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Speaker 1: Bloomberg Audio Studios, podcasts, radio news, the single.

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Speaker 2: Best idea and this needs some explanation. I think we're

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Speaker 2: going to extend out over six minutes today. We want

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Speaker 2: to be short and brief, wrapped around your longer podcasts.

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Speaker 2: Thank you for the response on YouTube podcast Apple podcasts.

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Speaker 2: It's you know, we're looking at YouTube and building that out.

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Speaker 2: I've taken my eye off the single best idea ball,

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Speaker 2: but we'll talk about that in the Q four as well.

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Speaker 2: Michael Mobison is a giant on Wall Street. He is

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Speaker 2: arguably the number one thinker about capital allocation, the development

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Speaker 2: of profit and the distribution of free cash flow. This

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Speaker 2: started at Credit Sweez years ago, and then a wonderful

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Speaker 2: period at leg Mason and and to Morgan Stanley where

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Speaker 2: he is today. He's got a huge piece coming out,

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Speaker 2: he briefed me. I can't tell you about it, but

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Speaker 2: he's got a major, major piece coming out in a

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Speaker 2: number of weeks right now. His pieces on the concentration

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Speaker 2: on Wall Street. Michael Mobison now on active management.

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Speaker 3: This is the most challenging thing when you think about

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Speaker 3: acting active management because let's say so, just to play

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Speaker 3: back that you said, it's a handful of companies that

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Speaker 3: generate most of the shayold of wealth over long periods

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Speaker 3: of time. Let's say you're a portfolio manager and you're

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Speaker 3: smart enough to have identified one of these and put

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Speaker 3: in your portfolio. Let's say you bought Apple fifteen years ago. Awesome.

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Speaker 3: What happens is it becomes so big in your portfolio

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Speaker 3: that you blow through all of your diversification requirements.

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Speaker 2: Will Danoffs has in this fidelity.

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Speaker 3: Will Dan I mean to anybody that's big like that.

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Speaker 3: So it's a funny thing that on the one hand,

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Speaker 3: you see the numbers and you know that, and on

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Speaker 3: the other hand it's very difficult to actually take advantage

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Speaker 3: of it. And by the way, for your own personal account,

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Speaker 3: people can do this right, even Berkshire Hathaway. I know

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Speaker 3: they sold at their Apple Steak, but a couple quarters

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Speaker 3: ago it was fifty percent of their public equity portfolio.

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Speaker 3: You can't run a fund with fifty percent in the

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Speaker 3: largest company in the world, mostly quid company in the

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Speaker 3: world right on a viable business basis. So it's a

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Speaker 3: very interesting contrast. But the point being, the fundamental point

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Speaker 3: is this skewness. And by the way, it's not just

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Speaker 3: the United States. You go around the world best and

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Speaker 3: Binder especial around the world best, best and Bunden did

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Speaker 3: a world in developed and developing markets best and bunder

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Speaker 3: did his work with some colleagues around the world. Same

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Speaker 3: asx act pattern. And by the way, we don't know

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Speaker 3: exactly again why this pattern exists, but that skewness shows up,

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Speaker 3: that extreme skewness shows up over time everywhere.

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Speaker 2: Michael mos in there and he's speaking about Professor Bessembinder

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Speaker 2: in Arizona State, a major shot. We always give credit

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Speaker 2: across the industry to people doing good work. You know

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Speaker 2: Robin Wigglesworth at the Ft and you know others, and

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Speaker 2: of course here at Bloomberg, wonderful work John Author's was

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Speaker 2: and the other day was just brilliant. Harvey D. Shapiro

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Speaker 2: it Barons I believe it will be in this weekend's

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Speaker 2: Barons I may stand corrected on that, but Harvey D.

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Speaker 2: Shapiro with an absolute tuorive force of what Mobison was

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Speaker 2: talking about. There if the best in Binder research, that

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Speaker 2: there's very few winners out there. We continued our discussion

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Speaker 2: on active management the choices forward with Michael Mobison.

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Speaker 3: Active management is never going to go away, and nor

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Speaker 3: can it go away because it does two things that

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Speaker 3: are vital, and by the way, these are very important

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Speaker 3: positive externalities for the world. Number one is liquidity. People

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Speaker 3: forget about liquidity. It rears its head when we don't

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Speaker 3: want to see it. And then second ist price discovery.

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Speaker 3: So someone's got to make the trains run on time

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Speaker 3: and deliver the mail, making price efficient. So indexers are

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Speaker 3: free riders. Jack Bogel, by the way, God bless him,

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Speaker 3: would completely agree with us. They are all just free riders.

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Speaker 3: And not everybody can be a free writer, obviously in

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Speaker 3: some sort of a system. That's number one. Now number two,

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Speaker 3: Just David, to your point why this has been so

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Speaker 3: difficult is the average mutual fund manager who competes with

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Speaker 3: the S and P five hundred as his or her benchmark,

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Speaker 3: has an average size of their portfolio is smaller than

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Speaker 3: the market cap or the S and P five hundred. Right,

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Speaker 3: So here's the logic. Is when large caps rip, which

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Speaker 3: is what's happened last day, you've seen it, Yeah, active

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Speaker 3: gets it really struggles, right because you're just not exposed. Now, when,

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Speaker 3: by contrast, when small cap does well relative to large

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Speaker 3: cap active does really well. So that would be another

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Speaker 3: thing to bear in mind. If you say, well, I

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Speaker 3: think this this contry, you think it's.

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Speaker 1: Gonna go away.

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Speaker 3: The small CAP's gonna do better. We're gonna get more

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Speaker 3: balanced market. That's actually very good, as good at backdrop

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Speaker 3: as conceivable for active management.

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Speaker 2: Michael Mobison there, he had a paper out I'm gonna

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Speaker 2: guess nineteen ninety nine maybe two thousand, which was absolutely iconic.

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Speaker 2: We did some physics. It's like Jim Carron over at

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Speaker 2: Morgan Stanley. They only hire physicists at Morgan Stanley. I

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Speaker 2: don't know what that's about, but we were talking about

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Speaker 2: the mathematics of logarithms on the y axis in all

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Speaker 2: also on the x axis, which is called a log

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Speaker 2: log chart. And Mobison wrote an essay in the Internet

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Speaker 2: Boom that to this day stands as one of the

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Speaker 2: four or five most focused pieces on what we have wrought,

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Speaker 2: which is the mag seven Michael Mobison on the Internet

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Speaker 2: era of a time ago.

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Speaker 3: It's funny I was with a client this is like

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Speaker 3: two thousand and one, and the guy says, oh, he

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Speaker 3: just lived through the dot com boom and bust. You know,

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Speaker 3: do you think we've wizened up and that will never

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Speaker 3: do this again. I was like zero.

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Speaker 1: Probability of that.

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Speaker 3: No, not maybe not zero, but basically close to zero.

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Speaker 3: I mean, this is how it works. And so and

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Speaker 3: by the way, as a fascinating sign note, scientists said,

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Speaker 3: this is how our brains actually, how we develop our

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Speaker 3: brains synaptic connections and our brains do the same thing

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Speaker 3: from the time you're born in timey three you have

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Speaker 3: the explosion of synaptic connections. Try and also, if you've

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Speaker 3: ever been around a three year old, we all have been.

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Speaker 3: They're very inefficient little things, but they take in everything right,

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Speaker 3: but then you prune away the stuff that doesn't matter

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Speaker 3: and you keep the stuff.

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Speaker 2: It's good Michael Mobison there on my puny brain. It

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Speaker 2: was nice of him to bring that early. Can't say

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Speaker 2: enough about him. All the cat out of the bag.

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Speaker 2: And this is the power of our team here at

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Speaker 2: Bloomberg Surveyance led by Giuseppe's father, which is Friday scheduled.

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Speaker 2: Now Nassing telib I go way back with a wonderful

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Speaker 2: Nasim telib I want to talk to him about an

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Speaker 2: anti fragile America. That'll be one of the themes we develop,

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Speaker 2: but a special half hour today with Michael Mobison on

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Speaker 2: radio across the nation. On YouTube, subscribe to Bloomberg Podcasts

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Speaker 2: humbled by the growth there, and of course on podcast, YouTube, podcast,

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Speaker 2: Apple podcasts. This is single best idea