Speaker 1: This is Mesters in Business with Very Results on Bloomberg Radio.
Speaker 1: This week on the podcast, I have an extra special guest.
Speaker 1: Martha Norton is the chief Investment Officer for morning Star
Speaker 1: Investment Management. They advise or directly manage about two hundred
Speaker 1: and fifty billion dollars in client assets. She has a
Speaker 1: fascinating career, starting at BLS, working a way up as
Speaker 1: an analyst and eventually head of outcome based Strategies for
Speaker 1: morning Star, eventually rising from that position and portfolio manager
Speaker 1: to chief investment officer. We talk about everything from when
Speaker 1: do you think about risk, how do you diversify a portfolio?
Speaker 1: At what point do you really have to rethink the
Speaker 1: fundamentals of what's going on in the economy and the marketplace.
Speaker 1: I found this conversation to be absolutely fascinating, and I
Speaker 1: think you will also with no further ado my conversation
Speaker 1: with morning Stars Marta Norton, so BLS economist, how did
Speaker 1: that happen? Tell us about that opening gig? Right, So
Speaker 1: it's a pretty heavy title, maybe a generous title for
Speaker 1: a twenty three year old. Bills recruits just like all
Speaker 1: other organizations, recruits at college campuses. So there are a
Speaker 1: number of us heading in out of college into the BLS,
Speaker 1: and of course b allst home to the Consumer Price Index,
Speaker 1: which we're all watching so closely. I was on the
Speaker 1: Producer Price Index, so the sister index, focusing on the
Speaker 1: prices that produces that's right. So I was on the
Speaker 1: research team, so putting together research. I wrote a scintillating
Speaker 1: piece on beef and cattle prices that's right, which you
Speaker 1: can find in the monthly Labor Review. And I spent
Speaker 1: a lot of time working with folks, helping with contract escalation,
Speaker 1: identifying the right index for them. And actually I was
Speaker 1: at the p p I. Most people may not remember this,
Speaker 1: but in two thousand four, the p p I was
Speaker 1: a month and a half late. So sometimes that process
Speaker 1: my mind today when people are watching the cp I,
Speaker 1: I can't imagine how people would react. Why was it
Speaker 1: a month and a half late? No, for so, we
Speaker 1: were converting from the Standard Industrial Classification system to the
Speaker 1: North American Industrial Classification System, so taking potatoes from one area,
Speaker 1: moving them into another area, making sure everything was in
Speaker 1: its right place, and like all things, it took longer,
Speaker 1: was more complex. Why wouldn't use the old model until
Speaker 1: the new model is ready to you would think you
Speaker 1: would think. I think it was just a bit of
Speaker 1: poor planning more than anything. No, you know that that
Speaker 1: can happen, and it's funny. I had my first brush
Speaker 1: with you media as a professional at that time. The journalists,
Speaker 1: of course, we're calling in. Folks were calling in, where's
Speaker 1: our PPI? Conspiracy theories abounded, and a journalist, I think,
Speaker 1: could how I was mostly a child and was trying
Speaker 1: to get the dirt out of me, and I said
Speaker 1: something like, we have no idea when the PPI is
Speaker 1: coming out, And that's the quote that I got into
Speaker 1: the papers. Let's it would change in model. You got
Speaker 1: to give it a couple of weeks, you know, sometimes
Speaker 1: the movers late. That's very funny. Show from Bureau of
Speaker 1: Labor Statistics. How did you transition over to Morning Star? Right?
Speaker 1: So I leave the Beer of Labor Statistics and I
Speaker 1: move into economic consulting. And this is distinct from management consulting,
Speaker 1: which I think a lot of people are pretty familiar with.
Speaker 1: With econ consulting, at least at the firm I was at,
Speaker 1: it was a lot of expert witness testimony, so litigation
Speaker 1: around unfair competition or the like. A company would pull
Speaker 1: in our expert witness, and I was part of the
Speaker 1: team to put together the case to explain the market
Speaker 1: size or the market share or what have you. And
Speaker 1: it was interesting work. It was demanding, work, was pretty grueling.
Speaker 1: But the career paths from there were either kind of
Speaker 1: the PhD route or the legal routes, and those weren't passed.
Speaker 1: I was necessarily interested in pursuing right then, So I thought, okay,
Speaker 1: let's stop trying to apply the major directly to the
Speaker 1: career and maybe have a little bit broader perspective. And
Speaker 1: I loved research. I knew finance had a close corollary
Speaker 1: to kN I was in Chicago, morning Star being the
Speaker 1: research firms, so I applied and was hired as an
Speaker 1: ec F analyst in two thousand five. They were actually
Speaker 1: relatively nascent, but they were back then. You were there
Speaker 1: really as they exploded, oh eight or nine, more or
Speaker 1: less after the crisis, right, that's right, And so morning
Speaker 1: Star coverage was really just getting started on e t
Speaker 1: f s right in the two thousand five period. And
Speaker 1: of course now it's a very robust coverage. It's sophisticated,
Speaker 1: it has a philosophy, but then we were still feeling
Speaker 1: our way and so there was a lot of need
Speaker 1: on the active mutual fund fronts, and so my coverage
Speaker 1: list it kind of converted over time to focus more
Speaker 1: on mutual funds, to focus on five to nine plans
Speaker 1: college savings. I was getting my c f A charter
Speaker 1: around that time, so it was a period of I
Speaker 1: guess I would call it intense study, intense focus on
Speaker 1: understanding different investment strategies. What makes a good investment strategy.
Speaker 1: I think a lot of people think of morning Star,
Speaker 1: and rightly so for the Star ratings, which are performance measurements,
Speaker 1: But morning Star spends a lot of time actually doing
Speaker 1: fun to mental work analysis on what makes a good
Speaker 1: mutual funds? You know, the people, the process in that work.
Speaker 1: And that's where I was spending my time as an analyst.
Speaker 1: So how do you find your way from economists to
Speaker 1: analysts to asset manager? How did that transition happen? So
Speaker 1: in two thousand eight, I I just perceived my c
Speaker 1: F A charter and I was beginning to look around
Speaker 1: and think about, you know, where else would I want
Speaker 1: to go in this company or or outside the company.
Speaker 1: And at that time, the morning Star managed portfolio's team,
Speaker 1: which as you mentioned, as a subsidia, morning Star had
Speaker 1: an opening, and so I tossed my hat in the
Speaker 1: ring and moved over in October. Oh, so that's some
Speaker 1: timing right in the storm. I know, I want to
Speaker 1: run assets. Let me let me catch the falling night here.
Speaker 1: No here, So you're about to start the worst six
Speaker 1: months in a long time. What was experience like beginning
Speaker 1: in asset management in the eye of the hurricane. I've
Speaker 1: read that investors are really marked by the environment in
Speaker 1: which they kind of of age. Um. And so I
Speaker 1: came of age in the global financial crisis, and I
Speaker 1: mean there were so many lessons learns that maybe I
Speaker 1: had to process over time. One of them was very smart,
Speaker 1: very credible, people with very good backgrounds and experience can
Speaker 1: be very very wrong. Um. And I saw that firsthand
Speaker 1: with some of the analysis that was done at that time.
Speaker 1: I saw how personal money is. Let me give you
Speaker 1: some background on morning Start managed portfolios. These are portfolios
Speaker 1: that we're creating, whether their individual stocks or whether they're
Speaker 1: multi asset portfolios, that we offer to financial advisors, who
Speaker 1: in turn offer them to their clients. So these are stocks, bonds, ETFs,
Speaker 1: mutual funds. They can be, yeah, they can be kind
Speaker 1: of a varied collection, varied instruments that were implementing that
Speaker 1: the views in and so our customer bases financial advisors
Speaker 1: and their underlying clients, and so over that period, we
Speaker 1: were having maybe bi weekly weekly calls with finance to advisors,
Speaker 1: just opening up the doors and having a conversation. We're
Speaker 1: doing the same with clients. And I can remember one
Speaker 1: client on one of our calls. I was sitting in
Speaker 1: a room nine oh one that I still sit in today, um,
Speaker 1: and he was saying, just go to cash, Please, just
Speaker 1: go to cash. And you know, it really struck home
Speaker 1: with me that money is very personal, that it's closely
Speaker 1: tied to security, and when we look at price movements
Speaker 1: on a chart, sometimes we forget what it feels like
Speaker 1: to be at those different points on the chart. And
Speaker 1: it just stuck with me this idea that this is
Speaker 1: a very serious matter when you're managing folks assets, it's
Speaker 1: personal in all sorts of ways. It's not just their security.
Speaker 1: A lot of people look at their portfolio values and
Speaker 1: it impacts their sense of self worth, their confidence, how
Speaker 1: they view the world. I mean, if you begin as
Speaker 1: a trader or a portfolio manager, you kind of learn
Speaker 1: like a surgeon. You have to compartmental opposite. You can't
Speaker 1: wear it on your sleeve. But that's not how individuals perceived.
Speaker 1: It's this role in real right, and I think that's
Speaker 1: why there's so much importance. And this is something that
Speaker 1: I think is close to the heart of Morning Star.
Speaker 1: But there's so much importance in the purpose of education
Speaker 1: and telling people what to look at, because that's what
Speaker 1: I benefited from going to morning Star learning investing through
Speaker 1: morning Stars lens. You don't necessarily need to take your
Speaker 1: signals from recent market performance. There are other things that
Speaker 1: should be your signals in terms of how you're doing
Speaker 1: as an investor. So, so you as an investor, began
Speaker 1: as an economist, then you're an analyst, then you're an
Speaker 1: investment manager, then your portfolio manager, now you're in chief
Speaker 1: investment officer. Each of those steps is a very different role,
Speaker 1: and you're looking at different things and experiencing different things
Speaker 1: throughout that progression. What really stands out, um, because that's
Speaker 1: really interesting career path. Yeah, you know, I look at
Speaker 1: my career and kind of three chunks there's the pre
Speaker 1: Morning Star chunk of being an economist working in econ consulting,
Speaker 1: and I see a lot of value in that UM,
Speaker 1: in part because I think if you're with the same
Speaker 1: company your entire career, you can sometimes fall into the
Speaker 1: fallacy that grass is greener somewhere else. And so I
Speaker 1: was able to have some career experience from that UM,
Speaker 1: and then I have the period where I was with
Speaker 1: Morning Start Inc. Doing research and just soaking things up,
Speaker 1: and then I move into the money management UM part
Speaker 1: of my career, and I would say that there was
Speaker 1: a stretch from two thousand eight to call it two
Speaker 1: thousand and fifteen where I was managing a ton of
Speaker 1: different types of mandates. I was on the road with
Speaker 1: clients and financial advisors sometimes once a week, understanding who
Speaker 1: they were, what they were looking for from us, and
Speaker 1: there was just a very rich development period, which I
Speaker 1: think at the time, I don't know if I fully
Speaker 1: appreciate it. I'm someone who likes to see change like
Speaker 1: sncy development, and so it required a you know, a
Speaker 1: bit of patience over that stretch, but it was I
Speaker 1: think a very foundational period for me to just have
Speaker 1: build that experience in the markets. So how do these
Speaker 1: differences between being an economist and a researcher versus someone
Speaker 1: who has to execute on theory. How do the difference
Speaker 1: is manifest in your day to day You know, it's
Speaker 1: a great question. I think the first thing that would
Speaker 1: come to mind there is that I think when you
Speaker 1: are a researcher or a theorist or an analyst, and
Speaker 1: you're not putting money to work, it's a lot easier
Speaker 1: to be an ideologue. And when you are an investor,
Speaker 1: you have to learn how to have a philosophy but
Speaker 1: remain flexible, be willing to be proven wrong in real
Speaker 1: time and know when you're actually proven wrong um, and
Speaker 1: being willing to know when you're not being proven wrong
Speaker 1: and when the payoff is still coming, and to not
Speaker 1: be so dogmatic. And I think that's a lesson that
Speaker 1: value investors have learned repeatedly over the past. You know,
Speaker 1: really since the global financial crisis on, I think there
Speaker 1: was an assumption that value is always is going to
Speaker 1: come back any second now, and I think people have
Speaker 1: had to reevaluate how they think about things. Huh. You know,
Speaker 1: I like that description. The feedback loop is so much
Speaker 1: more rapid in practice. In theory you never are bitten
Speaker 1: by the seeds that you plant, but in actual practice
Speaker 1: you find out very quickly. Are you right wrong? Yeah?
Speaker 1: And you know, Barry, I've been spending a lot of
Speaker 1: time reading about decision making. So I think a lot
Speaker 1: of folks have read Anti Duke book on on Thinking
Speaker 1: and Bets, and I think that perspective of don't evaluate
Speaker 1: the outcome, evaluate how you're making your decision the process.
Speaker 1: That's something I've learned as a practitioner, not so much
Speaker 1: as a as a theorist. She starts the book, if
Speaker 1: I remember, with the story of do you go for
Speaker 1: it on fourth down? And loves that story. That was
Speaker 1: a very It's such a perfiximation of good process, bad outcome.
Speaker 1: Over time that wins, but you lost that one game
Speaker 1: that people can't get past that. So let's talk a
Speaker 1: little bit about morning Stars history. They're in Chicago. I
Speaker 1: know of them from their mutual fund reading business. Tell
Speaker 1: us a bit about your association with the firm so
Speaker 1: Um morning Star actually has a really rich history. And
Speaker 1: to hear Joe and Suada our founder hell it Um,
Speaker 1: there was a bit of you know, kind of an
Speaker 1: entrepreneurial spirit. He wanted to be an entrepreneurial UM. He
Speaker 1: was in the investing world and he was intrigued by
Speaker 1: Warren Buffett, and he was looking for kind of that
Speaker 1: market opportunity and he found it in the mutual fund space. Now,
Speaker 1: as he tells it, the mutual funds space was a
Speaker 1: pretty nascent space in the early nineteen eighties. It's not
Speaker 1: like it is today where mutual funds are ubiquitous, and
Speaker 1: he saw it as a really positive good thing for
Speaker 1: the individual investor to have access to these top money managers. UM.
Speaker 1: But he found that morning Star was making a lot
Speaker 1: of or excuse me, individual investors were making decisions based
Speaker 1: solely on on trailing returns, which is we all know
Speaker 1: it's not a good investing strategy. So he founds the
Speaker 1: company in the early nineteen eighties. His focus is on
Speaker 1: mutual funds, providing data, providing analysis, and generally helping individual
Speaker 1: investors have better outcomes. And so that general sense of
Speaker 1: empowering investor success is the same mentality that Morningstar has
Speaker 1: now taken and its research to e t s, to
Speaker 1: you know, individual stocks, to credits. UM, it's software, it's data,
Speaker 1: and of course it's Investment management group. When did the
Speaker 1: investment management saw to the business begin. There's different kind
Speaker 1: of histories to different parts of it. The managed portfolio
Speaker 1: business began in two thousand one, but we've had consulting arms.
Speaker 1: We acquired Ibbotson, which has its own rich history, and
Speaker 1: then we also have global groups UM outside the U
Speaker 1: S And Sydney and London and in other places that
Speaker 1: we've added to the mix over the years. So about
Speaker 1: halfway through the history, really full bore asset management that's
Speaker 1: is introduced, which kind of answers the question, Hey, why
Speaker 1: would a research from new to CEE? I Oh, but
Speaker 1: really it's much more than a research front, that's right.
Speaker 1: That's right. So it's for the asset management business. And
Speaker 1: in fact, there are four CIOs in the business. There's
Speaker 1: one there's one for each region. So I sit in Chicago,
Speaker 1: I have a colleague in London and one in Asia
Speaker 1: pac Um, and then we have a global c IO
Speaker 1: who we report into, who sits in London. So when
Speaker 1: did Morning Star acquire Ibbotson? Because I interviewed Roger Ibbotson,
Speaker 1: I want to say something like that. So two, yeah,
Speaker 1: I didn't realize that Associates was part of morning Star
Speaker 1: at the time, right, so now it's all kind of
Speaker 1: folded together. What we what we did is we had
Speaker 1: these separate strands, these separate capabilities, and there was an
Speaker 1: effort to think about what do we want to look
Speaker 1: like globally as one cohesive unit. And so we've pulled
Speaker 1: together as an asset manager. Huh. So you do mutual funds,
Speaker 1: traditional neutral funds, you do uh, E t fs? What
Speaker 1: about bonds and fixed income? So what we do is
Speaker 1: we have the individ dual security portfolios. We have our
Speaker 1: own mutual funds that we use within our model portfolios,
Speaker 1: and then we have model portfolios that rely on e
Speaker 1: t f s from third parties UM, and we mixed
Speaker 1: the two together as well as kind of an active
Speaker 1: passive approach. Our fixed income exposure right now is through
Speaker 1: third parties, so we'll buy e t f s or
Speaker 1: we will use subadvisors. So if someone else is doing it,
Speaker 1: it's an expensive Why do you want to recreate that wheel?
Speaker 1: What we're actually focused on is these model portfolios that
Speaker 1: we're managing, these multi asset financial solutions UM. And you know,
Speaker 1: this is an area of expertise something that we've been
Speaker 1: doing for more than twenty years, and what we're doing
Speaker 1: now is thinking about how do we want to power
Speaker 1: those model portfolios, and so that's where the mutual funds
Speaker 1: come in. In In fact, for a long time we used
Speaker 1: third party mutual funds. It's an area of expertise for Morning,
Speaker 1: so are selecting those mutual funds and when we found that,
Speaker 1: we just wanted to try to reduce the layers of costs.
Speaker 1: When you're owning a bunch of mutual funds, you have
Speaker 1: all the ancillary expenses built into those expense ratios. So
Speaker 1: if we could take what we thought were best to
Speaker 1: breed thinkers and put them within our mutual funds, we
Speaker 1: could cut down on the layers of costs, and that's
Speaker 1: in fact what we did. So if you guys are
Speaker 1: driving the creation and exactly what these funds look like,
Speaker 1: how involved have you gotten in thematic investing? Is that
Speaker 1: something that's significant. So a big part of who we
Speaker 1: are is our global research platform where we're covering you know,
Speaker 1: equities any which way you can slice them globally in
Speaker 1: the same thing on the fixed income side. So what
Speaker 1: our Capital Markets i P really is is looking at
Speaker 1: what are the fundamental drivers of these asset classes and
Speaker 1: how do we think about them from evaluation perspective? What
Speaker 1: do we think of them on a prospective basis, and
Speaker 1: so you can think of that maybe I guess as
Speaker 1: thematic we're sometimes focused on very narrow areas like a
Speaker 1: country or a sector. UM. We also have the ability
Speaker 1: within our mutual funds to create UM equity sleeves, so
Speaker 1: individual stocks that represent the opportunity and we would do
Speaker 1: that when we think the e t F is too
Speaker 1: expensive or we think the e t F isn't actually
Speaker 1: capturing what we think is the opportunity UM, So we
Speaker 1: have that embedded in our mutual fense as well. The
Speaker 1: past two decades has seen a giant rise in alternatives.
Speaker 1: What do you look at in that space? How do
Speaker 1: you think about private equity, venture capital, or even head
Speaker 1: funds within alternatives. We actually have a pretty rich history
Speaker 1: there and we've been managing an absolute return portfolio for
Speaker 1: a long time, but our focus and alternatives UM, we
Speaker 1: spent a lot of time thinking about what do we
Speaker 1: want to do with this space? What you know, what's
Speaker 1: different that we could get with alternatives from stocks and
Speaker 1: from bonds, And what we landed on was a focus
Speaker 1: on identifying strategies that are not driven by the same
Speaker 1: factors that drive equity returns or you know, bond markets,
Speaker 1: and focusing on strategies that have had limited draw down.
Speaker 1: So our focus has been selecting these third party strategies
Speaker 1: that we think are somewhat predictable so that we can
Speaker 1: use them have a role in portfolio and also um
Speaker 1: an alternative to what we have with and fixed income
Speaker 1: and equities. So we have a merger arbitrage strategy, we
Speaker 1: have a convertible arbitrage strategy. We have a strategy would
Speaker 1: I wouldn't necessarily classified as global macro. It's kind of
Speaker 1: a fund of funds approach with different models embedded in it.
Speaker 1: And actually that that's suite. That collection of strategies, which
Speaker 1: is in the morning Star Alternatives fund, is where a
Speaker 1: lot of our portfolio managers were turning to at the
Speaker 1: end of last year when you know, fixed income is
Speaker 1: so poor on a prospective basis, equity valuations are really high,
Speaker 1: and so alternatives are alternatives haven't been positive, but they
Speaker 1: have lost a lot less than even short data bonds,
Speaker 1: So it's been a good ballast for us in this environment. Yeah,
Speaker 1: down five percent is better than down right, that's a
Speaker 1: that's a huge difference. So let me stay with the
Speaker 1: concept of not quite alternatives, but different way of thinking
Speaker 1: about investing. What are your thoughts on things like personalization
Speaker 1: and direct index in Yeah, so personalization is portfolio managers,
Speaker 1: and I was a portfolio manager for a long time.
Speaker 1: You really have your head down, your focus on your strategies.
Speaker 1: So I put my head up as a c I oh,
Speaker 1: I get a vision of the broader picture, and I
Speaker 1: start hearing a lot about personalization, and I don't know
Speaker 1: what people are talking about, frankly, um, and I ended
Speaker 1: up presenting on this at the morning Star conference this spring,
Speaker 1: and so I spent a lot of time trying to
Speaker 1: understand it. And if you don't mind, let me give
Speaker 1: you my understanding how I came about to how I
Speaker 1: see it. Um. If you were like me and you
Speaker 1: spent your high school wandering Blockbuster looking for something that
Speaker 1: you wanted to see that was in stock, you found
Speaker 1: yourself in a much different situation in the pandemic where
Speaker 1: you're sprawled on your couch and you're just streaming content
Speaker 1: through Netflix that is yes, and it's algorithmically chosen, just
Speaker 1: for you or um If you have the privilege of
Speaker 1: driving a Tesla, you don't have the indignity of your
Speaker 1: husband messing with your mirror and your seat. You can
Speaker 1: just create a drive out profile and it recognizes you.
Speaker 1: So personalization is not just a marketing message where it's
Speaker 1: dear Martha, you know whatever. It's actually products that are
Speaker 1: built and adjusted for you. And it began outside of
Speaker 1: financial services. Now, when I start to think about financial
Speaker 1: advisory work, I can't think of a place where personalization
Speaker 1: isn't already something that advisors are wrestling with. They want
Speaker 1: to know their clients, they want to invest according to
Speaker 1: what their clients need, but it's been a hard thing
Speaker 1: to do at scale. The technology just hasn't been there
Speaker 1: to be able to customize the way you want, from
Speaker 1: profiling the clients to creating the right strategy, managing that strategy,
Speaker 1: and then you know, a decumulation phase. It really hasn't
Speaker 1: been there for the mass market. And the technology has
Speaker 1: now advanced to the point where a lot of those
Speaker 1: capabilities can be available to a lot of different advisors,
Speaker 1: so they can personalize and create customized experiences for clients,
Speaker 1: and that customized experience can be through client profiling, where
Speaker 1: the profiling was far more iterative and behaviorally, you know,
Speaker 1: infused with behavioral finance insights. Or it could be the
Speaker 1: actual portfolio where you're taking to standard portfolios smashing them together,
Speaker 1: where you're doing direct indexing. UM. So there's a whole
Speaker 1: range of products and developments that are maybe changing the
Speaker 1: way financial advisors can interact with their clients and improving it.
Speaker 1: So let's talk a little bit about what's going on
Speaker 1: with mutual funds and ETFs. We talked a little bit
Speaker 1: about starting managing assets in the middle of the financial crisis.
Speaker 1: It seems that's kind of the line in the sand.
Speaker 1: After that, we saw a pretty robust appreciation for both
Speaker 1: passive investing and E t F. Tell us a little
Speaker 1: bit about what you've seen from from morning Star. Yeah, so,
Speaker 1: I guess to kick things off, I listened to the
Speaker 1: conversation you had with Eric but tunis the Vanguard Effect,
Speaker 1: and I hadn't read the book, and I enjoyed that conversation.
Speaker 1: I resonated with a lot of the insights, and as
Speaker 1: I think about it from my perspective, I think back
Speaker 1: to a book I read when I started Morning Star
Speaker 1: called Piece of the Action by Joe no sarah Um
Speaker 1: and he talks about how the middle class became part
Speaker 1: of the investing class, and he outlines credit cards, and
Speaker 1: he outlines mutual funds and money market funds and retirement accounts.
Speaker 1: And the book I read, its version was in the
Speaker 1: nineteen nineties. I think if he had continued it or
Speaker 1: the book were written today, if I were writing the book,
Speaker 1: I would add passive investing and e t F s
Speaker 1: onto those milestones or mile markers where we're really seeing
Speaker 1: great improvement for the average investor. And that's largely because
Speaker 1: of the huge impact that passive investing has had on
Speaker 1: fees um just giving people a much better um outcome.
Speaker 1: So morning Star Ink research has shown time and time
Speaker 1: again that fees are one of the few very reliable
Speaker 1: predictors of future performance. And I think that's just a
Speaker 1: mathematical reality, right that you just have more if you
Speaker 1: didn't take out a lot at the beginning. So I
Speaker 1: think there's a real benefit to the past of investing
Speaker 1: the ET trend. In terms of kind of what this
Speaker 1: means for active and passive I think there's a lot
Speaker 1: to that. I don't know if it's a one for
Speaker 1: one question. But as as an active investor, I can
Speaker 1: say I'm a big fan of passive investing. So you
Speaker 1: brought up something that I have to give Morning Star
Speaker 1: a ton of credit for. Ross Kinnel writes a piece.
Speaker 1: I think it was um about how expense ratios and
Speaker 1: star ratings predict success. And it's a pretty thorough analysis.
Speaker 1: But the too long, didn't read version is, hey, if
Speaker 1: you could look at nothing else, just look at expense
Speaker 1: ratios and buy the cheapest one. And really, for a
Speaker 1: company that built its reputation on the star rating, that
Speaker 1: was a pretty um risky thing for not only morning
Speaker 1: started release, but stand behind and keep it on the
Speaker 1: site for a decade later. A lot of companies would
Speaker 1: have would have buried that. So Morning Star has been
Speaker 1: Morning Star Larify. The research side of Working Star has
Speaker 1: been very clear on that expense case. So there's Russ's Peace,
Speaker 1: and there's many other pieces throughout time that have said,
Speaker 1: as we look at what we think predicts future outcomes,
Speaker 1: those expenses are key. It's interesting on the star rating side. Now,
Speaker 1: just for background, at a very high level, the star
Speaker 1: rating is looking at risk adjusted returns, right, big difference
Speaker 1: from just returns and relative to category peers. Star rating
Speaker 1: launched very early on around and it's gone through a
Speaker 1: lot of methodology updates over time, and it's a really
Speaker 1: elegant measure of performance and a great starting point. But
Speaker 1: I don't think there's an analyst on the research side
Speaker 1: of the house who would say, look, you have the
Speaker 1: star rating and you're all done. I mean, there's so
Speaker 1: many of them who are spending so much of their
Speaker 1: time analyzing the people in the process and how the
Speaker 1: performance relates to that in the price. There's a lot
Speaker 1: more that goes into picking a mutual fund or a
Speaker 1: strategy than just taking a look at its historical track record,
Speaker 1: and that to the very least. So let's talk a
Speaker 1: little bit more. Are about active fund managers. One of
Speaker 1: the criticisms that have been leveled by both other active
Speaker 1: managers and academics is, hey, a lot of this is
Speaker 1: just expensive closet indexing. How do you look at that
Speaker 1: when you're thinking about either a portfolio you're analyzing or
Speaker 1: creating your own portfolio. Within Morningstar Investment management, we are
Speaker 1: very much high conviction investors, probably concentrated. Concentrated portfolios are
Speaker 1: willing to stick our next out and look different than
Speaker 1: a benchmark. And we've learned some hard lessons that way. Um,
Speaker 1: you know is you can imagine we're not going to
Speaker 1: get every call right and that at times can be costly,
Speaker 1: and so we've put more thought on how you size
Speaker 1: into positions or not. But I think closet indexing was
Speaker 1: a big topic when I was in research, and there
Speaker 1: was a lot of work around active share and the like.
Speaker 1: And I think it's still it's always, I think, going
Speaker 1: to be embedded in the community because when you're wrong
Speaker 1: and you weren't close to the benchmark, it's incredibly costly.
Speaker 1: I think Jeremy Grantham caused a career risks or you
Speaker 1: know that kind of thing. So I think it's always
Speaker 1: going to be part of human nature. Um. I wonder,
Speaker 1: and I haven't done any research on this, but I
Speaker 1: wonder if it's been harder over the past few years
Speaker 1: to be a closet index or successfully you know, pretending
Speaker 1: to be active but making the benchmark because of how big,
Speaker 1: you know, the big six companies in the US have been.
Speaker 1: It's been very hard to own them without becoming a
Speaker 1: non diversified mutual fund at index weight. So I wonder
Speaker 1: if it's been harder to play that game lately. And
Speaker 1: you talked earlier about how software and technology has progressed.
Speaker 1: It's so easy today to look at concentrated risk active
Speaker 1: share and how different you are from the benchmark, and
Speaker 1: whether that difference leads to outperformance or just expensive differences.
Speaker 1: That's so, you're a long term investor, you work with
Speaker 1: clients who themselves have clients that are long term investors.
Speaker 1: What are some of the things you're doing now in
Speaker 1: terms of portfolio construction. How are you thinking about changes
Speaker 1: to be made and opportunities that are either available or
Speaker 1: might have been missed over the past year. So you know,
Speaker 1: as I think about a long term investor, and when
Speaker 1: I'm thinking about a long term investor, I'm thinking of
Speaker 1: anyone who doesn't have a need for their assets in
Speaker 1: the next few years. So maybe we're talking about five
Speaker 1: years and out. And you look at this investment climate
Speaker 1: that we've been in, and when we were looking at
Speaker 1: the markets at the end of both US equities and
Speaker 1: US fixed income struck US as extremely expensive. I mentioned
Speaker 1: that we'd put more assets and alternatives than we typically
Speaker 1: had um At this point, markets are a lot more
Speaker 1: attractively priced. I mean, there's a lot of nuance to that,
Speaker 1: but they are more attractively priced. So if I'm a
Speaker 1: long term investor and I'm thinking about what opportunities is
Speaker 1: the market serving up today, my impulse, all else held equal,
Speaker 1: should be to add back to exposures in the portfolio,
Speaker 1: whether that's dollar cost averaging new money, or whether that's
Speaker 1: looking at areas that have held up or been quite defensive,
Speaker 1: which you know, it's hard to find those areas, but
Speaker 1: they are out there, and adding back to more of
Speaker 1: the risky areas. But the caveat there is that I
Speaker 1: think that at least from our vantage point, markets are
Speaker 1: closer to fairly valued than extremely cheap. So it feels
Speaker 1: more like a dollar cost average market to us than
Speaker 1: than anything else. Not picking a bottom quite yet, that's right,
Speaker 1: I'm right there with you. So let's talk a little
Speaker 1: bit about the state of today's markets. You said earlier
Speaker 1: valuations were historically high, both stocks and bonds. Late right
Speaker 1: about now, what are we twenty five year average for
Speaker 1: the SMP International stocks look kind of cheap, small cap
Speaker 1: and value were interesting. Just for a little context, we're
Speaker 1: recording this mid October we really we haven't gotten the
Speaker 1: latest pp I. We don't know what earnings look like
Speaker 1: quite just yet, so we're still dealing with the worst
Speaker 1: of and not knowing when the smoke clears, tell us
Speaker 1: what you think about the current environment, what looks intriguing.
Speaker 1: So there are a lot of nuance to today's market.
Speaker 1: If we have proprietary models that we you know, update
Speaker 1: with our insight to give us a sense what valuations
Speaker 1: are you know, around the world here at home, and
Speaker 1: when we look at the broad US bond market, the
Speaker 1: broad US stock market there is as attractive as they've
Speaker 1: been since we've been running this program, um since you
Speaker 1: know about time frame. So that's good, but it's not great.
Speaker 1: It's not as though they're pricing in armageddon or anything
Speaker 1: along those lines. So we are still somewhat cautious. We're
Speaker 1: adding back to US equities. That depends on the portfolio,
Speaker 1: of course, but we're adding back to US equities, especially
Speaker 1: where we were severely underweight that area. We are interested
Speaker 1: in fixed income. But I think a lot of times
Speaker 1: when people talk about valuations, they act almost as if
Speaker 1: someone is in cash and equities, But if you're in
Speaker 1: a multi asset portfolio, and your fixed income is also
Speaker 1: getting a lot cheaper. That makes the calculus a little
Speaker 1: bit trickier. Um, so maybe you want to be adding
Speaker 1: to your fixed income as well, and that's something that
Speaker 1: we're weighing a bit too. Where is the better opportunity
Speaker 1: versus equities versus fixed income? And I wanted to follow
Speaker 1: up on the point that you made about international because
Speaker 1: those are meaningful positions for us. They've been relatively cheap
Speaker 1: for a long time, but now through our models they
Speaker 1: are looking absolutely cheap, and that means that they're cheap
Speaker 1: relative to the fair value that we've identified for them.
Speaker 1: And so I'm talking about really the nasty stuff here.
Speaker 1: I'm talking about China and all the concerns that are
Speaker 1: around it and the sell off that it's had. Talking
Speaker 1: about Germany and it's you know, close and epicent our
Speaker 1: nature to the European energy crisis and the impact that
Speaker 1: the war has had on it. I'm talking about UK
Speaker 1: and the troubles that it has. These are markets that
Speaker 1: are under pressure, and I so wish that markets could
Speaker 1: be absolutely cheap and not be in trouble, But oftentimes
Speaker 1: it's the fact that yes, you're not gonna get stuff
Speaker 1: absolutely cheap unless something at the something went wrong. So
Speaker 1: what we're we're weighing is how much is priced in
Speaker 1: it else could go wrong, And so we're sizing very
Speaker 1: carefully in these opportunities, but we can't deny that there's
Speaker 1: a valuation opportunity in them. So things are attractive, but
Speaker 1: it's not dirt cheap. And this is why you mentioned
Speaker 1: dollar cost averaging is an attractive strategy. We may not
Speaker 1: be at the bottom, but we're close enough that hey,
Speaker 1: maybe we're a few months earlier, and if we keep
Speaker 1: d c A ing over the next year, you'll catch
Speaker 1: early bottom recovery and then that's whatever the next cycle.
Speaker 1: That's right, I mean as as a as a fundamental investor,
Speaker 1: we're never going to call at the bottom. I know
Speaker 1: a few people who can do that consistently. But what
Speaker 1: we can do is have the right impulse as markets
Speaker 1: are moving, as they're selling off. In general, the right
Speaker 1: impulse should be to add. We know that um as
Speaker 1: markets are rising, the impulse should be maybe holds tighter
Speaker 1: or maybe you know, not the adding. And so we're
Speaker 1: trying to find that behavioral discipline you mentioned you're looking
Speaker 1: at fixed income as more attractive than it was. Not
Speaker 1: only has fixed income fallen double digits, pretty substantial, but
Speaker 1: you're now actually being paid when you're a fixed income buyer.
Speaker 1: When we're recording this, the ten year is not too
Speaker 1: far off from ten percent. There's some high quality corporates
Speaker 1: that are about five percent, and you could look around
Speaker 1: and find Muni's running a tax equivalent in the fours
Speaker 1: or higher. Is there now an alternative? Can we no
Speaker 1: longer say it's Tina and it's equities or nothing. I've
Speaker 1: heard it's Tina, it's Tara, and it's Cindy. Um, so
Speaker 1: let's go for so Tina. There is no alternative. Okay,
Speaker 1: there's Tina, there is Tara. There are reasonable alternatives, and
Speaker 1: then there is Cindy. Credit is now delivering yield to
Speaker 1: the three sisters, the three sisters of fixed income. So
Speaker 1: the era of you have no choice of but equity
Speaker 1: or nothing is over. The era is over. But the
Speaker 1: bottom line is there is yield in fixed income. And
Speaker 1: even though it's below the most re and cp I,
Speaker 1: the expectation is inflation is going to come down eventually,
Speaker 1: and if you're buying a four, you're locked in above inflation.
Speaker 1: Hopefully three percent or maybe even a two handle. So
Speaker 1: as we look at the fixed income landscape, I think
Speaker 1: what you're seeing, you're getting paid at the shorter end
Speaker 1: of the curve much more attractively than you had. You're
Speaker 1: not taking on enormous amounts of risk in that area.
Speaker 1: Either from our credit or a rate perspective, we are
Speaker 1: looking at high yield. We are looking at areas like
Speaker 1: emerging market debt. The yields are much more attractive, but
Speaker 1: we haven't seen a whole big pickup in defaults, and
Speaker 1: emerging market debt has its own concerns in this type
Speaker 1: of environment, so we're interested. But I think if we're
Speaker 1: looking at where is the net dollar going today, I
Speaker 1: think it's going to some of those higher quality segments
Speaker 1: of the fixed income market. End tips. Of course, tips
Speaker 1: have been a disappointment. I think, I right, you would
Speaker 1: think inflation screaming tips are like, yeah, you know, they're
Speaker 1: actually lost a little bit of that. Yeah, and they're
Speaker 1: really showing kind of their sensitivity to real rates. But
Speaker 1: because they've lost ground and because inflation expectations have come
Speaker 1: back down, it's not a bad time to be thinking
Speaker 1: about tips for a portfolio. What else can a fund
Speaker 1: manager or adviser do to protect a portfolio in the
Speaker 1: face of let's say transitory turns out to be wrong
Speaker 1: and that inflation is persistent for another couple of years.
Speaker 1: What should investors be thinking about the big struggle? And
Speaker 1: so we've been working on that analysis. In fact, we
Speaker 1: originally started analyzing our portfolios for inflation. What we do
Speaker 1: We have our research platform, which is basically defining the
Speaker 1: opportunity set for us based on kind of our viewpoints,
Speaker 1: and then as portfolio managers we get together and we think,
Speaker 1: how do we size this? What do we do with
Speaker 1: this information in a portfolio? And so back in April one,
Speaker 1: we started to think about what would inflation If inflation
Speaker 1: isn't transitory, what would that mean for our portfolios? And
Speaker 1: we started running a lot of scenario tests and we
Speaker 1: found that with this value lean that we have the
Speaker 1: energy exposure that we had on a relative basis, our
Speaker 1: portfolios should hold up, you know, to the sixties of
Speaker 1: the world. Um. And now what we're thinking about is
Speaker 1: what's going to happen to financial assets of for inflation persists.
Speaker 1: What's going to happen in a stagflationary environment? How do
Speaker 1: you think about these things and how do you size them?
Speaker 1: And you know, in a stagflationary environment, for example, when
Speaker 1: we look at this, we're obviously looking at that nineteen
Speaker 1: seventies nineteen eighties period. There were a few places to
Speaker 1: hide in that environment, commodities energy related being one of them,
Speaker 1: and tips weren't around back then, but you can kind
Speaker 1: of simulate the experience of stagflation those held up. So
Speaker 1: those are the types of assets. Energy has been a
Speaker 1: long time holding for us. It's no longer attractive from
Speaker 1: our valuation, but last a year ago it looked cheap.
Speaker 1: There ago it looked dirt cheap, and so it's paid
Speaker 1: off handsomely and we are slowly edging out of it
Speaker 1: because we're thinking about this range of outcomes, these different environments,
Speaker 1: and what can protect in these different the day the
Speaker 1: war in Ukrainians see oil prices get that's right, So
Speaker 1: you don't want to be at peak position size. But
Speaker 1: you know, people have been wondering when does this come
Speaker 1: to an end? Now? For this has gone on much
Speaker 1: longer than people expect, and it looks like it's going
Speaker 1: to go on much longer from here. So that's quite
Speaker 1: a challenge you mentioned value. I feel like value investors
Speaker 1: are the dog that keeps getting kicked. Everybody has been, well,
Speaker 1: you know, it's been ten years. When does value start
Speaker 1: to outperform growth? The past year, it certainly has done better.
Speaker 1: How are you looking at value as an asset class? Yeah? So,
Speaker 1: you know, when I was in research, there were a
Speaker 1: lot of articles at that time that wrote how superior
Speaker 1: value investing was to growth investing um and how it
Speaker 1: always wins out. If you look at over history, value
Speaker 1: always dominates and that should have been a flag that
Speaker 1: maybe values time is done and certainly it has a
Speaker 1: weight chest. Pounding is not a good look from from
Speaker 1: fun managers and researchers. I'm gonna make an know to
Speaker 1: that that's right. And so since then, growth has been dominant.
Speaker 1: I think it's caused a lot of value investors to
Speaker 1: do a lot of introspection. And I think one of
Speaker 1: the takeaways that value investors have had is that valuation
Speaker 1: itself is not a timing indicator. We've had our own
Speaker 1: you know ltc M moment I guess as value investors.
Speaker 1: But I think the very fact that we're talking about
Speaker 1: value investing being dead in the water is really reminiscent
Speaker 1: of the period when value investors were saying growth was
Speaker 1: dead in the water. Um. I think these things run
Speaker 1: in cycles, and I think paying attention to the price
Speaker 1: that you're paying is a valuable strategy, whether you're buying
Speaker 1: a growth company or a value company. David Einhorn was
Speaker 1: speaking at the Robin Hood Investor Conference, and quote he says,
Speaker 1: I don't know if value investing ever comes back. So
Speaker 1: if you're looting for the opposite of value, is always
Speaker 1: going to outperform growth. Well, here's the other side of
Speaker 1: that in an argument. And I I think, and this
Speaker 1: is something we've talked about a lot, the value growth
Speaker 1: fight or narrative value versus growth. I think it's a
Speaker 1: bit of a false narrative. I think you can be
Speaker 1: a growth investor or you can be a value investor
Speaker 1: and care about the price that you're paying for your asset. Hey,
Speaker 1: isn't that what growth at a reasonable price was all
Speaker 1: of the Yeah, yeah, you know, I think the I
Speaker 1: think both strategies have value. It's just a matter of
Speaker 1: whether you're doing fundamental work around the price that you're
Speaker 1: paying or whether you're not. And I don't think that
Speaker 1: belongs to one or the other. Alright, So two last
Speaker 1: questions before I get to my favorite question, and the
Speaker 1: first is, since you began at BLS and worked on
Speaker 1: inflation data, I have to ask about the data dependent FED.
Speaker 1: How does that affect you as a chief investment officer.
Speaker 1: It seems like everybody is hanging on every CPI, margin report, earnings,
Speaker 1: non farm payroll. Everything seems to take on extra weight.
Speaker 1: How do you these days? You with a FED that
Speaker 1: says we're gonna keep hiking until we see the white
Speaker 1: of inflations eyes? You know? Um? I think the one
Speaker 1: takeaway that you can have from this type of environment
Speaker 1: is that it's certainly creating a ton of opportunities, right,
Speaker 1: I mean, this type of volatility is where you can
Speaker 1: start to make money and markets if you are careful
Speaker 1: and if you're a thoughtful investor. Of course, I have
Speaker 1: opinions on the FED. I think everybody has opinions on
Speaker 1: the FED. Everybody has opinions on the macro environment, and
Speaker 1: it's so tempting to want to just blast them all
Speaker 1: out there. But the reality, right, But the reality is
Speaker 1: it's not going to matter even if I was right,
Speaker 1: which I wouldn't be what do I do about it
Speaker 1: in a portfolio? And so what we're really focusing on
Speaker 1: is that range of outcomes for our investors um and
Speaker 1: thinking about if this then that, or is this priced
Speaker 1: in or is it close enough to being priced in?
Speaker 1: What's the margin of safety? And I think not getting
Speaker 1: wedded to a worldview, and I think that can be
Speaker 1: the danger with a laser focus on the FED and
Speaker 1: on this macro data can be a real destruction. But
Speaker 1: that being said, of course we're watching how inflation develops.
Speaker 1: Of course we're watching how rates develop and and how companies,
Speaker 1: how their fundamentals respond, and getting a sense for how
Speaker 1: pervasive is this environment going to be. I asked you
Speaker 1: earlier about personalization. One of the bigger new innovations that
Speaker 1: made possible by technology is direct indexing. How do you
Speaker 1: guys look at that sort of style of investing. What
Speaker 1: do you think of its role within portfolios or people
Speaker 1: who really want to get very fine tuning in terms
Speaker 1: of tilting towards value or away, tilting to a specific
Speaker 1: UH sector, or being able to work in all the
Speaker 1: various E S G and other thematic screens that you
Speaker 1: can build in too. Direct indow that's right. And so
Speaker 1: for the folks who are a little slow on the
Speaker 1: uptake like I am, and have their heads down in
Speaker 1: their own work, let me offer a definition of direct
Speaker 1: indexing because I certainly needed it. Um direct the next
Speaker 1: thing is something that's been around for a long time.
Speaker 1: It's it's been around in the kind of high net
Speaker 1: worth area of the world. And what it is is
Speaker 1: you have your index, you have your e t F,
Speaker 1: but instead of buying an index fund or an ATF,
Speaker 1: instead you buy a basket of security is optimized to
Speaker 1: track that particular market. And when you own the underlying securities,
Speaker 1: you can as to your point and bed your preferences.
Speaker 1: And you can also do tax management and improve your
Speaker 1: outcomes after tax UM and as you think about we
Speaker 1: were talking about the development the rise of passive investing UM,
Speaker 1: and I was talking about the piece of the action
Speaker 1: and these markers and time where we've seen middle class
Speaker 1: you know, get a big win. I think direct indexing
Speaker 1: is another mile marker on that journey because it's another
Speaker 1: way to substantially or I guess maybe to say, to
Speaker 1: quantitatively tangibly improve outcomes for investors. When we run our
Speaker 1: own tax alpha study, at morning Star Investment Management, we
Speaker 1: found that the tax alpha that could be added on
Speaker 1: an annualized basis, of course it ranges based on environment,
Speaker 1: but was anywhere from forty basis points to somewhere around
Speaker 1: three hundred. I mean, when we think about the huge
Speaker 1: we think about especially if if you're sitting on things
Speaker 1: like founder stock or low cost inherited stock joint. It
Speaker 1: makes the difference. I mean, think about the obsession we
Speaker 1: have expense ratios. It's ten basis points cheaper, sign me up.
Speaker 1: And what's also really interesting about the spaces to the
Speaker 1: point that you raise a lot of folks will have
Speaker 1: these bizarre portfolios. Where have this company's stock, I inherited it,
Speaker 1: this thing. I don't know what to do with it,
Speaker 1: but I know it's sound a good portfolio. Direct indexing
Speaker 1: allows you to smartly, you know, from a tax per sspective,
Speaker 1: transition that into a more well rounded portfolio. So I
Speaker 1: think it's really powerful. It's not for everyone, it's not
Speaker 1: for every dollar size, but it's much more available to
Speaker 1: the mass market than it is that the folks over
Speaker 1: to oh shown us in asset management did a study
Speaker 1: and found in because you had this thirt woosh down
Speaker 1: during the pandemic and then a very quick recovery. They
Speaker 1: were seeing direct index portfolios that we're doing four hundred
Speaker 1: and five hundred basis points of tax less harvesting, which
Speaker 1: is just astonishing. I mean, I love it, and I
Speaker 1: think about a market environment like this, and I know
Speaker 1: you're interested in behavioral finance. We are as well. And
Speaker 1: one of the things that I think can really engender
Speaker 1: good behaviors if you have dual mandates, so your focus
Speaker 1: isn't just my opically total return, but indirect indexing world.
Speaker 1: It's yeah, I want this exposure, but I'm also getting
Speaker 1: all these tax benefits when the market sells off. So
Speaker 1: you have this, it will pick me up when things
Speaker 1: are going in the wrong direction. Listen to a year
Speaker 1: like two. If you have other appreciated stock that you
Speaker 1: want to sell, you should be killing it on the
Speaker 1: tax tax less harvesting, even if you're not doing directing.
Speaker 1: That's right, but that just makes it even even better.
Speaker 1: So I know I only have you for a limited
Speaker 1: amount of time. Let me jump to my favorite questions
Speaker 1: that I ask all my guests, starting with tell us,
Speaker 1: what's been keeping you entertaining these days? What were you
Speaker 1: streaming during lockdown? Yes, so you know this is the thing.
Speaker 1: With all the content, Barry, I have become really hard
Speaker 1: to please. So I'll be watching a show imagine Ozarks
Speaker 1: or imagine recently House of Dragons. As soon as it
Speaker 1: starts to lag, I'm gone. I have no patience for
Speaker 1: shows and constant the way us doe. But I am
Speaker 1: watching and I haven't yet turned on. It is a
Speaker 1: show called Endeavor. It's a British detective show. It's not
Speaker 1: quite as grizzly. I don't think anything's grizzly with a
Speaker 1: British accent. So I enjoyed myself. It keeps me on
Speaker 1: my toes. So that's what I'm watching. That sounds really interesting.
Speaker 1: In fact, I know everybody kind of went through all
Speaker 1: the big ones like the Crown and whatever you but
Speaker 1: I found myself during lockdown working my way through a
Speaker 1: bunch of French, a bunch of British shows for that
Speaker 1: exact reason. It's like, you have to work, you have
Speaker 1: to pay attention, you have to pay attention, and that's
Speaker 1: a good thing. The thing with all the streaming is
Speaker 1: I'll have it on in the background and ten minutes
Speaker 1: later I not know, right, I totally get that. Tell
Speaker 1: us about your mentors who helped to shape your career. Okay,
Speaker 1: So I say the US, knowing that she will hate
Speaker 1: that I'm raising her name, but um, and I don't
Speaker 1: even know if she knows that this was the case
Speaker 1: for me. But when I joined the research group, I
Speaker 1: was of course new to finance. I was new to investing,
Speaker 1: and I was you know, I'm a very very deliberate,
Speaker 1: diligent person. So I'm working nights and weekends trying to
Speaker 1: discover the morning Star voice, which is where you explain
Speaker 1: complex things and very simple and accessible ways, and also
Speaker 1: just learning how to tell a good fund from a
Speaker 1: bad friend. And Christine Benz, who is a big name
Speaker 1: at morning Star, was on that team, a senior team member,
Speaker 1: and the edits that she would give me were so
Speaker 1: robust and helpful. I would get pages of edits, which
Speaker 1: of course doesn't sound like a good thing, but it
Speaker 1: was a really good thing because it it helps me
Speaker 1: understand things so much better. And she she had a
Speaker 1: number of standing slots on on TV shows, and when
Speaker 1: she wouldn't be able to make it, she would ask
Speaker 1: if I would want to do it in her place,
Speaker 1: and it was just just the kind of endorsement and
Speaker 1: encouragement that I needed. And I think that's kind of
Speaker 1: a special thing about morning Star, this idea that nobody's
Speaker 1: too big to help someone else grow in their career. Huh.
Speaker 1: I love that answer, And I'm gonna do something I
Speaker 1: don't normally do in this section, which is a follow
Speaker 1: up question. We were talking earlier before we started recording.
Speaker 1: We did the sound test. You said your voice was
Speaker 1: your being, of your existence, your soft voice, and that
Speaker 1: led to a whole other discussion. Tell us a little
Speaker 1: bit about working with Christine and other women at morning Star,
Speaker 1: and why is the soft voice so difficult in a
Speaker 1: field like finance for a woman. I think one of
Speaker 1: the things people look at. And maybe this is broadly
Speaker 1: in business, and maybe it's you know, specific to finance.
Speaker 1: I don't know. I'd imagine it's broader, but a very
Speaker 1: commanding presence. I think the visualization and the audio of
Speaker 1: a commanding presence is what captures attention. And as a woman,
Speaker 1: I have a softer voice. I'm a smaller person. You're
Speaker 1: relatively sure, that's right, So I don't have that that
Speaker 1: commanding kind of leader of a clan um looked to
Speaker 1: me and um, I think that might not be an
Speaker 1: issue for other people, but it certainly can get in
Speaker 1: my head from time to time. And I think what
Speaker 1: was so what has been powerful about morning Stars? There
Speaker 1: have been a lot of women at morning Star who
Speaker 1: have had a lot of influence who don't necessarily fit
Speaker 1: a profile UM. And I think, actually, as I think
Speaker 1: back to my days and research, there are a number
Speaker 1: of women who, um, we're really substantive, thoughtful people who um,
Speaker 1: you know, looked like me or had features that I had,
Speaker 1: And I think that was a real source of encouragement.
Speaker 1: Now as you move into the investing world, there tends
Speaker 1: to be fewer women, and that's something that of course
Speaker 1: everyone's wrestling with. How do we kind of make people
Speaker 1: feel like, um, they are welcome to climb any invisible
Speaker 1: barrier that they might see because their voices is valued.
Speaker 1: It's changing, although it takes a generation really have substantial
Speaker 1: invisible change. But there's no doubt that there are more
Speaker 1: women and senior listen your chief investment officers at morning Store.
Speaker 1: There are lots of other very senior women at at
Speaker 1: very large firms. I don't think women are as visible
Speaker 1: as men. But it's clearly there's there's certainly momentum, and
Speaker 1: you know, it's not a thing on its own, but
Speaker 1: we do want to make sure that we're getting the
Speaker 1: very best from the whole cross section of populations. Diversity
Speaker 1: of thought leads to better no doubt about that. Let's
Speaker 1: go to everybody's favorite question, talk about books. What are
Speaker 1: some of your favorite and what are you reading right now? Okay,
Speaker 1: so favorite books? And I'm thinking explicitly. I'm a big reader,
Speaker 1: I think, but I'm thinking explicitly from an investment standpoint.
Speaker 1: I think one of the books that I really loved
Speaker 1: was Missing to Leads Fooled by Randomness. I love that
Speaker 1: book partly because not I read it. I don't know,
Speaker 1: maybe five six, seven years ago. And at the time,
Speaker 1: I've been writing a lot of commentary where I'd say
Speaker 1: what happened in the markets that month or that quarter,
Speaker 1: and then I would think, I'm reading everyone else's commentary
Speaker 1: and they said, and this has because of X, Y
Speaker 1: and Z, and I would think it is I mean,
Speaker 1: those things both happened. The market did that, and that happened,
Speaker 1: but did one cause that? And they seemed as such
Speaker 1: a brilliant job of clarifying the fact that a lot
Speaker 1: of the things that we build narratives out of are
Speaker 1: just noise. And I think that's a really important and
Speaker 1: you know, the kind of truth that we should hold
Speaker 1: on to a specialized active investors and we look for
Speaker 1: those stories. Um that a lot of it is actually
Speaker 1: quite frankly noise. So I love that answer. What other
Speaker 1: books are you? Okay, so I'm reading right now, I'm
Speaker 1: reading The Bond King. I'm reading a book called UM,
Speaker 1: How to Have a Good Day, which is about how
Speaker 1: to prioritize and and organize your day so you get
Speaker 1: that satisfaction out of it that you long for. Um.
Speaker 1: It's by a woman named Caroline Webb. Is it a
Speaker 1: organizational tool or I do love checking those things? Well,
Speaker 1: that's that's the kind of thing that is very satisfied.
Speaker 1: That's the kind of thing she talks about. She talks about, uh,
Speaker 1: just kind of the behavioral elements that that come into play.
Speaker 1: So as a prioritization standpoint, planning your day ahead of time,
Speaker 1: knowing what those key things are that you need to
Speaker 1: do and not the other things. She talks about making focus,
Speaker 1: putting your activities into blocks. So this is my email block,
Speaker 1: this is my deep think block, so some really common
Speaker 1: sense and it's just one practical piece of advice after another.
Speaker 1: And then the last book that I just finished recently
Speaker 1: was called Bowling Alone. It's by Robert Putnam. It was
Speaker 1: written in two thousand and it's about the rise and
Speaker 1: then decline of social capital. So social capital being kind
Speaker 1: of the trust that we have in our community and
Speaker 1: our neighbors and our peers um and it's it's tracing
Speaker 1: that arc. And it was fascinating because obviously of COVID
Speaker 1: and lockdowns and the way we were so separate from
Speaker 1: one another and now we're coming back together. And it
Speaker 1: just got me thinking about the value of social capital
Speaker 1: and what that can mean for a country. What sort
Speaker 1: of advice would you give to a recent college grad
Speaker 1: who was interested in a career in either and for you,
Speaker 1: this is a long list, economics analysis, fund management, or
Speaker 1: being a chief investment officer. You know, one thing that
Speaker 1: I was not good at in college. I'm a present
Speaker 1: oriented person and I wasn't good at envisioning a career,
Speaker 1: and so I had just very general careers. Well, I
Speaker 1: could go into medicine, or I could be a lawyer.
Speaker 1: It didn't really think about the wide array of careers
Speaker 1: that are out there, and so I don't You don't
Speaker 1: want someone to become a little professional at age of
Speaker 1: nineteen and have some sort of you know, envision of
Speaker 1: their future in mind. But you do want people to
Speaker 1: know of the enormous amounts of variety that there is
Speaker 1: in professional life, and so I would I would suggest
Speaker 1: that people really pursue that really get a sense for
Speaker 1: the variety, whether that's taking random internships or whether that's
Speaker 1: you know, going to networking events in random things, just
Speaker 1: that you get a sampling you kind of date the
Speaker 1: investment market or the broader career market and get a
Speaker 1: sense for what's actually a fit for you. Really interesting.
Speaker 1: And our final question, what do know about the world
Speaker 1: of investing today that you wish you knew twenty five
Speaker 1: or so years ago when you were first getting started. Yeah.
Speaker 1: So there's a few things I mentioned um at the
Speaker 1: beginning of our conversation that during the global financial crisis,
Speaker 1: I learned that a lot of very credible, experienced people
Speaker 1: could be very very wrong. And the thing that I
Speaker 1: would tell myself is that it's okay to ask the
Speaker 1: dumb question. The dumb question is probably something that a
Speaker 1: lot of people don't fully understand, and you need to have,
Speaker 1: you know, the confidence and the willingness to put yourself
Speaker 1: out there and be like, I don't get the subprime thing.
Speaker 1: You know, I don't get these trunches, or you know,
Speaker 1: I don't understand why we should be trading off of
Speaker 1: CPI prints every month. Ask those questions. I think those
Speaker 1: questions are way more profounds than people think, really really interesting.
Speaker 1: We have been speaking with Marta Norton. She is c
Speaker 1: i O of Morning Star Investment Management. If you enjoy
Speaker 1: these conversations, well be sure and check out any of
Speaker 1: the previous I don't know four hundred and twenty seven
Speaker 1: we've done over the past eight years. You can find
Speaker 1: those at Bloomberg, Spotify, iTunes and now YouTube or wherever
Speaker 1: you fill your podcast uh fix. We love your comments,
Speaker 1: feedback and suggestions right to us at m IB podcast
Speaker 1: at Bloomberg dot net. Sign up for my daily reading
Speaker 1: list at Bloomberg dot com. Follow me on Twitter at
Speaker 1: rid Halts. I would be remiss if I did not
Speaker 1: thank the correct team that helps put these conversations together
Speaker 1: each week. Sarah Livesey is my audio engineer. Attica val
Speaker 1: Bron is my project manager. Our producer is Paris Wald.
Speaker 1: Our head of research is Sean Russo. I'm Barry Hults.
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.