Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. Wi isn't the Joe.
Speaker 1: There's been a lot of crazy stuff that's happened over
Speaker 1: the past couple of years. I don't know what what
Speaker 1: what makes you say that? Well, okay, besides literally everything,
Speaker 1: besides everything, the most remarkable thing is when when I
Speaker 1: think about this year and the bottom falling out of
Speaker 1: a whole bunch of stuff, is that this is exactly
Speaker 1: what everyone or what a lot of people said would happen. Right.
Speaker 1: People looked at text stocks, people looked at crypto and
Speaker 1: they said, this looks unsustainable. It looks like a bubble,
Speaker 1: or it looks like a mania. Why in the world
Speaker 1: are people buying this stuff? Well, you know, it's funny
Speaker 1: thinking back to the top of the meme market, like
Speaker 1: in ear and people are like, this has got to
Speaker 1: be the top, rights and it turned out to be
Speaker 1: exactly the top, And that never happens. But I guess
Speaker 1: if you say this has got to be the top enough,
Speaker 1: then eventually will be. But if you look at like
Speaker 1: some of those measures MOREGANA. Stanley puts together this great
Speaker 1: chart of like the cumulative p and L of Robin
Speaker 1: Hood traders since the start of the pandemic, and it
Speaker 1: basically peaked right in February one, and then it's been
Speaker 1: downhill ever since. It really was the top, right, I
Speaker 1: think retail investors basically erase any gains that they made
Speaker 1: from So looking back with the benefit of hindsight, it
Speaker 1: seems inevitable that all of this, you know, would turn
Speaker 1: out this way. But as we were describing, there are
Speaker 1: still people who jump into these things right totally in
Speaker 1: the grand scheme of things. It's like people always joke
Speaker 1: like hindsight is but I've never actually believed that's true.
Speaker 1: And we know that's not true because we look at
Speaker 1: history all the time and dispute what actually happened, right,
Speaker 1: and so there's never actually any agreement. Nonetheless, you know,
Speaker 1: with this sort of like cycle having played out, of
Speaker 1: all these people on during the market getting excited about
Speaker 1: some of the craziest stuff there is everyone calling a
Speaker 1: top and then a downturn, it's probably not too early
Speaker 1: to start asking the question, like, what did we learn
Speaker 1: the last two years about how markets work? Yeah, I
Speaker 1: think that's right, And obviously some stuff is still shaking out.
Speaker 1: But I think we have enough here to at least
Speaker 1: do a review of everything that we've seen over the
Speaker 1: past couple of years and how you know investors can
Speaker 1: avoid some of the mistakes they may have made in
Speaker 1: that period. Time to start learning. Yes, okay, the learning
Speaker 1: hour on All Loots. Well, I'm pleased to say we
Speaker 1: have the perfect person to discuss this. We're going to
Speaker 1: be speaking with Ben Eiffert, who has been on the
Speaker 1: podcast a number of times talking about retail investing, talking
Speaker 1: about derivatives, the impact of retail getting into derivatives on
Speaker 1: the market. He is, of course a managing partner at
Speaker 1: QVR Advisors, which is a boutique hedge fund that specializes
Speaker 1: involved derivative So Ben, thank you so much for coming
Speaker 1: back on all thoughts. Racy, Joe, it's so nice to
Speaker 1: be back. I missed you guys. It's been way too long.
Speaker 1: So maybe to begin with there are so many crazy
Speaker 1: things we could start with. But what do you think
Speaker 1: was the craziest thing that you saw in the market
Speaker 1: over the past couple of years. Was there a moment
Speaker 1: where you were just like, I cannot believe this is happening.
Speaker 1: The absolutely I think the craziest moments of the last
Speaker 1: few years is a really really really tall orator, right,
Speaker 1: I would say, actually, I found the sizes of the
Speaker 1: unsecured loans that very large. And you might have thought
Speaker 1: sophisticated investors and credit organizations were giving to three Arrows
Speaker 1: capital two and a half two and a half billion
Speaker 1: dollars in the Genesis alone with like no collateral, Right.
Speaker 1: I mean you come into this just thinking, look, these
Speaker 1: are these are big boys, These are are wealthy people
Speaker 1: who created a tremendous amount of money, and they wouldn't
Speaker 1: just do completely obviously crazy stuff like that, right, And
Speaker 1: then and then it turns out that the answer is
Speaker 1: and of course they do. Well, that's such a great answer,
Speaker 1: And I'm glad you said that, because obviously we did
Speaker 1: this intro and we talked about like, oh, the retail
Speaker 1: craziness and people buying AMC in GameStop on robin Hood.
Speaker 1: But of course you're right, like, actually these were pros.
Speaker 1: These were people who are like very successful and essentially
Speaker 1: like building an industry and lending billions of dollars unsecured
Speaker 1: to a crypto hedge fund that we know in retrospect
Speaker 1: was not doing anything particularly uh sophisticated. That's actually like
Speaker 1: way crazier than buying shares of game stop. Absolutely, I
Speaker 1: think retail gets all of the attention, and you know,
Speaker 1: we can talk about that all day, and there's all
Speaker 1: kinds of stuff there, but I think people forget that
Speaker 1: the role of institutional investors in this process, and the
Speaker 1: way that institutional investors start to buy into narratives and
Speaker 1: start uh and you start to develop this fear that
Speaker 1: they're missing some huge technological revolution um and then do
Speaker 1: incredibly crazy things in huge size is almost a more
Speaker 1: interesting story. Can you actually talk a little bit more
Speaker 1: about the psychology the sort of institutional fomo, because again,
Speaker 1: like sort of like retail fomo is really obvious. If
Speaker 1: your friend, you know, suddenly made ten tho dollars or
Speaker 1: a hundred thousand or more, like trading call options on
Speaker 1: robin Hood, maybe you want to get into it, but
Speaker 1: you probably assume in your capacity as a hedge fund manager,
Speaker 1: you probably talked to a lot of sophisticated investors institutions.
Speaker 1: You must see like the institutional fomo side in a
Speaker 1: way that the rest of us don't. How does that work?
Speaker 1: How does that thinking and how do they sort of
Speaker 1: like get in the brain space where they become comfortable
Speaker 1: or obsessed with like taking these huge risks. Absolutely, I
Speaker 1: think it's you know, on the face of it, institutions
Speaker 1: are probably better at no to saying things that just
Speaker 1: seem obviously crazy and silly. You know, They're less likely
Speaker 1: to buy into very poorly framed Look, you can make
Speaker 1: a thousand percent a month doing this kind of you know,
Speaker 1: kind of pitches. Right. Institutions have generally speaking, smart fook
Speaker 1: smart people, and they're able to recognize those kind of
Speaker 1: things very quickly. But what I think is really key
Speaker 1: here is that momentum is very dangerous for institutional investors
Speaker 1: precisely because it's a real financial markets phenomena, right. It's
Speaker 1: one that's had tremendous amount of proper academic research for
Speaker 1: a long time. It's clearly an effect that exists in
Speaker 1: a sense, and really and momentum is the tendency of
Speaker 1: things that have been going up lately to keep going
Speaker 1: up in the in the near future, right. And the
Speaker 1: best explanation really, I think for historical momentum effects is
Speaker 1: that something important is changing behind the scenes about the world, right,
Speaker 1: and it's poorly understood and skept eckle, old fashioned or
Speaker 1: grumpy investors try to fight it, right. Warren Buffett says, look,
Speaker 1: I can't own Google or Amazon twenty twelve because look
Speaker 1: at these pe multiples, they're kind of high. I don't
Speaker 1: really understand what these guys are doing. And then they
Speaker 1: turn out to be these huge transformative businesses. Right, And
Speaker 1: that's a real thing, and it results on average in
Speaker 1: various ways. In sometimes it makes sense to own things
Speaker 1: that have been going up, even if you don't totally
Speaker 1: understand why. Right. But the longer that returns momentum builds
Speaker 1: in some particular area, right, the more over time that
Speaker 1: even institutional investors that are generally sophisticated and skeptical feel
Speaker 1: the need to get involved, right because they start to think, look,
Speaker 1: I must be missing out. I don't totally understand this,
Speaker 1: but I must be missing out on something transformative. I
Speaker 1: can't be the guy who's sitting here in this room
Speaker 1: in five or ten years and say, yeah, I didn't
Speaker 1: own Amazon or I didn't get involved in that new thing,
Speaker 1: and I completely missed out, and everybody else made a
Speaker 1: ton of money doing this and I just didn't get it.
Speaker 1: At the time right um. And I think the institutional
Speaker 1: investors also probably have a pretty high tolerance and almost
Speaker 1: sometimes an attraction to complexity. Right It makes makes them
Speaker 1: feel smart, makes them feel in the know about something new,
Speaker 1: and often, of course, complexity can obscure the sources of
Speaker 1: risk that are actually being taken into an investment. So
Speaker 1: just on the idea of momentum, this is something that
Speaker 1: I feel was different about the past couple of years,
Speaker 1: maybe on the institutional side as well as the retail side.
Speaker 1: But it feels to me like people used to if
Speaker 1: they saw something that they thought was a bubble or
Speaker 1: didn't make sense, or you know, it was a mania
Speaker 1: in one form or another, I think people would shy
Speaker 1: away from it, thinking that this is a bad investment.
Speaker 1: But it feels like over the past couple of years,
Speaker 1: people sort of wholeheartedly just jumped in, knowing that a
Speaker 1: lot of the price action was it necessarily justified by fundamentals,
Speaker 1: but thinking that you could go in, you can make
Speaker 1: some money and then hopefully get out on time. In
Speaker 1: your experience, is that behavior that you've observed, Like, is
Speaker 1: it that nihilistic or is it really about the narrative
Speaker 1: and people just not wanting to miss the next big thing.
Speaker 1: I think there's an inherent cyclicality to it, just with
Speaker 1: human memory and institutional memory and the experience of of investors, right.
Speaker 1: I mean, there's just simple important factors here, like how
Speaker 1: long has it been since the last big mania that
Speaker 1: people were piling into that ended really poorly, right, allowing
Speaker 1: the collective consciousness of excess and crash to fade, and
Speaker 1: time for new narratives to build, and time for those
Speaker 1: new narratives to generate returns and to attempt new investors,
Speaker 1: time for new frontiers to emerge. That can we can
Speaker 1: create new narratives around. I mean, if you think back
Speaker 1: really to the last couple of decades, and it's been
Speaker 1: a pretty long, slow bowl market cycle since two thousand
Speaker 1: and nine. Right. We've had some minor disruptions, We had
Speaker 1: some European sovereign debt issues, and we had a few
Speaker 1: other things, but really things have gone really, really really
Speaker 1: well for a long time. And market participants, you know,
Speaker 1: the memory of the tech bust is pretty long faded,
Speaker 1: certainly in terms of actual institutional knowledge of investment organizations
Speaker 1: as opposed to just in lore of the old old
Speaker 1: people right, um, and that leads market participants over time
Speaker 1: to start taking more and more silly risks and to
Speaker 1: become more and more susceptible to creating narratives around you know,
Speaker 1: some of these new things. I think that, you know,
Speaker 1: I think it's going to be much harder, you know,
Speaker 1: in the next three or four years. Probably we won't
Speaker 1: see a bunch of you know, brand new, really you know,
Speaker 1: really crazy things developed famous last words, right, I mean,
Speaker 1: we probably will Because I said that something that I've
Speaker 1: been thinking about two and it really fits with this
Speaker 1: idea of like the sort of like last institutional holdouts,
Speaker 1: the people that fight the new thing, that people that
Speaker 1: are skeptical of tech, the people that are skeptical of crypto,
Speaker 1: and then like eventually they sort of get dragged along
Speaker 1: and then eventually many of them capitulate. Not only does
Speaker 1: it seem like many of them capitulate in some way
Speaker 1: or another, it seems like in the late stages of
Speaker 1: the boom or the bubble specifically, you get the most
Speaker 1: egregious behavior. And I don't remember the exact dates, but
Speaker 1: I'm thinking like some of these loans to like three
Speaker 1: arrows capital or some of these moves into like Luna,
Speaker 1: the stable coin ecosystem that crashed like they happened really
Speaker 1: late in the cycle. It seems like there's this effect
Speaker 1: where not only do the final folks get dragged across
Speaker 1: the line, they seem to really like do it in
Speaker 1: size at the worst possible time. I think that's totally right.
Speaker 1: I mean, if you look back again at this what
Speaker 1: has been a very long, slowish, you know, bullmarket cycle
Speaker 1: where things have been good, it was really only call
Speaker 1: it that was sort of the turning point where all
Speaker 1: of a sudden everything started to just go parabolic together
Speaker 1: at the same time, right across public markets, across private markets.
Speaker 1: You know, I think a big part of the institutional
Speaker 1: role in that really came from this huge psychology around
Speaker 1: private assets and private investments being this fantastic place to be.
Speaker 1: There's big sources of innovation, stable returns because you know,
Speaker 1: without park to market volatility. Right. You saw just really
Speaker 1: in the last few years, you see the formation of
Speaker 1: VC growth funds. Right. So you always used to think
Speaker 1: of venture capital as you know, these nerdy, weird engineers
Speaker 1: doing cool science experiments and backing these early stage companies
Speaker 1: to do really disruptive stuff, Right, whereas growth funds were
Speaker 1: all about raising mega institutional scale capital at full fees
Speaker 1: with long luck and plowing that into companies that were
Speaker 1: already valued at two billion dollars and just had a
Speaker 1: completely different asymmetry to the return profile. Right, And you
Speaker 1: had corporates like soft Bank and hybrid public private headphunes
Speaker 1: like Tiger coming in to compete for deals, to get
Speaker 1: those deals with startups by saying, look, we have bigger
Speaker 1: checks and we're not going to ask you any annoying questions.
Speaker 1: We're not going to do due diligence, like I want
Speaker 1: you to sign the storm sheet in twenty four hours
Speaker 1: that I just sent you, right, And that was really
Speaker 1: you know, where did that a lot of that came from.
Speaker 1: I mean I was and I think I had a
Speaker 1: Twitter post about this, But I would go to conferences
Speaker 1: with big institutional investors and the only thing that you
Speaker 1: would hear about was how big asset owners were taking
Speaker 1: money out of liquid alternative type of investments and put
Speaker 1: and moving them into privates because the returns and privates
Speaker 1: had them so high, and there was such a perception
Speaker 1: of such limited risk and privates. It also seemed tracy,
Speaker 1: like if you look at it Charter like soft Bank
Speaker 1: the stock Like that's how you erased like years and
Speaker 1: years worth. So it's like soft Bank is where it
Speaker 1: was seen, and it's like, yeah, if you like do
Speaker 1: these like big investments late in the game, you just
Speaker 1: like wipe out years of games. So actually, this is
Speaker 1: something that I want to ask. You know, a lot
Speaker 1: of the craziness that we've seen has been focused on
Speaker 1: tech stocks, either in the public market or tech investments
Speaker 1: in the private market through venture capital and things like that.
Speaker 1: And you were talking about narratives earlier and fear of
Speaker 1: missing out. Is there something about tech specifically that makes
Speaker 1: it more vulnerable to people getting very excited about it.
Speaker 1: I guess there's so much technology that has pitched as
Speaker 1: life changing or world changing in one way or another,
Speaker 1: it feels like it's easier maybe to build a big
Speaker 1: narrative out of it to try to get more people
Speaker 1: into it. I think that's exactly right. So, I mean,
Speaker 1: just to be clear, technology itself is not the problem, right,
Speaker 1: I mean, technology, disruptive tech, logical innovation is what drives
Speaker 1: the world forward. And you know, Silicon Valley and venture
Speaker 1: capital like plays a really important role in that and
Speaker 1: that's great, But the technology inherently has this characteristic right
Speaker 1: that you're not selling a current set of cash flows
Speaker 1: or a well trodden path of how you know that
Speaker 1: can be valued by people with spreadsheets and some kind
Speaker 1: of relatively formula. Wait, it's about selling a vision of
Speaker 1: the future and a vision of what could be and
Speaker 1: how that can play into future economics and trying to
Speaker 1: relate that to past innovation. And like that's a very
Speaker 1: nebulous thing in the end, right, And it's something that
Speaker 1: is inherently susceptible to hype and narrative, particularly when the
Speaker 1: I think, as you've seen in recent years, particularly when
Speaker 1: financial markets set up ways for people to get actually
Speaker 1: paid and to monetize that kind of narrative and hype,
Speaker 1: right as opposed to, Hey, I finished building this company,
Speaker 1: and then I it becomes a big company, and then
Speaker 1: I get really rich. Right when it becomes I sell
Speaker 1: this vision of the future that's really disruptive, and then
Speaker 1: I can issue a token and I can sell it
Speaker 1: to retail and I can make a billion dollars just
Speaker 1: by doing that without actually building anything, right, And I
Speaker 1: think that's you know, we're similarly out you know, in
Speaker 1: in technology. If I can create a startup that gets
Speaker 1: about value to three billion dollars, and then I can
Speaker 1: go into the secondary market and I can get liquidity
Speaker 1: as a founder and sell a lot of my shares
Speaker 1: to like institutional investors that want to get some right.
Speaker 1: And I think that's the inherent trick with technology is
Speaker 1: that it is inherently, by its nature much more susceptible
Speaker 1: to narrative driven you know, valuation and narrative driven thinking. Um,
Speaker 1: And that is what it is, right, That's that's not
Speaker 1: something that's going to go away, but it's something that
Speaker 1: investors have to be really cautious about how to differentiate.
Speaker 1: And you get it's like the early phases of a
Speaker 1: technology cycle, right, you get those nerdy engineers building really
Speaker 1: cool stuff in the garage, but then the NBA start
Speaker 1: to show up. Right, It's kind of a classic line
Speaker 1: and sell a valley, right, and you end up with
Speaker 1: a lot of huckster types coming in to kind of
Speaker 1: ride along the wave because there's so much money involved.
Speaker 1: And that's where you get the trouble. Can you explain
Speaker 1: arc to us, like what was that about? Because you
Speaker 1: know Joe mentioned the soft bank chart. If you pull
Speaker 1: up the Arc Innovation E T F it's pretty similar,
Speaker 1: basically erased like two years of gains. But you know,
Speaker 1: Cathy Wood was out there talking about how the technological
Speaker 1: revolution was going to increase GDP growth to like fifty,
Speaker 1: which I think is a number that has never been
Speaker 1: experienced in terms of GDP growth ever in the history
Speaker 1: of the global economy. But like, what was that about?
Speaker 1: And why did people seem to buy into a vision
Speaker 1: that you know, on the surface was pretty easy to
Speaker 1: pick apart. Yeah, I mean it was a perfect storm.
Speaker 1: I think narrative we have to have these like firew
Speaker 1: exchound to go off. It was this perfect storm of
Speaker 1: timing and compelling narrative, right. I mean, retail investors and
Speaker 1: individual investors were just starting to see this huge up
Speaker 1: surge in interest in markets and trading and participation in
Speaker 1: markets that we hadn't seen since the previous tech boom
Speaker 1: back in the nineties, right, And a lot of that
Speaker 1: interest was centered around new new era, new economy technology stocks,
Speaker 1: a lot of the smaller speculative type of names that
Speaker 1: were coming to the market through SPACs. And you know,
Speaker 1: Kathy did a really good job of capitalizing on that
Speaker 1: interest and offering a really simple way to get exposure,
Speaker 1: you know, not to any specific stock, but to this
Speaker 1: idea of disruptive innovation, right, And that's a theme that
Speaker 1: really appeals to a lot of folks, you know, a
Speaker 1: lot of young folks, but not just young folks, right.
Speaker 1: And she uh, you know, she's charismatic, and she doesn't
Speaker 1: did a great job on TV, and she was able
Speaker 1: to tracked huge inflows. And of course the trick with
Speaker 1: all of that is, you know, I mean, she's made
Speaker 1: a tremendous amount of money, and good for her, but
Speaker 1: on on management fees, on those on those vehicles, but
Speaker 1: if you look at kind of the net capital destruction
Speaker 1: in the process, that's been enormous, right, because she was
Speaker 1: you know, those inflows were partly responsible, among lots of
Speaker 1: other types of things for driving up the prices of
Speaker 1: many of those types of companies dramatically and and ultimately
Speaker 1: way way way out of line with any kind of
Speaker 1: probability of success and probability and monetization. I just had
Speaker 1: this sort of realization actually I've never really thought about
Speaker 1: before until Tracy's question about like narratives and wide tech,
Speaker 1: because it seems to me. The other area where you
Speaker 1: see this is commodities, where there's like incredible stories that
Speaker 1: people tell, Like peak oil was a huge one, the
Speaker 1: endless Rise of China was another one. We're not going
Speaker 1: to have enough copper and lithium for the demand for
Speaker 1: evs for the next ten years. And then of course
Speaker 1: you have all like you know, the hucksters and fine
Speaker 1: financiers who's like, you know, give us your money for
Speaker 1: this mining project up with the Yukon where we're gonna
Speaker 1: strike gold or whatever. It feels like in a way
Speaker 1: like commodities and now we're like in this commodity cycle,
Speaker 1: like and like tech are like these like evil twin
Speaker 1: brothers or like distant cousins where it's like, as a society,
Speaker 1: we oscillate between a tech cycle nineties, commodity cycle, two
Speaker 1: thousand's tech, the twenty tens, where we just sort of
Speaker 1: like passed back and forth between, Like are we in
Speaker 1: a tech story cycle or commodity story cycle. I don't
Speaker 1: know if that's a question, just sort of something I'm like,
Speaker 1: it seems like there's like these big, big swings that
Speaker 1: go back and forth between the two. It's totally true.
Speaker 1: I mean commodities since the beginning of time have been
Speaker 1: just the massive, most massive like cyclical boom bust area
Speaker 1: right where you have shortages and prices get driven up
Speaker 1: and people and companies hoarde and then eventually that leads
Speaker 1: to an economic downturn and commodity prices collapse and there's
Speaker 1: a huge gluts. And this is you know, not a
Speaker 1: new thing, and it's a perpetual thing. But to your point,
Speaker 1: it gets tied up in all kinds of narratives that
Speaker 1: people create around how you know, we're going to run
Speaker 1: out of fossil fuels and oil prices are going to
Speaker 1: go to infinity and then the and it goes back
Speaker 1: and forth and back and forth, and we're doing it
Speaker 1: again now of course, right, and I think, um, there's there.
Speaker 1: It's compliments in a in a it's in some sense
Speaker 1: commodities are like this very simple fundamental thing as compared
Speaker 1: to technology, right, But they get tied up in these
Speaker 1: macro stories, which you know, macro is always really hard,
Speaker 1: right because you know the world is changing, and you
Speaker 1: always can have some conception of you know, the way
Speaker 1: in which the world is changing and why it's going
Speaker 1: to lead to this huge extrapolation. So this actually sort
Speaker 1: of gets to my next question, how do you know
Speaker 1: who's just a storyteller in real time versus someone who
Speaker 1: is actually correctly identifying a new trend. Because you know,
Speaker 1: you mentioned Warren Buffett in the beginning. He was wrong
Speaker 1: and it's like not all of like the Curmudgeons on
Speaker 1: a certain area get vindicated in the end. He was
Speaker 1: wrong to dismiss the Googles and the you know, the
Speaker 1: facebooks in he ended up making a fortune on Apple
Speaker 1: and sort of like erased a bunch of like you
Speaker 1: know that compensated for a bunch, But he was wrong
Speaker 1: on this, And so like in real time, investors really
Speaker 1: are faced with a tough decision because, like sometimes the
Speaker 1: world changes, and it can be really hard to disambiguate
Speaker 1: in real time between who is like a huckster trying
Speaker 1: to like you know, sell their token or whatever versus
Speaker 1: someone who's like identifying a real change that's happening. It's
Speaker 1: really really hard in real time to your point, And
Speaker 1: I think that the reason it's really really hard is
Speaker 1: because again, like we talked about, momentum is a real
Speaker 1: phenomenon and structural change in the world, and technological changes
Speaker 1: is a real thing, right, And so you have to
Speaker 1: keep an open mind, and you can't take the curmudgeon approach,
Speaker 1: right where anything that's new or anything that people are
Speaker 1: excited about or that's going up in price sort of
Speaker 1: must be wrong. And you see a lot of that
Speaker 1: kind of thinking, kind of behavior. That's a wrong mental frame, right.
Speaker 1: I think it's easier to think about identifying and screening
Speaker 1: out the stuff that is fair has a lot of
Speaker 1: red flags and is fairly fairly clearly actually a bunch
Speaker 1: of hucksters as opposed to on the margin, So is
Speaker 1: solving the world? Who the Warren Buffett question? Right? You know,
Speaker 1: was Warren Buffett? Was there a path for Warren to
Speaker 1: figure out that Google and Amazon were real things? Back
Speaker 1: in there? Might there might not have been? Right? I
Speaker 1: think that identifying red flags of very likely problems, right.
Speaker 1: I mean, I think you get into things like, okay,
Speaker 1: do do we have projections of returns that are way
Speaker 1: way above historical equity returns? Or based on nonsensical statements
Speaker 1: like theckathy Wood one that we talked about, right, GDP
Speaker 1: growth because of artificial general intelligence? Right, you can fairly
Speaker 1: quickly say okay, I don't know exactly what's going on
Speaker 1: in the world, but like that's not real, right, Um.
Speaker 1: I think another one and and this I think is
Speaker 1: is very important and hits institutions more but lanes of
Speaker 1: returns significantly exceeding you know, the risk free rate, but
Speaker 1: with little or no risk, right. And that's the one
Speaker 1: I think that ends up leading to much bigger problems
Speaker 1: in financial markets and much bigger problems in the global economy. Right,
Speaker 1: because people with nice suits and ties and very big
Speaker 1: offices look at an eight or nine or ten percent
Speaker 1: relatively low risk return, and they think about how they
Speaker 1: can put leverage on that, and they think about how
Speaker 1: they could have a five year run making really good
Speaker 1: money and get paid a lot, right, And that's incredibly appealing.
Speaker 1: And that's actually the nature of a lot of the
Speaker 1: biggest losses that you saw on crypto and so forth. Right.
Speaker 1: It wasn't necessarily folks buying you know, doage coin and
Speaker 1: and losing a catastrophic amount of money. It was people saying, wow,
Speaker 1: this anchor protocol, this thing yields and hard. There's a
Speaker 1: Harvard business yeah, and there's like a Harvard professor that
Speaker 1: wrote the white paper and you know, there's all these
Speaker 1: credible bcs talking about it, and if I can get
Speaker 1: on that, and then if I can borrow ten billion
Speaker 1: dollars to do that, like I can get really rich
Speaker 1: really fast. Yeah, that didn't work out so well. Um,
Speaker 1: just on the topic of leverage, can you talk a
Speaker 1: little bit about what you've seen in derivatives specifically so
Speaker 1: your specialty. So, I know we had retail um jump
Speaker 1: into the options market and that helped to fuel a
Speaker 1: lot of the meme stock investing frenzy. But I'm curious
Speaker 1: what you've seen on the institutional side as well. Yeah,
Speaker 1: there have been some spectacular blow ups in the derivative
Speaker 1: space that were primarily institutional products over the last five years. Again,
Speaker 1: I think all the same root causes where you get
Speaker 1: just nothing bad haven't gone wrong really since two thousand
Speaker 1: and nine, and therefore more and more risk tolerance building up.
Speaker 1: So you know, you can think about, for example, all
Speaker 1: the unstructured alpha is a is a really good example
Speaker 1: where you know, this is a brand name platform, investor
Speaker 1: base was big public pensions and many tens of billions
Speaker 1: of dollars, and you have a case where and you
Speaker 1: can go read about it on the SEC website and
Speaker 1: the d J, where you know, the portfolio managers were
Speaker 1: taking more and more risk, selling leverage tail risk, using
Speaker 1: options in a relatively complicated strategy, and just outright lying
Speaker 1: about the risk they were taking in the positions that
Speaker 1: they had to investors in order to put up a
Speaker 1: return stream that looked pretty good and drew in more
Speaker 1: and more capital um and then eventually blew up in
Speaker 1: March of and resulted in a whole bunch of lawsuits
Speaker 1: and you know, presumably probably prisoned and so forth. Right,
Speaker 1: So it's the kind of thing that lots of big
Speaker 1: investment consultants had looked at that strategy and said, hey,
Speaker 1: this looks good. Lots of big institutional investors fell for
Speaker 1: it for years and years and years and just without
Speaker 1: asking that asking those questions about, well, how can this
Speaker 1: return stream exist? Is this applausible return stream given what
Speaker 1: trades are supposedly in the portfolio and and the answers
Speaker 1: absolutely not, But those questions are critical to be to
Speaker 1: be asked, right. I think similarly, you saw structured tail
Speaker 1: risk selling out of firms like Malachite and some of
Speaker 1: the Canadian pensions like aim Coode that manifested itself as good,
Speaker 1: steady returns, but then in March involved it's you know,
Speaker 1: spectacular blow ups and explosions, sort of taking on toxic
Speaker 1: tail risk that the banks didn't want, and again consultants
Speaker 1: backing these these kind of approaches and saying, yes, this
Speaker 1: is the smart relative value strategy. So I think it
Speaker 1: all comes back to what is this return stream coming from?
Speaker 1: What is the manager telling you about what the return
Speaker 1: stream is coming from. If the answer is it's really complicated,
Speaker 1: we're really smart. We can't tell you. It's not that
Speaker 1: that can't possibly be true, but it should raise a
Speaker 1: lot of scrutiny in terms of how much you feel
Speaker 1: you need to understand right about about the positions. You know,
Speaker 1: blask and I always say things like, look, you should
Speaker 1: be able to get a snapshot of historical positions, not
Speaker 1: necessarily current positions, and you should be able to understand
Speaker 1: exactly what the positions are, what the products are, what
Speaker 1: the risks are, and be able to understand return attribution.
Speaker 1: And if you can't do that, then you just shouldn't
Speaker 1: get involved. You should let the you know, let the
Speaker 1: momentum effect kind of walk away. I want to ask
Speaker 1: another question about the sort of I don't know. I
Speaker 1: guess it's the challenge of fighting the trend or the
Speaker 1: challenge of being skeptical. You know. Another one thing that
Speaker 1: we've seen in the sort of like inflationary maybe like
Speaker 1: peak postmania market is that certain investing strategies that really
Speaker 1: like did terribly in the twenty tents are doing well.
Speaker 1: And I'm like thinking about like some of the strategies
Speaker 1: that are employed by quants, like say like an a
Speaker 1: q R of like long cheap stocks, short expensive stocks,
Speaker 1: those did very poorly throughout much of the tens and
Speaker 1: then but not only did they do poorly, and they've
Speaker 1: now turned around at the very late stages, they did
Speaker 1: absolutely awful, and so they did really terrible in It
Speaker 1: seems to me like part of the problem for any
Speaker 1: institutional investor is not just that it's like costly to
Speaker 1: like hold out for things to revert to the mean
Speaker 1: or for a trading strategy to work out. It's that
Speaker 1: it gets especially costly in the late stages of the thing.
Speaker 1: So like your costs like really go up right before
Speaker 1: the time when it's about to work. Betting against manias
Speaker 1: is really really really hard, right you hear. I think
Speaker 1: about the success stories, like we all loved watching Big Short,
Speaker 1: and that was really fun. And you know, there is
Speaker 1: a a piece of it where it's arguably easier, at
Speaker 1: least to some extent, to bet against a mania or
Speaker 1: a bubble that has certain time dependent catalyst features, like Okay,
Speaker 1: these mortgages are actually all defaulting right now, and there's
Speaker 1: like a timeline for that to feed through into the
Speaker 1: payoffs on these instrument and some like we don't know
Speaker 1: the exact timing, but like you know, it's two thousand
Speaker 1: and seven and it's and it's go time. But even that,
Speaker 1: like a lot of people were early, right, and a
Speaker 1: lot of people you didn't hear about in the Big
Speaker 1: Short put those trades on in two thousand and five
Speaker 1: and got blown out right, seems to be the problem.
Speaker 1: You can't just wait, and that's actually the easier version, right.
Speaker 1: But when there's a mania in things that are equity
Speaker 1: like that have unlimited upside, right, it's not just that
Speaker 1: you're paying some premium to be to be to have
Speaker 1: an option or to be in a credit to follow
Speaker 1: swap or something, but you're trying to like short, gimmy
Speaker 1: that or or or anything else that's you know, short
Speaker 1: a crypto token. Um that you're the risk is wildly
Speaker 1: asymmetric against the short position, right, because that instrument could
Speaker 1: go up by five times or ten times or twenty times,
Speaker 1: and your risk grows exponentially in a short position as
Speaker 1: that happens. But you can only ever make if it
Speaker 1: goes to zero. You make like one time. Right. And
Speaker 1: so to your point, um, it's an extremely difficult game
Speaker 1: that not a lot of people try to play. I mean,
Speaker 1: we would just never touch anything like that, regardless of
Speaker 1: how crazy we think that the world is. And you know,
Speaker 1: there's things you can Okay, maybe I can do limited
Speaker 1: loss trades and options or something, but like options on
Speaker 1: really crazy bubbly things are very expensive for a very
Speaker 1: good reason. Right. So it's I think that's one of
Speaker 1: the inherent tricks. Right. And there's an academic concept called
Speaker 1: the limits to arbitrage that's really important here. I mean,
Speaker 1: and arbitrage is the word that gets thrown around way
Speaker 1: too much. It's kind of almost totally irrelevant to this, right,
Speaker 1: even if something is inherently worthless, there's no arbitrage short.
Speaker 1: One thing we haven't spoken about really yet is whether
Speaker 1: or not there was something in the broader environment or
Speaker 1: the macro situation that made the past couple of years again,
Speaker 1: I guess more vulnerable to these types of manias and
Speaker 1: frauds in some cases, and a lot of people will
Speaker 1: point to in the case of retail investors, people being
Speaker 1: stuck at home getting stimulus checks social media, you know,
Speaker 1: no commissions trading at robin Hood in places like that.
Speaker 1: And then of course you have the very broad backdrop
Speaker 1: of just low interest rates and the cost of capital
Speaker 1: being very low, the cost of money basically being very
Speaker 1: very low, and having plenty of liquidity slashing around the system.
Speaker 1: Is there something that when you look back on the
Speaker 1: past couple of years you would attribute to you know,
Speaker 1: something that is one of the reasons that we saw
Speaker 1: so much froth. I think there are a lot of
Speaker 1: different contributing factors, I think, and I think this is
Speaker 1: usually how things go. So I would say commentators tend
Speaker 1: to focus very, very heavily on low interest rates and
Speaker 1: quantitative using and so forth. I mean, I think there's
Speaker 1: a I think a role for cheap money on the margin,
Speaker 1: especially in areas like real estate. But I think that
Speaker 1: really the direct role of low interest rates or or
Speaker 1: QUI here is very overstated. I mean, you look at
Speaker 1: the history of interest rates and quantitative using geographically around
Speaker 1: the world for the last twenty years, and you know
Speaker 1: there's very little Japan has been doing quei for for
Speaker 1: a very long time. We had low interest rates in
Speaker 1: the US for a long time. Previous manias weren't necessarily
Speaker 1: associated with low interest rates. And one way to think
Speaker 1: about it is like with tech stocks going up a
Speaker 1: hundred percent a year and crypto tokens paying twenty percent yield,
Speaker 1: Like if you have to pay three or four percent
Speaker 1: to get leverage versus one percent, it just doesn't matter
Speaker 1: if you are in the frame of mind that like
Speaker 1: you want to do those kind of maastments, right, I
Speaker 1: mean that the idea and I joke about this on
Speaker 1: Twitter a lot, but you have the idea that, like
Speaker 1: the bitcoin folks would have just bought a bunch of
Speaker 1: treasuries if treasuries paid six or seven percent, is like,
Speaker 1: on its face ridiculous, and they would all tell you that, right, Um, well,
Speaker 1: wait a second, I have I have seen I've seen
Speaker 1: at least one person on Twitter claim that one of
Speaker 1: the reasons bitcoin is down is because everyone's buying um,
Speaker 1: those inflation protected it's it's it's pretty funny, right, I mean,
Speaker 1: I think it's much more about the collective perception of
Speaker 1: relative risk and return and the growth of narratives justifying
Speaker 1: that perception, and then the broad socialization of more and
Speaker 1: more people into that perception. Right. I do think where
Speaker 1: rates and Quwie comes in as perceptions of the role
Speaker 1: of cheap money coordinating investor expectations are kind of the
Speaker 1: money printer Gober, you know, buy everything. Mean, like, I
Speaker 1: think that's actually important. That's probably much more important than
Speaker 1: the direct impact of like rates being a little bit
Speaker 1: lower and being able to get leverage. Right, is this
Speaker 1: the contribution to the narrative that like all of this
Speaker 1: stuff just has to go up? And I do think
Speaker 1: I come back, you know, ultimately, And you pointed out
Speaker 1: other other phenomena that I do think have been important.
Speaker 1: When you look specifically at retail options trading and a
Speaker 1: lot of the aggressive market participation that has showed up
Speaker 1: over the last few years. I do think the pandemic
Speaker 1: played a real role. I think that the the there's
Speaker 1: a self reinforcing dynamic to the social internet aspect to it, right,
Speaker 1: It's not just people sitting at home in their brokerage
Speaker 1: account doing stuff by themselves. They're in They're increasingly in
Speaker 1: discords or on Twitter or in some kind of social
Speaker 1: group or read a Wall Street that's that's like a
Speaker 1: community that's fun where people talk about investing and they
Speaker 1: teach each other stuff and they you know, they overcome
Speaker 1: the activation barrier of like how do you open a
Speaker 1: brokerage account and how do you put money in it?
Speaker 1: And how do you actually click a button to trade
Speaker 1: and all this stuff, and like, once that's there, and
Speaker 1: once it's a fun, entertaining social thing and it has
Speaker 1: a gown group gambling component to it, like it becomes
Speaker 1: much easier to kind of get out of control and
Speaker 1: much longer lasting. Right then, you know it has all
Speaker 1: the power of the of the engagement, you know, click
Speaker 1: bait nous, of the of the internet associated with it.
Speaker 1: I think that was really important. I want to ask
Speaker 1: you follow up on it, but before I forget one point.
Speaker 1: You know, you mentioned this sort of like myth of
Speaker 1: like that it's all about cheap money, and a point
Speaker 1: that Mark Dow who's a trader very active on Twitter,
Speaker 1: often points out is like in the housing bubble in
Speaker 1: the mid twenty tens. You know, some of the most
Speaker 1: agregious like ninja loans and sub prime activity happened like
Speaker 1: two thousand five, two thousand six, well into the hiking cycle.
Speaker 1: So even in real estate, which we all sort of
Speaker 1: can accept it is probably the one area that's most
Speaker 1: linearly connected to interest rates, you still saw like manic
Speaker 1: activity well after the FED started hiking. You know, they
Speaker 1: got as high as like five percent in two thousand
Speaker 1: and six, and there was still all kinds of wild
Speaker 1: stuff going on then. But on the same and the
Speaker 1: same by the way, it was true of the eighties
Speaker 1: Japanese real estate bubble and Scandy real estate, right, So
Speaker 1: it's just it's not just like this like interest rate
Speaker 1: dial that sets the level of spectator frosth But on
Speaker 1: the question of call options, and I think the last
Speaker 1: time we talked, I think it was our one, and
Speaker 1: it was really about this question of like retail call
Speaker 1: buying activity and how it's changing markets. I don't want
Speaker 1: to say distorting, but maybe distorting or changing markets. Just curious,
Speaker 1: like what do you see right now? Are they still
Speaker 1: out there? How big of a presence are they relative
Speaker 1: to where they were last year versus where they were
Speaker 1: maybe twenty eighteen or twenty nineteen and sort of more
Speaker 1: normal market. And are they other people who haven't given
Speaker 1: up yet or haven't capitulated or still trying to do
Speaker 1: like playbook? What do you see now? Yeah, So I
Speaker 1: threw a chart up on that on Twitter, probably a
Speaker 1: couple of weeks ago, and it's you know, it looks
Speaker 1: a lot like the price sharks of Peloton and everything
Speaker 1: like that. Right, So, there was this huge surge in
Speaker 1: retail option trading activity, and not just retail, by the way,
Speaker 1: also institutional options trading activity and volumes. Retail kind of
Speaker 1: moved first, an institutional caught up. An institutional actually peaked
Speaker 1: a little bit later than retail. We peaked in in
Speaker 1: late one actually, so a little bit after you would
Speaker 1: think of a like the peak of the robin hood
Speaker 1: p and L. It was more like November, I think,
Speaker 1: um where And at that time, option trading volumes were
Speaker 1: in the like the ten to twenty times higher than
Speaker 1: baseline range, which is just unbelievable, right, And then what
Speaker 1: happened since was a pretty steady collapse, you know, with
Speaker 1: some some rallyback attempts. But now we're back to maybe
Speaker 1: only two x over baseline, so it's still it's still elevated,
Speaker 1: and I think it will remain somewhat elevated. I think
Speaker 1: back to the kind of the social gambling dynamic I
Speaker 1: think I can't get that has a long tail to it, right.
Speaker 1: People used to ask me a lot in Okay, how
Speaker 1: is this going to end? What's actually going to make
Speaker 1: individual investors, you know, and some of the fast money
Speaker 1: hedge fund types that are starting to trade like this,
Speaker 1: what's going to make them give up? And my view
Speaker 1: was always, look, it's not going to be obviously in
Speaker 1: March event where there's a fast, big market crash and
Speaker 1: then things recover, because that's a lot of this option
Speaker 1: option trading. It's option by right. It's kind of long convexity.
Speaker 1: You pay a small amount of premium to get a
Speaker 1: whole bunch of upside if there's a giant move, and
Speaker 1: that's perfect for crashes, right because you're like, oh, I
Speaker 1: lost you know, I lost my thousand bucks or whatever,
Speaker 1: and then I'll do it again tomorrow. The it's really
Speaker 1: the long, slow grind b market kind of sideways are
Speaker 1: down that eventually drives people out right, because they're spending money,
Speaker 1: they're spending premium, they're spending premium, they're spending premium, and
Speaker 1: it's you know, it's just burning for six months, for
Speaker 1: a year. And I think that's what we've seen. So
Speaker 1: speaking of driving people out, is there is there any
Speaker 1: craziness left or has all the sort of air been
Speaker 1: kicked out of the market's tires? What do you see?
Speaker 1: Excellent question. I mean, I think there's plenty of craziness left.
Speaker 1: So I think both in crypto and in tech, there
Speaker 1: are many funky crypto tokens that are down, but they
Speaker 1: can there, right, yeah, exactly as we as we constantly joke, right, um,
Speaker 1: but whose market cap is still billions and billions of dollars, right,
Speaker 1: and you know they're just jokes. So I think, you know,
Speaker 1: that's hard to argue that that that stuff doesn't eventually
Speaker 1: go to zero. Right. And then within what you would
Speaker 1: think of as like the Arc basket and you know,
Speaker 1: the Goldman SAX index of speculative software stocks, again, there
Speaker 1: were a lot of companies that experienced valuations in private
Speaker 1: markets and sometimes eventually in public markets of thirty dollars
Speaker 1: that just it's very hard to see them ever being
Speaker 1: worth anything, right, And a lot of those names are
Speaker 1: down a lot. They're down, but they're still worth five
Speaker 1: billion dollars or three billion dollars. Right. The things that
Speaker 1: have gone down the most are not always the cheapest, right.
Speaker 1: Sometimes they are, But in this case, I think it's not.
Speaker 1: That's not obvious at all. I think there's a great
Speaker 1: Kindleberger quote that the period of financial distress is a
Speaker 1: gradual decline after the peak of a speculative bubble that
Speaker 1: precedes the final and massive panic and crash, driven by
Speaker 1: the insiders having exited, but the suckers, outsiders hanging on
Speaker 1: and hoping for a revival and then finally giving up. Right,
Speaker 1: And it feels like that's where we are, sort of.
Speaker 1: The insiders have been kind of quietly and steadily getting out.
Speaker 1: There's apparently still quite a lot of demand, for example,
Speaker 1: to sell shares in the secondary market of startups that
Speaker 1: are down. Right, You've got founders that on paper, briefly
Speaker 1: we're worth billion dollars and now they're worth two billion dollars,
Speaker 1: and they're like, you know what, that's still pretty good.
Speaker 1: I don't want to see if I can turn that
Speaker 1: into cold hard cash. You know, speaking of crypto, what
Speaker 1: do you think about it overall? Because, I mean it's
Speaker 1: really tough, Like you have so many you have institutions,
Speaker 1: you have probably some of the smartest people you know
Speaker 1: or that we know, have gone into crypto. There are
Speaker 1: certainly interesting element of decentralization, etcetera. That I think are
Speaker 1: intuitively very appealing. And on the other hand, it's a
Speaker 1: space that's been absolutely riven with every red flag in
Speaker 1: the book basically since to day one. This is something
Speaker 1: that never ceases to amaze me about crypto, which is
Speaker 1: that like one person can look at it and go,
Speaker 1: this is world changing technological disruption, and another person can
Speaker 1: look at it and go, this is clearly a fraud
Speaker 1: and a pond z and you know, people are just
Speaker 1: throwing money into this useless thing. Absolutely So I have
Speaker 1: a lot of very smart friends in crypto, and I
Speaker 1: you know, I try to keep a pretty open mind.
Speaker 1: I mean, I think that my default is there's a
Speaker 1: lot of investment in infrastructure that you might have payoffs
Speaker 1: that are hard for me to predict and know, you know,
Speaker 1: which areas are going to really be important in ten
Speaker 1: or twenty years. And you know, there's a lot of
Speaker 1: work in that. There there are use cases in improving
Speaker 1: settlement and payments and god knows what, and like we'll
Speaker 1: find out in ten or twenty years. My mediaan case
Speaker 1: would be like there's some actually really valuable stuff that
Speaker 1: comes out of that. And again to your point, lots
Speaker 1: of really smart people working there. I think that part
Speaker 1: of the issue is really so much money got made
Speaker 1: or and attracted so much, so many followers on who're
Speaker 1: trying to get rich, right, and then that really came
Speaker 1: to totally dominate the space and everything visible about it,
Speaker 1: and a lot of the you know o g original
Speaker 1: Crypto folks like have been vocal about that too. I
Speaker 1: think ultimately, you know, everything has to ultimately derive value
Speaker 1: from real products and services that people spend money on
Speaker 1: in a sustainable way. But Crypto, I think at the
Speaker 1: core of it, Crypto really owned and brought to the
Speaker 1: forefront this idea that financialization is first, right, and that
Speaker 1: use cases sort of follow, and that you're supposed to have.
Speaker 1: It's this very like pure Chicago Department of Economics efficient
Speaker 1: markets idea, right that like if everything is priced a priori,
Speaker 1: the market is sort of all knowing and all seeing,
Speaker 1: and people will identify the things that are going to
Speaker 1: work and they're going to finance those in like the
Speaker 1: world is going to be utopia, right, And it's completely ridiculous.
Speaker 1: You know what actually happens in practices that if you
Speaker 1: can create a narrator to create a hype cycle around
Speaker 1: your company, and you get the right VC backing and
Speaker 1: whatever it is, and then you can create money by
Speaker 1: issuing a token and you can sell it to retail
Speaker 1: and humongous size, and you can make hundreds of millions
Speaker 1: or billions of dollars for doing absolutely nothing right. And
Speaker 1: that happened over and over and over and over again,
Speaker 1: and it was sort of institutionalized as a business model
Speaker 1: by like certain venture capital firms that you know are
Speaker 1: are big backers of this space, right, And I think
Speaker 1: that's the core issue. Well, I forget who like made
Speaker 1: this point, but yes, like you might say that crypto
Speaker 1: has attracted the best and the brightest of the last
Speaker 1: several years. But if they're the best of the brightest,
Speaker 1: they might be the best of the brightest at figuring
Speaker 1: out how to make life changing amounts of money for
Speaker 1: six months, which is not necessarily the foundation of a
Speaker 1: of a sound new industry. Yeah, you give you give
Speaker 1: people really strong financial incentives, and it's really hard to resist, right,
Speaker 1: Like it's you know, it's easy to obviously point fingers
Speaker 1: at the most egregious people in the space and Dokuan
Speaker 1: and all these guys that, like, if you create a
Speaker 1: world in which it's really easy for charismatic, hustle type
Speaker 1: people to get really rich by scamming people, like they're
Speaker 1: going to do that, and you have to expect that,
Speaker 1: Like that's just how the world is going to be.
Speaker 1: And I think that's what the incentives that we've set
Speaker 1: up in crypto have really done. So what's your big
Speaker 1: advice to investors or anyone listening to this podcast? How
Speaker 1: should they avoid the next mania? What should they watch
Speaker 1: out for? I mean, I think the things that I
Speaker 1: always come back to our again to really look out
Speaker 1: for people credibly trying to credibly claim these astronomical return
Speaker 1: profiles or pretty high returns with very little risk, because
Speaker 1: you just have to think of it as the world
Speaker 1: is full of a lot of very smart, very competitive
Speaker 1: sharks who run very big businesses that really like getting rich.
Speaker 1: And if there was an opportunity to make risk free
Speaker 1: in front of you, they would have already taken that
Speaker 1: away from you and done it first, right. And what
Speaker 1: it means if you see something like that is that
Speaker 1: it's not real, you know, and there's either some kind
Speaker 1: of fraud or there's some kind of extraordinary risk that
Speaker 1: you're not seeing. Right. You have to be really wary
Speaker 1: of extrapolation, right, and that kind of comes back both
Speaker 1: to the commodity story you were talking about and to
Speaker 1: know bitcoin and all kinds of things, right, sort of
Speaker 1: extrapolating recent extreme investment performance into the future. You have
Speaker 1: to really be very skeptical of overly complex investments with
Speaker 1: non transparent sources of return right where people are trying
Speaker 1: to tell you this is really good because it's it's
Speaker 1: really smart, and it's really complicated, and I know you
Speaker 1: don't totally understand it. And you have to also be
Speaker 1: ready to recognize the psychological tricks that the investment world
Speaker 1: plays on you. Right. Again, a lot of these things
Speaker 1: it seems like it should be so obvious, but it's not. Right.
Speaker 1: There's a lot of laundering of credibility, right, legitimization of
Speaker 1: investment schemes by the backing of authoritative people or people
Speaker 1: you feel like you should trust, because especially at peak cycle,
Speaker 1: people are very willing to lend their credibility to uh,
Speaker 1: you know, two things that aren't going to get them paid.
Speaker 1: You know, think of again the Harvard Business School professors
Speaker 1: writing the white papers for Ponzi schemes like anchor, using
Speaker 1: social consensus and group psychology right to normalize ideas and narratives,
Speaker 1: and to pressure people to stop asking questions, you know,
Speaker 1: big Twitter mobs telling you you're an idiot and you're
Speaker 1: not going to make it right. And and then very
Speaker 1: much so kind of scarcity or immediacly like, look, you're
Speaker 1: gonna miss the boat. You don't get it, and it's
Speaker 1: like time to get on board or or miss the boat. Right.
Speaker 1: That's I think really critical. Let me ask you one
Speaker 1: last question, and that the positive spin. And we've had
Speaker 1: guests say this and other people say this, that out
Speaker 1: of this will come a very sophisticated class of investors,
Speaker 1: people who learned about options trading. People love your kind, Tana.
Speaker 1: I saw you know, the Wall Street bets crowd like, uh,
Speaker 1: you know, loves when you jump on there and actually
Speaker 1: walks through the math and walks through some of like
Speaker 1: the risk taking frameworks of this stuff. Do you are
Speaker 1: you optimistic that there will be like a cohort of
Speaker 1: you know, people who maybe got scarred or burned, but
Speaker 1: also like learn some sophisticated stuff that will have a
Speaker 1: good combination of skills and knowledge coming out of this period.
Speaker 1: So I really hope. So, I mean, I'll tell you
Speaker 1: ten or ten or fifteen years ago, I remember working
Speaker 1: with a good friend who's now a VC on ideas
Speaker 1: for like investor education, and how do you get people
Speaker 1: that even care about financial markets and investing and pay attention,
Speaker 1: because back then it was like totally impossible to get
Speaker 1: the young generations to even think about this stuff, right.
Speaker 1: And it's really good that individual investors have gotten interested
Speaker 1: in investing, right, And I know I feel like, you know,
Speaker 1: sometimes I hope I don't give the opposite tone, right,
Speaker 1: because it's so easy for people to get tricked and
Speaker 1: all this kind of stuff, Like it's fantastic, but I
Speaker 1: think a lot of times people have to learn from
Speaker 1: their own experience, right, It's just really hard. I mean,
Speaker 1: you know, Hagel said we learned from history that we
Speaker 1: just can't learn from history, right, Um, people have to,
Speaker 1: one way or another, go through their own experiences of
Speaker 1: mistakes and things not going well to really internalize lessons.
Speaker 1: And what I really hope is that people are able
Speaker 1: to take hold of those lessons and you know, stay
Speaker 1: interested in financial markets and stay interested and invest in
Speaker 1: and learn how to make good decisions as opposed to
Speaker 1: like feeling so scarred by it that they just walk away.
Speaker 1: All right, Ben, it was lovely having you back on
Speaker 1: the show to talk about the lessons of history, recent
Speaker 1: history that I guess we won't necessarily actually learn, but
Speaker 1: it was fun to chat. Let's put it that. Yeah,
Speaker 1: that was funk you absolutely so, Joe. I really enjoyed
Speaker 1: that conversation. It's always great having been on because, like
Speaker 1: I feel like he gives good perspective on detail and
Speaker 1: also on institutional Yeah. One thing that struck me was
Speaker 1: just the last bit of the conversation about you know,
Speaker 1: things that are making money naturally attracting people who want
Speaker 1: to make money. And I guess it seems obvious in retrospect,
Speaker 1: but I do think it's a good reminder. No, it
Speaker 1: really is. And I think, like, look, if you're like
Speaker 1: really smart in any field, but if you're really smart.
Speaker 1: You might you know, people in this space are smart
Speaker 1: enough to like spot the inefficiencies, smart enough to spot
Speaker 1: the suckers, smart enough to figure out like what can
Speaker 1: make life changing amounts of money in a short period
Speaker 1: of time, And a lot of really smart people did.
Speaker 1: But it's really hard, and I think, like you know,
Speaker 1: going back to the middle of the conversation, in real time,
Speaker 1: I think it's just extremely hard to know where you
Speaker 1: are in a cycle and what's the difference between a
Speaker 1: bubble and a new regime or a new a new thing.
Speaker 1: Oh totally. And also even if you correctly pinpoint where
Speaker 1: we are in the cycle, you could still make mistakes.
Speaker 1: So I'm thinking of, you know, all the people who
Speaker 1: thought that inflation was going to rise over the past
Speaker 1: couple of years and they bought bitcoin and gold like
Speaker 1: that hasn't worked out so well. No, it's really hard,
Speaker 1: and you know, like again, a lot of the most
Speaker 1: the costliest errors come in the final stages, whether that's
Speaker 1: jumping in too big, whether it's trying to short the thing.
Speaker 1: I mean, that's like the crazy part. Like to think
Speaker 1: about crypto over the last year, there's two huge ways
Speaker 1: to lose money you could have gone really big in
Speaker 1: at the peak, or you could have like gone short,
Speaker 1: like a few months earlier and gone out of business
Speaker 1: within a few months. So like the ability on either
Speaker 1: side of the trade just tremendous opportunities to lose a fortune. Yeah,
Speaker 1: or you could have gotten out, you know, in like
Speaker 1: sen or something like you know what, you know, my
Speaker 1: red flag is for a scammer. I've told you this,
Speaker 1: someone with a newsletter. Yeah, but well, either a newsletter
Speaker 1: or fund manager who quote Greek philosophers up at the front.
Speaker 1: That's like the big red flag. It's like you see
Speaker 1: an letter in the beginning is like some like quote
Speaker 1: from Marcus Aurelius, I don't know, or like Cicero or
Speaker 1: something like that or whatever it is. It's like, stay away.
Speaker 1: That's that's my trick. It's worked for me. Don't we
Speaker 1: have a newsletter, Yeah, but we don't quote. We don't.
Speaker 1: We don't quote the ancients to volster our volster our claim. Alright,
Speaker 1: let's leave it there, all right, This is bending another
Speaker 1: episode of the All Thoughts podcast. I'm Tracy Alloway. You
Speaker 1: can follow me on Twitter at Tracy Alloway, and I'm
Speaker 1: Joe wasn't, though you could have. Follow me on Twitter
Speaker 1: at the Stalwart. Follow our guest Ben Eiffert. He's on Twitter,
Speaker 1: Ben P. Eiffort at his two Ends in It. Follow
Speaker 1: our producer Carmen Rodriguez at Carmen Arman, and check out
Speaker 1: all of our podcasts at Bloomberg onto the handle at podcasts.
Speaker 1: Thanks for listening,