside investors, hey, thanks so much for 647 00:46:42,000 --> 00:46:45,320 Speaker 1: coming by, but we we don't want your capital anymore. 648 00:46:45,200 --> 00:46:47,680 Speaker 1: We're going to take this ourselves. And that's a well 649 00:46:47,719 --> 00:46:51,000 Speaker 1: known example. What I found is that there are dozens, 650 00:46:51,080 --> 00:46:55,080 Speaker 1: perhaps hundreds of similar outfits here in New York City 651 00:46:55,120 --> 00:46:59,960 Speaker 1: that never took private money ever, uh, never took outside money. 652 00:47:00,239 --> 00:47:03,880 Speaker 1: And these aren't giant, multi billion, necessarily giant multi billion 653 00:47:04,000 --> 00:47:07,600 Speaker 1: family offices. These are fifty a hundred, two hundred fifty 654 00:47:07,600 --> 00:47:10,799 Speaker 1: million dollars. And I on my bullpark, I don't think 655 00:47:10,840 --> 00:47:13,400 Speaker 1: we know. They don't have to tell us Huh that 656 00:47:13,640 --> 00:47:16,840 Speaker 1: that's quite fascinating. You mentioned cycling. What do you what 657 00:47:16,880 --> 00:47:18,719 Speaker 1: do you do for fun? What do you do to relax? 658 00:47:19,160 --> 00:47:21,319 Speaker 1: What do you do to to stay trim and fit? 659 00:47:22,719 --> 00:47:25,839 Speaker 1: I one of the benefits of living in Newport Beach 660 00:47:25,840 --> 00:47:28,880 Speaker 1: in southern California is that I can cycle all year round. 661 00:47:29,000 --> 00:47:33,200 Speaker 1: So I both get out on my road bike and 662 00:47:33,239 --> 00:47:36,919 Speaker 1: I spend time on my mountain bike. Uh. And then 663 00:47:38,320 --> 00:47:40,520 Speaker 1: I go to the gym a few times each week 664 00:47:40,600 --> 00:47:44,040 Speaker 1: because I have to keep fit so that I can 665 00:47:44,520 --> 00:47:46,600 Speaker 1: I can cycle, and I can ski and I can hike. 666 00:47:47,560 --> 00:47:54,440 Speaker 1: That southern California lifestyle sounds increasingly um attractive. So a 667 00:47:54,480 --> 00:47:57,440 Speaker 1: millennial or recent college grad comes up to you and says, 668 00:47:57,520 --> 00:48:00,840 Speaker 1: I'm thinking about going into finance as a career. What 669 00:48:00,960 --> 00:48:04,640 Speaker 1: sort of advice would you give them. Here's some advice. 670 00:48:05,440 --> 00:48:10,200 Speaker 1: My daughter Amy, when she was growing up, she wanted 671 00:48:10,200 --> 00:48:14,120 Speaker 1: to be in fetching, merchandizing. But then she went to 672 00:48:14,520 --> 00:48:17,360 Speaker 1: college and decided, you know, maybe I should be a 673 00:48:17,400 --> 00:48:23,319 Speaker 1: little more practical, and she started her major in economics. 674 00:48:24,040 --> 00:48:26,520 Speaker 1: After a few years in economics, she decided that that 675 00:48:26,560 --> 00:48:28,440 Speaker 1: wasn't really where she wanted to go. She wanted to 676 00:48:28,560 --> 00:48:31,759 Speaker 1: and she switched to psychology, and one of the things 677 00:48:31,760 --> 00:48:34,600 Speaker 1: that Amy found is that she had taken a full 678 00:48:34,760 --> 00:48:38,200 Speaker 1: raft of stats classes for economics, and then when she 679 00:48:38,400 --> 00:48:41,279 Speaker 1: switched to psychology, they said, oh no, no, those are 680 00:48:41,440 --> 00:48:45,839 Speaker 1: econ stats classes. You need psychic stats classes. So she 681 00:48:45,880 --> 00:48:50,240 Speaker 1: had to take a double load of statistics. Amy started 682 00:48:50,480 --> 00:48:53,839 Speaker 1: a digital advertising agency here in New York and when 683 00:48:53,880 --> 00:48:57,439 Speaker 1: she was talking to her younger UH sibling, my son 684 00:48:57,560 --> 00:49:02,080 Speaker 1: John Uh, when he was entering college, she said, you 685 00:49:02,120 --> 00:49:05,960 Speaker 1: know what, you really need to take stats. That's been 686 00:49:06,640 --> 00:49:10,480 Speaker 1: the most helpful thing for me in my career in 687 00:49:10,520 --> 00:49:14,080 Speaker 1: digital advertising. And it's equally true. I think in the 688 00:49:14,160 --> 00:49:22,200 Speaker 1: investment management industry become numerous uh take statistics. The world 689 00:49:25,239 --> 00:49:30,880 Speaker 1: has become the professional world puts a premium on numeracy. 690 00:49:31,800 --> 00:49:34,759 Speaker 1: I think that's great advice. And our final question, what 691 00:49:34,960 --> 00:49:37,719 Speaker 1: is it that you know about the world of investing 692 00:49:37,800 --> 00:49:41,239 Speaker 1: today that you wish you knew thirty five years ago 693 00:49:41,440 --> 00:49:46,840 Speaker 1: when you were first starting. Humility is enormously important to 694 00:49:47,160 --> 00:49:52,080 Speaker 1: professional development. Can't say I disagree with that any particular 695 00:49:52,120 --> 00:49:54,799 Speaker 1: reason that led you to that, And you're not the 696 00:49:54,840 --> 00:50:00,040 Speaker 1: first person who has mentioned it, but as I've a 697 00:50:00,040 --> 00:50:05,120 Speaker 1: antst in my career, it has become more and more 698 00:50:05,239 --> 00:50:12,360 Speaker 1: important to inspire other people, to build a team, to 699 00:50:13,800 --> 00:50:19,120 Speaker 1: nurture and help other people grow. And one can't do 700 00:50:19,200 --> 00:50:24,360 Speaker 1: that effectively without a humility. I for me to succeed, 701 00:50:24,960 --> 00:50:28,480 Speaker 1: I have to lead a group of people, all of 702 00:50:28,520 --> 00:50:35,440 Speaker 1: whom more at least many of whom are smarter, better educated, 703 00:50:35,480 --> 00:50:38,400 Speaker 1: and more productive than I am. And and one can't 704 00:50:38,440 --> 00:50:42,440 Speaker 1: do that without a considerable a degree of humility. Quite 705 00:50:42,520 --> 00:50:47,239 Speaker 1: quite fascinating. We have been speaking with Chris Brightman. He 706 00:50:47,360 --> 00:50:51,719 Speaker 1: is the chief investment officer of Research Affiliates. If you 707 00:50:51,840 --> 00:50:54,560 Speaker 1: enjoy this conversation, well look up and enter down an 708 00:50:54,600 --> 00:51:00,680 Speaker 1: Inch on Apple, iTunes or Stitcher, overcast wherever your final 709 00:51:00,760 --> 00:51:03,360 Speaker 1: podcasts are sold, and you can see any of the 710 00:51:03,360 --> 00:51:06,839 Speaker 1: other two hundred and fifty such conversations we've had over 711 00:51:06,920 --> 00:51:10,040 Speaker 1: the previous five or so years. We love your comments, 712 00:51:10,080 --> 00:51:14,600 Speaker 1: feedback and suggestions right to us at m IB podcast 713 00:51:14,640 --> 00:51:17,640 Speaker 1: at Bloomberg dot net. I would be remiss if I 714 00:51:17,680 --> 00:51:20,000 Speaker 1: did not thank the crack staff who helps put together 715 00:51:20,040 --> 00:51:23,840 Speaker 1: this conversation each week. Karen O'Brien is our audio engineer. 716 00:51:24,200 --> 00:51:29,480 Speaker 1: Taylor Riggs is our booker slash producer Atico val Bron 717 00:51:29,560 --> 00:51:32,359 Speaker 1: is our project manager and Michael Batnick is our head 718 00:51:32,400 --> 00:51:36,440 Speaker 1: of research. I'm Barry Ritults. You've been listening to Masters 719 00:51:36,440 --> 00:51:38,440 Speaker 1: in Business on Bloomberg Radio.