WEBVTT - How Wall Street Started Selling You Financial Products 0:00:08.880 --> 0:00:12.680 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:12.800 --> 0:00:17.440 I'm Tracy Allaway. My co host Joe Wisenthal is away 0:00:17.520 --> 0:00:20.599 this week. But for those of you who follow Joe 0:00:20.800 --> 0:00:24.800 on Twitter, you probably know that one of his favorite 0:00:24.960 --> 0:00:29.880 activities is to read the print edition of Barons, the 0:00:29.960 --> 0:00:32.599 financial magazine. And the reason he likes to read the 0:00:32.640 --> 0:00:36.440 print edition specifically is because he likes to look at 0:00:36.479 --> 0:00:39.040 all the ads, and most of those ads are for 0:00:39.200 --> 0:00:43.480 various financial products. So today, in honor of Joe, since 0:00:43.520 --> 0:00:46.519 he can't be here with us, uh, I thought we 0:00:46.600 --> 0:00:53.640 might take a moment to revisit the first ever financial advertisement. 0:00:53.920 --> 0:00:57.040 And it actually came later then a lot of people 0:00:57.160 --> 0:00:59.760 might think. It was written by a guy called a 0:01:00.200 --> 0:01:03.040 Angle who was working at Meryl, and it was published 0:01:03.080 --> 0:01:06.880 in nine in the New York Times, and it was 0:01:06.920 --> 0:01:11.760 really the first such financial advertisement that we've seen in 0:01:11.800 --> 0:01:16.319 the sense that it was aimed at everyday investors. And 0:01:16.680 --> 0:01:20.760 I encourage everyone, after they listen to this podcast please 0:01:21.319 --> 0:01:24.720 to go and google the ad. It's called What Everybody 0:01:24.760 --> 0:01:27.880 Ought to Know About the Stock and Bond Business, and 0:01:27.920 --> 0:01:32.760 it's basically seven thousand words of pure text explaining what 0:01:32.920 --> 0:01:37.080 stocks and bonds are to everyday investors. But this was 0:01:37.160 --> 0:01:39.880 the thing that kicked off all the ads that we 0:01:39.920 --> 0:01:43.760 see nowadays in places like Barns. And again, the reason 0:01:43.760 --> 0:01:46.240 why people like Joe find the ads really interesting is 0:01:46.360 --> 0:01:49.640 that they tell you something about where Wall Street is heading. 0:01:49.720 --> 0:01:51.760 They tell you about where Wall Street is trying to 0:01:51.800 --> 0:01:56.080 make money from every day investors like you and me. 0:01:56.800 --> 0:01:59.320 So we're gonna dive into not just that ad, but 0:01:59.480 --> 0:02:03.200 also the trajectory of Wall Street. How we got to 0:02:03.280 --> 0:02:06.120 the place today where a lot of the business is 0:02:06.160 --> 0:02:09.600 aimed at marketing products like e t f s, like 0:02:09.720 --> 0:02:14.040 mutual funds to everyday investors. And we really have the 0:02:14.360 --> 0:02:18.639 perfect person who's going to be our guest for this episode. 0:02:19.040 --> 0:02:22.440 His name is Eric Weiner. He's on my team at Bloomberg. 0:02:22.520 --> 0:02:25.880 He heads up are very, very excellent E t F 0:02:26.080 --> 0:02:30.040 coverage and he is also the author of an entire 0:02:30.160 --> 0:02:33.520 book on the history of Wall Street. It's sort of 0:02:33.560 --> 0:02:37.760 an oral history. It's called What Goes Up? The Uncensored 0:02:37.840 --> 0:02:41.640 History of Modern Wall Street as told by the bankers, brokers, 0:02:41.800 --> 0:02:51.240 c e o s, and scoundrels who made it happen. Eric, 0:02:51.280 --> 0:02:53.200 thanks so much for joining us. Thanks for having me 0:02:53.240 --> 0:02:58.640 Tracy or me um. So some of my favorite episodes 0:02:58.680 --> 0:03:00.720 that we do on All Thoughts are where we find 0:03:00.760 --> 0:03:06.320 people at Bloomberg who have interesting backgrounds, interesting backstories, and 0:03:06.480 --> 0:03:11.160 interesting accomplishments. So I was actually very pleasantly surprised to 0:03:11.240 --> 0:03:13.760 see that you had not just written one book, which 0:03:13.800 --> 0:03:16.360 we're going to talk about today, but actually two books. Uh, 0:03:16.680 --> 0:03:18.720 how did that come about? And maybe you can give 0:03:18.760 --> 0:03:21.600 us a little bit of background on your role as 0:03:21.639 --> 0:03:26.200 a financial journalist. Well, it's this book was sort of 0:03:26.720 --> 0:03:31.600 a labor of love and a product of all of 0:03:31.639 --> 0:03:33.840 the work that I had done in the ninety nineties 0:03:33.880 --> 0:03:37.160 as a journalist when I was at dow Jones UM. 0:03:37.280 --> 0:03:43.280 The idea came from really bizarrely reading a book called 0:03:43.680 --> 0:03:47.000 Please Kill Me, which is about punk rock, which is 0:03:47.040 --> 0:03:49.240 another one of my interests. But it was done in 0:03:49.320 --> 0:03:52.120 this exact style, and what I noticed was that it 0:03:52.200 --> 0:03:58.840 took something that wasn't necessarily a singular thing, singular place, 0:03:59.400 --> 0:04:02.920 a singular time, and put it in a narrative structure 0:04:02.960 --> 0:04:05.560 that made it all makes sense as if it had 0:04:05.560 --> 0:04:08.360 happened in a preordained way in the same At the 0:04:08.400 --> 0:04:11.400 same time I was watching those Ken Burns documentaries that 0:04:11.400 --> 0:04:15.280 we're all coming out, and he was doing very interesting 0:04:15.360 --> 0:04:19.840 things by using primary sourced information as well as interviews 0:04:19.839 --> 0:04:22.680 in order to tell a story. Uh, and working with 0:04:22.720 --> 0:04:25.080 a friend of mine in publishing, I came up with 0:04:25.120 --> 0:04:28.440 the idea to do this for the history of Wall Street, 0:04:28.480 --> 0:04:32.080 which I had sort of been chronicling by talking to 0:04:32.160 --> 0:04:35.560 all of these people at various different investment banks as 0:04:35.600 --> 0:04:38.279 I was reporting, and I just naturally had an interest 0:04:38.279 --> 0:04:40.960 in history, so I had asked them how things came about, 0:04:41.040 --> 0:04:44.560 and different firms had really lent the histories. Lehman Brothers 0:04:44.600 --> 0:04:47.320 had basically every document it had going back to the 0:04:47.360 --> 0:04:50.520 eighteen hundreds. H. Merrill Lynch had a library, a literal 0:04:50.560 --> 0:04:55.040 I mean the literal museum of all stuff, including the 0:04:55.040 --> 0:04:58.080 the famous Low Angle ad. So I found sort of, 0:04:58.120 --> 0:05:01.039 you know, mutual kinship, and people were remarkably open to 0:05:01.080 --> 0:05:03.559 talking to me. It took me a while to nail down. 0:05:03.920 --> 0:05:07.120 I did about three hundred interviews with some of the 0:05:07.200 --> 0:05:09.039 richest people in the world, so nailing them all down 0:05:09.120 --> 0:05:11.359 wasn't easy, but a lot of them were very willing 0:05:11.400 --> 0:05:15.679 to talk and very candid about what happened. Three hundred 0:05:15.760 --> 0:05:20.640 interviews is a pretty lofty sum. So you mentioned um 0:05:20.720 --> 0:05:25.279 the Loo angle ad uh and again for people who 0:05:25.320 --> 0:05:28.000 have never seen it before, it's definitely worth taking a 0:05:28.000 --> 0:05:30.800 look at. But your book, it's in oral history, as 0:05:30.800 --> 0:05:33.200 we've discussed, and you have a couple of people who 0:05:33.279 --> 0:05:36.359 describe the first time that they read that ad in 0:05:37.760 --> 0:05:41.240 walk us through why it was so important and what 0:05:41.440 --> 0:05:44.120 that moment of time was like for Wall Street where 0:05:44.120 --> 0:05:47.640 it was exactly Well, so, what what had happened was 0:05:48.160 --> 0:05:50.560 Charlie Meryll Merrill Lynch was one of the bigger what 0:05:50.600 --> 0:05:52.680 they called wire houses at the time. It was one 0:05:52.720 --> 0:05:55.440 of the bigger brokerage firms at the time. Charlie Meryll 0:05:55.480 --> 0:05:58.880 had built it up through the nineteen twenties and then 0:05:59.000 --> 0:06:02.039 comes along he actually really advised advises all of his 0:06:02.120 --> 0:06:04.599 investors to get out of the market. He gets out 0:06:04.600 --> 0:06:07.760 of the market and walks away from Merrill Lynch. Merrill 0:06:07.880 --> 0:06:11.800 Lynch stays as a firm, but Charlie Merrill goes off 0:06:11.880 --> 0:06:15.839 to California to his other venture Safe Way, which is, 0:06:16.160 --> 0:06:20.240 you know, the grocery store chain. After ten years, his 0:06:20.400 --> 0:06:25.039 partners are the firm is falling apart. The stock market 0:06:25.080 --> 0:06:27.520 has gone through the Great Depression, you have the new 0:06:27.560 --> 0:06:31.760 deal coming in and the partner's approach Charlie Merrill. When 0:06:31.839 --> 0:06:34.320 one partner, in particular, when Smith, who ended up running 0:06:34.320 --> 0:06:37.440 the firm himself, approaches Charlie, Marrilyn says, we need you 0:06:37.480 --> 0:06:39.680 to come back, and he says, in order to come back, 0:06:39.720 --> 0:06:41.919 we have to change our ways. We have to change 0:06:41.920 --> 0:06:44.240 the way Wall Street does things, and we need to 0:06:44.279 --> 0:06:49.560 adopt many of the ideas that are common to retailing, 0:06:49.640 --> 0:06:53.880 particularly retailing groceries. So he talked about the need that 0:06:53.920 --> 0:06:57.279 people don't want to buy loose coffee. They want to 0:06:57.279 --> 0:07:00.160 buy packages of coffee, and either they wanted in eight 0:07:00.160 --> 0:07:03.080 ounces or twelve ounces or sixteen ounces, and we want 0:07:03.120 --> 0:07:06.200 to be there to sell them those different packages of coffee. 0:07:06.360 --> 0:07:08.080 But what but what they don't want to do is 0:07:08.160 --> 0:07:10.760 just buy stuff. They wanted to sort of be set 0:07:10.840 --> 0:07:13.920 up for them. And so they started thinking about Wall 0:07:13.920 --> 0:07:19.040 Street in those terms. They started piecing together put putting 0:07:19.480 --> 0:07:23.400 UH their financial advisors on salary instead of commissions so 0:07:23.440 --> 0:07:25.800 that they would do more work in terms of putting 0:07:25.840 --> 0:07:30.720 together a portfolio for people. UH. They incentivized their staff 0:07:30.800 --> 0:07:35.400 to work directly with individuals to start marketing their services 0:07:35.440 --> 0:07:39.640 in their local towns to hold educational meetings with groups 0:07:39.680 --> 0:07:43.520 and different things, and advertising was a natural outgrowth of this. Now, 0:07:43.560 --> 0:07:46.000 the thing was that at that time Wall Street was 0:07:46.040 --> 0:07:52.080 a really closed society, and advertising, quite frankly, was considered ghosh. Uh, 0:07:52.080 --> 0:07:54.280 it just wasn't something that was done that was, you know, 0:07:54.680 --> 0:07:59.120 for grocery stores, not for you know, finance firms. So 0:07:59.400 --> 0:08:02.080 Charlie Merrill said, no, we actually need to do this. 0:08:02.480 --> 0:08:06.800 And what he proposed was what you described, which is 0:08:06.840 --> 0:08:12.040 seven thousand words explaining how stock trading, stocks and bonds works. 0:08:12.680 --> 0:08:15.560 And it's essentially you would never run it today. You 0:08:15.560 --> 0:08:18.760 would run it as a pamphlet or something. It's just 0:08:18.920 --> 0:08:22.000 a block of words. And the people at Meryl were 0:08:22.080 --> 0:08:25.280 dumbfounded by it. They didn't think it would work. Uh, 0:08:25.400 --> 0:08:28.320 they were willing to do it because Charlie at that 0:08:28.360 --> 0:08:30.840 point had developed sort of the cult of personality where 0:08:30.880 --> 0:08:33.240 he just did what he wanted. So everybody said brilliant, 0:08:33.320 --> 0:08:35.400 Mr Meryl, and then behind their backs were saying, I 0:08:35.840 --> 0:08:39.319 don't know about this, um, but it worked dramatically because 0:08:39.320 --> 0:08:42.200 nobody had ever spoken to people about how this stuff worked, 0:08:42.880 --> 0:08:46.880 and suddenly you had people reading this and then saying, hey, 0:08:46.880 --> 0:08:48.840 did you see this on the You know, I was 0:08:48.880 --> 0:08:51.480 reading this on the subway. Did you see this? They 0:08:51.480 --> 0:08:54.959 started calling up Merrill Lynch asking for copies. Merrilynn started 0:08:55.000 --> 0:08:58.040 giving away copies, printing and printing it up as sort 0:08:58.080 --> 0:09:00.960 of a flyer. Uh. And it really became kind of 0:09:01.000 --> 0:09:05.080 a touchstone for what can be done with reaching out 0:09:05.200 --> 0:09:07.680 to the general public, which is something that Wall Street 0:09:07.720 --> 0:09:12.320 was really reluctant to do, largely because after twenty nine 0:09:12.400 --> 0:09:16.760 it got blamed for everything, so it just didn't really 0:09:16.760 --> 0:09:20.600 Its just the organization, the institution as a whole, decided 0:09:21.160 --> 0:09:25.199 we're safer if we just don't deal with those people. Uh. 0:09:25.240 --> 0:09:27.440 And Merrilllynch said, actually, in order for us to survive, 0:09:27.480 --> 0:09:29.079 we need to deal with those people. We need to 0:09:29.120 --> 0:09:30.640 deal with them fairly, and we need for them to 0:09:30.760 --> 0:09:33.440 understand what it is that we do. Uh. And that 0:09:33.440 --> 0:09:38.800 that was Its seemingly logical today, beyond any sort of comprehension, 0:09:39.000 --> 0:09:41.720 but at that time it was this radical idea that 0:09:41.760 --> 0:09:44.600 made Charlie Meryl seemed like a complete outsider. It was 0:09:44.679 --> 0:09:47.800 Wall Street brethren, right. So I mentioned the date on 0:09:47.840 --> 0:09:51.520 that ad, which is and I don't know about anyone else, 0:09:51.520 --> 0:09:54.640 but I was kind of surprised that it was that late, because, 0:09:55.000 --> 0:09:58.400 as you mentioned, you think about the Great Depression and 0:09:58.559 --> 0:10:02.160 you think about the number of people who supposedly got 0:10:02.240 --> 0:10:05.280 burned by the stock market crash, and it feels like 0:10:05.320 --> 0:10:09.840 a retail investor event. So are you saying that retail 0:10:09.880 --> 0:10:14.240 investors were burned like en masks, they were burried or 0:10:14.480 --> 0:10:20.320 was it they were burned? Um? Although, uh, the degree 0:10:20.360 --> 0:10:23.720 to which is debated because the records are kind of sketchy. 0:10:23.920 --> 0:10:26.720 What really happened, what really got blamed was mutual funds 0:10:26.760 --> 0:10:30.160 which were sold through Goldman saxonby enough, so Goldman really 0:10:30.160 --> 0:10:33.719 took it on the chin coming out of the depression. 0:10:33.760 --> 0:10:36.719 But a lot of this, you have to realize, is 0:10:36.880 --> 0:10:39.600 an effect of the way the media understood things at 0:10:39.640 --> 0:10:42.480 the time and what they were being told. So it's 0:10:42.480 --> 0:10:45.280 really easy to run, you know, dust bowl stories. And 0:10:45.320 --> 0:10:48.640 then what happens is, you know, you go from the 0:10:48.920 --> 0:10:52.920 from the crash to to the Great Depression, which isn't 0:10:52.920 --> 0:10:59.160 necessarily linear, but one gets blamed for the other, and 0:10:59.440 --> 0:11:01.559 people be in to say that Wall Street is evil, 0:11:01.679 --> 0:11:05.079 these greedy bankers. That whole thing sort of starts cropping 0:11:05.120 --> 0:11:08.559 up as a narrative, and for Wall Street, the idea was, 0:11:08.640 --> 0:11:11.200 let's just retrench. We have a great business. Because all 0:11:11.200 --> 0:11:14.200 commissions were fixed, they basically had a license to print 0:11:14.240 --> 0:11:16.600 money if they just were left alone. So they really 0:11:16.640 --> 0:11:19.160 wanted to be left alone. It was Charlie Merrill who 0:11:19.160 --> 0:11:22.720 saw that reaching out, reaching back out to the wider world, 0:11:22.760 --> 0:11:25.080 which was what happened in the in the twenties, where 0:11:25.080 --> 0:11:28.440 you had a lot of ordinary people investing, uh, that 0:11:28.480 --> 0:11:30.560 reaching out back out to the wider world was really 0:11:30.559 --> 0:11:32.760 the only way that they were going to grow and thrive. 0:11:33.160 --> 0:11:37.439 So it's now the late nineteen forties and Mr Meryl 0:11:37.760 --> 0:11:42.840 is exporting his brand of let's say, standardized grocery store 0:11:42.960 --> 0:11:47.400 like financial products. Although as you mentioned, mutual funds had 0:11:47.400 --> 0:11:50.960 existed for some time at that point. How quickly did 0:11:51.000 --> 0:11:54.800 this take off amongst retail investors? How quickly did Wall 0:11:54.800 --> 0:11:58.960 Street regain trust after the Great Depression? And what sort 0:11:59.000 --> 0:12:02.960 of products were being Well, it's the nineteen fifties, you 0:12:03.320 --> 0:12:06.800 kind of start having a bull market, and so it 0:12:06.840 --> 0:12:09.440 was just kind of great timing on his part that 0:12:09.760 --> 0:12:12.120 people wanted to hear about this as stocks were starting 0:12:12.160 --> 0:12:14.080 to kick back up. I mean, if you figure it. 0:12:14.520 --> 0:12:20.439 There was a very long uh depression and recession in stocks, 0:12:20.480 --> 0:12:23.640 So suddenly you had all of these value stocks, all 0:12:23.720 --> 0:12:26.720 these stocks that were value that you could just simply 0:12:26.760 --> 0:12:28.600 flat out and make money on because they were trading 0:12:28.640 --> 0:12:30.600 for below their book value, so they had to come 0:12:30.640 --> 0:12:36.720 back up. Basically, individuals were buying stocks. Um. The big 0:12:36.800 --> 0:12:40.880 miss on Charlie Merrill's part was that he believed that 0:12:40.960 --> 0:12:44.120 mutual funds had caused the twenty nine crash and put 0:12:44.120 --> 0:12:47.240 an edict in at Merrill Lynch that they would never 0:12:47.600 --> 0:12:51.800 do mutual funds. So that basically creates the business for 0:12:51.880 --> 0:12:55.120 Fidelity because up in Boston they had a whole different 0:12:55.120 --> 0:12:57.200 way of managing money. They've been managing money for a 0:12:57.200 --> 0:12:59.800 lot of old wealthy families for a long time, and 0:12:59.840 --> 0:13:02.200 they put their money in portfolios that they called funds 0:13:02.240 --> 0:13:04.719 and they eventually sold them as mutual funds. Fidelity was 0:13:04.760 --> 0:13:08.040 one of these firms. So if Charlie Merrill had the 0:13:08.080 --> 0:13:10.479 idea of a mutual fund, of putting together a portfolio 0:13:10.520 --> 0:13:15.200 of stocks that would do would behave a certain way, 0:13:15.320 --> 0:13:17.000 would make would have made a lot of sense to 0:13:17.040 --> 0:13:19.960 people at that time. They just weren't really readily available 0:13:20.040 --> 0:13:23.160 until the nineteen sixties when Fidelity grew. But if Merrill 0:13:23.240 --> 0:13:26.040 had decided to sell them, they probably would have taken off. 0:13:26.400 --> 0:13:29.720 But the other thing that takes off is Buffet style 0:13:29.800 --> 0:13:33.599 of investing. Buffett goes back to Uh, he'd been in 0:13:33.640 --> 0:13:36.880 New York. He goes back to Nebraska and starts his firm, 0:13:37.000 --> 0:13:39.640 and it's like the greatest rocket ride in the history 0:13:39.640 --> 0:13:43.079 of Wall Street, where there were just so many stocks 0:13:43.120 --> 0:13:45.760 that were beaten down. He called them scar butts that 0:13:45.840 --> 0:13:48.880 he could just make money by picking off stocks that 0:13:48.960 --> 0:13:52.720 we're going to have to revert to the mean. And 0:13:52.840 --> 0:13:55.600 you have this style of investing called value investing that 0:13:55.679 --> 0:13:59.920 comes along. And Fidelity then in turn creates momentum investing 0:14:00.440 --> 0:14:03.320 through its mutual funds and through a guy named Jerry Say, 0:14:03.840 --> 0:14:06.600 who basically started following all the hot stocks of the day, 0:14:06.640 --> 0:14:09.440 which from the fifties to the sixties are oddly enough, 0:14:09.720 --> 0:14:12.600 the technology stocks of the day, which are usually the 0:14:12.640 --> 0:14:14.880 hot things that are growing, and we see it today 0:14:15.000 --> 0:14:18.280 even Uh. This is what people focus on is the future. 0:14:18.320 --> 0:14:20.720 It's this technology. So at that time it was Xerox. 0:14:21.160 --> 0:14:23.880 He rode Xerox to the moon and everybody was He's 0:14:23.880 --> 0:14:26.520 showing up on Time magazine, and all of a sudden, 0:14:26.520 --> 0:14:30.560 people are following momentum and the idea of factors that 0:14:30.640 --> 0:14:33.200 we think of today, the idea of investing styles that 0:14:33.240 --> 0:14:37.200 we think of today, really originates from this nineteen late 0:14:37.280 --> 0:14:42.920 nineteen forties to nineteen sixties period where investors themselves, uh, 0:14:42.960 --> 0:14:47.640 professional investors themselves are figuring it out. So you're talking 0:14:47.640 --> 0:14:51.760 about the beginnings of passive investing essentially, you know, the 0:14:51.800 --> 0:14:55.040 idea that you can have active managers sort of taken 0:14:55.040 --> 0:14:57.800 out of the equation and people can just ride whatever 0:14:58.560 --> 0:15:02.800 is moving up. Hence the name momentum. How much tension 0:15:02.880 --> 0:15:05.920 was there on Wall Street at the time that this 0:15:06.040 --> 0:15:09.320 was invented, because nowadays you see a lot of handwringing 0:15:09.360 --> 0:15:12.800 about it. You know, we've had Alliance Bernstein talking about 0:15:12.840 --> 0:15:16.720 how e T f s and passive investing are destroying capitalism. 0:15:17.400 --> 0:15:20.000 People worry that passive investing is of course eating into 0:15:20.040 --> 0:15:25.280 active managers fees. Was that kind of conflict evident when 0:15:25.320 --> 0:15:29.720 these things were first on the rise, Not not really, 0:15:30.080 --> 0:15:35.080 because costs were kind of assumed on Wall Street. It 0:15:35.120 --> 0:15:38.520 was assumed to be an expensive business. And the other 0:15:38.600 --> 0:15:41.480 thing was the way that people kind of understood the 0:15:41.480 --> 0:15:46.320 business was through people and the individual money managers, whether 0:15:46.320 --> 0:15:50.600 it was Jerry Side to Peter Lynch. Uh, they captured 0:15:50.760 --> 0:15:54.760 much more of the attention than the products did, so 0:15:55.040 --> 0:15:58.200 you wanted to invest with. It was kind of the 0:15:58.240 --> 0:16:00.680 idea of that that best in the bright which, although 0:16:00.680 --> 0:16:05.400 it's an ironic statement, applies here, uh, where you really 0:16:05.440 --> 0:16:07.680 wanted to invest with who the market considered to be 0:16:07.720 --> 0:16:10.520 the best and the brightest guy. Along the way, Jack 0:16:10.560 --> 0:16:13.480 Bobil figures out, you know, we don't really need to 0:16:13.560 --> 0:16:16.200 do all of that stuff, and we can just put 0:16:16.240 --> 0:16:22.080 together indexes of this. And there had been indexes for 0:16:22.120 --> 0:16:23.920 a very long time, you know that the Dow Johns 0:16:23.920 --> 0:16:26.440 Industrial Index that had been there for a while, but 0:16:26.480 --> 0:16:29.360 there weren't a lot of them, and they were followed 0:16:29.440 --> 0:16:32.200 kind of just as benchmarks that you would beat as 0:16:32.240 --> 0:16:36.440 a as a mutual fund manager, but or as a 0:16:36.560 --> 0:16:41.520 asset manager or any kind of financial advisor. But as 0:16:41.640 --> 0:16:44.640 the research started to show that most of these guys 0:16:44.680 --> 0:16:47.320 don't really beat the market, the idea of tracking and 0:16:47.400 --> 0:16:52.560 index became more important. In n there was a thing 0:16:52.600 --> 0:16:56.840 called may Day where New York Stock Exchange, or actually 0:16:56.880 --> 0:17:00.360 all stock exchange commissions were fixed and it was a 0:17:00.440 --> 0:17:03.040 very complicated formula, but the point was that if you 0:17:03.080 --> 0:17:06.520 sold ten shares, one hundred shares, a thousand shares, you 0:17:06.600 --> 0:17:09.560 paid a percentage of flat percentage of that amount, of 0:17:09.840 --> 0:17:14.240 that fe of that amount as a feat. Wall Street 0:17:14.600 --> 0:17:18.000 was basically ranking raking your money hand over fist, and 0:17:18.040 --> 0:17:20.320 it was kind of behaving as a cartel, and they 0:17:20.320 --> 0:17:25.000 were forced to unfixed commissions. Now within this there was 0:17:25.040 --> 0:17:28.159 a big push on Wall Street to do this because 0:17:28.600 --> 0:17:31.760 some firms, Merrill Lynch among them, could sort of see 0:17:31.840 --> 0:17:34.439 that this would increase volume and they could pick up 0:17:34.440 --> 0:17:37.840 in volume what they would lose in commissions. But it's 0:17:37.920 --> 0:17:44.160 this moment in n where you lose commissions, you lose 0:17:44.200 --> 0:17:47.119 fixed commissions on Wall Streets. Suddenly you can have block trading. 0:17:47.160 --> 0:17:50.640 A lot of different discounting goes on, and these index 0:17:50.720 --> 0:17:55.119 funds become really cheap to operate because suddenly moving a 0:17:55.160 --> 0:17:58.000 whole bunch of stock doesn't cost nearly as much as 0:17:58.000 --> 0:18:00.480 it used to, moving a whole bunch of bond doesn't 0:18:00.480 --> 0:18:02.640 cost as much as it used to. At the same time, 0:18:02.680 --> 0:18:06.640 you're having technology catch up, so there's more automation coming on. 0:18:07.560 --> 0:18:11.040 These were kind of products that we're waiting for a moment. 0:18:11.400 --> 0:18:14.280 So at the time when they first came out, people 0:18:14.320 --> 0:18:16.240 looked at it and we're like, this is great, fine, 0:18:16.440 --> 0:18:20.040 but this isn't really solving my problem. Ten years later, 0:18:20.240 --> 0:18:23.639 fifteen years later, it suddenly starts solving a problem. And 0:18:23.640 --> 0:18:25.600 when we look at it today, and you know, E 0:18:25.720 --> 0:18:29.840 t F is what I'm what the team that I'm leading, uh, 0:18:29.880 --> 0:18:31.520 and we look at what E t F s are doing, 0:18:31.560 --> 0:18:34.720 it is exactly what the conversation is. This is an 0:18:34.920 --> 0:18:39.400 entire evolution that basically starts in the early nineteen seventies 0:18:39.440 --> 0:18:42.160 and brings us to today. We're the only thing people 0:18:42.200 --> 0:18:47.480 are talking about is cost m hm um. So it's 0:18:47.520 --> 0:18:49.480 really interesting to think that, you know, it took a 0:18:49.480 --> 0:18:53.280 while for the market infrastructure basically to catch up to 0:18:53.600 --> 0:18:56.960 the concept of these low cost funds. They used to 0:18:57.000 --> 0:18:59.920 take days off, a day off of the trading day 0:19:00.080 --> 0:19:02.560 just to catch up on paperwork. They had a whole 0:19:02.680 --> 0:19:05.760 paper crunch thing because people, I'm not not joking, Tracy. 0:19:05.920 --> 0:19:08.600 They would have be carrying cards because those computer cards. 0:19:08.680 --> 0:19:11.840 You've ever seen those, the IBM dot. Yeah, so they'd 0:19:11.840 --> 0:19:15.119 be carrying stacks of those around on the exchange in 0:19:15.240 --> 0:19:19.320 order to trade shares. You literally had runners running around 0:19:19.560 --> 0:19:23.560 with certificates, stock certificates saying, you know, I bought fifty 0:19:23.640 --> 0:19:25.119 a T and T and they would give you a 0:19:25.119 --> 0:19:28.800 certificate for fifty a T and T And you had 0:19:28.840 --> 0:19:31.639 to wait for the little guy to show up with 0:19:31.640 --> 0:19:34.240 with that pile to know that your deal had gone through. 0:19:34.640 --> 0:19:38.720 And it was a completely different world from let alone 0:19:38.760 --> 0:19:40.959 you know e trade to today where it's just you know, 0:19:41.000 --> 0:19:43.239 boom you you know, on our terminal, you can do 0:19:43.320 --> 0:19:47.160 every single thing chat uh trade it no matter what, 0:19:47.520 --> 0:19:51.040 it can all be done in one little electronic ecosystem 0:19:51.080 --> 0:19:54.960 in seconds. That took hours days. You didn't know what 0:19:55.080 --> 0:19:58.920 was exactly going on. You didn't know the final price. Um. 0:19:58.960 --> 0:20:02.280 You know, automation has changed everything in a very very 0:20:02.280 --> 0:20:05.760 short period of time for Wall Street. Right, so you 0:20:05.800 --> 0:20:08.080 point out that at one point it was sort of 0:20:08.119 --> 0:20:11.680 about the people managing funds and investments, but now it's 0:20:11.680 --> 0:20:14.320 most definitely about the product. And if you open a 0:20:14.359 --> 0:20:17.600 publication like Barons and look at the ads like Joe 0:20:17.720 --> 0:20:21.240 likes to do so, very often you'll just see pages 0:20:21.240 --> 0:20:24.400 and pages of ads for things like you know, mutual 0:20:24.480 --> 0:20:29.960 funds ETFs uh certain portfolios, and they tend to change 0:20:30.440 --> 0:20:33.240 along with the time. So when people are searching for yield, 0:20:33.320 --> 0:20:37.399 you'll see yield enhanced investment offerings. When people are worried 0:20:37.400 --> 0:20:40.760 about rising rates, you'll see see bond e t f 0:20:40.840 --> 0:20:44.680 s that are protected from duration risk, all that sort 0:20:44.680 --> 0:20:49.400 of stuff. What's next in the evolution of that market? 0:20:49.480 --> 0:20:52.840 What's next in terms of the provision of let's say, 0:20:53.200 --> 0:20:59.240 standardized grocery like financial products. Yes, well we're still we're 0:20:59.240 --> 0:21:03.760 still packaging coffee. Um. You know, this whole thing is 0:21:03.760 --> 0:21:07.480 about the sophistication of the investor. So if Joe were here, 0:21:07.520 --> 0:21:10.480 I would challenge him to go look back at old 0:21:10.520 --> 0:21:13.920 Barrens and try to find the moment when Peter Lynch 0:21:14.040 --> 0:21:17.359 stopped appearing in fidelity ads. It used to be that 0:21:17.640 --> 0:21:21.160 every mutual fund AD had a person and it would 0:21:21.160 --> 0:21:24.800 have like their star manager John Neff whoever you know, says, 0:21:24.840 --> 0:21:27.560 you know this brilliant quote, and then here are the 0:21:27.640 --> 0:21:30.040 mutual funds that you want to invest in. Now we're 0:21:30.080 --> 0:21:34.160 talking about products, we're talking about strategies. Um, the individuals 0:21:34.200 --> 0:21:38.640 behind it don't matter. You're talking about the firms people trust. Uh, 0:21:38.720 --> 0:21:43.760 certain firms of Vanguard was Bogel. Now Vanguard is Vanguard 0:21:44.359 --> 0:21:47.080 U Bogel. You know clearly is is a face, but 0:21:47.440 --> 0:21:50.360 people trust Vanguard as the firm. So when you look 0:21:50.359 --> 0:21:54.960 at what's coming next, it is treating increasingly treating individuals 0:21:55.000 --> 0:21:59.440 like institutions and assuming that individuals have that knowledge. And 0:21:59.480 --> 0:22:05.240 that's the stication to understand beyond simply what momentum and 0:22:05.560 --> 0:22:11.560 what UH value is too various different strategies, And here's 0:22:11.560 --> 0:22:15.159 a way to hedge, you know, your the risk that 0:22:15.240 --> 0:22:17.639 the Fed is going to raise interest rates. I mean, 0:22:17.720 --> 0:22:20.399 people just didn't pay attention to things like the Federal 0:22:20.480 --> 0:22:23.800 Reserve much before Alan Greenspan came along. So the idea 0:22:23.880 --> 0:22:26.479 that like people are watching interest rates, are watching what 0:22:26.520 --> 0:22:29.359 the FED says, are looking at financial news, the idea 0:22:29.359 --> 0:22:31.960 that they're all these financial news channels and all these 0:22:31.960 --> 0:22:34.359 different ways to get financial news. There was none of 0:22:34.400 --> 0:22:37.320 that before. So you can kind of assume that it's 0:22:37.560 --> 0:22:42.520 basically the increasing sophistication of the investor will or the 0:22:42.600 --> 0:22:47.359 perceived increasing sophistication of the investor will be reflected in 0:22:47.400 --> 0:22:50.359 these ads as they get more and more complex. Perceived 0:22:50.480 --> 0:22:54.280 of course being the key word that we have had. 0:22:54.960 --> 0:22:57.960 We've had controversies crop up. Even this year, when we 0:22:58.000 --> 0:23:01.439 had a bunch of volatility related exchange traded notes and 0:23:01.480 --> 0:23:04.520 products blow up, there was a huge question mark over 0:23:04.560 --> 0:23:09.400 whether the investors that had bought them actually understood the risks. Um. Eric, 0:23:09.440 --> 0:23:12.160 I'm so sorry we're going to have to leave it there. 0:23:12.800 --> 0:23:16.359 But my entire aim at um having you on this 0:23:16.400 --> 0:23:19.040 week was really to make Joe jealous by just talking 0:23:19.040 --> 0:23:24.680 about portions of financial product advertising. So I think we've 0:23:24.720 --> 0:23:28.159 succeeded in that for sure. This is a lot of phone, Tracy, 0:23:28.240 --> 0:23:31.560 Thanks for having me, all right, So, Eric Weiner, once again, 0:23:31.920 --> 0:23:35.439 the book is What goes up, the uncensored history of 0:23:35.520 --> 0:23:37.960 modern Wall Street, as told by the banker's ceo s 0:23:38.000 --> 0:23:41.480 and scoundrels who made it happen. You can also follow 0:23:41.760 --> 0:23:47.240