1 00:00:08,880 --> 00:00:12,680 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:12,800 --> 00:00:17,440 Speaker 1: I'm Tracy Allaway. My co host Joe Wisenthal is away 3 00:00:17,520 --> 00:00:20,599 Speaker 1: this week. But for those of you who follow Joe 4 00:00:20,800 --> 00:00:24,800 Speaker 1: on Twitter, you probably know that one of his favorite 5 00:00:24,960 --> 00:00:29,880 Speaker 1: activities is to read the print edition of Barons, the 6 00:00:29,960 --> 00:00:32,599 Speaker 1: financial magazine. And the reason he likes to read the 7 00:00:32,640 --> 00:00:36,440 Speaker 1: print edition specifically is because he likes to look at 8 00:00:36,479 --> 00:00:39,040 Speaker 1: all the ads, and most of those ads are for 9 00:00:39,200 --> 00:00:43,480 Speaker 1: various financial products. So today, in honor of Joe, since 10 00:00:43,520 --> 00:00:46,519 Speaker 1: he can't be here with us, uh, I thought we 11 00:00:46,600 --> 00:00:53,640 Speaker 1: might take a moment to revisit the first ever financial advertisement. 12 00:00:53,920 --> 00:00:57,040 Speaker 1: And it actually came later then a lot of people 13 00:00:57,160 --> 00:00:59,760 Speaker 1: might think. It was written by a guy called a 14 00:01:00,200 --> 00:01:03,040 Speaker 1: Angle who was working at Meryl, and it was published 15 00:01:03,080 --> 00:01:06,880 Speaker 1: in nine in the New York Times, and it was 16 00:01:06,920 --> 00:01:11,760 Speaker 1: really the first such financial advertisement that we've seen in 17 00:01:11,800 --> 00:01:16,319 Speaker 1: the sense that it was aimed at everyday investors. And 18 00:01:16,680 --> 00:01:20,760 Speaker 1: I encourage everyone, after they listen to this podcast please 19 00:01:21,319 --> 00:01:24,720 Speaker 1: to go and google the ad. It's called What Everybody 20 00:01:24,760 --> 00:01:27,880 Speaker 1: Ought to Know About the Stock and Bond Business, and 21 00:01:27,920 --> 00:01:32,760 Speaker 1: it's basically seven thousand words of pure text explaining what 22 00:01:32,920 --> 00:01:37,080 Speaker 1: stocks and bonds are to everyday investors. But this was 23 00:01:37,160 --> 00:01:39,880 Speaker 1: the thing that kicked off all the ads that we 24 00:01:39,920 --> 00:01:43,760 Speaker 1: see nowadays in places like Barns. And again, the reason 25 00:01:43,760 --> 00:01:46,240 Speaker 1: why people like Joe find the ads really interesting is 26 00:01:46,360 --> 00:01:49,640 Speaker 1: that they tell you something about where Wall Street is heading. 27 00:01:49,720 --> 00:01:51,760 Speaker 1: They tell you about where Wall Street is trying to 28 00:01:51,800 --> 00:01:56,080 Speaker 1: make money from every day investors like you and me. 29 00:01:56,800 --> 00:01:59,320 Speaker 1: So we're gonna dive into not just that ad, but 30 00:01:59,480 --> 00:02:03,200 Speaker 1: also the trajectory of Wall Street. How we got to 31 00:02:03,280 --> 00:02:06,120 Speaker 1: the place today where a lot of the business is 32 00:02:06,160 --> 00:02:09,600 Speaker 1: aimed at marketing products like e t f s, like 33 00:02:09,720 --> 00:02:14,040 Speaker 1: mutual funds to everyday investors. And we really have the 34 00:02:14,360 --> 00:02:18,639 Speaker 1: perfect person who's going to be our guest for this episode. 35 00:02:19,040 --> 00:02:22,440 Speaker 1: His name is Eric Weiner. He's on my team at Bloomberg. 36 00:02:22,520 --> 00:02:25,880 Speaker 1: He heads up are very, very excellent E t F 37 00:02:26,080 --> 00:02:30,040 Speaker 1: coverage and he is also the author of an entire 38 00:02:30,160 --> 00:02:33,520 Speaker 1: book on the history of Wall Street. It's sort of 39 00:02:33,560 --> 00:02:37,760 Speaker 1: an oral history. It's called What Goes Up? The Uncensored 40 00:02:37,840 --> 00:02:41,640 Speaker 1: History of Modern Wall Street as told by the bankers, brokers, 41 00:02:41,800 --> 00:02:51,240 Speaker 1: c e o s, and scoundrels who made it happen. Eric, 42 00:02:51,280 --> 00:02:53,200 Speaker 1: thanks so much for joining us. Thanks for having me 43 00:02:53,240 --> 00:02:58,640 Speaker 1: Tracy or me um. So some of my favorite episodes 44 00:02:58,680 --> 00:03:00,720 Speaker 1: that we do on All Thoughts are where we find 45 00:03:00,760 --> 00:03:06,320 Speaker 1: people at Bloomberg who have interesting backgrounds, interesting backstories, and 46 00:03:06,480 --> 00:03:11,160 Speaker 1: interesting accomplishments. So I was actually very pleasantly surprised to 47 00:03:11,240 --> 00:03:13,760 Speaker 1: see that you had not just written one book, which 48 00:03:13,800 --> 00:03:16,360 Speaker 1: we're going to talk about today, but actually two books. Uh, 49 00:03:16,680 --> 00:03:18,720 Speaker 1: how did that come about? And maybe you can give 50 00:03:18,760 --> 00:03:21,600 Speaker 1: us a little bit of background on your role as 51 00:03:21,639 --> 00:03:26,200 Speaker 1: a financial journalist. Well, it's this book was sort of 52 00:03:26,720 --> 00:03:31,600 Speaker 1: a labor of love and a product of all of 53 00:03:31,639 --> 00:03:33,840 Speaker 1: the work that I had done in the ninety nineties 54 00:03:33,880 --> 00:03:37,160 Speaker 1: as a journalist when I was at dow Jones UM. 55 00:03:37,280 --> 00:03:43,280 Speaker 1: The idea came from really bizarrely reading a book called 56 00:03:43,680 --> 00:03:47,000 Speaker 1: Please Kill Me, which is about punk rock, which is 57 00:03:47,040 --> 00:03:49,240 Speaker 1: another one of my interests. But it was done in 58 00:03:49,320 --> 00:03:52,120 Speaker 1: this exact style, and what I noticed was that it 59 00:03:52,200 --> 00:03:58,840 Speaker 1: took something that wasn't necessarily a singular thing, singular place, 60 00:03:59,400 --> 00:04:02,920 Speaker 1: a singular time, and put it in a narrative structure 61 00:04:02,960 --> 00:04:05,560 Speaker 1: that made it all makes sense as if it had 62 00:04:05,560 --> 00:04:08,360 Speaker 1: happened in a preordained way in the same At the 63 00:04:08,400 --> 00:04:11,400 Speaker 1: same time I was watching those Ken Burns documentaries that 64 00:04:11,400 --> 00:04:15,280 Speaker 1: we're all coming out, and he was doing very interesting 65 00:04:15,360 --> 00:04:19,840 Speaker 1: things by using primary sourced information as well as interviews 66 00:04:19,839 --> 00:04:22,680 Speaker 1: in order to tell a story. Uh, and working with 67 00:04:22,720 --> 00:04:25,080 Speaker 1: a friend of mine in publishing, I came up with 68 00:04:25,120 --> 00:04:28,440 Speaker 1: the idea to do this for the history of Wall Street, 69 00:04:28,480 --> 00:04:32,080 Speaker 1: which I had sort of been chronicling by talking to 70 00:04:32,160 --> 00:04:35,560 Speaker 1: all of these people at various different investment banks as 71 00:04:35,600 --> 00:04:38,279 Speaker 1: I was reporting, and I just naturally had an interest 72 00:04:38,279 --> 00:04:40,960 Speaker 1: in history, so I had asked them how things came about, 73 00:04:41,040 --> 00:04:44,560 Speaker 1: and different firms had really lent the histories. Lehman Brothers 74 00:04:44,600 --> 00:04:47,320 Speaker 1: had basically every document it had going back to the 75 00:04:47,360 --> 00:04:50,520 Speaker 1: eighteen hundreds. H. Merrill Lynch had a library, a literal 76 00:04:50,560 --> 00:04:55,040 Speaker 1: I mean the literal museum of all stuff, including the 77 00:04:55,040 --> 00:04:58,080 Speaker 1: the famous Low Angle ad. So I found sort of, 78 00:04:58,120 --> 00:05:01,039 Speaker 1: you know, mutual kinship, and people were remarkably open to 79 00:05:01,080 --> 00:05:03,559 Speaker 1: talking to me. It took me a while to nail down. 80 00:05:03,920 --> 00:05:07,120 Speaker 1: I did about three hundred interviews with some of the 81 00:05:07,200 --> 00:05:09,039 Speaker 1: richest people in the world, so nailing them all down 82 00:05:09,120 --> 00:05:11,359 Speaker 1: wasn't easy, but a lot of them were very willing 83 00:05:11,400 --> 00:05:15,679 Speaker 1: to talk and very candid about what happened. Three hundred 84 00:05:15,760 --> 00:05:20,640 Speaker 1: interviews is a pretty lofty sum. So you mentioned um 85 00:05:20,720 --> 00:05:25,279 Speaker 1: the Loo angle ad uh and again for people who 86 00:05:25,320 --> 00:05:28,000 Speaker 1: have never seen it before, it's definitely worth taking a 87 00:05:28,000 --> 00:05:30,800 Speaker 1: look at. But your book, it's in oral history, as 88 00:05:30,800 --> 00:05:33,200 Speaker 1: we've discussed, and you have a couple of people who 89 00:05:33,279 --> 00:05:36,359 Speaker 1: describe the first time that they read that ad in 90 00:05:37,760 --> 00:05:41,240 Speaker 1: walk us through why it was so important and what 91 00:05:41,440 --> 00:05:44,120 Speaker 1: that moment of time was like for Wall Street where 92 00:05:44,120 --> 00:05:47,640 Speaker 1: it was exactly Well, so, what what had happened was 93 00:05:48,160 --> 00:05:50,560 Speaker 1: Charlie Meryll Merrill Lynch was one of the bigger what 94 00:05:50,600 --> 00:05:52,680 Speaker 1: they called wire houses at the time. It was one 95 00:05:52,720 --> 00:05:55,440 Speaker 1: of the bigger brokerage firms at the time. Charlie Meryll 96 00:05:55,480 --> 00:05:58,880 Speaker 1: had built it up through the nineteen twenties and then 97 00:05:59,000 --> 00:06:02,039 Speaker 1: comes along he actually really advised advises all of his 98 00:06:02,120 --> 00:06:04,599 Speaker 1: investors to get out of the market. He gets out 99 00:06:04,600 --> 00:06:07,760 Speaker 1: of the market and walks away from Merrill Lynch. Merrill 100 00:06:07,880 --> 00:06:11,800 Speaker 1: Lynch stays as a firm, but Charlie Merrill goes off 101 00:06:11,880 --> 00:06:15,839 Speaker 1: to California to his other venture Safe Way, which is, 102 00:06:16,160 --> 00:06:20,240 Speaker 1: you know, the grocery store chain. After ten years, his 103 00:06:20,400 --> 00:06:25,039 Speaker 1: partners are the firm is falling apart. The stock market 104 00:06:25,080 --> 00:06:27,520 Speaker 1: has gone through the Great Depression, you have the new 105 00:06:27,560 --> 00:06:31,760 Speaker 1: deal coming in and the partner's approach Charlie Merrill. When 106 00:06:31,839 --> 00:06:34,320 Speaker 1: one partner, in particular, when Smith, who ended up running 107 00:06:34,320 --> 00:06:37,440 Speaker 1: the firm himself, approaches Charlie, Marrilyn says, we need you 108 00:06:37,480 --> 00:06:39,680 Speaker 1: to come back, and he says, in order to come back, 109 00:06:39,720 --> 00:06:41,919 Speaker 1: we have to change our ways. We have to change 110 00:06:41,920 --> 00:06:44,240 Speaker 1: the way Wall Street does things, and we need to 111 00:06:44,279 --> 00:06:49,560 Speaker 1: adopt many of the ideas that are common to retailing, 112 00:06:49,640 --> 00:06:53,880 Speaker 1: particularly retailing groceries. So he talked about the need that 113 00:06:53,920 --> 00:06:57,279 Speaker 1: people don't want to buy loose coffee. They want to 114 00:06:57,279 --> 00:07:00,160 Speaker 1: buy packages of coffee, and either they wanted in eight 115 00:07:00,160 --> 00:07:03,080 Speaker 1: ounces or twelve ounces or sixteen ounces, and we want 116 00:07:03,120 --> 00:07:06,200 Speaker 1: to be there to sell them those different packages of coffee. 117 00:07:06,360 --> 00:07:08,080 Speaker 1: But what but what they don't want to do is 118 00:07:08,160 --> 00:07:10,760 Speaker 1: just buy stuff. They wanted to sort of be set 119 00:07:10,840 --> 00:07:13,920 Speaker 1: up for them. And so they started thinking about Wall 120 00:07:13,920 --> 00:07:19,040 Speaker 1: Street in those terms. They started piecing together put putting 121 00:07:19,480 --> 00:07:23,400 Speaker 1: UH their financial advisors on salary instead of commissions so 122 00:07:23,440 --> 00:07:25,800 Speaker 1: that they would do more work in terms of putting 123 00:07:25,840 --> 00:07:30,720 Speaker 1: together a portfolio for people. UH. They incentivized their staff 124 00:07:30,800 --> 00:07:35,400 Speaker 1: to work directly with individuals to start marketing their services 125 00:07:35,440 --> 00:07:39,640 Speaker 1: in their local towns to hold educational meetings with groups 126 00:07:39,680 --> 00:07:43,520 Speaker 1: and different things, and advertising was a natural outgrowth of this. Now, 127 00:07:43,560 --> 00:07:46,000 Speaker 1: the thing was that at that time Wall Street was 128 00:07:46,040 --> 00:07:52,080 Speaker 1: a really closed society, and advertising, quite frankly, was considered ghosh. Uh, 129 00:07:52,080 --> 00:07:54,280 Speaker 1: it just wasn't something that was done that was, you know, 130 00:07:54,680 --> 00:07:59,120 Speaker 1: for grocery stores, not for you know, finance firms. So 131 00:07:59,400 --> 00:08:02,080 Speaker 1: Charlie Merrill said, no, we actually need to do this. 132 00:08:02,480 --> 00:08:06,800 Speaker 1: And what he proposed was what you described, which is 133 00:08:06,840 --> 00:08:12,040 Speaker 1: seven thousand words explaining how stock trading, stocks and bonds works. 134 00:08:12,680 --> 00:08:15,560 Speaker 1: And it's essentially you would never run it today. You 135 00:08:15,560 --> 00:08:18,760 Speaker 1: would run it as a pamphlet or something. It's just 136 00:08:18,920 --> 00:08:22,000 Speaker 1: a block of words. And the people at Meryl were 137 00:08:22,080 --> 00:08:25,280 Speaker 1: dumbfounded by it. They didn't think it would work. Uh, 138 00:08:25,400 --> 00:08:28,320 Speaker 1: they were willing to do it because Charlie at that 139 00:08:28,360 --> 00:08:30,840 Speaker 1: point had developed sort of the cult of personality where 140 00:08:30,880 --> 00:08:33,240 Speaker 1: he just did what he wanted. So everybody said brilliant, 141 00:08:33,320 --> 00:08:35,400 Speaker 1: Mr Meryl, and then behind their backs were saying, I 142 00:08:35,840 --> 00:08:39,319 Speaker 1: don't know about this, um, but it worked dramatically because 143 00:08:39,320 --> 00:08:42,200 Speaker 1: nobody had ever spoken to people about how this stuff worked, 144 00:08:42,880 --> 00:08:46,880 Speaker 1: and suddenly you had people reading this and then saying, hey, 145 00:08:46,880 --> 00:08:48,840 Speaker 1: did you see this on the You know, I was 146 00:08:48,880 --> 00:08:51,480 Speaker 1: reading this on the subway. Did you see this? They 147 00:08:51,480 --> 00:08:54,959 Speaker 1: started calling up Merrill Lynch asking for copies. Merrilynn started 148 00:08:55,000 --> 00:08:58,040 Speaker 1: giving away copies, printing and printing it up as sort 149 00:08:58,080 --> 00:09:00,960 Speaker 1: of a flyer. Uh. And it really became kind of 150 00:09:01,000 --> 00:09:05,080 Speaker 1: a touchstone for what can be done with reaching out 151 00:09:05,200 --> 00:09:07,680 Speaker 1: to the general public, which is something that Wall Street 152 00:09:07,720 --> 00:09:12,320 Speaker 1: was really reluctant to do, largely because after twenty nine 153 00:09:12,400 --> 00:09:16,760 Speaker 1: it got blamed for everything, so it just didn't really 154 00:09:16,760 --> 00:09:20,600 Speaker 1: Its just the organization, the institution as a whole, decided 155 00:09:21,160 --> 00:09:25,199 Speaker 1: we're safer if we just don't deal with those people. Uh. 156 00:09:25,240 --> 00:09:27,440 Speaker 1: And Merrilllynch said, actually, in order for us to survive, 157 00:09:27,480 --> 00:09:29,079 Speaker 1: we need to deal with those people. We need to 158 00:09:29,120 --> 00:09:30,640 Speaker 1: deal with them fairly, and we need for them to 159 00:09:30,760 --> 00:09:33,440 Speaker 1: understand what it is that we do. Uh. And that 160 00:09:33,440 --> 00:09:38,800 Speaker 1: that was Its seemingly logical today, beyond any sort of comprehension, 161 00:09:39,000 --> 00:09:41,720 Speaker 1: but at that time it was this radical idea that 162 00:09:41,760 --> 00:09:44,600 Speaker 1: made Charlie Meryl seemed like a complete outsider. It was 163 00:09:44,679 --> 00:09:47,800 Speaker 1: Wall Street brethren, right. So I mentioned the date on 164 00:09:47,840 --> 00:09:51,520 Speaker 1: that ad, which is and I don't know about anyone else, 165 00:09:51,520 --> 00:09:54,640 Speaker 1: but I was kind of surprised that it was that late, because, 166 00:09:55,000 --> 00:09:58,400 Speaker 1: as you mentioned, you think about the Great Depression and 167 00:09:58,559 --> 00:10:02,160 Speaker 1: you think about the number of people who supposedly got 168 00:10:02,240 --> 00:10:05,280 Speaker 1: burned by the stock market crash, and it feels like 169 00:10:05,320 --> 00:10:09,840 Speaker 1: a retail investor event. So are you saying that retail 170 00:10:09,880 --> 00:10:14,240 Speaker 1: investors were burned like en masks, they were burried or 171 00:10:14,480 --> 00:10:20,320 Speaker 1: was it they were burned? Um? Although, uh, the degree 172 00:10:20,360 --> 00:10:23,720 Speaker 1: to which is debated because the records are kind of sketchy. 173 00:10:23,920 --> 00:10:26,720 Speaker 1: What really happened, what really got blamed was mutual funds 174 00:10:26,760 --> 00:10:30,160 Speaker 1: which were sold through Goldman saxonby enough, so Goldman really 175 00:10:30,160 --> 00:10:33,719 Speaker 1: took it on the chin coming out of the depression. 176 00:10:33,760 --> 00:10:36,719 Speaker 1: But a lot of this, you have to realize, is 177 00:10:36,880 --> 00:10:39,600 Speaker 1: an effect of the way the media understood things at 178 00:10:39,640 --> 00:10:42,480 Speaker 1: the time and what they were being told. So it's 179 00:10:42,480 --> 00:10:45,280 Speaker 1: really easy to run, you know, dust bowl stories. And 180 00:10:45,320 --> 00:10:48,640 Speaker 1: then what happens is, you know, you go from the 181 00:10:48,920 --> 00:10:52,920 Speaker 1: from the crash to to the Great Depression, which isn't 182 00:10:52,920 --> 00:10:59,160 Speaker 1: necessarily linear, but one gets blamed for the other, and 183 00:10:59,440 --> 00:11:01,559 Speaker 1: people be in to say that Wall Street is evil, 184 00:11:01,679 --> 00:11:05,079 Speaker 1: these greedy bankers. That whole thing sort of starts cropping 185 00:11:05,120 --> 00:11:08,559 Speaker 1: up as a narrative, and for Wall Street, the idea was, 186 00:11:08,640 --> 00:11:11,200 Speaker 1: let's just retrench. We have a great business. Because all 187 00:11:11,200 --> 00:11:14,200 Speaker 1: commissions were fixed, they basically had a license to print 188 00:11:14,240 --> 00:11:16,600 Speaker 1: money if they just were left alone. So they really 189 00:11:16,640 --> 00:11:19,160 Speaker 1: wanted to be left alone. It was Charlie Merrill who 190 00:11:19,160 --> 00:11:22,720 Speaker 1: saw that reaching out, reaching back out to the wider world, 191 00:11:22,760 --> 00:11:25,080 Speaker 1: which was what happened in the in the twenties, where 192 00:11:25,080 --> 00:11:28,440 Speaker 1: you had a lot of ordinary people investing, uh, that 193 00:11:28,480 --> 00:11:30,560 Speaker 1: reaching out back out to the wider world was really 194 00:11:30,559 --> 00:11:32,760 Speaker 1: the only way that they were going to grow and thrive. 195 00:11:33,160 --> 00:11:37,439 Speaker 1: So it's now the late nineteen forties and Mr Meryl 196 00:11:37,760 --> 00:11:42,840 Speaker 1: is exporting his brand of let's say, standardized grocery store 197 00:11:42,960 --> 00:11:47,400 Speaker 1: like financial products. Although as you mentioned, mutual funds had 198 00:11:47,400 --> 00:11:50,960 Speaker 1: existed for some time at that point. How quickly did 199 00:11:51,000 --> 00:11:54,800 Speaker 1: this take off amongst retail investors? How quickly did Wall 200 00:11:54,800 --> 00:11:58,960 Speaker 1: Street regain trust after the Great Depression? And what sort 201 00:11:59,000 --> 00:12:02,960 Speaker 1: of products were being Well, it's the nineteen fifties, you 202 00:12:03,320 --> 00:12:06,800 Speaker 1: kind of start having a bull market, and so it 203 00:12:06,840 --> 00:12:09,440 Speaker 1: was just kind of great timing on his part that 204 00:12:09,760 --> 00:12:12,120 Speaker 1: people wanted to hear about this as stocks were starting 205 00:12:12,160 --> 00:12:14,080 Speaker 1: to kick back up. I mean, if you figure it. 206 00:12:14,520 --> 00:12:20,439 Speaker 1: There was a very long uh depression and recession in stocks, 207 00:12:20,480 --> 00:12:23,640 Speaker 1: So suddenly you had all of these value stocks, all 208 00:12:23,720 --> 00:12:26,720 Speaker 1: these stocks that were value that you could just simply 209 00:12:26,760 --> 00:12:28,600 Speaker 1: flat out and make money on because they were trading 210 00:12:28,640 --> 00:12:30,600 Speaker 1: for below their book value, so they had to come 211 00:12:30,640 --> 00:12:36,720 Speaker 1: back up. Basically, individuals were buying stocks. Um. The big 212 00:12:36,800 --> 00:12:40,880 Speaker 1: miss on Charlie Merrill's part was that he believed that 213 00:12:40,960 --> 00:12:44,120 Speaker 1: mutual funds had caused the twenty nine crash and put 214 00:12:44,120 --> 00:12:47,240 Speaker 1: an edict in at Merrill Lynch that they would never 215 00:12:47,600 --> 00:12:51,800 Speaker 1: do mutual funds. So that basically creates the business for 216 00:12:51,880 --> 00:12:55,120 Speaker 1: Fidelity because up in Boston they had a whole different 217 00:12:55,120 --> 00:12:57,200 Speaker 1: way of managing money. They've been managing money for a 218 00:12:57,200 --> 00:12:59,800 Speaker 1: lot of old wealthy families for a long time, and 219 00:12:59,840 --> 00:13:02,200 Speaker 1: they put their money in portfolios that they called funds 220 00:13:02,240 --> 00:13:04,719 Speaker 1: and they eventually sold them as mutual funds. Fidelity was 221 00:13:04,760 --> 00:13:08,040 Speaker 1: one of these firms. So if Charlie Merrill had the 222 00:13:08,080 --> 00:13:10,479 Speaker 1: idea of a mutual fund, of putting together a portfolio 223 00:13:10,520 --> 00:13:15,200 Speaker 1: of stocks that would do would behave a certain way, 224 00:13:15,320 --> 00:13:17,000 Speaker 1: would make would have made a lot of sense to 225 00:13:17,040 --> 00:13:19,960 Speaker 1: people at that time. They just weren't really readily available 226 00:13:20,040 --> 00:13:23,160 Speaker 1: until the nineteen sixties when Fidelity grew. But if Merrill 227 00:13:23,240 --> 00:13:26,040 Speaker 1: had decided to sell them, they probably would have taken off. 228 00:13:26,400 --> 00:13:29,720 Speaker 1: But the other thing that takes off is Buffet style 229 00:13:29,800 --> 00:13:33,599 Speaker 1: of investing. Buffett goes back to Uh, he'd been in 230 00:13:33,640 --> 00:13:36,880 Speaker 1: New York. He goes back to Nebraska and starts his firm, 231 00:13:37,000 --> 00:13:39,640 Speaker 1: and it's like the greatest rocket ride in the history 232 00:13:39,640 --> 00:13:43,079 Speaker 1: of Wall Street, where there were just so many stocks 233 00:13:43,120 --> 00:13:45,760 Speaker 1: that were beaten down. He called them scar butts that 234 00:13:45,840 --> 00:13:48,880 Speaker 1: he could just make money by picking off stocks that 235 00:13:48,960 --> 00:13:52,720 Speaker 1: we're going to have to revert to the mean. And 236 00:13:52,840 --> 00:13:55,600 Speaker 1: you have this style of investing called value investing that 237 00:13:55,679 --> 00:13:59,920 Speaker 1: comes along. And Fidelity then in turn creates momentum investing 238 00:14:00,440 --> 00:14:03,320 Speaker 1: through its mutual funds and through a guy named Jerry Say, 239 00:14:03,840 --> 00:14:06,600 Speaker 1: who basically started following all the hot stocks of the day, 240 00:14:06,640 --> 00:14:09,440 Speaker 1: which from the fifties to the sixties are oddly enough, 241 00:14:09,720 --> 00:14:12,600 Speaker 1: the technology stocks of the day, which are usually the 242 00:14:12,640 --> 00:14:14,880 Speaker 1: hot things that are growing, and we see it today 243 00:14:15,000 --> 00:14:18,280 Speaker 1: even Uh. This is what people focus on is the future. 244 00:14:18,320 --> 00:14:20,720 Speaker 1: It's this technology. So at that time it was Xerox. 245 00:14:21,160 --> 00:14:23,880 Speaker 1: He rode Xerox to the moon and everybody was He's 246 00:14:23,880 --> 00:14:26,520 Speaker 1: showing up on Time magazine, and all of a sudden, 247 00:14:26,520 --> 00:14:30,560 Speaker 1: people are following momentum and the idea of factors that 248 00:14:30,640 --> 00:14:33,200 Speaker 1: we think of today, the idea of investing styles that 249 00:14:33,240 --> 00:14:37,200 Speaker 1: we think of today, really originates from this nineteen late 250 00:14:37,280 --> 00:14:42,920 Speaker 1: nineteen forties to nineteen sixties period where investors themselves, uh, 251 00:14:42,960 --> 00:14:47,640 Speaker 1: professional investors themselves are figuring it out. So you're talking 252 00:14:47,640 --> 00:14:51,760 Speaker 1: about the beginnings of passive investing essentially, you know, the 253 00:14:51,800 --> 00:14:55,040 Speaker 1: idea that you can have active managers sort of taken 254 00:14:55,040 --> 00:14:57,800 Speaker 1: out of the equation and people can just ride whatever 255 00:14:58,560 --> 00:15:02,800 Speaker 1: is moving up. Hence the name momentum. How much tension 256 00:15:02,880 --> 00:15:05,920 Speaker 1: was there on Wall Street at the time that this 257 00:15:06,040 --> 00:15:09,320 Speaker 1: was invented, because nowadays you see a lot of handwringing 258 00:15:09,360 --> 00:15:12,800 Speaker 1: about it. You know, we've had Alliance Bernstein talking about 259 00:15:12,840 --> 00:15:16,720 Speaker 1: how e T f s and passive investing are destroying capitalism. 260 00:15:17,400 --> 00:15:20,000 Speaker 1: People worry that passive investing is of course eating into 261 00:15:20,040 --> 00:15:25,280 Speaker 1: active managers fees. Was that kind of conflict evident when 262 00:15:25,320 --> 00:15:29,720 Speaker 1: these things were first on the rise, Not not really, 263 00:15:30,080 --> 00:15:35,080 Speaker 1: because costs were kind of assumed on Wall Street. It 264 00:15:35,120 --> 00:15:38,520 Speaker 1: was assumed to be an expensive business. And the other 265 00:15:38,600 --> 00:15:41,480 Speaker 1: thing was the way that people kind of understood the 266 00:15:41,480 --> 00:15:46,320 Speaker 1: business was through people and the individual money managers, whether 267 00:15:46,320 --> 00:15:50,600 Speaker 1: it was Jerry Side to Peter Lynch. Uh, they captured 268 00:15:50,760 --> 00:15:54,760 Speaker 1: much more of the attention than the products did, so 269 00:15:55,040 --> 00:15:58,200 Speaker 1: you wanted to invest with. It was kind of the 270 00:15:58,240 --> 00:16:00,680 Speaker 1: idea of that that best in the bright which, although 271 00:16:00,680 --> 00:16:05,400 Speaker 1: it's an ironic statement, applies here, uh, where you really 272 00:16:05,440 --> 00:16:07,680 Speaker 1: wanted to invest with who the market considered to be 273 00:16:07,720 --> 00:16:10,520 Speaker 1: the best and the brightest guy. Along the way, Jack 274 00:16:10,560 --> 00:16:13,480 Speaker 1: Bobil figures out, you know, we don't really need to 275 00:16:13,560 --> 00:16:16,200 Speaker 1: do all of that stuff, and we can just put 276 00:16:16,240 --> 00:16:22,080 Speaker 1: together indexes of this. And there had been indexes for 277 00:16:22,120 --> 00:16:23,920 Speaker 1: a very long time, you know that the Dow Johns 278 00:16:23,920 --> 00:16:26,440 Speaker 1: Industrial Index that had been there for a while, but 279 00:16:26,480 --> 00:16:29,360 Speaker 1: there weren't a lot of them, and they were followed 280 00:16:29,440 --> 00:16:32,200 Speaker 1: kind of just as benchmarks that you would beat as 281 00:16:32,240 --> 00:16:36,440 Speaker 1: a as a mutual fund manager, but or as a 282 00:16:36,560 --> 00:16:41,520 Speaker 1: asset manager or any kind of financial advisor. But as 283 00:16:41,640 --> 00:16:44,640 Speaker 1: the research started to show that most of these guys 284 00:16:44,680 --> 00:16:47,320 Speaker 1: don't really beat the market, the idea of tracking and 285 00:16:47,400 --> 00:16:52,560 Speaker 1: index became more important. In n there was a thing 286 00:16:52,600 --> 00:16:56,840 Speaker 1: called may Day where New York Stock Exchange, or actually 287 00:16:56,880 --> 00:17:00,360 Speaker 1: all stock exchange commissions were fixed and it was a 288 00:17:00,440 --> 00:17:03,040 Speaker 1: very complicated formula, but the point was that if you 289 00:17:03,080 --> 00:17:06,520 Speaker 1: sold ten shares, one hundred shares, a thousand shares, you 290 00:17:06,600 --> 00:17:09,560 Speaker 1: paid a percentage of flat percentage of that amount, of 291 00:17:09,840 --> 00:17:14,240 Speaker 1: that fe of that amount as a feat. Wall Street 292 00:17:14,600 --> 00:17:18,000 Speaker 1: was basically ranking raking your money hand over fist, and 293 00:17:18,040 --> 00:17:20,320 Speaker 1: it was kind of behaving as a cartel, and they 294 00:17:20,320 --> 00:17:25,000 Speaker 1: were forced to unfixed commissions. Now within this there was 295 00:17:25,040 --> 00:17:28,159 Speaker 1: a big push on Wall Street to do this because 296 00:17:28,600 --> 00:17:31,760 Speaker 1: some firms, Merrill Lynch among them, could sort of see 297 00:17:31,840 --> 00:17:34,439 Speaker 1: that this would increase volume and they could pick up 298 00:17:34,440 --> 00:17:37,840 Speaker 1: in volume what they would lose in commissions. But it's 299 00:17:37,920 --> 00:17:44,160 Speaker 1: this moment in n where you lose commissions, you lose 300 00:17:44,200 --> 00:17:47,119 Speaker 1: fixed commissions on Wall Streets. Suddenly you can have block trading. 301 00:17:47,160 --> 00:17:50,640 Speaker 1: A lot of different discounting goes on, and these index 302 00:17:50,720 --> 00:17:55,119 Speaker 1: funds become really cheap to operate because suddenly moving a 303 00:17:55,160 --> 00:17:58,000 Speaker 1: whole bunch of stock doesn't cost nearly as much as 304 00:17:58,000 --> 00:18:00,480 Speaker 1: it used to, moving a whole bunch of bond doesn't 305 00:18:00,480 --> 00:18:02,640 Speaker 1: cost as much as it used to. At the same time, 306 00:18:02,680 --> 00:18:06,640 Speaker 1: you're having technology catch up, so there's more automation coming on. 307 00:18:07,560 --> 00:18:11,040 Speaker 1: These were kind of products that we're waiting for a moment. 308 00:18:11,400 --> 00:18:14,280 Speaker 1: So at the time when they first came out, people 309 00:18:14,320 --> 00:18:16,240 Speaker 1: looked at it and we're like, this is great, fine, 310 00:18:16,440 --> 00:18:20,040 Speaker 1: but this isn't really solving my problem. Ten years later, 311 00:18:20,240 --> 00:18:23,639 Speaker 1: fifteen years later, it suddenly starts solving a problem. And 312 00:18:23,640 --> 00:18:25,600 Speaker 1: when we look at it today, and you know, E 313 00:18:25,720 --> 00:18:29,840 Speaker 1: t F is what I'm what the team that I'm leading, uh, 314 00:18:29,880 --> 00:18:31,520 Speaker 1: and we look at what E t F s are doing, 315 00:18:31,560 --> 00:18:34,720 Speaker 1: it is exactly what the conversation is. This is an 316 00:18:34,920 --> 00:18:39,400 Speaker 1: entire evolution that basically starts in the early nineteen seventies 317 00:18:39,440 --> 00:18:42,160 Speaker 1: and brings us to today. We're the only thing people 318 00:18:42,200 --> 00:18:47,480 Speaker 1: are talking about is cost m hm um. So it's 319 00:18:47,520 --> 00:18:49,480 Speaker 1: really interesting to think that, you know, it took a 320 00:18:49,480 --> 00:18:53,280 Speaker 1: while for the market infrastructure basically to catch up to 321 00:18:53,600 --> 00:18:56,960 Speaker 1: the concept of these low cost funds. They used to 322 00:18:57,000 --> 00:18:59,920 Speaker 1: take days off, a day off of the trading day 323 00:19:00,080 --> 00:19:02,560 Speaker 1: just to catch up on paperwork. They had a whole 324 00:19:02,680 --> 00:19:05,760 Speaker 1: paper crunch thing because people, I'm not not joking, Tracy. 325 00:19:05,920 --> 00:19:08,600 Speaker 1: They would have be carrying cards because those computer cards. 326 00:19:08,680 --> 00:19:11,840 Speaker 1: You've ever seen those, the IBM dot. Yeah, so they'd 327 00:19:11,840 --> 00:19:15,119 Speaker 1: be carrying stacks of those around on the exchange in 328 00:19:15,240 --> 00:19:19,320 Speaker 1: order to trade shares. You literally had runners running around 329 00:19:19,560 --> 00:19:23,560 Speaker 1: with certificates, stock certificates saying, you know, I bought fifty 330 00:19:23,640 --> 00:19:25,119 Speaker 1: a T and T and they would give you a 331 00:19:25,119 --> 00:19:28,800 Speaker 1: certificate for fifty a T and T And you had 332 00:19:28,840 --> 00:19:31,639 Speaker 1: to wait for the little guy to show up with 333 00:19:31,640 --> 00:19:34,240 Speaker 1: with that pile to know that your deal had gone through. 334 00:19:34,640 --> 00:19:38,720 Speaker 1: And it was a completely different world from let alone 335 00:19:38,760 --> 00:19:40,959 Speaker 1: you know e trade to today where it's just you know, 336 00:19:41,000 --> 00:19:43,239 Speaker 1: boom you you know, on our terminal, you can do 337 00:19:43,320 --> 00:19:47,160 Speaker 1: every single thing chat uh trade it no matter what, 338 00:19:47,520 --> 00:19:51,040 Speaker 1: it can all be done in one little electronic ecosystem 339 00:19:51,080 --> 00:19:54,960 Speaker 1: in seconds. That took hours days. You didn't know what 340 00:19:55,080 --> 00:19:58,920 Speaker 1: was exactly going on. You didn't know the final price. Um. 341 00:19:58,960 --> 00:20:02,280 Speaker 1: You know, automation has changed everything in a very very 342 00:20:02,280 --> 00:20:05,760 Speaker 1: short period of time for Wall Street. Right, so you 343 00:20:05,800 --> 00:20:08,080 Speaker 1: point out that at one point it was sort of 344 00:20:08,119 --> 00:20:11,680 Speaker 1: about the people managing funds and investments, but now it's 345 00:20:11,680 --> 00:20:14,320 Speaker 1: most definitely about the product. And if you open a 346 00:20:14,359 --> 00:20:17,600 Speaker 1: publication like Barons and look at the ads like Joe 347 00:20:17,720 --> 00:20:21,240 Speaker 1: likes to do so, very often you'll just see pages 348 00:20:21,240 --> 00:20:24,400 Speaker 1: and pages of ads for things like you know, mutual 349 00:20:24,480 --> 00:20:29,960 Speaker 1: funds ETFs uh certain portfolios, and they tend to change 350 00:20:30,440 --> 00:20:33,240 Speaker 1: along with the time. So when people are searching for yield, 351 00:20:33,320 --> 00:20:37,399 Speaker 1: you'll see yield enhanced investment offerings. When people are worried 352 00:20:37,400 --> 00:20:40,760 Speaker 1: about rising rates, you'll see see bond e t f 353 00:20:40,840 --> 00:20:44,680 Speaker 1: s that are protected from duration risk, all that sort 354 00:20:44,680 --> 00:20:49,400 Speaker 1: of stuff. What's next in the evolution of that market? 355 00:20:49,480 --> 00:20:52,840 Speaker 1: What's next in terms of the provision of let's say, 356 00:20:53,200 --> 00:20:59,240 Speaker 1: standardized grocery like financial products. Yes, well we're still we're 357 00:20:59,240 --> 00:21:03,760 Speaker 1: still packaging coffee. Um. You know, this whole thing is 358 00:21:03,760 --> 00:21:07,480 Speaker 1: about the sophistication of the investor. So if Joe were here, 359 00:21:07,520 --> 00:21:10,480 Speaker 1: I would challenge him to go look back at old 360 00:21:10,520 --> 00:21:13,920 Speaker 1: Barrens and try to find the moment when Peter Lynch 361 00:21:14,040 --> 00:21:17,359 Speaker 1: stopped appearing in fidelity ads. It used to be that 362 00:21:17,640 --> 00:21:21,160 Speaker 1: every mutual fund AD had a person and it would 363 00:21:21,160 --> 00:21:24,800 Speaker 1: have like their star manager John Neff whoever you know, says, 364 00:21:24,840 --> 00:21:27,560 Speaker 1: you know this brilliant quote, and then here are the 365 00:21:27,640 --> 00:21:30,040 Speaker 1: mutual funds that you want to invest in. Now we're 366 00:21:30,080 --> 00:21:34,160 Speaker 1: talking about products, we're talking about strategies. Um, the individuals 367 00:21:34,200 --> 00:21:38,640 Speaker 1: behind it don't matter. You're talking about the firms people trust. Uh, 368 00:21:38,720 --> 00:21:43,760 Speaker 1: certain firms of Vanguard was Bogel. Now Vanguard is Vanguard 369 00:21:44,359 --> 00:21:47,080 Speaker 1: U Bogel. You know clearly is is a face, but 370 00:21:47,440 --> 00:21:50,360 Speaker 1: people trust Vanguard as the firm. So when you look 371 00:21:50,359 --> 00:21:54,960 Speaker 1: at what's coming next, it is treating increasingly treating individuals 372 00:21:55,000 --> 00:21:59,440 Speaker 1: like institutions and assuming that individuals have that knowledge. And 373 00:21:59,480 --> 00:22:05,240 Speaker 1: that's the stication to understand beyond simply what momentum and 374 00:22:05,560 --> 00:22:11,560 Speaker 1: what UH value is too various different strategies, And here's 375 00:22:11,560 --> 00:22:15,159 Speaker 1: a way to hedge, you know, your the risk that 376 00:22:15,240 --> 00:22:17,639 Speaker 1: the Fed is going to raise interest rates. I mean, 377 00:22:17,720 --> 00:22:20,399 Speaker 1: people just didn't pay attention to things like the Federal 378 00:22:20,480 --> 00:22:23,800 Speaker 1: Reserve much before Alan Greenspan came along. So the idea 379 00:22:23,880 --> 00:22:26,479 Speaker 1: that like people are watching interest rates, are watching what 380 00:22:26,520 --> 00:22:29,359 Speaker 1: the FED says, are looking at financial news, the idea 381 00:22:29,359 --> 00:22:31,960 Speaker 1: that they're all these financial news channels and all these 382 00:22:31,960 --> 00:22:34,359 Speaker 1: different ways to get financial news. There was none of 383 00:22:34,400 --> 00:22:37,320 Speaker 1: that before. So you can kind of assume that it's 384 00:22:37,560 --> 00:22:42,520 Speaker 1: basically the increasing sophistication of the investor will or the 385 00:22:42,600 --> 00:22:47,359 Speaker 1: perceived increasing sophistication of the investor will be reflected in 386 00:22:47,400 --> 00:22:50,359 Speaker 1: these ads as they get more and more complex. Perceived 387 00:22:50,480 --> 00:22:54,280 Speaker 1: of course being the key word that we have had. 388 00:22:54,960 --> 00:22:57,960 Speaker 1: We've had controversies crop up. Even this year, when we 389 00:22:58,000 --> 00:23:01,439 Speaker 1: had a bunch of volatility related exchange traded notes and 390 00:23:01,480 --> 00:23:04,520 Speaker 1: products blow up, there was a huge question mark over 391 00:23:04,560 --> 00:23:09,400 Speaker 1: whether the investors that had bought them actually understood the risks. Um. Eric, 392 00:23:09,440 --> 00:23:12,160 Speaker 1: I'm so sorry we're going to have to leave it there. 393 00:23:12,800 --> 00:23:16,359 Speaker 1: But my entire aim at um having you on this 394 00:23:16,400 --> 00:23:19,040 Speaker 1: week was really to make Joe jealous by just talking 395 00:23:19,040 --> 00:23:24,680 Speaker 1: about portions of financial product advertising. So I think we've 396 00:23:24,720 --> 00:23:28,159 Speaker 1: succeeded in that for sure. This is a lot of phone, Tracy, 397 00:23:28,240 --> 00:23:31,560 Speaker 1: Thanks for having me, all right, So, Eric Weiner, once again, 398 00:23:31,920 --> 00:23:35,439 Speaker 1: the book is What goes up, the uncensored history of 399 00:23:35,520 --> 00:23:37,960 Speaker 1: modern Wall Street, as told by the banker's ceo s 400 00:23:38,000 --> 00:23:41,480 Speaker 1: and scoundrels who made it happen. You can also follow 401 00:23:41,760 --> 00:23:47,240 Speaker 1: Eric on Twitter. He is at Eric J Weener one. 402 00:23:48,119 --> 00:23:52,000 Speaker 1: And if you're interested in learning more about passive investing 403 00:23:52,200 --> 00:23:56,679 Speaker 1: or exchange traded funds, we have an entire podcast dedicated 404 00:23:56,720 --> 00:24:00,159 Speaker 1: to that at Bloomberg and it's called Trillions and it 405 00:24:00,200 --> 00:24:04,080 Speaker 1: is hosted by the very talented Joel Weber and Eric 406 00:24:04,160 --> 00:24:11,440 Speaker 1: val Quness. This has been another edition of the All 407 00:24:11,440 --> 00:24:14,480 Speaker 1: Thoughts podcast. I'm Tracy Alloway, and you can follow me 408 00:24:14,720 --> 00:24:17,439 Speaker 1: on Twitter at Tracy Alloway. Thanks for listening.