Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome the Money Stuff Podcast. You're a weekly
Speaker 2: podcast where we talk about stuff related to money. I'm
Speaker 2: Matt Levian and I write the Money Stuff column for
Speaker 2: Bloomberg Good Pay.
Speaker 1: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 1: an anchor for Bloomberg Television.
Speaker 2: What are you talking about today, Katie?
Speaker 1: We're going to talk about open Aire, all the drama.
Speaker 1: We're going to talk about chatbots and stock picking, and
Speaker 1: then we're going to talk about bibles.
Speaker 2: I'm gonna bell out right now.
Speaker 1: Sam Altman open Ai. You know how open ai is
Speaker 1: a nonprofit?
Speaker 2: I don't well explain it to me.
Speaker 1: No, we don't need to, because it's not anymore. It
Speaker 1: won't be. According to people familiar with the matter, of course,
Speaker 1: they're just discussing how to restructure to become a for
Speaker 1: profit business officially and giving Sam Altman a seven percent
Speaker 1: equity stake.
Speaker 2: It's so good.
Speaker 1: Yeah.
Speaker 2: I read about this that if you just like didn't
Speaker 2: know that it was a nonprofit and you just ignored
Speaker 2: all of that stuff, you would sort of have a
Speaker 2: better understanding of open Ai than if you did think
Speaker 2: about it's nonprofit governance structure, because you know, they had
Speaker 2: a nonprofit board whose job was to develop AI for
Speaker 2: the benefit of humanity, and the nonprofit board decided that
Speaker 2: the CEO of Sam Altman was apparently developing it not
Speaker 2: for the benefit of humanity, and so they fired him,
Speaker 2: and then everyone was like, never mind, there's no nonprofit board.
Speaker 1: Well that's the thing. I feel like a lot of
Speaker 1: people didn't know that open ai was a nonprofit until
Speaker 1: they fired and then rehired Sam Ali.
Speaker 3: Yeah.
Speaker 2: Yeah, there was like a five day period where you
Speaker 2: could be like, wow, open ai is really a weird
Speaker 2: company and not just the hot tech startup. And then
Speaker 2: they're like, nah, we're just kidding. We're a context out
Speaker 2: And so now they're going to be a for profit
Speaker 2: for real.
Speaker 1: Yeah, taking the last step they're considering, according to people
Speaker 1: familiar with the matter, becoming a public benefit corporation, tasked
Speaker 1: with turning a profit but also helping society. But Matt,
Speaker 1: are those two things at odds? Can you help society
Speaker 1: and still make money? I don't know.
Speaker 2: This podcast will try to find out. Look, you know
Speaker 2: you can be a public benefit corporation. You know you're
Speaker 2: trying to make a profit. But like you, the distinction
Speaker 2: machine a public benefit corporation and a regular corporation is
Speaker 2: pretty vague, right, because you can be just a regular
Speaker 2: old for profit corporation and like also try to be good,
Speaker 2: and the constraints on you as a public benefit corporation
Speaker 2: are not that constraining, So you can be a public
Speaker 2: benefit corporation and be kind of bad. But you know,
Speaker 2: if you're going from being a nonprofit company to being
Speaker 2: a for profit company, it probably does make sense to
Speaker 2: stop along the way being a public benefit company because
Speaker 2: it like sounds better, sounds like less of a stark transition.
Speaker 1: It still has benefit.
Speaker 2: Yeah, it's still for the benefit of the public. You ask,
Speaker 2: somewhat sarcastically, can you do good while also making money?
Speaker 2: And I think it's really interesting that, like the Silicon
Speaker 2: Valley ethos is so strongly of the view that you
Speaker 2: always read VCS saying Elon Musk has done more for
Speaker 2: humanity in its for profit companies than you know, any philanthropist.
Speaker 2: And you know, I think there's some truth to the
Speaker 2: idea that like for profit development of technology can be
Speaker 2: really good for the world and also make the people
Speaker 2: who do it really rich, and it was always at odd.
Speaker 2: It's with that ethos that open ai was a nonprofit
Speaker 2: and always very awkward because you know it was like
Speaker 2: founded by Silicon Valley, you know, sounded by literally Elon
Speaker 2: Musk and like some PC types, you know, s Ham
Speaker 2: Altman is you know kind of a he's like a
Speaker 2: you know, bicombinator, like the VC guy, and you know
Speaker 2: it's staffed by tech people, and all of those people,
Speaker 2: I think, to some degree in their previous lives brought
Speaker 2: into like the Silicon Valley ethos of like the way
Speaker 2: to improve society is to to scalable low marginal cost
Speaker 2: technology products that make a lot of money for their developers.
Speaker 2: And there's this little blip of like at open Ai,
Speaker 2: I was like, no, we're going to do it a
Speaker 2: different way, and then they changed their months. So clearly
Speaker 2: a lot of people at open ai think that they
Speaker 2: can do good for humanity while also making a lot
Speaker 2: of money. So the mission of open ai being this
Speaker 2: technology in particular cannot be commercialized, This technology in particular
Speaker 2: has to be done by a nonprofit, which was apparently
Speaker 2: the theory for a while. It's always a little weird, right,
Speaker 2: because like the product they've rolled out is sort of
Speaker 2: this like consumer chat pottery. It's on a continuum with
Speaker 2: a lot of, like you know, for profit technology products.
Speaker 2: I think there's like the overlay of open ai believing
Speaker 2: that AI could enslave humanity or red work obsolete, or
Speaker 2: like usher in a new age of abundance where money
Speaker 2: has no meaning. Yeah, if you really believe that your
Speaker 2: product is going to create an age where money has
Speaker 2: no meaning, then I suppose it makes sense to operate
Speaker 2: it as a nonprofit. Yeah, but you know that market.
Speaker 1: Well, the point before right where I mean Altman saying
Speaker 1: publicly like I'm so scared of what we could be
Speaker 1: creating is a great pitch for why you should give
Speaker 1: me a lot of money. Like what we're working on
Speaker 1: is so incredible that I am scared, right.
Speaker 2: It makes it seem very important, and so it helps
Speaker 2: them raise a lot of money. But eventually, you know,
Speaker 2: those people who give them all the money want their
Speaker 2: money back. Yeah.
Speaker 1: I don't think like all the investors pouring so much
Speaker 1: money into open ai, which is raising right now with
Speaker 1: a one hundred and fifty billion dollars valuation, or necessarily
Speaker 1: investing to help humanity, they're investing with the goal of
Speaker 1: making a lot of money, I would imagine.
Speaker 2: Yeah. And by the way, like even before this like
Speaker 2: supposed change, open AI has this for profit subsidiary that
Speaker 2: was already able to give to promise investors a big
Speaker 2: return on their money. It was like a cap to
Speaker 2: profit subsidiary, so you could only make one hundred times your.
Speaker 1: Money up change.
Speaker 2: So what is changing is I think two things. One
Speaker 2: is like, like right now the sort of notional corporate
Speaker 2: structure is that on top is a nonprofit and then
Speaker 2: there's like the cap profit subsidiary under it, and you
Speaker 2: can invest in the cap profit subsidiary and get profits.
Speaker 2: But ultimately everything answers to the nonprofit board. The nonprofit
Speaker 2: board has no fiduciary duties to investors. Their duty is
Speaker 2: to humanity to develop AI in the best way. And
Speaker 2: you know what happened is the old nonprofit board thought
Speaker 2: that Sam all And wasn't doing that in some unspecified way,
Speaker 2: and so they fired him, and then they all got
Speaker 2: fired themselves. And so now there's a new nonprofit board
Speaker 2: that is like a little bit more profit oriented. Yeah,
Speaker 2: but it's still technically does an answer to the investors.
Speaker 2: And I think the restructuring would mean that the board
Speaker 2: is now more directly responsible to investors. And then the
Speaker 2: other thing that's happening in this change besiudes, like the
Speaker 2: for profit being the top company is sam Aldman is
Speaker 2: supposedly getting seven percent of the company.
Speaker 1: It's spend a lot of money. Theoretically.
Speaker 2: I was thinking, if like Harvard University became a for
Speaker 2: profit company tomorrow, would they give the president ten billion dollars.
Speaker 2: It's like a really interesting you know, like typically founders
Speaker 2: of hot tech companies get a lot of equity. Yeah,
Speaker 2: because they retain a lot of equity, right, Like they
Speaker 2: start with one hundred percent of the company and then
Speaker 2: they raise money by selling portion of the company. But
Speaker 2: like they started with a undred percent and they end
Speaker 2: up with you know, seven or ten or twenty or
Speaker 2: fifty percent. Sam Alban started with zero percent because it
Speaker 2: was a nonprofit, and now they're retroactively being like, wow, okay, fine,
Speaker 2: it was a regular startup, so you can't have zero
Speaker 2: percent equity, so we're going to give you seven percent.
Speaker 2: And so because he built this company from zero to
Speaker 2: let's say, one hundred and fifty billion dollar valuation, even
Speaker 2: though he did that without any equity stake. They're retroactively saying, well,
Speaker 2: you did that, so you're a founder, so you get
Speaker 2: ten billion of that value you created.
Speaker 1: I like equation that went into How did they land
Speaker 1: at seven percent?
Speaker 2: Like?
Speaker 1: Did they?
Speaker 2: I'm very curious about the capital structure of this company generally, right,
Speaker 2: because like this company is like you know, if you
Speaker 2: if you just think of the for profit subsidiary, right,
Speaker 2: like Microsoft owns quite a chunk of it, because they've
Speaker 2: put a lot of money in at like lower evaluations
Speaker 2: than the current one. And you know, there's some VC investors.
Speaker 2: And then there are a lot of employees, not Sam alten,
Speaker 2: but a lot of employees have gotten you know, chunky
Speaker 2: stock grants of the years. They're not called stock grunts.
Speaker 2: They're called something like performance something units, but they're.
Speaker 1: Stock grunts, right, and benefit grants.
Speaker 2: Yeah, there's stocks. And then the rest of the company
Speaker 2: is owned by humanity, right, the rest of the company's
Speaker 2: owned by the nonprofit. Right. No, and so the nonprofit
Speaker 2: now is basically allocating money away from humanity to say,
Speaker 2: Sam Altman, And how did they come up with that number?
Speaker 2: I don't know. I think that like it has to
Speaker 2: be a lot because first of all, he's a billionaire
Speaker 2: front it's all their adventures. But it has to be
Speaker 2: a lot because if you're just recasting open Ai as
Speaker 2: a regular startup, then the founder CEO has to own
Speaker 2: a lot of it because he has to be incentivized
Speaker 2: in the right way, right. I Mean, one thing that's
Speaker 2: happened in the open a story in the last year
Speaker 2: or two is that you're constantly reading about Sam Altman
Speaker 2: doing like other weird stuff. You know, he's like getting
Speaker 2: involved in like data center deals and like power deals
Speaker 2: and like other startups that use open ai technology, and
Speaker 2: they all feel like confident of interest. And one explanation
Speaker 2: of that is, Okay young zero percent of open Aif
Speaker 2: she like can like make a little money on the
Speaker 2: side by doing some sort of nuclear power deal, then
Speaker 2: he'll do that. And so if you're an investor looking
Speaker 2: to put money into open Ai at one hundred and
Speaker 2: fifty billion dollar valuation, one thing you want is for
Speaker 2: the CEO to be mostly working for open Ai. Yeah,
Speaker 2: and you can imagine a lot of ways to try
Speaker 2: to do that. But like the standard silicon of Valueay
Speaker 2: is like he has most of his net worth in
Speaker 2: open ai stock, so you have to give him enough
Speaker 2: stock that most of his network is in open A stock.
Speaker 2: And that's like, you know, come doing it.
Speaker 1: She with Elon Musk parallels because you want the founder
Speaker 1: CEO to be engaged and passionate and working on the company.
Speaker 1: Elon Musk when it comes to Tesla, I mean that
Speaker 1: was basically his argument that I want to focus on
Speaker 1: the thing where I have the most at stake here,
Speaker 1: and that's why I should own more of Tesla.
Speaker 2: Yeah. Absolutely, I don't know who is asking for what here.
Speaker 2: Like you could imagine I'm not saying this is true.
Speaker 2: I don't think this is true. But you could imagine
Speaker 2: Sam and be like, no, I'm good, I have two
Speaker 2: billion dollars. I don't need more money from this company.
Speaker 2: I'm in it for the benefit of humanity. You could
Speaker 2: imagine the board of the investors saying, no, you need
Speaker 2: to have a ligned incentives. You need to own seven
Speaker 2: percent of the company. Here, take ten billion dollars so
Speaker 2: that we know you're working for us. You can imagine that.
Speaker 1: Some time twists my arm, all right.
Speaker 2: Right, right, all right, And like, by the way, Elon
Speaker 2: Musk will ask for the money, but he will also say,
Speaker 2: I don't want it for the money. I just want it,
Speaker 2: you know, to make sure that I'm building it in
Speaker 2: the right place. So yeah, it's totally like Elon. It's
Speaker 2: a little different because Elon has a lot of very
Speaker 2: different ideas, but like have a lot of conflicts. But
Speaker 2: you understand why they're different. Companies like Sam all been
Speaker 2: when he's like raising money for ventures that build on
Speaker 2: top of open Ai, it's like, well, let's do that
Speaker 2: at open Ai. It's a little bit more like it
Speaker 2: looked like he was using his position at open ai
Speaker 2: to make money on the side because he couldn't make
Speaker 2: money at open ai. And now it's like, wow, I
Speaker 2: can make a lot of money open Ai, so do
Speaker 2: that instead. But yes, the perils that Elon are interesting,
Speaker 2: right because I said, you know, the notion that Elon
Speaker 2: Musk has done a lot for humanity by running for
Speaker 2: profit companies, It's like validates dispute to being a for
Speaker 2: profit company. On the other hand, Elon Musk is also
Speaker 2: suing open ai for becoming a for profit company.
Speaker 1: That's so true.
Speaker 2: This is it has one circumstance. He does not believe
Speaker 2: you should be benefiting humanity and also making a profit.
Speaker 1: It feels like a while since we've talked about Elon.
Speaker 2: I wonder like if the resolution to all of this
Speaker 2: is open a eye is now a for profit company.
Speaker 2: Microsoft will own x percent of it, Sam Alton and
Speaker 2: it humanity will ow you know, some single percentage.
Speaker 1: Of Well give you a benefit.
Speaker 2: We just give you on you know, an equity stake
Speaker 2: for his his contributions. Why not get on side then
Speaker 2: you get you on a line. Yeah, that's good. Although
Speaker 2: he's got his own AI company, so I guess he
Speaker 2: cant do that.
Speaker 1: True? Was that XII chat thoughts? Shall we? Shall we
Speaker 1: talk about Bridget.
Speaker 2: Another AI transition.
Speaker 1: Bridget Bridget bridge Wise.
Speaker 2: So Bridgewise is this Israeli tech company, fintech company that
Speaker 2: is launching a chatbot that will be your broker.
Speaker 3: Yeah.
Speaker 2: So it's this fascinating story because you read about it
Speaker 2: and you're like, Okay, what does this chatbot do, like
Speaker 2: gives your stock recommendations? Yeah? So, I mean I think
Speaker 2: it's like you type of O. Can you tell me
Speaker 2: like the top five stocks in like the industrial sector
Speaker 2: that I should buy today? And it's like, yeah, well,
Speaker 2: looking at the researcher, but like you can imagine just
Speaker 2: being like, what stocks should I buy? And then Bridgett
Speaker 2: says you should buy these five stocks, and you go
Speaker 2: buy those five stocks, and then the next day you
Speaker 2: come back and you're like, bridget they went down. What's
Speaker 2: going on?
Speaker 1: Yeah, Like, what information do you? What is the prompt?
Speaker 1: Prompts matter so much with these chatbots. Like if I
Speaker 1: said my name is Katie, I'm thirty one, I love horses,
Speaker 1: what would you tell me to buy? Versus if I
Speaker 1: said I'm Katie, you're up in New Jersey. That's it.
Speaker 2: But those are bad prompts. The prompt that you want
Speaker 2: is what stocks will go up the most?
Speaker 1: Well, yeah, because you know you don't care.
Speaker 2: But you're on the right track, because like this thing
Speaker 2: is clearly a substitute for a broker, right. This is
Speaker 2: like you call your broker, and your broker gets to
Speaker 2: know you and learns about your risk tolerances and your
Speaker 2: preferences and the themes that you're interested in. And then
Speaker 2: your broker is like, well, given your risk tolerance and
Speaker 2: you're interested in the theme of horses, you should buy
Speaker 2: the horse, etf or whatever. Right, But that's true because
Speaker 2: brokerage is a client service business. Where the product is
Speaker 2: making the client happy with the service. But you can
Speaker 2: imagine a different model where the product is like buying
Speaker 2: stocks that go up. Yeah, right, I think that we
Speaker 2: all understand that when you call your broker and you
Speaker 2: say what stock should I either be like, what are
Speaker 2: your risk tolerances? You should be in this CTF because
Speaker 2: there's a good balance of what like they'll say something
Speaker 2: other than like I know which stocks will go up
Speaker 2: and these are them and you should buy them, because
Speaker 2: like if they knewhich stocks would go up, yeah, they
Speaker 2: would be doing something else.
Speaker 1: Why can't I just ask chat ChiPT what stocks to buy?
Speaker 2: You can apparently sometimes tell you I can't give you
Speaker 2: stock recommendations.
Speaker 1: Oh, you can get around it.
Speaker 2: So chat GPT is like a general purpose chatbot, and
Speaker 2: it can like read the internet and sort of say
Speaker 2: what people will say, Like you can make like the
Speaker 2: best guess that like what people would tell you if
Speaker 2: you ask what stocks will go up? Bridget is trained
Speaker 2: a little bit more on like financial information, and so
Speaker 2: it might have a better idea what stocks will go up. Yeah,
Speaker 2: maybe like a less good general purpose chatbot, but a
Speaker 2: good picker of stocks. But I think the point is
Speaker 2: like it's so interesting reading, Like you know, there's there's
Speaker 2: a Bloomberg News story about it, and like you read
Speaker 2: the story and it's like it's been tested a lot
Speaker 2: to make sure it gives accurate recommendations.
Speaker 1: Well, so it's been tested.
Speaker 2: I don't think it means it's been back testing. I
Speaker 2: think it means it's like if it says to you, oh,
Speaker 2: JP Morgan Research that this stock is like x price target.
Speaker 2: Those quotes are accurate, right, it's quoting information to you,
Speaker 2: but it's not. I don't think back tested depict stacks
Speaker 2: that will go up because if it were back tested
Speaker 2: depict stacks like you go up and it was successful,
Speaker 2: it would not be a chatbot.
Speaker 1: For a brokerage form, that's true, it.
Speaker 2: Would be Bridge.
Speaker 1: It would be Renaissance, yeah, or you know, it could
Speaker 1: just be the Bridget hedge fund. Yeah, and they can
Speaker 1: make a lot more money. They should back test it, though,
Speaker 1: I want to back test Bridget. I must chat GBT
Speaker 1: to back test.
Speaker 2: It's like in beta, but like we'll certainly be testing Bridget.
Speaker 1: Yeah, this did remind me of a thing that you
Speaker 1: wrote about already, But I was on vacation last week,
Speaker 1: so we didn't talk about it on the pod, but
Speaker 1: there is that chatbot ETF that just launched that's supposed
Speaker 1: to mimic buffets Stanley Drackenmiller, David Tepper. And that's interesting.
Speaker 1: I mean it's so it's basically.
Speaker 2: Yeah, by the way, I haven't seen their back tests.
Speaker 1: I would love to see their back tests as well.
Speaker 1: But basically they have this investment committee that is built
Speaker 1: on training the chatbot around investment ideas. It basically wants
Speaker 1: them to mimic these guys, and he wants them to
Speaker 1: learn their personalities and then emulate it. And that's crazy.
Speaker 1: But it's kind of similar to what we're talking about
Speaker 1: with Bridget. I mean, she's just like general financial information,
Speaker 1: whereas this is like, this is what David Tepper would doing.
Speaker 2: We should you know, like when you like want to
Speaker 2: like change your airline flight, you like go to a chatbot,
Speaker 2: and like the chatbot is like trying to replace the
Speaker 2: human customer service but like someone must do it, and
Speaker 2: like that's supposed to be been making the human customer
Speaker 2: service agent, right, and like this I think is sort
Speaker 2: of the same thing, right, It's like making the human
Speaker 2: broker who like has the relationship with you and can
Speaker 2: like give you stock tips, but like not with like
Speaker 2: one hundred percent reliability that it will pick stocks that
Speaker 2: go up, just like you know, serving the purpose of
Speaker 2: a broker. The chat bot the like LLM ETF is
Speaker 2: a little different, Like they're trying to pick stacks that
Speaker 2: go up, Like you're not chatting with the chatbot, right
Speaker 2: Like the person who runs that ETF is chatting with
Speaker 2: the chatbot and asking what stocks will go up and
Speaker 2: hoping that the chatbot gives them the right answer.
Speaker 1: That's so funny.
Speaker 3: I don't know.
Speaker 2: I'm just the product with bridget is the relationship with
Speaker 2: the customer, right, Like you want the customer to feel better,
Speaker 2: to feel like they're getting the information they call for,
Speaker 2: and that includes like stock recommendations. The product for the
Speaker 2: ETF is just the returns stain of the ATF, right
Speaker 2: Like the chatbot is all behind the scenes, and that
Speaker 2: is putting a lot more emphasis on the ability of
Speaker 2: the chatbot to actually pick stocks.
Speaker 1: Also, the goal of the ETF isn't necessarily pickstocks that
Speaker 1: will go up, because there's no guarantee that, Like you're right,
Speaker 1: Warren Buffett or Stanley Drugon Miller will actually correctly identify
Speaker 1: those stocks.
Speaker 2: Okay, but two things. One, I think the ETF would
Speaker 2: much rather the chatbot pick stocks that go up that
Speaker 2: Warren Buffett would not have picked, than that it accurately
Speaker 2: reflects Warren Buffett and pick stocks that go down. Right,
Speaker 2: Like they don't actually care about Warren.
Speaker 1: Buff You don't care about their tracking error.
Speaker 2: The tracking air is entirely theoretical, right, because you can't
Speaker 2: like find the port. I mean you can literally like
Speaker 2: a Workshire Hathway. But this is like the stacks that
Speaker 2: Warren Buffett would pick if you ask them, there's no
Speaker 2: like visible tracking error.
Speaker 3: Yeah.
Speaker 2: But then the other thing is you're right that also
Speaker 2: their goal is not really to pick stacks like you up.
Speaker 2: Their goal is really to attract investors, right, And like
Speaker 2: it's a good stick, right, it's a good pitch, Like well,
Speaker 2: training to chat bought to be Warren Buffett and then
Speaker 2: ask it what slacks? Like, that's clever. I like that.
Speaker 2: I'd kick in money to that where they're not the stacks.
Speaker 1: I can't wait to I mean it already launched. We're
Speaker 1: talking about the Intelligent Livermore ETF, but it's only been
Speaker 1: a couple of days. The ticker I believe is l
Speaker 1: I v R. I'm so excited to see the uptake
Speaker 1: of this. I want to call David Tepper and ask
Speaker 1: how he feels about it, you know. Like again reading
Speaker 1: the description of this, the firm is going to instruct
Speaker 1: the lms to emulate the investors' personalities. That makes my Skinvid.
Speaker 2: Tepper is not in the like prospectus, like the b
Speaker 2: Regardic is like, yeah, David Tepper is on the list,
Speaker 2: but like, I don't think you can really advertise formally
Speaker 2: in writing. We're gonna like train an AI to be
Speaker 2: David Tepper, Like David Tepper is out there like running
Speaker 2: his own fund.
Speaker 1: Well that's another, I mean good point against investing CTF.
Speaker 1: You could just invest with David Tepper if you, you know,
Speaker 1: meet the criteria.
Speaker 2: Yeah, you can just buy Berser Hathaways.
Speaker 1: Yeah exactly.
Speaker 2: It's like this is a clever stack. Yeah, they're not
Speaker 2: really meant to be David Tepper. By the way, the
Speaker 2: ticker is l I V or whatever. Like they've filed
Speaker 2: for several of them, and one of them is the
Speaker 2: ticker is a I w B. And again they can't
Speaker 2: put Warren Buffett's name. I know, in the perspectives they
Speaker 2: can say a I w B.
Speaker 3: I love it.
Speaker 1: It's got to the good stuff about Bible washing.
Speaker 2: So I feel for the US Curious and Exchange Commission.
Speaker 1: You know, you're a sympathizer, I know.
Speaker 2: And they have a hard job. And like one reason
Speaker 2: they have a hard job is like they're there to
Speaker 2: protect investors from like bad ideas, but kind of right,
Speaker 2: like you know, so they want to do their goal.
Speaker 2: That's not actually their mandate, right, their mandate is essentially
Speaker 2: to enforce good disclosure. So like if you disclose a
Speaker 2: really bad idea, then you can do that even if
Speaker 2: it's a bad idea, even if the SEC doesn't.
Speaker 1: Like it, as long as you're super upfront.
Speaker 2: Yeah, and like there are limits on that. Many of
Speaker 2: them discovered in crypto where you were like a lot
Speaker 2: of people in crit are like this is a Ponzi scheme.
Speaker 2: It's just like come on now. But so, like one
Speaker 2: thing that happens is that the SEC is very interested
Speaker 2: in climate change. Right in environmental investing, there's a lot
Speaker 2: of focus on ESG investing, environmental, social and governance investing,
Speaker 2: and there are a lot of people who think that
Speaker 2: the firms that do that kind of investing are somehow
Speaker 2: not doing it well. There's concerns about greenwashing where you
Speaker 2: say you are an environmental investing firm, but then you
Speaker 2: own some coal stocks, and like people get mad about that,
Speaker 2: and the SEC gets mad about it too. The SEC
Speaker 2: can't say things like if you say you're an ESG firm,
Speaker 2: you can't own coal stocks because like who's to say
Speaker 2: what is ESG not the SEC?
Speaker 1: Also, maybe that coal company has really great governance.
Speaker 2: No, but it's true, like these are fuzzy criteria, right,
Speaker 2: so you could truly be like the best ESG investor
Speaker 2: in the world and on a col stock. That's what
Speaker 2: is an example everywhere, Like you know, oil companies, good governance,
Speaker 2: oil companies that are improving their emissions so they're better
Speaker 2: than you know, Like, there's all sorts of ways to
Speaker 2: be an ESG investor, and a lot of people have
Speaker 2: like genuine disagreements about what to prioritize and how to
Speaker 2: choose between like owning the best oil company to encourage
Speaker 2: oil companies to be better environmental citizens, or owning no
Speaker 2: oil companies because they're all too you know, there's all
Speaker 2: sorts of ways to do it, and the SEC doesn't
Speaker 2: really substantively get to pick between them. But what it
Speaker 2: does get to do is read your disclosures and make
Speaker 2: sure they're accurate. And so it has broad cases against
Speaker 2: like I think Bonie Mellon had a ESG fund where
Speaker 2: they're like, you know, we have these ESG screening criteria
Speaker 2: and we apply these criteria to each company before we
Speaker 2: make an investment. And they went through their you know,
Speaker 2: internal records and found that sometimes they made an investment
Speaker 2: without getting a memo about the criteria, and they said, ahaha,
Speaker 2: you're not actually doing your ESG investing, And so they
Speaker 2: find them and they got in trouble, and like that's
Speaker 2: the level of enforcement that the SEC can do, and
Speaker 2: it's I think frustrating for them because they probably have
Speaker 2: sub substantive ideas about who's doing a good job or not. Anyway,
Speaker 2: this week, a company called Inspire Investing paid a fine
Speaker 2: to the SEC because they advertised that they were applying
Speaker 2: biblical principles to their investing and they were like doing
Speaker 2: a rigorous screening to root out companies that had practices
Speaker 2: they didn't like, and the SEC discovered that they weren't
Speaker 2: doing as goes the screening as they wanted, and so they.
Speaker 1: Find them some money three hundred thousand dollars to be exact.
Speaker 1: I love this story. You called it Bible washing, and
Speaker 1: I think that's the.
Speaker 2: Grands Green question. But for biblical investing.
Speaker 1: Yeah, I like this story and I like all the
Speaker 1: I don't know the ESG parallels.
Speaker 2: It's completely the same thing, right, I mean, it's this
Speaker 2: sort of broad category of like people who are investing
Speaker 2: for things other than financial returns. Right. They're telling investors,
Speaker 2: we're doing your investing in some social way that you like.
Speaker 2: A big chunk of that is ESG investing where people
Speaker 2: care about climate change or whatever. But another chunk of
Speaker 2: it is you know, conservative biblical principles investing where people
Speaker 2: care about other things. And the SEC says, no matter
Speaker 2: what you're doing, you have to disclose it accurately and
Speaker 2: follow the procedures you say you're following.
Speaker 1: Yeah, let's just read from this excerpt from Money Stuff.
Speaker 1: So Inspire had the Inspire Impact score, which quote reflects
Speaker 1: a rules based, scientifically rigorous methodology of faith based ESG analysis,
Speaker 1: which is interesting. There's some tension between science and religion,
Speaker 1: but in any case, this creates a level of consistency
Speaker 1: and reliability of results necessary for making well informed, quantitatively sound,
Speaker 1: biblically responsible investment decisions. And then the SEC checked the
Speaker 1: donor lists. Caught a bit of a contradiction as you
Speaker 1: lay out that certain companies that were excluded from Inspires
Speaker 1: Investment Universe for donating to certain advocacy organizations are sponsoring
Speaker 1: certain events that Inspired consider to be prohibited activities. At
Speaker 1: the same time, multiple companies held within the inspired ETF
Speaker 1: portfolios donated to organizations or sponsored events that were the
Speaker 1: same or similar. So a three hundred thousand dollars fine.
Speaker 1: These ETFs are still out there. We could buy and
Speaker 1: sell them today.
Speaker 2: And in fact, Inspire put out a press release about
Speaker 2: this saying we are grateful to receive guidance from the
Speaker 2: SEC on what it considers important regarding modern faith based
Speaker 2: investment screening, and the SEC order takes no issue with
Speaker 2: the conservative biblical values Inspire applies to screening categories like
Speaker 2: they're going to keep doing this. They're just gonna, yeah,
Speaker 2: they are, you know, Like what they advertise is like
Speaker 2: all of our investments have no involvement in you know,
Speaker 2: gearats organizations or abortion rights, and the SEC found that
Speaker 2: some of them did, and so they're gonna like clean
Speaker 2: up their act and be more accurate about screening out
Speaker 2: companies that don't meet their criteria. But the SEC, as
Speaker 2: they say, took no issue with their criteria. Right, if
Speaker 2: you say you're going to exclude companies that contribute to
Speaker 2: garage charities, then you just have to do that, and
Speaker 2: then the SEC will bless it.
Speaker 1: I almost said, hell, yeah, they're going to keep doing it.
Speaker 3: Do you get it?
Speaker 1: So one of these ETFs, bibl is the ticker, it's
Speaker 1: this Inspire one hundred ETF. The CTF still exists. I
Speaker 1: took a look at the performance it's doing. Okay, it's
Speaker 1: up sixteen percent year to date on a total return basis.
Speaker 1: By for comparison purposes is up twenty one percent. Its
Speaker 1: top holdings are Caterpillar, Intuitive, Surgical, Progressive, et cetera. Its
Speaker 1: top industry groups are reads, software, and healthcare. All you know,
Speaker 1: holy stuff.
Speaker 2: My point here is that neither the SEC nor I
Speaker 2: can make any comment on whether this is holy stuff
Speaker 2: or not.
Speaker 1: So I do think the idea of principle based investing
Speaker 1: is really interesting, and that's what this is that's what
Speaker 1: ESG is, But why people do it is really interesting
Speaker 1: to me. Like if you're investing along your values because
Speaker 1: you don't want to invest in stuff that goes against
Speaker 1: your value sure, or are you investing because you think
Speaker 1: that your values will produce better returns. That's a really
Speaker 1: interesting school of thought. Like if you believe that a
Speaker 1: company is environmentally conscious and sound and will whether climate
Speaker 1: change better than other companies, that could be a reason
Speaker 1: that you invest Do you invest in this fund because
Speaker 1: you believe that these biblically responsible companies are going to
Speaker 1: do better than the one that aren't.
Speaker 2: I haven't read enough of marketing literature to know, but
Speaker 2: I think I think in ESG, I think asset managers
Speaker 2: benefit a lot by kind of blurring that and sort
Speaker 2: of hinting that you're getting both right, like you're getting
Speaker 2: to live your values and you're also getting a higher return.
Speaker 2: And I think like there's not really a contradiction between them,
Speaker 2: because like you could easily believe that, like you have
Speaker 2: these values, your values are right. Over time, other people
Speaker 2: will come around to your values. And when other people
Speaker 2: come around to your values, that will increase the stock
Speaker 2: prices of companies that share those values, right, Like, that's
Speaker 2: a fairly consistent thing to believe, and you could believe
Speaker 2: that about, you know, environmental or biblical things. I don't
Speaker 2: think you have to analyze it rigorously to say, like,
Speaker 2: the companies that I believe in are also the companies
Speaker 2: I'll go up because you could believe that, you know,
Speaker 2: without either ESG or biblical principles. Yeah, you could be
Speaker 2: like I really like Taco Bells. I think Taco bell
Speaker 2: stock will go up.
Speaker 1: So we're talking about BBL. They have amazing other tickers
Speaker 1: as well, wwj D, what would John do? They also
Speaker 1: have the ticker g l r.
Speaker 2: Y walking away from.
Speaker 1: The hie so so but yeah, no, the ticker game
Speaker 1: is strong.
Speaker 2: And that was the Money Stuff Podcast.
Speaker 1: I'm Matt Levi and I'm Katie Greifeld.
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