Speaker 1: Bloomberg Audio Studios, podcasts, radio news, the single.
Speaker 2: Best idea and this needs some explanation. I think we're
Speaker 2: going to extend out over six minutes today. We want
Speaker 2: to be short and brief, wrapped around your longer podcasts.
Speaker 2: Thank you for the response on YouTube podcast Apple podcasts.
Speaker 2: It's you know, we're looking at YouTube and building that out.
Speaker 2: I've taken my eye off the single best idea ball,
Speaker 2: but we'll talk about that in the Q four as well.
Speaker 2: Michael Mobison is a giant on Wall Street. He is
Speaker 2: arguably the number one thinker about capital allocation, the development
Speaker 2: of profit and the distribution of free cash flow. This
Speaker 2: started at Credit Sweez years ago, and then a wonderful
Speaker 2: period at leg Mason and and to Morgan Stanley where
Speaker 2: he is today. He's got a huge piece coming out,
Speaker 2: he briefed me. I can't tell you about it, but
Speaker 2: he's got a major, major piece coming out in a
Speaker 2: number of weeks right now. His pieces on the concentration
Speaker 2: on Wall Street. Michael Mobison now on active management.
Speaker 3: This is the most challenging thing when you think about
Speaker 3: acting active management because let's say so, just to play
Speaker 3: back that you said, it's a handful of companies that
Speaker 3: generate most of the shayold of wealth over long periods
Speaker 3: of time. Let's say you're a portfolio manager and you're
Speaker 3: smart enough to have identified one of these and put
Speaker 3: in your portfolio. Let's say you bought Apple fifteen years ago. Awesome.
Speaker 3: What happens is it becomes so big in your portfolio
Speaker 3: that you blow through all of your diversification requirements.
Speaker 2: Will Danoffs has in this fidelity.
Speaker 3: Will Dan I mean to anybody that's big like that.
Speaker 3: So it's a funny thing that on the one hand,
Speaker 3: you see the numbers and you know that, and on
Speaker 3: the other hand it's very difficult to actually take advantage
Speaker 3: of it. And by the way, for your own personal account,
Speaker 3: people can do this right, even Berkshire Hathaway. I know
Speaker 3: they sold at their Apple Steak, but a couple quarters
Speaker 3: ago it was fifty percent of their public equity portfolio.
Speaker 3: You can't run a fund with fifty percent in the
Speaker 3: largest company in the world, mostly quid company in the
Speaker 3: world right on a viable business basis. So it's a
Speaker 3: very interesting contrast. But the point being, the fundamental point
Speaker 3: is this skewness. And by the way, it's not just
Speaker 3: the United States. You go around the world best and
Speaker 3: Binder especial around the world best, best and Bunden did
Speaker 3: a world in developed and developing markets best and bunder
Speaker 3: did his work with some colleagues around the world. Same
Speaker 3: asx act pattern. And by the way, we don't know
Speaker 3: exactly again why this pattern exists, but that skewness shows up,
Speaker 3: that extreme skewness shows up over time everywhere.
Speaker 2: Michael mos in there and he's speaking about Professor Bessembinder
Speaker 2: in Arizona State, a major shot. We always give credit
Speaker 2: across the industry to people doing good work. You know
Speaker 2: Robin Wigglesworth at the Ft and you know others, and
Speaker 2: of course here at Bloomberg, wonderful work John Author's was
Speaker 2: and the other day was just brilliant. Harvey D. Shapiro
Speaker 2: it Barons I believe it will be in this weekend's
Speaker 2: Barons I may stand corrected on that, but Harvey D.
Speaker 2: Shapiro with an absolute tuorive force of what Mobison was
Speaker 2: talking about. There if the best in Binder research, that
Speaker 2: there's very few winners out there. We continued our discussion
Speaker 2: on active management the choices forward with Michael Mobison.
Speaker 3: Active management is never going to go away, and nor
Speaker 3: can it go away because it does two things that
Speaker 3: are vital, and by the way, these are very important
Speaker 3: positive externalities for the world. Number one is liquidity. People
Speaker 3: forget about liquidity. It rears its head when we don't
Speaker 3: want to see it. And then second ist price discovery.
Speaker 3: So someone's got to make the trains run on time
Speaker 3: and deliver the mail, making price efficient. So indexers are
Speaker 3: free riders. Jack Bogel, by the way, God bless him,
Speaker 3: would completely agree with us. They are all just free riders.
Speaker 3: And not everybody can be a free writer, obviously in
Speaker 3: some sort of a system. That's number one. Now number two,
Speaker 3: Just David, to your point why this has been so
Speaker 3: difficult is the average mutual fund manager who competes with
Speaker 3: the S and P five hundred as his or her benchmark,
Speaker 3: has an average size of their portfolio is smaller than
Speaker 3: the market cap or the S and P five hundred. Right,
Speaker 3: So here's the logic. Is when large caps rip, which
Speaker 3: is what's happened last day, you've seen it, Yeah, active
Speaker 3: gets it really struggles, right because you're just not exposed. Now, when,
Speaker 3: by contrast, when small cap does well relative to large
Speaker 3: cap active does really well. So that would be another
Speaker 3: thing to bear in mind. If you say, well, I
Speaker 3: think this this contry, you think it's.
Speaker 1: Gonna go away.
Speaker 3: The small CAP's gonna do better. We're gonna get more
Speaker 3: balanced market. That's actually very good, as good at backdrop
Speaker 3: as conceivable for active management.
Speaker 2: Michael Mobison there, he had a paper out I'm gonna
Speaker 2: guess nineteen ninety nine maybe two thousand, which was absolutely iconic.
Speaker 2: We did some physics. It's like Jim Carron over at
Speaker 2: Morgan Stanley. They only hire physicists at Morgan Stanley. I
Speaker 2: don't know what that's about, but we were talking about
Speaker 2: the mathematics of logarithms on the y axis in all
Speaker 2: also on the x axis, which is called a log
Speaker 2: log chart. And Mobison wrote an essay in the Internet
Speaker 2: Boom that to this day stands as one of the
Speaker 2: four or five most focused pieces on what we have wrought,
Speaker 2: which is the mag seven Michael Mobison on the Internet
Speaker 2: era of a time ago.
Speaker 3: It's funny I was with a client this is like
Speaker 3: two thousand and one, and the guy says, oh, he
Speaker 3: just lived through the dot com boom and bust. You know,
Speaker 3: do you think we've wizened up and that will never
Speaker 3: do this again. I was like zero.
Speaker 1: Probability of that.
Speaker 3: No, not maybe not zero, but basically close to zero.
Speaker 3: I mean, this is how it works. And so and
Speaker 3: by the way, as a fascinating sign note, scientists said,
Speaker 3: this is how our brains actually, how we develop our
Speaker 3: brains synaptic connections and our brains do the same thing
Speaker 3: from the time you're born in timey three you have
Speaker 3: the explosion of synaptic connections. Try and also, if you've
Speaker 3: ever been around a three year old, we all have been.
Speaker 3: They're very inefficient little things, but they take in everything right,
Speaker 3: but then you prune away the stuff that doesn't matter
Speaker 3: and you keep the stuff.
Speaker 2: It's good Michael Mobison there on my puny brain. It
Speaker 2: was nice of him to bring that early. Can't say
Speaker 2: enough about him. All the cat out of the bag.
Speaker 2: And this is the power of our team here at
Speaker 2: Bloomberg Surveyance led by Giuseppe's father, which is Friday scheduled.
Speaker 2: Now Nassing telib I go way back with a wonderful
Speaker 2: Nasim telib I want to talk to him about an
Speaker 2: anti fragile America. That'll be one of the themes we develop,
Speaker 2: but a special half hour today with Michael Mobison on
Speaker 2: radio across the nation. On YouTube, subscribe to Bloomberg Podcasts
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