1 00:00:10,600 --> 00:00:15,120 Speaker 1: Hello, and welcome to another episode of the odd Lot Podcast. 2 00:00:15,200 --> 00:00:19,079 Speaker 1: I'm Joe Wisenthal and I'm Tracy Halloway. Tracy, do you 3 00:00:19,120 --> 00:00:22,720 Speaker 1: remember our episode a few weeks ago with Mike Green. 4 00:00:23,720 --> 00:00:27,840 Speaker 1: I do, indeed. Fantastic episode. Yeah, this idea and of 5 00:00:27,880 --> 00:00:31,120 Speaker 1: course for those who don't recall it or those uh 6 00:00:31,320 --> 00:00:34,920 Speaker 1: maybe haven't listen to it, the topic was what are 7 00:00:35,040 --> 00:00:38,960 Speaker 1: the sort of distortions in the market that are being 8 00:00:39,000 --> 00:00:41,879 Speaker 1: caused by the rise of passive investing. People are just 9 00:00:42,280 --> 00:00:45,559 Speaker 1: throwing money a month after month, paycheck after paycheck in 10 00:00:45,600 --> 00:00:48,239 Speaker 1: the index funds. A lot of people think it's a 11 00:00:48,240 --> 00:00:51,720 Speaker 1: really good trend, but there is more attention and more 12 00:00:51,800 --> 00:00:54,600 Speaker 1: questions being raised by what is it really like mean 13 00:00:54,720 --> 00:00:58,080 Speaker 1: for markets and market structure when so much money isn't 14 00:00:58,120 --> 00:01:03,600 Speaker 1: going towards individual security selection? Right, there's this assumption that 15 00:01:03,680 --> 00:01:08,080 Speaker 1: passive investing is actually good in many ways because investors 16 00:01:08,120 --> 00:01:10,640 Speaker 1: are paying lower fees so over the long run they 17 00:01:10,680 --> 00:01:14,480 Speaker 1: make more money. But also in the sense that passive investing, 18 00:01:14,560 --> 00:01:18,080 Speaker 1: because you're just putting money into these big benchmarks that 19 00:01:18,200 --> 00:01:22,360 Speaker 1: are reflective of the market as it is, that you're 20 00:01:22,360 --> 00:01:26,959 Speaker 1: not actually impacting the market at all, and only now 21 00:01:27,000 --> 00:01:30,360 Speaker 1: are we starting to see some real criticism of that 22 00:01:30,440 --> 00:01:33,920 Speaker 1: thesis and also some academic research where people are saying 23 00:01:33,959 --> 00:01:38,720 Speaker 1: that actually passive investing and benchmark index construction can impact 24 00:01:38,880 --> 00:01:43,000 Speaker 1: the market itself. Right, And of course, you know passive investing. 25 00:01:43,040 --> 00:01:46,200 Speaker 1: You mentioned the low fees. There is also a body 26 00:01:46,240 --> 00:01:51,120 Speaker 1: of academic research on the side of passive investing, believers 27 00:01:51,120 --> 00:01:54,600 Speaker 1: in efficient markets and so forth, to essentially say, look, 28 00:01:55,200 --> 00:01:58,960 Speaker 1: the sum total of all active investors is just going 29 00:01:59,000 --> 00:02:02,600 Speaker 1: to be the index self, and you're unlikely to beat 30 00:02:02,640 --> 00:02:05,520 Speaker 1: the market with your own stocks selection, so why not 31 00:02:05,680 --> 00:02:08,480 Speaker 1: just buy the market itself and then you get the 32 00:02:08,520 --> 00:02:10,520 Speaker 1: same return as everyone else, but at least you didn't 33 00:02:10,560 --> 00:02:14,840 Speaker 1: pay the fees. My Green's argument when we talked to 34 00:02:14,919 --> 00:02:19,680 Speaker 1: him was essentially, it's creating all these distortions because the 35 00:02:19,760 --> 00:02:22,480 Speaker 1: money just sort of goes to the index itself that 36 00:02:22,600 --> 00:02:25,600 Speaker 1: drives the index higher, and anyone who's trying to buy 37 00:02:25,720 --> 00:02:30,119 Speaker 1: individual stocks, you know, can't possibly compete with a strategy 38 00:02:30,240 --> 00:02:33,440 Speaker 1: that's just put it all on the index. Right. And 39 00:02:33,560 --> 00:02:37,240 Speaker 1: there's this sort of underlying theme that's running through all 40 00:02:37,280 --> 00:02:40,560 Speaker 1: of this, which is what does passive investing actually imply 41 00:02:40,800 --> 00:02:44,480 Speaker 1: about the functioning of the market, and I suppose, uh 42 00:02:44,520 --> 00:02:47,959 Speaker 1: the state of capitalism, right, markets are supposed to be 43 00:02:48,160 --> 00:02:52,079 Speaker 1: funneling money in an efficient way, and if passive investing 44 00:02:52,160 --> 00:02:56,000 Speaker 1: is causing these sorts of distortions where these overvalued companies 45 00:02:56,040 --> 00:02:59,359 Speaker 1: just get more and more overvalued, I guess then is 46 00:02:59,480 --> 00:03:03,799 Speaker 1: capital some really working exactly right? So today we're going 47 00:03:03,840 --> 00:03:07,600 Speaker 1: to explore this topic further because it's clearly something that's 48 00:03:07,600 --> 00:03:10,560 Speaker 1: of growing interest, and we're gonna talk with someone else 49 00:03:10,639 --> 00:03:15,320 Speaker 1: who's done research on this exact question, also making the 50 00:03:15,440 --> 00:03:21,120 Speaker 1: argument that the rise of passive is creating weird, anomalous 51 00:03:21,160 --> 00:03:25,560 Speaker 1: bubble type behaviors in some stocks that's clearly different than 52 00:03:26,040 --> 00:03:28,839 Speaker 1: the old days. And so I think we're gonna get 53 00:03:28,880 --> 00:03:33,040 Speaker 1: more granular on what we're really seeing in the market 54 00:03:33,440 --> 00:03:36,440 Speaker 1: that says something is weird about how the market is 55 00:03:36,440 --> 00:03:40,720 Speaker 1: behaving specifically specifically because of the rise of passive. Great, 56 00:03:40,920 --> 00:03:43,880 Speaker 1: let's go granular. All right, We're gonna go granular. We're 57 00:03:43,880 --> 00:03:47,800 Speaker 1: gonna be talking today with Vincent Deliad. He's the director 58 00:03:47,880 --> 00:03:51,440 Speaker 1: of Global Macro for I N T l F C. Stone. 59 00:03:52,040 --> 00:03:55,920 Speaker 1: UH major broker dealer recently came out with a report 60 00:03:56,200 --> 00:04:00,640 Speaker 1: talking about the connection between passive investing and the sort 61 00:04:00,680 --> 00:04:03,880 Speaker 1: of rise of these mega caps and the connection between 62 00:04:03,960 --> 00:04:08,320 Speaker 1: the incredible performance of stocks like Apple and Microsoft and 63 00:04:08,480 --> 00:04:10,440 Speaker 1: Alphabet and so on, and what that has to do 64 00:04:10,480 --> 00:04:13,360 Speaker 1: with passive investing. So, Vincent, thank you very much for 65 00:04:13,480 --> 00:04:16,479 Speaker 1: joining us. Thanks for having me a pleasure. First of all, 66 00:04:16,480 --> 00:04:21,400 Speaker 1: before we get into the question of the distortionary impacts 67 00:04:21,480 --> 00:04:26,000 Speaker 1: of passive investing, what is I mean, some people debate 68 00:04:26,040 --> 00:04:29,200 Speaker 1: what that even means passive investing, and some people say, oh, 69 00:04:29,200 --> 00:04:32,080 Speaker 1: it's a myth, passive investing isn't even the thing or 70 00:04:32,360 --> 00:04:34,960 Speaker 1: whatever it is, or that everyone is making some sort 71 00:04:34,960 --> 00:04:38,200 Speaker 1: of active decision. But when we talk about this, how 72 00:04:38,240 --> 00:04:42,640 Speaker 1: do you define the phenomenon that seems to define this, uh, 73 00:04:42,680 --> 00:04:45,720 Speaker 1: this sort of age and investing. Yeah. Absolutely, I mean 74 00:04:47,040 --> 00:04:49,760 Speaker 1: I've been in my work. I've just define it as 75 00:04:50,320 --> 00:04:55,440 Speaker 1: investing it in um market gap weighted in the season. 76 00:04:55,480 --> 00:04:57,720 Speaker 1: And I do realize that people use them for short 77 00:04:57,800 --> 00:05:01,000 Speaker 1: term trading as as a replacement to other vehicle and 78 00:05:01,040 --> 00:05:02,520 Speaker 1: that at the end of the day there is a 79 00:05:02,600 --> 00:05:06,840 Speaker 1: human behind it. But my my focus, um, I think 80 00:05:06,880 --> 00:05:10,000 Speaker 1: and that's what the I think that the missing link 81 00:05:10,080 --> 00:05:11,720 Speaker 1: is for for a lot of people is to ask 82 00:05:11,760 --> 00:05:13,920 Speaker 1: not so much where the money is going, but where 83 00:05:14,080 --> 00:05:16,400 Speaker 1: is it coming from? And I think that's what creates 84 00:05:16,400 --> 00:05:21,200 Speaker 1: a distortion. So in the research note that Joe mentioned, 85 00:05:21,640 --> 00:05:25,160 Speaker 1: you subtitle it as dumb alpha how to be an 86 00:05:25,200 --> 00:05:29,400 Speaker 1: intelligent investor in a stupid age, which I find very 87 00:05:29,440 --> 00:05:32,599 Speaker 1: amusing but maybe a lot of index investors would find 88 00:05:32,680 --> 00:05:36,440 Speaker 1: kind of insulting. Why do you think passive investing or 89 00:05:36,480 --> 00:05:40,599 Speaker 1: index investing is dumb alpha? Walk us through your thought 90 00:05:40,640 --> 00:05:44,400 Speaker 1: process here, because, as you point out, actually following the 91 00:05:44,480 --> 00:05:49,280 Speaker 1: indusicries putting money in the most overvalued stocks would have 92 00:05:49,320 --> 00:05:53,680 Speaker 1: paid off in recent times. Absolutely. I mean this was 93 00:05:53,720 --> 00:05:56,760 Speaker 1: the driver for for the title is you look at 94 00:05:56,880 --> 00:05:59,320 Speaker 1: last year, I think the SMP five index out before 95 00:05:59,320 --> 00:06:03,159 Speaker 1: maybe five sound of global stocks. So if you wanted 96 00:06:03,200 --> 00:06:07,400 Speaker 1: to generate alpha, then you have this traditional framework right 97 00:06:07,440 --> 00:06:10,599 Speaker 1: where you have beta, which is just buying exposure to 98 00:06:10,640 --> 00:06:12,640 Speaker 1: the index, and an alpha I'm gonna, you know, pick 99 00:06:12,680 --> 00:06:14,600 Speaker 1: stocks and because I'm smart and I'm going to beat 100 00:06:14,640 --> 00:06:17,000 Speaker 1: the market. What I would slap on its head last year, 101 00:06:17,640 --> 00:06:20,160 Speaker 1: the way to generate alpha was to own the index, 102 00:06:20,560 --> 00:06:23,200 Speaker 1: and pretty much anyone who did not own Apple or 103 00:06:23,200 --> 00:06:25,600 Speaker 1: Microsoft in proportion to their weights in the index ended 104 00:06:25,680 --> 00:06:30,159 Speaker 1: up under performing, regardless of how skillful you were with 105 00:06:30,160 --> 00:06:32,440 Speaker 1: with your trading. And you know, it's recently talking to 106 00:06:32,520 --> 00:06:34,640 Speaker 1: a friend who runs a hedge phone and had a 107 00:06:34,680 --> 00:06:38,599 Speaker 1: good year but underperformed the index because Apple was reclassified, 108 00:06:38,640 --> 00:06:42,159 Speaker 1: and just that simple factory classifying Apple men that a 109 00:06:42,240 --> 00:06:44,479 Speaker 1: great year ended up being a bad year. And I 110 00:06:44,480 --> 00:06:47,120 Speaker 1: think that's an experience that's very common for for many 111 00:06:47,120 --> 00:06:51,839 Speaker 1: investors last year. So you mentioned that the SMP five 112 00:06:51,920 --> 00:06:57,080 Speaker 1: hundred itself is essentially where the alpha is, and that 113 00:06:57,240 --> 00:07:01,480 Speaker 1: it beat the majority of stocks. Of the stocks underperformed. 114 00:07:02,120 --> 00:07:06,040 Speaker 1: I was under the oppression that historically most stocks did 115 00:07:06,120 --> 00:07:09,279 Speaker 1: bad and that historically the vast majority of gains in 116 00:07:09,320 --> 00:07:14,320 Speaker 1: any environment, whether it's passive or whatever, are often generated 117 00:07:14,320 --> 00:07:16,360 Speaker 1: by a handful of stocks, and that over time most 118 00:07:16,360 --> 00:07:21,440 Speaker 1: stocks do underperform the index. How different is what you're 119 00:07:21,480 --> 00:07:24,560 Speaker 1: seeing now with that level of out performance of the 120 00:07:24,600 --> 00:07:27,560 Speaker 1: index versus a twenty years ago or forty years ago 121 00:07:27,600 --> 00:07:29,880 Speaker 1: or long before. Just sort of buying the s P 122 00:07:30,080 --> 00:07:32,960 Speaker 1: y E t F was a major thing that investors 123 00:07:32,960 --> 00:07:35,600 Speaker 1: did right. So what you're referring to, I think is 124 00:07:35,600 --> 00:07:37,760 Speaker 1: is Barto's law. You know, you get eighty percent of 125 00:07:37,800 --> 00:07:41,080 Speaker 1: your revenue from your top customers, or the same thing 126 00:07:41,120 --> 00:07:44,840 Speaker 1: with stock market returns. Uh, what's unique about last year, 127 00:07:44,920 --> 00:07:48,440 Speaker 1: or maybe not unique, but at least rare, is that 128 00:07:48,520 --> 00:07:52,440 Speaker 1: the larger stock in the index massively outperformed. Then you 129 00:07:52,480 --> 00:07:54,520 Speaker 1: can go back. I mean, it's it's a very easy 130 00:07:54,520 --> 00:07:56,360 Speaker 1: simulation to run. I mean, you can go back on 131 00:07:56,400 --> 00:07:58,680 Speaker 1: the data you know up to the beginning of the 132 00:07:58,720 --> 00:08:02,120 Speaker 1: twentieth century. And one of the easiest way to have 133 00:08:02,160 --> 00:08:05,160 Speaker 1: generated consistent alpha would just be a void your larger 134 00:08:05,200 --> 00:08:07,800 Speaker 1: stock in the index. I mean, that's the I care 135 00:08:07,920 --> 00:08:10,760 Speaker 1: scurs if you want. You know, once, once I car 136 00:08:11,120 --> 00:08:13,240 Speaker 1: runs too close to the sun, he falls down. Like 137 00:08:13,480 --> 00:08:16,080 Speaker 1: usually stocks that become the largest in the world even 138 00:08:16,160 --> 00:08:21,160 Speaker 1: face increased competition, regulated scrutiny, just ubers because you know, 139 00:08:21,160 --> 00:08:24,240 Speaker 1: it's hard to grow and usually fall back. And of 140 00:08:24,280 --> 00:08:27,560 Speaker 1: course last year was the big exception, with you know, 141 00:08:27,600 --> 00:08:30,280 Speaker 1: Apple up like probably on a toll return basis close 142 00:08:31,640 --> 00:08:34,400 Speaker 1: and then Microsoft closely behind. So all you have to 143 00:08:34,400 --> 00:08:37,160 Speaker 1: do last year to a fantastic year is just on 144 00:08:37,320 --> 00:08:39,760 Speaker 1: the largest two stocks in the world, which is usually 145 00:08:39,800 --> 00:08:42,560 Speaker 1: not the way you make the money. So can you 146 00:08:42,600 --> 00:08:46,080 Speaker 1: walk us through the mechanics of what's actually happening here, 147 00:08:46,240 --> 00:08:50,880 Speaker 1: Like why are these you know, big overvalued stocks like Microsoft, 148 00:08:50,920 --> 00:08:55,880 Speaker 1: like Apple? Why does money continue to flow into them? Right? 149 00:08:56,200 --> 00:08:59,079 Speaker 1: And I think that's that is the part where I 150 00:08:59,120 --> 00:09:04,960 Speaker 1: think the the criticism of passive is traditionally weak, and 151 00:09:05,000 --> 00:09:08,000 Speaker 1: I think part of it comes from a bigger place 152 00:09:08,040 --> 00:09:10,760 Speaker 1: of resentment. Like you have a lot of active managers 153 00:09:10,760 --> 00:09:13,640 Speaker 1: that are the performed and and every year they read 154 00:09:13,679 --> 00:09:18,520 Speaker 1: the SNP a active versus passive reports that says, oh, 155 00:09:19,240 --> 00:09:22,360 Speaker 1: of the age underperform and that number rises over time, 156 00:09:22,440 --> 00:09:25,360 Speaker 1: and it's a it's a very painful fit. So you 157 00:09:25,400 --> 00:09:29,040 Speaker 1: have a lot of like resentment and and and he said, well, 158 00:09:29,080 --> 00:09:31,600 Speaker 1: it's because you know the index functions by the larger stocks, 159 00:09:32,320 --> 00:09:34,600 Speaker 1: and that's not exactly true. I mean it's very easy 160 00:09:34,640 --> 00:09:37,560 Speaker 1: if you're Vanguard or black Rock to to respond, well, no, 161 00:09:38,000 --> 00:09:42,760 Speaker 1: if we market gap waiting, we are not overweighting anything. 162 00:09:43,280 --> 00:09:47,840 Speaker 1: We let we let the active segment of the markets 163 00:09:47,840 --> 00:09:50,080 Speaker 1: at price, and we just span wagon. We don't do 164 00:09:50,160 --> 00:09:54,880 Speaker 1: price discovery, So any sort of um miss pricing is 165 00:09:55,120 --> 00:09:58,640 Speaker 1: not coming from us. And that's a powerful argument one 166 00:09:58,679 --> 00:10:02,959 Speaker 1: that I I don't think we should take the correct 167 00:10:03,040 --> 00:10:06,640 Speaker 1: argument is more, okay, passive does not create distortion, But 168 00:10:06,800 --> 00:10:09,679 Speaker 1: can we think about where where the money coming into 169 00:10:09,679 --> 00:10:13,480 Speaker 1: passive vehicle is coming from? And if this sector is 170 00:10:13,520 --> 00:10:18,559 Speaker 1: structurally underway these megacaps, then shifting from them into market 171 00:10:18,600 --> 00:10:22,160 Speaker 1: cap weight will result in net buying of the megacap stocks. 172 00:10:22,200 --> 00:10:26,160 Speaker 1: So what do we see empirically in terms of the 173 00:10:26,320 --> 00:10:31,480 Speaker 1: performance of across the spire or other indicries. So you 174 00:10:31,559 --> 00:10:33,560 Speaker 1: and you made the point right in the beginning, which 175 00:10:33,600 --> 00:10:35,520 Speaker 1: I think was key. It's not enough to say that 176 00:10:35,559 --> 00:10:38,160 Speaker 1: the money is going into pass of it's that it's 177 00:10:38,160 --> 00:10:40,079 Speaker 1: come what it's coming out of it. So what you're 178 00:10:40,360 --> 00:10:43,400 Speaker 1: said in that last answer is essentially the money is 179 00:10:43,400 --> 00:10:47,760 Speaker 1: coming out of active managers. The active managers were probably 180 00:10:47,960 --> 00:10:51,600 Speaker 1: underweight the very largest companies, and so therefore there is 181 00:10:51,679 --> 00:10:56,640 Speaker 1: this rotation of people putting money UH into funds that 182 00:10:56,720 --> 00:11:00,160 Speaker 1: are are more heavily exposed to the largest companies. Do 183 00:11:00,240 --> 00:11:03,839 Speaker 1: we see the reverse though? Where do we see UH 184 00:11:03,960 --> 00:11:07,880 Speaker 1: Now just the upward pole on the biggest companies, but 185 00:11:07,920 --> 00:11:12,839 Speaker 1: do we see drags on smaller companies relative weakness of 186 00:11:12,920 --> 00:11:15,880 Speaker 1: the lower end of the five. So that's not just 187 00:11:15,960 --> 00:11:19,719 Speaker 1: about the behavior of a few tech mega caps. Yeah, absolutely, 188 00:11:19,800 --> 00:11:23,800 Speaker 1: I mean you have because generally it's you know, you say, 189 00:11:23,840 --> 00:11:27,240 Speaker 1: an asset to buy another one, so it's not really 190 00:11:27,440 --> 00:11:29,280 Speaker 1: new money. I mean, if anything, that's been one of 191 00:11:29,320 --> 00:11:33,640 Speaker 1: the um peculiarities of this cycle is how little new 192 00:11:33,679 --> 00:11:36,080 Speaker 1: money has gone into the market. You know, the investor 193 00:11:36,200 --> 00:11:38,880 Speaker 1: mostly sides size staying on the sideline pretty much. Is 194 00:11:39,360 --> 00:11:44,200 Speaker 1: really since the Vics armageddon in into January eighteen, you've 195 00:11:44,240 --> 00:11:48,640 Speaker 1: seen steady outflows on equity phones, more more and more 196 00:11:48,679 --> 00:11:50,559 Speaker 1: outflows some metual phones than you have from ets on 197 00:11:50,600 --> 00:11:53,120 Speaker 1: net selling, which is very unusual as the market makes 198 00:11:53,120 --> 00:11:55,960 Speaker 1: the top. So it's been indeed not new money but 199 00:11:56,520 --> 00:11:59,280 Speaker 1: shifting money, and and so the place where the money 200 00:11:59,360 --> 00:12:01,600 Speaker 1: to to MEAs of that effect, what I did is 201 00:12:02,240 --> 00:12:05,480 Speaker 1: I looked at the top two d largest mutual froms 202 00:12:05,480 --> 00:12:09,560 Speaker 1: in the US with management field more than one percent, 203 00:12:10,440 --> 00:12:12,959 Speaker 1: and I thought that would be a very good proxy 204 00:12:13,040 --> 00:12:18,520 Speaker 1: for the asset losing segment of the market obviously, uh. 205 00:12:18,559 --> 00:12:21,160 Speaker 1: And I looked at the top twenty holdings and I 206 00:12:21,200 --> 00:12:23,520 Speaker 1: looked whether they had any of them are called the 207 00:12:23,559 --> 00:12:27,280 Speaker 1: thank plus Fang plus Microsoft testline. So for fact that 208 00:12:27,280 --> 00:12:29,960 Speaker 1: the big megacaps have been driving the rally. And what 209 00:12:30,080 --> 00:12:33,439 Speaker 1: I found is that more than half of these mutual 210 00:12:33,480 --> 00:12:36,800 Speaker 1: forms do not have the Fank plus in their top 211 00:12:36,840 --> 00:12:41,680 Speaker 1: ten holding UH, and the vast majority of them who 212 00:12:42,160 --> 00:12:44,880 Speaker 1: own these stocks have them in a much more proportion 213 00:12:44,920 --> 00:12:47,200 Speaker 1: than they were in the index. So to me, that 214 00:12:47,320 --> 00:12:49,839 Speaker 1: is the source of this distortion, as these guys lose money, 215 00:12:49,880 --> 00:12:53,400 Speaker 1: and as that money flows into market cap waiting index 216 00:12:54,400 --> 00:12:58,240 Speaker 1: the way UM in terms of of net flow, it 217 00:12:58,280 --> 00:13:02,319 Speaker 1: means net selling of these guys on which is primarily 218 00:13:02,400 --> 00:13:07,560 Speaker 1: value oriented small cap stocks into large growth And to 219 00:13:07,679 --> 00:13:11,920 Speaker 1: answer finally answer your your question, UM, you certainly see 220 00:13:11,920 --> 00:13:14,880 Speaker 1: that enormous valuation discrepancy that has open between you can 221 00:13:14,880 --> 00:13:18,120 Speaker 1: growth and value. Um. Actually it's higher today than it 222 00:13:18,240 --> 00:13:19,920 Speaker 1: was back at the peak of two thousand if you 223 00:13:20,080 --> 00:13:21,800 Speaker 1: get the FAMI French data that goes back all the 224 00:13:21,840 --> 00:13:24,520 Speaker 1: way to the twenties. The slope of the market meaning 225 00:13:24,559 --> 00:13:28,440 Speaker 1: how how expensive your most decides, which is your cheapest decide, 226 00:13:28,440 --> 00:13:31,560 Speaker 1: has never been greater and she's consistently we being seeing 227 00:13:33,360 --> 00:13:37,680 Speaker 1: What do you say to two people who would argue that, UM, 228 00:13:37,760 --> 00:13:40,640 Speaker 1: the price on something like an Apple or a Microsoft 229 00:13:40,720 --> 00:13:44,560 Speaker 1: is justified by the amount of dividends or buy backs 230 00:13:44,600 --> 00:13:46,640 Speaker 1: that they've been doing in the market. So if you 231 00:13:46,720 --> 00:13:49,920 Speaker 1: can't get a massive growth in the share price, maybe 232 00:13:49,920 --> 00:13:53,280 Speaker 1: you can get growth through the dividend for instance. So 233 00:13:54,040 --> 00:13:56,480 Speaker 1: that would be one argument for buying these things even 234 00:13:56,520 --> 00:14:01,080 Speaker 1: at inflated levels. What do you say to that, right, Well, 235 00:14:01,320 --> 00:14:04,480 Speaker 1: first of all, I wouldn't exactly define the dividend deals 236 00:14:04,480 --> 00:14:08,679 Speaker 1: as extremely high. I mean, you could probably have made 237 00:14:08,679 --> 00:14:14,800 Speaker 1: that argument in December December twenty four eighteen when went Apples, 238 00:14:14,920 --> 00:14:17,560 Speaker 1: you know, trading at a UM I don't like eleven 239 00:14:17,600 --> 00:14:20,880 Speaker 1: twelve p something like that. After last year, it becomes 240 00:14:20,920 --> 00:14:24,160 Speaker 1: a lot harder, especially and again as as I explained 241 00:14:24,160 --> 00:14:26,440 Speaker 1: that the money is coming from forms that have a 242 00:14:26,520 --> 00:14:30,080 Speaker 1: value tilt to them, So if anything, they're probably selling 243 00:14:30,080 --> 00:14:32,560 Speaker 1: stock to the higher dividion deild to go into into 244 00:14:32,640 --> 00:14:35,440 Speaker 1: lower dividient deal. But the buyback question is is also 245 00:14:35,520 --> 00:14:38,840 Speaker 1: quite interesting um and I think it adds to this 246 00:14:39,000 --> 00:14:41,920 Speaker 1: kind of supply and demand demanding balance. If you look 247 00:14:41,960 --> 00:14:45,280 Speaker 1: at last year, it's no surprise at the best performing 248 00:14:45,320 --> 00:14:48,840 Speaker 1: stock where Apple and Microsoft the two large gap texts 249 00:14:48,840 --> 00:14:52,320 Speaker 1: with the largest buyback programs. So you have this rotation 250 00:14:52,360 --> 00:14:54,800 Speaker 1: that resulting kind of structural buying at these stocks, and 251 00:14:54,800 --> 00:14:56,840 Speaker 1: then on top of that you have a I mean, 252 00:14:56,960 --> 00:14:58,640 Speaker 1: I don't have the exact number, but I think for 253 00:14:58,680 --> 00:15:00,280 Speaker 1: Apple it was a closed to five to s person 254 00:15:00,240 --> 00:15:02,360 Speaker 1: on the market gab that they brought back last year. 255 00:15:03,000 --> 00:15:07,120 Speaker 1: And I mean, I hate to sound to say it, 256 00:15:07,200 --> 00:15:09,760 Speaker 1: but sometimes the market goes up because there's mobiles and 257 00:15:09,840 --> 00:15:13,800 Speaker 1: set us what about Okay? So one of the things 258 00:15:13,840 --> 00:15:17,840 Speaker 1: that you point out is that historically speaking, you could 259 00:15:17,920 --> 00:15:23,120 Speaker 1: generate alpha simply as easily as avoiding the biggest companies 260 00:15:23,480 --> 00:15:25,520 Speaker 1: in the index, and that you know, there's just sort 261 00:15:25,520 --> 00:15:28,480 Speaker 1: of like a natural I guess maybe the icarous effect 262 00:15:28,480 --> 00:15:30,680 Speaker 1: following too close to the sun or some sort of 263 00:15:31,080 --> 00:15:34,880 Speaker 1: natural diseconomies of scale where there's always so forth so 264 00:15:34,960 --> 00:15:39,040 Speaker 1: far you can go. What about the idea though, that 265 00:15:39,440 --> 00:15:42,200 Speaker 1: tech is unique and the way it's unique is that 266 00:15:42,640 --> 00:15:46,560 Speaker 1: the competitiveness of data driven companies goes up as they 267 00:15:46,560 --> 00:15:50,000 Speaker 1: get bigger. So if you're a Facebook and you have Instagram, 268 00:15:50,120 --> 00:15:52,840 Speaker 1: you can serve a higher quality of ads with a 269 00:15:52,880 --> 00:15:56,480 Speaker 1: billion users than a company that just has a million 270 00:15:56,560 --> 00:15:58,640 Speaker 1: users because you have so much more data and your 271 00:15:58,640 --> 00:16:01,400 Speaker 1: business runs better. And of what you could make the 272 00:16:01,480 --> 00:16:06,240 Speaker 1: argument that these megacaps are better and more competitive and 273 00:16:06,320 --> 00:16:10,000 Speaker 1: more in a position to grow organically, setting aside share 274 00:16:10,040 --> 00:16:13,240 Speaker 1: price then big companies in the past, because there are 275 00:16:13,440 --> 00:16:17,560 Speaker 1: returns to scale and that maybe you just can't compare 276 00:16:17,960 --> 00:16:20,680 Speaker 1: a really large tech company that has the advantage of 277 00:16:20,720 --> 00:16:23,720 Speaker 1: all this data versus I don't know, a big steel 278 00:16:23,760 --> 00:16:27,000 Speaker 1: company from fifty years ago. Yeah, that is a very 279 00:16:27,160 --> 00:16:30,880 Speaker 1: white u K argument, which you know, coincidently that the 280 00:16:30,960 --> 00:16:34,600 Speaker 1: last time we saw this this phenomenon was you remember 281 00:16:34,640 --> 00:16:39,760 Speaker 1: when when Cisco in the in the fourth quarter. You know, 282 00:16:39,880 --> 00:16:43,280 Speaker 1: I think triple quadrupled in just three months, and I 283 00:16:43,280 --> 00:16:45,760 Speaker 1: think it end up at a close to sixion market gap, 284 00:16:45,800 --> 00:16:47,600 Speaker 1: and and then that was the top of the market. 285 00:16:47,960 --> 00:16:49,760 Speaker 1: But the argument was exactly the same. It was it 286 00:16:49,880 --> 00:16:52,720 Speaker 1: the network effect, right, I mean, as we enter in 287 00:16:52,760 --> 00:16:57,760 Speaker 1: this dematalized world, we no longer have the you know, 288 00:16:58,040 --> 00:17:00,600 Speaker 1: the low of the mission return, which from montl principle 289 00:17:00,640 --> 00:17:02,960 Speaker 1: of economics no longer applies because you're dealing with we 290 00:17:03,520 --> 00:17:07,080 Speaker 1: with data instead of things, and the more people are 291 00:17:07,080 --> 00:17:10,080 Speaker 1: are on your network, the more valuable it becomes. Today, 292 00:17:10,119 --> 00:17:14,879 Speaker 1: there is more of a big data AI uh tweak 293 00:17:14,960 --> 00:17:17,800 Speaker 1: to the argument, but it's definitely the same one. Um 294 00:17:17,840 --> 00:17:19,560 Speaker 1: I mean, I'll just point to the experience of of 295 00:17:19,640 --> 00:17:21,760 Speaker 1: two thousand. You know, it didn't work out all that 296 00:17:21,800 --> 00:17:24,920 Speaker 1: wealth for Cisco, uh, and then for the companies for 297 00:17:25,040 --> 00:17:27,040 Speaker 1: which I think there was indeed some sort of a 298 00:17:27,119 --> 00:17:33,040 Speaker 1: natural monopoly, like Microsoft, Eventually the regulators caught on with it. 299 00:17:33,040 --> 00:17:36,680 Speaker 1: Because if reality is the way you describe it, and 300 00:17:37,080 --> 00:17:39,240 Speaker 1: I think then we have a almost a social and 301 00:17:39,240 --> 00:17:42,560 Speaker 1: political problem that you know, wealth just accrues to the 302 00:17:42,560 --> 00:17:47,320 Speaker 1: one that have the most powerful platform, and competition becomes impossible, right, 303 00:17:47,359 --> 00:17:50,000 Speaker 1: which is when you would expect regulatory pressure to come 304 00:17:50,040 --> 00:17:52,680 Speaker 1: into the play as well. And that's exactly what happened 305 00:17:52,680 --> 00:17:55,159 Speaker 1: to Microsoft back in you know, with the various and 306 00:17:55,760 --> 00:17:58,239 Speaker 1: probe in the both Europe and the US in the 307 00:17:58,320 --> 00:18:11,600 Speaker 1: late nineties. One of the really interesting things in your 308 00:18:11,600 --> 00:18:15,240 Speaker 1: report is you talk a little bit about demographics and 309 00:18:15,400 --> 00:18:21,120 Speaker 1: different approaches to investing between baby boomers and millennials, who 310 00:18:21,160 --> 00:18:24,280 Speaker 1: are you know, really just starting to accrue wealth in 311 00:18:24,320 --> 00:18:27,119 Speaker 1: the stock market. Can you talk about how that plays 312 00:18:27,240 --> 00:18:31,280 Speaker 1: into your thesis about you know, money flowing into certain things, 313 00:18:31,320 --> 00:18:36,199 Speaker 1: but also money coming out of certain things, right, I 314 00:18:36,200 --> 00:18:40,879 Speaker 1: mean overwhelmingly, um, you know, baby boomers are in you know, 315 00:18:41,280 --> 00:18:45,320 Speaker 1: they came of age, you know, really started saving in 316 00:18:45,359 --> 00:18:47,920 Speaker 1: the nineties at the time when you had the Peter Lynch, 317 00:18:48,480 --> 00:18:51,920 Speaker 1: the big you know mutual from managers and they were 318 00:18:51,920 --> 00:18:55,200 Speaker 1: happy to pay you know, one percent management fee to 319 00:18:55,400 --> 00:18:59,960 Speaker 1: invest with an exceptional type at the time active manager 320 00:19:00,119 --> 00:19:03,240 Speaker 1: actually did perform quite well and anywhere returns were higher, 321 00:19:03,320 --> 00:19:06,760 Speaker 1: so people were not less constensitive. And as as as 322 00:19:06,760 --> 00:19:10,120 Speaker 1: I'm sure everybody knows here that the medium baby boomer 323 00:19:10,280 --> 00:19:14,480 Speaker 1: is somewhere around six sixty five. As you head into retirement, 324 00:19:14,640 --> 00:19:17,119 Speaker 1: you reduce your allocation to risk as that increased that 325 00:19:17,200 --> 00:19:20,560 Speaker 1: of bonds, which in many way explains the floor paraducts 326 00:19:20,560 --> 00:19:23,280 Speaker 1: that I was highlighting before, where we see the market 327 00:19:23,280 --> 00:19:26,280 Speaker 1: making you high, but money coming out of major funds. 328 00:19:26,800 --> 00:19:30,640 Speaker 1: So boomers are selling their holdings which are primarily made 329 00:19:30,640 --> 00:19:35,600 Speaker 1: of high fee value tilted small cap tilted mutual funds. 330 00:19:35,680 --> 00:19:38,840 Speaker 1: And to the extent that millennials are building wealth, which 331 00:19:39,000 --> 00:19:41,080 Speaker 1: you know, as you all know, is not as fast 332 00:19:41,119 --> 00:19:45,720 Speaker 1: as everyone would wish, um, that that money is primarily 333 00:19:45,720 --> 00:19:49,200 Speaker 1: invested yeah, you know, robot advisor or even directly in 334 00:19:49,480 --> 00:19:53,199 Speaker 1: local CITF and it's a very it's very hard to 335 00:19:53,200 --> 00:19:57,560 Speaker 1: see the strength change, um, in two thousand twenty two one. 336 00:19:58,600 --> 00:20:01,480 Speaker 1: As much as like and you know, someone who believes 337 00:20:01,520 --> 00:20:05,840 Speaker 1: in market based allocation of capital and and and the 338 00:20:05,920 --> 00:20:09,320 Speaker 1: value of price discovery, it's very hard to see this 339 00:20:10,320 --> 00:20:14,520 Speaker 1: change in the near or even medium term. I want 340 00:20:14,560 --> 00:20:18,320 Speaker 1: to go back real quickly to the question of, uh, 341 00:20:18,480 --> 00:20:22,000 Speaker 1: comparing mega caps today versus back of the day when 342 00:20:22,040 --> 00:20:24,520 Speaker 1: it was a big steel company. So as if the 343 00:20:24,600 --> 00:20:28,600 Speaker 1: day were recording this just for people's uh, you know knowledge, 344 00:20:28,960 --> 00:20:31,160 Speaker 1: we're recording this a few weeks before it comes out. 345 00:20:31,520 --> 00:20:34,120 Speaker 1: But the day before we recorded this, we got earnings 346 00:20:34,160 --> 00:20:38,040 Speaker 1: from one of those mega caps, Alphabet the core advertising 347 00:20:38,080 --> 00:20:44,320 Speaker 1: business up seventeen percent, the cloud business, I mean whatever, 348 00:20:44,680 --> 00:20:47,960 Speaker 1: it was, the biggest company in or whatever. I don't 349 00:20:48,000 --> 00:20:50,119 Speaker 1: know what it was, but probably some big industrial right 350 00:20:50,640 --> 00:20:54,640 Speaker 1: like they were growing like this, were they you had 351 00:20:54,720 --> 00:20:57,080 Speaker 1: such incredible like I just want to push I mean, 352 00:20:57,119 --> 00:21:00,760 Speaker 1: these are like incredible numbers. That's what would say, okay 353 00:21:00,760 --> 00:21:04,479 Speaker 1: forgetting passive, forgetting all of this, Like it's just it's uh, 354 00:21:04,840 --> 00:21:08,640 Speaker 1: they're incredible juggernauts that make more and more money every year. 355 00:21:08,960 --> 00:21:11,719 Speaker 1: And it's funny you should bring up the sixties and 356 00:21:11,760 --> 00:21:15,480 Speaker 1: seventies because you actually had something very similar, which is 357 00:21:15,480 --> 00:21:18,280 Speaker 1: the nifty fifties, right. Um, so at the time it 358 00:21:18,400 --> 00:21:24,120 Speaker 1: was your your IBM, your Coca Cola, American Express McDonald's, UM. 359 00:21:24,480 --> 00:21:26,800 Speaker 1: And I don't have off the top of my head 360 00:21:26,840 --> 00:21:29,840 Speaker 1: down on on how fast they grew. But it also 361 00:21:30,080 --> 00:21:32,280 Speaker 1: seemed like, you know, they had these kind of new 362 00:21:32,600 --> 00:21:35,160 Speaker 1: methods of management that had been you know, invented after 363 00:21:35,200 --> 00:21:38,679 Speaker 1: the war. They were the first multinational. They had you know, 364 00:21:39,400 --> 00:21:42,280 Speaker 1: some sorts, you know, Europe was recovering Asia. It seemed 365 00:21:42,320 --> 00:21:44,480 Speaker 1: that they also had endless growth. And the argument that 366 00:21:44,560 --> 00:21:46,560 Speaker 1: was made at the time, you know, they were one 367 00:21:46,600 --> 00:21:49,320 Speaker 1: decision stock, don't worry but the valuation they'll grow into it, 368 00:21:49,760 --> 00:21:52,199 Speaker 1: which is exactly what we hear today about you know, 369 00:21:52,320 --> 00:21:56,120 Speaker 1: Google and the other the other mega captain. The one 370 00:21:56,119 --> 00:21:59,920 Speaker 1: thing I would point on on the the earning side 371 00:22:00,040 --> 00:22:05,760 Speaker 1: these well actually two things. Uh one watch for margins 372 00:22:05,840 --> 00:22:10,800 Speaker 1: and cogs um actional salary costs. I mean, that's that's 373 00:22:10,800 --> 00:22:14,520 Speaker 1: an area that's been really painfully growing much faster than 374 00:22:14,600 --> 00:22:17,479 Speaker 1: earning the revenues. And people cannot focus oh, you know, 375 00:22:18,840 --> 00:22:21,440 Speaker 1: you know top line revenue. Look at how much SARAH 376 00:22:21,480 --> 00:22:24,360 Speaker 1: expenses are growing, especially stock based compensation and I think 377 00:22:24,359 --> 00:22:27,159 Speaker 1: that's a that's a huge advantage that these companies have 378 00:22:27,480 --> 00:22:31,160 Speaker 1: over traditional companies. You know, you look at a typical 379 00:22:31,640 --> 00:22:36,399 Speaker 1: sary package at Google or Facebook or Amazon. First of all, 380 00:22:36,440 --> 00:22:39,600 Speaker 1: it's very very high inter I was reading a piece 381 00:22:39,640 --> 00:22:41,720 Speaker 1: that I think it was in Bloomberg. Interns at Facebook 382 00:22:42,000 --> 00:22:44,800 Speaker 1: start at eight thousand, eight thousand dollar a month. Entry 383 00:22:44,880 --> 00:22:47,040 Speaker 1: level jobs are probably more round two hundred, and then 384 00:22:47,040 --> 00:22:50,439 Speaker 1: mid level you're looking at four hundred. But half of 385 00:22:50,480 --> 00:22:52,880 Speaker 1: that is paid in stock, so you don't really feel 386 00:22:52,880 --> 00:22:55,400 Speaker 1: the pinch, right because if you pay, if you pay 387 00:22:55,400 --> 00:22:59,160 Speaker 1: your new employees in stock or half of your camping stock, hey, 388 00:22:59,200 --> 00:23:00,719 Speaker 1: you can steell end up with the cash at the end, 389 00:23:00,760 --> 00:23:03,199 Speaker 1: so you can do a buy back. You can you know, 390 00:23:03,280 --> 00:23:05,840 Speaker 1: invest in the next big startup. You can. I guess 391 00:23:05,880 --> 00:23:08,119 Speaker 1: if employees assume that the stock is going to keep 392 00:23:08,119 --> 00:23:13,080 Speaker 1: going up year, that's the sumplicitly worth more than cash, 393 00:23:13,119 --> 00:23:15,080 Speaker 1: even if it's the same award and in to some 394 00:23:15,200 --> 00:23:18,080 Speaker 1: extent it also adds to my my supply and Amanda 395 00:23:18,920 --> 00:23:22,240 Speaker 1: argument before, and that's only. Another peculiarity about a lot 396 00:23:22,240 --> 00:23:25,639 Speaker 1: of these TEX stocks is that the float is actually 397 00:23:25,640 --> 00:23:29,040 Speaker 1: smaller than the market gap because well, in many cases, 398 00:23:29,080 --> 00:23:30,800 Speaker 1: you have a found that that has a significant stake. 399 00:23:30,880 --> 00:23:34,240 Speaker 1: I mean you can think of Amazon with Bazos and Mackenzie, 400 00:23:34,800 --> 00:23:37,080 Speaker 1: and then you have employees who have also been given 401 00:23:37,080 --> 00:23:39,480 Speaker 1: stocks over the year and sometimes been quite reluctant to sell. 402 00:23:39,560 --> 00:23:42,119 Speaker 1: So if you have a base of investor that's not 403 00:23:42,160 --> 00:23:44,480 Speaker 1: willing to sell the stock and you have index ones 404 00:23:44,480 --> 00:23:46,600 Speaker 1: that are trying to buy in proportion to the market gap, 405 00:23:47,000 --> 00:23:49,680 Speaker 1: that kind of add to that squeeze that we're describing earlier. 406 00:23:49,800 --> 00:23:52,879 Speaker 1: So there's this sort of virtuous cycle at play. It 407 00:23:52,960 --> 00:23:55,639 Speaker 1: sounds like where as long as your share price is 408 00:23:55,680 --> 00:23:58,080 Speaker 1: going up, and it probably is if you're one of 409 00:23:58,119 --> 00:24:01,720 Speaker 1: these big successful companies like Pole, you can reduce your 410 00:24:01,880 --> 00:24:05,680 Speaker 1: expenses by paying your employees with stock, and the assumption 411 00:24:05,720 --> 00:24:07,520 Speaker 1: is it will keep going up. And you can also 412 00:24:07,840 --> 00:24:11,800 Speaker 1: embark on big buy back or dividend programs because your 413 00:24:11,800 --> 00:24:14,000 Speaker 1: shares are going up and your cost of funding in 414 00:24:14,000 --> 00:24:17,119 Speaker 1: the debt market is probably pretty low as well, and 415 00:24:17,160 --> 00:24:20,560 Speaker 1: all of that just combines again to flatter your bottom 416 00:24:20,640 --> 00:24:25,280 Speaker 1: line and maybe increase the share price. Again, Uh, when 417 00:24:25,320 --> 00:24:29,719 Speaker 1: does the cycle actually stop, not just that virtuous cycle 418 00:24:29,880 --> 00:24:34,760 Speaker 1: of flattering share prices encouraging better share prices, but also 419 00:24:34,800 --> 00:24:40,199 Speaker 1: the cycle of passive money flowing into overvalued stuff. To 420 00:24:40,280 --> 00:24:46,199 Speaker 1: say the truth, the passive rotation. I don't know. I 421 00:24:46,200 --> 00:24:50,000 Speaker 1: don't know whether it will. I I mean there's always 422 00:24:50,000 --> 00:24:53,560 Speaker 1: this hope, like every year mom active managers, it's like, oh, well, 423 00:24:54,160 --> 00:24:57,800 Speaker 1: you know typical investment outlook from an active manager. Well, 424 00:24:58,040 --> 00:25:00,520 Speaker 1: last year was bad, but it was because of this 425 00:25:00,720 --> 00:25:04,960 Speaker 1: unique brexit, the FED hiking rate, the FED cutting rates, 426 00:25:05,000 --> 00:25:08,080 Speaker 1: correlations being higher, correlations being low. But next year, because 427 00:25:08,119 --> 00:25:10,040 Speaker 1: there's going to be that other than that, I'm uniquely 428 00:25:10,040 --> 00:25:13,320 Speaker 1: positioned to take advantage of, it will be different. And 429 00:25:13,320 --> 00:25:15,160 Speaker 1: and then I mean we've seen it for twenty years, 430 00:25:15,160 --> 00:25:19,879 Speaker 1: so I don't know. I mean, maybe you'd have to 431 00:25:20,000 --> 00:25:23,600 Speaker 1: maybe have a Black swanlike event, like like some sort 432 00:25:23,640 --> 00:25:26,720 Speaker 1: of like you know, massive panic, and then the E E 433 00:25:26,840 --> 00:25:29,840 Speaker 1: T they the T starts selling and and and but 434 00:25:30,040 --> 00:25:32,920 Speaker 1: I really can't imagine the market going back to the 435 00:25:32,960 --> 00:25:35,960 Speaker 1: structure that it is at twenty years ago. What what 436 00:25:36,040 --> 00:25:39,520 Speaker 1: I will? I will rebound on on what you said 437 00:25:39,520 --> 00:25:42,080 Speaker 1: about the virtue cycle, because I have done a bit 438 00:25:42,080 --> 00:25:46,120 Speaker 1: of work on that. I looked at the about two 439 00:25:46,200 --> 00:25:49,040 Speaker 1: hundred companies that are incorporated in the San Francisco Bay 440 00:25:49,080 --> 00:25:52,240 Speaker 1: area plus Silicon Valley, and then I created index of 441 00:25:52,320 --> 00:25:54,640 Speaker 1: these companies and I looked at their weighty average costs 442 00:25:54,640 --> 00:25:57,920 Speaker 1: of equity, the cost of debt, and their effective tax rate, 443 00:25:58,040 --> 00:26:00,760 Speaker 1: and how much of their compensation was going in the 444 00:26:00,760 --> 00:26:03,159 Speaker 1: form of stock. And what I found was, you know, 445 00:26:03,240 --> 00:26:05,840 Speaker 1: the cost of equity effective cost of equity was very, 446 00:26:05,920 --> 00:26:08,480 Speaker 1: very low because most of them don't pay dividends, uh 447 00:26:09,080 --> 00:26:11,240 Speaker 1: mostly don't buybacks. If they do have buybacks is to 448 00:26:11,400 --> 00:26:14,560 Speaker 1: offset delusions, so that on net it's very low. The 449 00:26:14,600 --> 00:26:18,000 Speaker 1: cost of debt is extraornarly low because either they are 450 00:26:18,080 --> 00:26:20,399 Speaker 1: verial debt or that debt is really pushed far away 451 00:26:20,480 --> 00:26:22,840 Speaker 1: so they don't really need to to service at any point. 452 00:26:23,480 --> 00:26:26,040 Speaker 1: The customer employees is low. I mean it's high in 453 00:26:26,080 --> 00:26:27,760 Speaker 1: absolute number, but it's very low if you look at 454 00:26:27,840 --> 00:26:31,080 Speaker 1: what is actually paid in cash. The taxes, of course 455 00:26:31,480 --> 00:26:34,080 Speaker 1: are non existent. And then most of them, actually a 456 00:26:34,119 --> 00:26:36,439 Speaker 1: majority of them, don't have earnings. So then if you 457 00:26:36,480 --> 00:26:38,960 Speaker 1: start thinking about it that way, I think, okay, well, 458 00:26:39,119 --> 00:26:40,480 Speaker 1: you know, if you want to run a business and 459 00:26:40,520 --> 00:26:42,159 Speaker 1: you don't have to turn earnings, you don't have to 460 00:26:42,160 --> 00:26:45,000 Speaker 1: pay dividends. You don't have to pay taxes, you don't 461 00:26:45,040 --> 00:26:47,080 Speaker 1: pay interest on your debt to artistic and postpone it. 462 00:26:47,560 --> 00:26:50,160 Speaker 1: And even better you can pay you only pay half 463 00:26:50,160 --> 00:26:53,159 Speaker 1: of your employee saries. Yeah, I think it could be 464 00:26:53,200 --> 00:26:56,359 Speaker 1: the competition too. I want to get into a little 465 00:26:56,359 --> 00:26:59,719 Speaker 1: bit more soon about how you think investors should be 466 00:27:00,000 --> 00:27:03,520 Speaker 1: position to sort of prepare for the end of this 467 00:27:03,640 --> 00:27:06,119 Speaker 1: and or take advantage of this. But before we do that, 468 00:27:06,160 --> 00:27:08,879 Speaker 1: I'm curious in your work, have you looked at non 469 00:27:09,119 --> 00:27:12,840 Speaker 1: spicas to see if there's the same effect as a 470 00:27:12,880 --> 00:27:15,520 Speaker 1: result of market cap waiting, Like if you look at, say, 471 00:27:15,600 --> 00:27:19,320 Speaker 1: people putting um money in the i w M, which 472 00:27:19,320 --> 00:27:22,200 Speaker 1: tracks the Russell two thousand, do you see a similar 473 00:27:22,359 --> 00:27:26,200 Speaker 1: distortionary effect there were the larger companies within the small 474 00:27:26,280 --> 00:27:31,480 Speaker 1: cap sector benefit disproportionately from some people from the existence 475 00:27:31,560 --> 00:27:35,240 Speaker 1: of these vehicles. Right. What I've done is, you know 476 00:27:35,280 --> 00:27:38,600 Speaker 1: how the the sp index is not a he's not 477 00:27:38,640 --> 00:27:40,719 Speaker 1: a truly market cap waiting index. I mean it has 478 00:27:40,760 --> 00:27:43,639 Speaker 1: a bunch of other the requirements. The SNB found is 479 00:27:43,680 --> 00:27:48,960 Speaker 1: not the largest five right exactly because they have some 480 00:27:49,040 --> 00:27:53,399 Speaker 1: requirement about about earnings I believe, and liquidity, which I 481 00:27:53,440 --> 00:27:56,240 Speaker 1: guess it should. That's another reason to write this about 482 00:27:56,240 --> 00:27:58,560 Speaker 1: here you go. That was a joke, But yes, I 483 00:27:58,720 --> 00:28:03,640 Speaker 1: was looking at companies that are h should have qualified 484 00:28:03,680 --> 00:28:05,920 Speaker 1: based on their market gap. The other question I was 485 00:28:05,920 --> 00:28:09,240 Speaker 1: gonna ask, like SNP five s companies that weren't in 486 00:28:09,280 --> 00:28:11,879 Speaker 1: the SMP exactly, and it's about like thirty to forty 487 00:28:11,920 --> 00:28:14,080 Speaker 1: companies that quality found a market gap segment. But for 488 00:28:14,119 --> 00:28:16,440 Speaker 1: what other reason they don't? They don't match the other 489 00:28:16,920 --> 00:28:19,879 Speaker 1: rules that by the SNP comedy and yeah, indeed they 490 00:28:19,880 --> 00:28:22,720 Speaker 1: having to perform massively because they're not attracting the same flow. 491 00:28:22,760 --> 00:28:24,679 Speaker 1: I mean, if you're not in the SMP five frontally, 492 00:28:24,760 --> 00:28:28,560 Speaker 1: you don't get the spy V or flow. So you're 493 00:28:28,640 --> 00:28:31,960 Speaker 1: structurally let's underbod what are some of those other names? 494 00:28:32,000 --> 00:28:34,120 Speaker 1: I mean, Tesla is the weird one, but what are 495 00:28:34,160 --> 00:28:37,000 Speaker 1: some other companies that, uh if you remember them off 496 00:28:37,000 --> 00:28:39,720 Speaker 1: the top of your head, that are like should be 497 00:28:39,880 --> 00:28:42,440 Speaker 1: almost fit the sp five hundred, but they're not quite 498 00:28:42,440 --> 00:28:45,120 Speaker 1: in there. I think there's a I forget it's it's 499 00:28:45,200 --> 00:28:48,720 Speaker 1: named are the big casino companies in there? Um? And 500 00:28:48,960 --> 00:28:51,880 Speaker 1: I think it's it's a an anomaly where the founder 501 00:28:51,960 --> 00:28:54,400 Speaker 1: owns that that that that sorts off. In the case 502 00:28:54,560 --> 00:28:56,240 Speaker 1: the founder owns a bunch of the flow, then the 503 00:28:56,480 --> 00:28:59,720 Speaker 1: phote requirement is not met. Okay, I'm gonna do Joe's 504 00:28:59,800 --> 00:29:03,680 Speaker 1: quite And then uh, it's the age of dumb alpha. 505 00:29:03,960 --> 00:29:07,680 Speaker 1: And you think that the flows into passes probably aren't 506 00:29:07,760 --> 00:29:12,280 Speaker 1: ending anytime soon. So what should investors actually do? Should 507 00:29:12,360 --> 00:29:17,880 Speaker 1: we just be following the herd? You know? This is 508 00:29:17,880 --> 00:29:20,920 Speaker 1: how like chillions of wealth were lost, right. I think 509 00:29:20,920 --> 00:29:22,880 Speaker 1: it's stupid, but everybody's doing it, so I'm going to 510 00:29:22,960 --> 00:29:25,240 Speaker 1: do it anyway, right, I mean, this is how you 511 00:29:25,320 --> 00:29:27,240 Speaker 1: get the you know, if you pay a lot of 512 00:29:27,280 --> 00:29:29,760 Speaker 1: money for two leaps or the you know, the Dutch, 513 00:29:30,360 --> 00:29:34,920 Speaker 1: the south Sea company. So it feels horrible to say that. 514 00:29:35,720 --> 00:29:39,560 Speaker 1: I think eventually, I don't know when, I don't know how. 515 00:29:39,840 --> 00:29:43,520 Speaker 1: But markets have a way of fixing things that are unsustainable. 516 00:29:43,600 --> 00:29:46,720 Speaker 1: I mean, things that are unsustainable cannot last forever um, 517 00:29:47,200 --> 00:29:51,800 Speaker 1: So you know, I think over the long term, if 518 00:29:51,880 --> 00:29:55,440 Speaker 1: what we're describing is indeed happening, what this means is 519 00:29:55,480 --> 00:30:00,200 Speaker 1: that the expected return on on these you know, over 520 00:30:00,280 --> 00:30:03,280 Speaker 1: own stock is gonna fall, and the expected return on 521 00:30:03,360 --> 00:30:07,520 Speaker 1: the kind of small gap value that are under owned 522 00:30:07,520 --> 00:30:10,400 Speaker 1: by the index crowd should be higher, DID and as 523 00:30:10,440 --> 00:30:13,960 Speaker 1: a result, the return to investors should be higher. So 524 00:30:14,080 --> 00:30:16,280 Speaker 1: in general, the DID the idea would be to look 525 00:30:16,320 --> 00:30:19,680 Speaker 1: for uh, you know, kind of opportunities outside of the index. 526 00:30:20,600 --> 00:30:22,680 Speaker 1: At the same time, I would caution that by saying, 527 00:30:24,200 --> 00:30:27,960 Speaker 1: you know, you should be happy we've basically dividend deal 528 00:30:28,480 --> 00:30:32,760 Speaker 1: traditional um you know, Ban Graham style analysis, and not 529 00:30:32,960 --> 00:30:36,160 Speaker 1: worry about under performing the index. By well, I was 530 00:30:36,160 --> 00:30:38,880 Speaker 1: gonna say, it seems like in this environment, and it's 531 00:30:38,960 --> 00:30:42,880 Speaker 1: kind of um like insult to injury because we're just 532 00:30:43,000 --> 00:30:45,160 Speaker 1: we're talking about all the money coming out of active 533 00:30:45,280 --> 00:30:48,320 Speaker 1: and the the the pool of mutual funds that are 534 00:30:48,320 --> 00:30:51,160 Speaker 1: greater than one percent fees and so forth. But it 535 00:30:51,240 --> 00:30:54,800 Speaker 1: seems like in an environment like this, you really don't 536 00:30:54,840 --> 00:30:57,400 Speaker 1: want to have the job of having to write a 537 00:30:57,480 --> 00:30:59,480 Speaker 1: letter at the end of a quarter. So that like, 538 00:30:59,560 --> 00:31:02,680 Speaker 1: if you're like a sort of normal individual investor, you 539 00:31:02,720 --> 00:31:06,120 Speaker 1: can diversify. You could say, look, maybe I didn't I 540 00:31:06,240 --> 00:31:09,560 Speaker 1: wasn't overweight Apple and Amazon last year, and I underperformed 541 00:31:09,600 --> 00:31:11,960 Speaker 1: the SSP five hundred in a little bit in my 542 00:31:12,240 --> 00:31:14,680 Speaker 1: personal account. But it's fine because it was a great 543 00:31:14,720 --> 00:31:16,760 Speaker 1: year and a bunch of stuff went up, but you 544 00:31:16,760 --> 00:31:18,840 Speaker 1: know that the individual doesn't have to write a letter 545 00:31:18,920 --> 00:31:23,520 Speaker 1: to some other limited partners saying explaining why they underperformed 546 00:31:23,600 --> 00:31:26,239 Speaker 1: or coming up with some excuse. So it kind of 547 00:31:26,240 --> 00:31:30,560 Speaker 1: feels like that is a I really wouldn't like. That 548 00:31:30,680 --> 00:31:33,239 Speaker 1: is not a very desirable job in this environment. They 549 00:31:33,280 --> 00:31:37,080 Speaker 1: have to pick stocks um and explain. You know, it 550 00:31:37,200 --> 00:31:39,040 Speaker 1: either be in this situation where you have to really 551 00:31:39,120 --> 00:31:41,800 Speaker 1: lean into the megacaps and risk blowing up when it 552 00:31:41,800 --> 00:31:45,080 Speaker 1: all turns around, or avoid the megacaps and underperform on 553 00:31:45,120 --> 00:31:47,120 Speaker 1: the way up. No, No, I mean, indeed, it's been 554 00:31:47,320 --> 00:31:51,360 Speaker 1: a pretty terrible environment for active manager research channel. It's 555 00:31:52,000 --> 00:31:58,720 Speaker 1: um and it's I mean, it is probably things you 556 00:31:58,720 --> 00:32:01,120 Speaker 1: can do to metigates. Did this I mean in the 557 00:32:01,200 --> 00:32:05,040 Speaker 1: report I was mentioning, Uh, again, it's it's somewhat of 558 00:32:05,080 --> 00:32:08,520 Speaker 1: an expensive strategy. But maybe one way to play this 559 00:32:08,680 --> 00:32:12,880 Speaker 1: is too cannot have your your traditional value oriented, you know, 560 00:32:12,960 --> 00:32:15,440 Speaker 1: and stick by the book and hope that eventually things 561 00:32:15,480 --> 00:32:18,160 Speaker 1: fall into place and I own good company that I 562 00:32:18,200 --> 00:32:20,640 Speaker 1: understand and I do my DCF work and all that 563 00:32:20,640 --> 00:32:23,840 Speaker 1: good stuff that's been completely useless for ten years. And 564 00:32:23,880 --> 00:32:25,840 Speaker 1: at the same time to hedge against the risk of 565 00:32:25,920 --> 00:32:30,080 Speaker 1: this kind of blow off top by co options on 566 00:32:30,120 --> 00:32:32,000 Speaker 1: the big names. I mean, one worry that I have 567 00:32:32,240 --> 00:32:36,200 Speaker 1: is that this rotation would actually accelerate partly as as 568 00:32:36,240 --> 00:32:41,040 Speaker 1: people open up their r and statement in I think, 569 00:32:41,080 --> 00:32:42,920 Speaker 1: you know, a lot of the money that's invested in 570 00:32:42,920 --> 00:32:46,120 Speaker 1: in these um hi fi muture from this kind of 571 00:32:46,720 --> 00:32:50,120 Speaker 1: sticky money that has been then forever, you know, great 572 00:32:50,200 --> 00:32:53,000 Speaker 1: years in the nineties. People don't really know how much 573 00:32:53,040 --> 00:32:55,680 Speaker 1: are paying that, but then like if they realize, I mean, 574 00:32:56,080 --> 00:32:59,360 Speaker 1: two thousand nineteen was so brutal. I mean because basically, 575 00:32:59,400 --> 00:33:01,480 Speaker 1: if you didn't have Apple of Microsoft, I me're gonna 576 00:33:01,480 --> 00:33:03,320 Speaker 1: be up like you know five. You know, you know, 577 00:33:03,360 --> 00:33:05,920 Speaker 1: when the market is of thirty five, that kind of 578 00:33:05,960 --> 00:33:08,160 Speaker 1: delta could be the kind of thing that you know, 579 00:33:09,240 --> 00:33:11,760 Speaker 1: I'm giving up And I worry that. And you can 580 00:33:11,800 --> 00:33:14,080 Speaker 1: certainly see that in the first weeks of the year 581 00:33:14,680 --> 00:33:17,680 Speaker 1: when basically you had UM I think Google was up, 582 00:33:17,720 --> 00:33:23,080 Speaker 1: like app of Tla was even even out of this world. 583 00:33:24,080 --> 00:33:27,120 Speaker 1: But it could have been just people opening the say okay, 584 00:33:27,160 --> 00:33:28,920 Speaker 1: I dumb, this guy, let me go in the index, 585 00:33:28,960 --> 00:33:31,800 Speaker 1: and that rotation actually accelerating in some sort of a 586 00:33:31,840 --> 00:33:35,640 Speaker 1: feedback loop right, trade about the virtuous cycle, but this 587 00:33:35,680 --> 00:33:40,440 Speaker 1: is the vicious cycle. Yes. For so I alluded to 588 00:33:40,480 --> 00:33:43,280 Speaker 1: this in the intro, which is basically that there is 589 00:33:43,280 --> 00:33:47,440 Speaker 1: a strain of thought that if passive investing is misallocating 590 00:33:47,480 --> 00:33:50,640 Speaker 1: capital in some way, then it poses a giant question 591 00:33:50,680 --> 00:33:55,920 Speaker 1: mark over the economy and the way capitalism works in general. 592 00:33:56,640 --> 00:34:00,040 Speaker 1: What's your view of that particular argument. Is there a 593 00:34:00,040 --> 00:34:05,960 Speaker 1: particular area where you see passive investing misallocating capital and 594 00:34:06,720 --> 00:34:10,520 Speaker 1: impacting the economy in a negative way? But I think 595 00:34:10,560 --> 00:34:13,400 Speaker 1: you see it anecdotally in you know some E t 596 00:34:13,600 --> 00:34:17,200 Speaker 1: F related distortions. I think there was one like last week. 597 00:34:17,360 --> 00:34:20,960 Speaker 1: It was a a high dividende of stock that was 598 00:34:21,160 --> 00:34:23,880 Speaker 1: owned by a high diven in E t F. I 599 00:34:24,160 --> 00:34:28,080 Speaker 1: forgot to take it right now, but and then the 600 00:34:27,719 --> 00:34:31,239 Speaker 1: the stock kept getting cheaper or the division increased, and 601 00:34:31,280 --> 00:34:34,160 Speaker 1: then it nonger met the market gap requirement of the 602 00:34:34,239 --> 00:34:36,279 Speaker 1: t F. So the phone hat told dump it, and 603 00:34:36,320 --> 00:34:39,960 Speaker 1: that result in a kind of a really large down 604 00:34:40,000 --> 00:34:42,000 Speaker 1: there for a stock that was actually doing well. And 605 00:34:42,040 --> 00:34:45,879 Speaker 1: you can find many of these uh distortion. You see 606 00:34:45,880 --> 00:34:48,000 Speaker 1: it also in the gold minor et F, for example, 607 00:34:48,160 --> 00:34:51,479 Speaker 1: the junior gold minor et F owning the senior gold 608 00:34:51,520 --> 00:34:55,080 Speaker 1: minor ITTF because there's not enough shares to buy UM. 609 00:34:55,160 --> 00:34:58,040 Speaker 1: So you know, and you know these are anecdotes, but 610 00:34:58,200 --> 00:35:03,000 Speaker 1: it tells you that this this starts to matter in general. Um. 611 00:35:03,040 --> 00:35:05,880 Speaker 1: You know, the question is what is the tipping point 612 00:35:06,600 --> 00:35:08,560 Speaker 1: for for the passive share? I mean you can almost 613 00:35:08,600 --> 00:35:11,200 Speaker 1: think as a almost like a Laugher curve, you know, 614 00:35:11,280 --> 00:35:13,000 Speaker 1: like if you if you tax people up to a 615 00:35:13,080 --> 00:35:16,200 Speaker 1: certain point, then you revenue start decreasing as the passive 616 00:35:16,239 --> 00:35:20,400 Speaker 1: share arise and economic efficiency starts starts to to be suffering. 617 00:35:21,239 --> 00:35:23,600 Speaker 1: The first that point you need for that is, okay, 618 00:35:23,640 --> 00:35:26,520 Speaker 1: what is the actual passive share? Um? And And it's 619 00:35:26,520 --> 00:35:28,800 Speaker 1: a hard one to answer, going back to your first question, 620 00:35:28,840 --> 00:35:31,799 Speaker 1: like what is passive if you just go by you know, 621 00:35:31,840 --> 00:35:35,640 Speaker 1: adding UM then Guard, black Rock, and State Street. I 622 00:35:35,640 --> 00:35:41,239 Speaker 1: think it's about of the market, uh, for the the 623 00:35:41,280 --> 00:35:44,480 Speaker 1: average stock. Basically that the third larger the three larger 624 00:35:44,480 --> 00:35:48,479 Speaker 1: shareholders for most stocks are in that order, Van Guard, 625 00:35:48,520 --> 00:35:52,080 Speaker 1: black Rock, State Street. It's probably even at higher because 626 00:35:52,080 --> 00:35:53,600 Speaker 1: you have a lot of This company is also of 627 00:35:54,600 --> 00:35:59,000 Speaker 1: index replications. They're not explicitly index poons, but they replicate 628 00:35:59,040 --> 00:36:02,320 Speaker 1: the index ferences clients. You you don't see that money 629 00:36:02,320 --> 00:36:05,480 Speaker 1: into the trading vehicle, but it is act So my 630 00:36:05,560 --> 00:36:07,960 Speaker 1: understanding is close to forty percent in terms of the 631 00:36:08,000 --> 00:36:12,560 Speaker 1: ownership of of the US equity market, and probably when 632 00:36:12,560 --> 00:36:15,880 Speaker 1: it comes to trading and flows, which I think matters most, 633 00:36:15,960 --> 00:36:18,759 Speaker 1: because that's where price discovery is set right. Price is 634 00:36:18,800 --> 00:36:21,719 Speaker 1: discovered by people trading with one another. So even though 635 00:36:22,000 --> 00:36:26,879 Speaker 1: the ownership share is just if you know, trading at 636 00:36:26,880 --> 00:36:30,839 Speaker 1: the end of the day is driven by by passiving vehicles, 637 00:36:30,880 --> 00:36:34,000 Speaker 1: you get to this potential problem that the price discovery 638 00:36:34,040 --> 00:36:38,440 Speaker 1: mechanisms do not work well. On that uh, on that 639 00:36:38,600 --> 00:36:42,400 Speaker 1: cheery note of our price discovery mechanisms ceasing to work. Vincent, 640 00:36:42,920 --> 00:36:45,200 Speaker 1: thank you very much for joining us. It was great. 641 00:36:45,239 --> 00:36:47,960 Speaker 1: Thank you so much for having me. Thanks Vincent, that 642 00:36:48,080 --> 00:37:01,440 Speaker 1: was really good. Tracy. I really feel like this is 643 00:37:01,480 --> 00:37:05,080 Speaker 1: just gonna be a bigger and bigger topic. One thing 644 00:37:05,200 --> 00:37:08,560 Speaker 1: that has come up recently that we haven't even talked 645 00:37:08,600 --> 00:37:12,160 Speaker 1: about since we've explored the effect of index funds and 646 00:37:12,200 --> 00:37:15,239 Speaker 1: passive investing is all like the antitrust angle, and of 647 00:37:15,239 --> 00:37:18,000 Speaker 1: course that's becoming a bigger and bigger deal. This idea, 648 00:37:18,320 --> 00:37:21,400 Speaker 1: as Vincent pointed out, like, Okay, if every company is 649 00:37:21,480 --> 00:37:25,720 Speaker 1: owned by that same basket of like three investors, more, 650 00:37:25,960 --> 00:37:28,080 Speaker 1: there's more and more scrutiny just on the question of, 651 00:37:28,120 --> 00:37:30,480 Speaker 1: like what does it even mean for the companies to 652 00:37:30,520 --> 00:37:33,239 Speaker 1: compete with each other anymore? Yeah, I think we need 653 00:37:33,280 --> 00:37:35,600 Speaker 1: to get Matt Levine on again to talk about that 654 00:37:35,680 --> 00:37:38,360 Speaker 1: particular angle. But I know that's yeah, that's one of 655 00:37:38,400 --> 00:37:42,600 Speaker 1: his big that's one of his recurring themes in his newsletter. Yeah, exactly. 656 00:37:42,880 --> 00:37:44,839 Speaker 1: But one of the things that really interests me from 657 00:37:44,880 --> 00:37:47,879 Speaker 1: that conversation is the notion of how all of this 658 00:37:48,040 --> 00:37:51,839 Speaker 1: is actually influencing the wider economy. And I keep thinking 659 00:37:51,920 --> 00:37:57,120 Speaker 1: about deflation and you know, the mystery of missing inflation 660 00:37:57,400 --> 00:37:59,919 Speaker 1: of the past ten years or so, and you can 661 00:38:00,040 --> 00:38:03,560 Speaker 1: kind of see if markets are funneling money in an 662 00:38:03,560 --> 00:38:06,240 Speaker 1: inefficient way or doing it in a way that means 663 00:38:06,320 --> 00:38:10,040 Speaker 1: the biggest players just keep getting bigger, and those players 664 00:38:10,080 --> 00:38:13,360 Speaker 1: have more and more pricing power, market more ability to 665 00:38:13,440 --> 00:38:18,200 Speaker 1: dictate wages. That that might be one reason why, for instance, 666 00:38:18,239 --> 00:38:22,760 Speaker 1: wages are staying so low. Yeah. Absolutely, there's all kinds 667 00:38:22,840 --> 00:38:28,200 Speaker 1: of sort of interesting ramifications. Hearing Vincent describe that feedback loop, 668 00:38:28,280 --> 00:38:32,320 Speaker 1: the incredible natural competitive advantages of the two d companies 669 00:38:32,360 --> 00:38:36,520 Speaker 1: are so headquartered in Silicon Valley or the Bay Area, 670 00:38:37,280 --> 00:38:41,839 Speaker 1: tons of different avenues to explore about just the incredible 671 00:38:41,880 --> 00:38:46,040 Speaker 1: amount of money that's accruing to a fairly uh small 672 00:38:46,120 --> 00:38:49,000 Speaker 1: group of players. There's one other thing that I really 673 00:38:49,040 --> 00:38:52,200 Speaker 1: like about Vincent's research and the way he's approaching this topic, 674 00:38:52,400 --> 00:38:56,600 Speaker 1: which is that he's looking at investor behavior and he's 675 00:38:56,600 --> 00:38:59,600 Speaker 1: looking at it on a relative basis. So of course 676 00:38:59,719 --> 00:39:03,120 Speaker 1: it's not enough to have you know, five percent returns 677 00:39:03,160 --> 00:39:07,160 Speaker 1: in a given year if someone else is up ten percent, right, 678 00:39:07,239 --> 00:39:10,520 Speaker 1: which I think is reflective of how most people actually 679 00:39:10,560 --> 00:39:14,080 Speaker 1: think and view their portfolios. And certainly you saw Donald 680 00:39:14,080 --> 00:39:17,520 Speaker 1: Trump do this, uh not too long ago, where he 681 00:39:17,600 --> 00:39:20,880 Speaker 1: was talking about the stock markets up and your portfolio 682 00:39:21,000 --> 00:39:24,080 Speaker 1: is only fifty up? What have you been doing wrong? 683 00:39:24,160 --> 00:39:26,680 Speaker 1: And I think that's also a point that sort of 684 00:39:26,760 --> 00:39:29,680 Speaker 1: missed in a lot of the analysis here. Yeah. No, 685 00:39:29,800 --> 00:39:32,360 Speaker 1: I love that point about the sort of sticker shock 686 00:39:32,719 --> 00:39:35,719 Speaker 1: at the beginning of the year, because all anyone heard 687 00:39:36,920 --> 00:39:39,719 Speaker 1: is such an amazing year for this not market, one 688 00:39:39,719 --> 00:39:42,000 Speaker 1: of the most incredible ones on record. But there are 689 00:39:42,000 --> 00:39:45,439 Speaker 1: a lot of investors who I don't think had such 690 00:39:45,480 --> 00:39:48,120 Speaker 1: a great year, and essentially like either Okay, if you 691 00:39:48,200 --> 00:39:51,080 Speaker 1: owned the spy, you matched it. But you know, if 692 00:39:51,080 --> 00:39:55,000 Speaker 1: you like had any sort of normal diversified portfolio of equities, 693 00:39:55,280 --> 00:39:57,440 Speaker 1: unless you happen to be like a really long Apple 694 00:39:57,440 --> 00:40:00,640 Speaker 1: and Microsoft, you're looking at your portfolio or you look 695 00:40:00,680 --> 00:40:03,440 Speaker 1: at your manager and what do you what's wrong? And 696 00:40:03,480 --> 00:40:05,359 Speaker 1: it could be the type of year or if you know, 697 00:40:05,440 --> 00:40:08,520 Speaker 1: as that dispersion between the biggest and the rest grow 698 00:40:08,640 --> 00:40:10,680 Speaker 1: so big, as he points out, that could be a 699 00:40:10,719 --> 00:40:16,600 Speaker 1: catalyst for even more acceleration from UM from active to passive. 700 00:40:16,680 --> 00:40:18,560 Speaker 1: So you know, kind of like we were saying, it's 701 00:40:18,560 --> 00:40:22,440 Speaker 1: a it's a tough time obviously an active management sympathy 702 00:40:22,520 --> 00:40:25,239 Speaker 1: for the fun managers, that's for sure. I need to 703 00:40:25,239 --> 00:40:27,640 Speaker 1: write another song about I should write a song about that. 704 00:40:28,560 --> 00:40:31,960 Speaker 1: Do it for our next live episode? Wait? Is it 705 00:40:31,960 --> 00:40:33,959 Speaker 1: going to be a Rolling Stones cover? No? I gotta 706 00:40:34,000 --> 00:40:36,040 Speaker 1: write a new I gotta I gotta write a new one. 707 00:40:36,520 --> 00:40:40,640 Speaker 1: I gotta create something totally originally. Fine, Okay, well, we 708 00:40:40,760 --> 00:40:43,960 Speaker 1: look forward to that. This has been another episode of 709 00:40:43,960 --> 00:40:46,760 Speaker 1: the All Thoughts podcast. I'm Tracy Halloway. You can follow 710 00:40:46,800 --> 00:40:50,080 Speaker 1: me on Twitter. At Tracy Halloway and I'm Joe Wisn't all. 711 00:40:50,160 --> 00:40:53,400 Speaker 1: You could follow me on Twitter at the Stalwart, and 712 00:40:53,440 --> 00:40:56,840 Speaker 1: be sure to follow Vincent on Twitter. He's at Vincent Delard. 713 00:40:57,280 --> 00:41:00,400 Speaker 1: Great follow there. Be sure to follow our producer on Twitter, 714 00:41:00,480 --> 00:41:04,640 Speaker 1: Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg 715 00:41:04,680 --> 00:41:08,719 Speaker 1: head of podcast, Francesca Levy. She's at Francesca Today. And 716 00:41:09,000 --> 00:41:12,560 Speaker 1: for the whole family of Bloomberg podcasts, you can find 717 00:41:12,560 --> 00:41:16,480 Speaker 1: them all under the handle at podcasts. Thanks for listening.