Speaker 1: Welcome the trillions. I'm Joel Webber and I'm Eric Beltrnis.
Speaker 1: Happy New Year, Eric, Yeah, you too, Happy New Year.
Speaker 1: I'm ready for me too. You know, at the beginning
Speaker 1: of the year already there's a lot of talk about
Speaker 1: bubble bubbles potentially we've had despite the pandemic and a
Speaker 1: really awful um, equities were way up, a lot of
Speaker 1: investors made a lot of money. And yet here we
Speaker 1: are already and there's just this palpable tension over can it?
Speaker 1: Can it last? Yeah? I mean people have been asking
Speaker 1: can it last? You know ago, so it's been a
Speaker 1: tough trade to bail early and so but it's a
Speaker 1: it's a question that won't go away and keeps getting greater.
Speaker 1: And you know, the poster child for this era and
Speaker 1: this sort of tech and growth moment that we're in
Speaker 1: is is definitely ARC. You know, we had Cathy wood
Speaker 1: on maybe a year ago. We interviewed her and ARC
Speaker 1: is now taking in money hand over fifth and the
Speaker 1: performance just won't quit. And so when you see something
Speaker 1: go up that much, people start to wonder how long
Speaker 1: it could last. And when we when I tweet about ARC,
Speaker 1: one thing that people will say is this is reminds
Speaker 1: me the Janis twenty um. And the other thing that
Speaker 1: people will say about what's going on is that reminds
Speaker 1: them more of the Internet era of the late nineties
Speaker 1: then it does say two thousand eight, you know that
Speaker 1: that this is more of a techy growthy kind of
Speaker 1: upswing rather than two thousand eights corrections. So we I thought, well,
Speaker 1: let's let's see if we can get the manager of
Speaker 1: the Janice twenty, who was managing money at the fund
Speaker 1: in the late nineties, to basically, you know, talk about
Speaker 1: whether that comparison is fair and see what he thinks
Speaker 1: of it all. And let me just give you some
Speaker 1: numbers on Janie twenty. This is a fund. If you
Speaker 1: don't know, it was really the big fund of its era.
Speaker 1: It went up five between nine that's about what that
Speaker 1: five six years. That's exactly what Kathy is up right now.
Speaker 1: After six years it got to thirty five billion. That's
Speaker 1: exactly what Cathy Woods Fund has. Although jan Is stopped
Speaker 1: taking in cash, Kathy might have to might get bigger.
Speaker 1: But then it fell in two thousand, two thousand one
Speaker 1: with the bull burst, but then it went up another
Speaker 1: pent up until two thousand seven. So with without further ado,
Speaker 1: we have the manager of that fund, Scott Chozel, who
Speaker 1: was the manager from seven to two thousand seven, and
Speaker 1: during that time he was Mutual Fund Magazines Manager of
Speaker 1: the Year and honorable mention for a Morning Star for
Speaker 1: the same award in two thousand seven. And there's a
Speaker 1: great headline. This just tells you how how big of
Speaker 1: a deal this guy was. There was a great headline
Speaker 1: from the Denver Post when he left Jan's twenty and
Speaker 1: two thousand seven, like Elway, Shozel leaves on top. And
Speaker 1: so you know, that's a long it's a long time ago.
Speaker 1: It seems like a whole another lifetime, but it wasn't
Speaker 1: that long ago. And you know, history does have a
Speaker 1: good habit of rhyming. So um, I'm really excited to
Speaker 1: talk to him about how he sees what's going on
Speaker 1: today and some of his experiences back then. Me too,
Speaker 1: And he's going to join us from Denver, Colorado this
Speaker 1: time on Trillions is our the new Janet twenty Scott,
Speaker 1: Welcome to Trillions. Thank you very much. I appreciate the
Speaker 1: the trip down memory lane. I like the part where
Speaker 1: Eric said, uh, you know that that you left, um,
Speaker 1: and you left on the high part right, So what
Speaker 1: are you doing now? Well, Um, I'm basically managing money
Speaker 1: for our family, running a family office and uh focused
Speaker 1: on our foundation. And I spent a lot of time
Speaker 1: with my kids as they navigated high school and into
Speaker 1: college and now out of graduate school. Um. But I'm
Speaker 1: very active in the markets every day. Uh. I still
Speaker 1: have a cadre of former Janice analysts and portfolio managers
Speaker 1: I stay very close with. I just was on the
Speaker 1: phone for half an hour this morning with a friend
Speaker 1: of mine who used to work with Paul Tutor Jones. UM,
Speaker 1: so I stood pretty connected to the markets. I've I've
Speaker 1: never considered it a job, It's it's a lifelong hobby.
Speaker 1: And understand that you also have a farm in downtown Denver. Well,
Speaker 1: I have. I live on a lot of people call
Speaker 1: it the farm. It's uh just outside of Denver. It's
Speaker 1: about ten minutes away from ten twelve minutes away from
Speaker 1: downtown Denver. It's it's kind of a rural area and
Speaker 1: we actually have a working barn and hate fields that
Speaker 1: we cut hay in and uh real live horses. Uh
Speaker 1: So it's uh. I've been known to muck stalls from
Speaker 1: time to time when I'm in the doghouse with my wife. Um,
Speaker 1: it's a little oasis in the city. Um, I am
Speaker 1: kind of jealous. I am in Philly and I keep
Speaker 1: dreaming about a country life. Maybe I'm you're you're my model.
Speaker 1: I'm gonna get to where you are someday. But uh, anyway,
Speaker 1: until then, UM, let's talk a little bit about Arcum.
Speaker 1: You've you keep up at the market, you you follow this,
Speaker 1: how do you see this this fund in particular, Cathy
Speaker 1: would arc Let's just start with your views on that.
Speaker 1: You know, do you see her as really echoing what
Speaker 1: you did at Janice twenty at the time. Well, I
Speaker 1: am supremely impressed with the way she has structured her firm, um,
Speaker 1: her willingness to invest with a point of view, the
Speaker 1: way that she's been able to successfully leverage social media
Speaker 1: to augment the research process. Um. Uh. She first had
Speaker 1: my radar screen probably eighteen that twenty four months ago,
Speaker 1: and I've been watching uh and I gotta say, I'm
Speaker 1: I'm very impressed. I think her analysts are doing a
Speaker 1: good job. Um. I think she's got a great view
Speaker 1: of the future. Uh. And if I were gonna if
Speaker 1: I were gonna go back into the business and start
Speaker 1: a firm. She has created a fantastic template. There's many
Speaker 1: similarities between the Janis twenty fund and ARC. For sure,
Speaker 1: we were very research centric. We had a group of
Speaker 1: extraordinary analysts, many of which I'm still in contact with today,
Speaker 1: that we're really focused on trying to invest in the future,
Speaker 1: and like everything, over time things get better. And I
Speaker 1: think she's done a very very good job of extending
Speaker 1: a lot of the things we were doing at Janis
Speaker 1: back in the late nineties and two thousand. So there's
Speaker 1: the idea of being concentrated. And you know, we Um
Speaker 1: on the show talk about these high active share funds
Speaker 1: being like hot sauce you put on top of a
Speaker 1: maybe a lower cost, cheap bay to portfolio, and she's
Speaker 1: certainly done that, Um, And that's what the Janis twenty
Speaker 1: did and your ramps up. I mean, when you look
Speaker 1: at a chart of the Janis twenty versus the SMP,
Speaker 1: or Cathy versus the SMP, it looks like the Swiss
Speaker 1: Alps sort of towering above like flat farmland, and the
Speaker 1: thing is not unlike what's around Denver. Actually, yeah, it
Speaker 1: look looks like Denver versus Philly. There you go. Um so,
Speaker 1: but in the Janice case, what you also live for
Speaker 1: was a correction, and I think that's what keeps coming
Speaker 1: up more and more when we when I tweet about Cathy,
Speaker 1: they're like, well this could be tough. You know, you
Speaker 1: go up that high, you come down quick? Can you
Speaker 1: walk us through the sort of that moment? I guess
Speaker 1: when the Internet bubble burst and looks like it was
Speaker 1: nine d nine um and then too late nine yeah,
Speaker 1: lasted about two years. How did that play out? Obviously
Speaker 1: if you have less stocks, it can hurt you more. Um.
Speaker 1: How did investors react? Well, there's a lot of there's
Speaker 1: a lot of unpacking that needs to happen there. Um.
Speaker 1: So the we decided it was not lost on me
Speaker 1: that there was money literally coming in over the transom.
Speaker 1: And while ARC is receiving a lot of money today,
Speaker 1: to just put that in context, in the nine in
Speaker 1: the nine late nineties, late Janice was receiving seventy cents
Speaker 1: of every dollar that was going into the mutual fund business.
Speaker 1: Think about that, seventy cents of every dollar going into
Speaker 1: the entire industry going into Jans that's kind of what
Speaker 1: like Van Guards doing that ish today. But yeah, that's
Speaker 1: that's a great static gives you an idea of how
Speaker 1: big exactly. So, um, it was not lost on me
Speaker 1: that valuations were getting rich. Um, it was not lost
Speaker 1: on us. Lost on me that, uh, there was just
Speaker 1: so much money coming in. And so I remember in
Speaker 1: April of which is kind of at the really at
Speaker 1: the height, I went to Tom Bailey, the founder of Janis,
Speaker 1: and said, you know, I think the best thing to
Speaker 1: do for the investors is to close the fund. And
Speaker 1: he looked at me and he said, as we were
Speaker 1: walking down the hallway, he said, great, let's close. Let's
Speaker 1: close it, and he goes, let's close it on Friday.
Speaker 1: And this was a Tuesday. So that's one of the
Speaker 1: other things I loved about Janis, as we were able
Speaker 1: to make very decisive decisions, were very little bureaucracy. So
Speaker 1: we closed the fund in April. It wasn't until kind
Speaker 1: of September, October, November that things started to kind of
Speaker 1: come on wound. And then actually two thousand and two
Speaker 1: thousand and one, I think and my style of investing
Speaker 1: and my commitment to investing is much like Cathy's today
Speaker 1: is that it never wavered. Even in two thousand and
Speaker 1: two thousand and one, when when things were selling off,
Speaker 1: we were still trying to invest in companies that we
Speaker 1: thought could capture the future um And if you look
Speaker 1: at the returns the investors that had, and I think
Speaker 1: this is where if I were Cathy and the and
Speaker 1: the media broadly, I would try to educate her investors
Speaker 1: to stay with it. I think she's really onto something,
Speaker 1: and but there will be a period of time, maybe
Speaker 1: through her own doing or through some macro events in
Speaker 1: the marketplace, where the markets are going to sell off
Speaker 1: pretty dramatically. And if I were encouraging people to invest
Speaker 1: in in her fund, I would say, make sure that
Speaker 1: you have got the mindset to to when that fund
Speaker 1: is or which it could be, that's when you want
Speaker 1: to step back in and recommit to the fund, because
Speaker 1: if you went I went back and looked re architected.
Speaker 1: You know, the investors that had the best performance in
Speaker 1: the in the Janis twenty fund, it's the guys that
Speaker 1: continue to invest, either through a dollar cost averaging mechanism
Speaker 1: or just an active decision to buy it when they
Speaker 1: were down, believing that hey we had a process that
Speaker 1: you know, we didn't immediately become less intelligent because the
Speaker 1: fund was down. That we stayed with it. We stuck
Speaker 1: to our knitting. And I think that a lot of
Speaker 1: there needs to be a lot of education to her
Speaker 1: shareholder base that, hey, the future from A to B
Speaker 1: is not a straight line, and to be able to
Speaker 1: have the gumption to step in when this thing trades
Speaker 1: off from time to time. So one difference with UM,
Speaker 1: with Kathy and and Arc is that you know, she's
Speaker 1: unable to close because it's an e t F, whereas
Speaker 1: you had a mutual funds. So talk about that difference
Speaker 1: in what advice you'd have on on on that side
Speaker 1: of the question. You know, yeah, that's a very good observation.
Speaker 1: And I don't know what the answer is. We closed
Speaker 1: Janice twenty and UH to existing investors in April. We
Speaker 1: had another side UH fund that was run alongside it,
Speaker 1: the Janice forty fund. But between the two, you know,
Speaker 1: they had about forty billion dollars in assets. And I
Speaker 1: really felt that that at that time, given the depth
Speaker 1: of the markets and liquidity and then in the market
Speaker 1: capitalizations of the company, I really felt that you know
Speaker 1: that was kind of the top end, and I think
Speaker 1: the markets are deeper. Her portfolio, her group of portfolio
Speaker 1: offerings is wider. I think he had six or seven
Speaker 1: funds as opposed to to so UM. I think that
Speaker 1: that is probably the one thing that she is going
Speaker 1: to have to figure out a way to navigate is size.
Speaker 1: And I don't know if it's fifty billion dollars is
Speaker 1: a number, or or a hundred or a hundred and fifty,
Speaker 1: but there will be a point where it becomes where
Speaker 1: size will become kind of her enemy. So I want
Speaker 1: to actually just step back and compare uh, the moment
Speaker 1: that you lived through back then with this moment. How
Speaker 1: I mean, how do you feel about it now? You're
Speaker 1: you're an investor, you're still in the markets with your
Speaker 1: family office. How do you feel about where we are
Speaker 1: now versus then? Well, certainly, you know, history doesn't repeat itself,
Speaker 1: but it rhymes. I think it's very easy to point
Speaker 1: to some of these valuations that we're that are kind
Speaker 1: of head scratching um using traditional yardsticks. But if you
Speaker 1: look at some of the total addressable markets that a
Speaker 1: lot of these high you companies are trying to address, UM,
Speaker 1: you know, there's still a lot of headroom in the opportunity.
Speaker 1: I think we're just scratching the surface in some of
Speaker 1: this DNA sequencing, uh, certainly cloud computing and big data.
Speaker 1: I think we're still early days there. Um So, I
Speaker 1: think that she's on to you know, five four or
Speaker 1: five broad trends, and I think she has thirteen or
Speaker 1: fourteen technologies that sort of embody that. Um So, I
Speaker 1: think we're and this and then with COVID, this whole
Speaker 1: digitalization phenomenon has been pulled forward. So I've talked to
Speaker 1: a bunch of c e O s and they said, yeah,
Speaker 1: we're we're operating today where we thought we would be
Speaker 1: four or five years ago. And so then you've got
Speaker 1: this whole generation of computer literacy. Uh, my kids are
Speaker 1: much more a depth than I am at using some
Speaker 1: of these technologies. So you've got the convergence of lots
Speaker 1: of very bullish long term mac row factors. Um but
Speaker 1: it won't be a straight line all of a sudden.
Speaker 1: You know, we've got a democratically controlled how government and uh,
Speaker 1: you know there's a regulatory or regime that's going to
Speaker 1: be thought about a lot differently than it was yesterday. Um,
Speaker 1: you've got financial markets. You know, got the ten years
Speaker 1: now robustly through one, which I don't think is in
Speaker 1: and of itself a problem. But what happens if it
Speaker 1: goes to one and a half or two? And how
Speaker 1: does that math re engineer itself in terms of valuations.
Speaker 1: So there can be a lot of things that happen
Speaker 1: on a macro level that could compress these valuations. Um.
Speaker 1: Which is why I think that if I were giving
Speaker 1: advice to people broadly in the marketplace, it would be
Speaker 1: if you're and you're investing in in concentrated funds that
Speaker 1: are investing in the future that have had these huge runs,
Speaker 1: just be prepared, don't get shaken out. If the fund
Speaker 1: is down, that's when you want to buy more. And
Speaker 1: if I look back at the Janis twenty fund, the
Speaker 1: people that had the best returns are the people that
Speaker 1: stepped in when the fund was down and I was
Speaker 1: being called, you know, an idiot, the village idiot, which
Speaker 1: I'm I'm good with. I've been called worse. Um, but
Speaker 1: that's when you really want to step up. So you
Speaker 1: want to size the position going in and give yourself
Speaker 1: some margin of safety so that when opportunities present themselves
Speaker 1: to be able to step in and buy more. And
Speaker 1: you know when you talk to Kathy and see her
Speaker 1: online crowdsourcing research, she's got a young group of analysts.
Speaker 1: It really she's having a good time doing this too.
Speaker 1: And I want to maybe compare her stock picking process
Speaker 1: to yours. And obviously this is what none of the
Speaker 1: rest of the E t F industry can discuss because
Speaker 1: they're all rules based indexes that are once you design them,
Speaker 1: it's over. UM talk about this stock picking process and
Speaker 1: maybe how much of the success is picking those stocks,
Speaker 1: being concentrated or just having a hot hand, and how
Speaker 1: that all kind of comes together. Right. One of the
Speaker 1: things I think that to be successful running a concentrated fund,
Speaker 1: you really have to invest with a point of view
Speaker 1: and and have strong convictions. UM. And I never had
Speaker 1: any interest in investing in my fifty seventh favorite idea.
Speaker 1: And I remember one time and so people you saw
Speaker 1: asked me all the time, how do I get a
Speaker 1: name into the Janis twenty fund? And I said, It's
Speaker 1: very simple. I said, during the course of the year,
Speaker 1: you'll be traveling around the country, meeting with management teams
Speaker 1: or seeing a product or there will be something that
Speaker 1: crystallizes in your mind that this is a fantastic investment.
Speaker 1: And I said, I don't care if it is Christmas Eve,
Speaker 1: I don't care if it's my birthday, I don't care
Speaker 1: if it's Easter, Sunday, whatever. Pick up the phone, email
Speaker 1: me whatever, and get my attention. UM. And so I
Speaker 1: remember very specifically, a young analyst was walking with me
Speaker 1: down the hallway and he says, I've I've got it.
Speaker 1: I've seen a company that I think it fits the
Speaker 1: Janis twenty fund criteria that threshold. I said, great. So
Speaker 1: as we walked from the fifth floor to the sixth floor,
Speaker 1: he described the company what it was doing, um, and
Speaker 1: it reminded me of a company actually from about ten
Speaker 1: or fifteen years earlier. And by the time we got
Speaker 1: to the sixth floor, which took us seconds, I said,
Speaker 1: we're gonna own ten percent of this company as fast
Speaker 1: as we can buy the shares. And one of the
Speaker 1: criteria I I said that they that I used to
Speaker 1: some of the younger analysts. I would say, Okay, how
Speaker 1: much of your bonus are we going to put into
Speaker 1: this fund? How convicted are you in this idea? And
Speaker 1: this kid gave me one of the great answers of
Speaker 1: all time, and he said, I think about think about that.
Speaker 1: So we knew we were paying him X. So he
Speaker 1: basically so we and we ended up paying him. He
Speaker 1: gets more money, and he gets the stock in the
Speaker 1: Porto one of the great stocks, and when it's still
Speaker 1: one of the great stocks after fifteen years, and that's
Speaker 1: intuitive surgical. So this was intuitive surgical. If you reverse
Speaker 1: engineer the splits, etcetera, etcetera, the car cost basis and
Speaker 1: this would be low single low, low single digit. So
Speaker 1: that to me was that to me is the is
Speaker 1: the threshold, is is having the conviction. You know, I
Speaker 1: if you look at the if you kind of reverse
Speaker 1: engineer the SMP five hundred over the years, it's about
Speaker 1: seven percent of the names that that provide most of
Speaker 1: the outperformance. So I always felt that if we could
Speaker 1: find those names and with our research capability and the
Speaker 1: judgment of the people at the shop and some luck,
Speaker 1: luck pays a plays a. Um. Luck, the more honest
Speaker 1: you are, the more real, the more you realize that
Speaker 1: luck does play a part, play a key role. But UM,
Speaker 1: I would like to think that we had some pretty
Speaker 1: good judgment and being able to Eric. We talked the
Speaker 1: other day about really spending time trying to understand the
Speaker 1: fabric of the company, not just the exos and nose
Speaker 1: of the balance sheet and income statement, but really understand
Speaker 1: the real fabric. Is this a management team that can
Speaker 1: continue to grow and continue to capture the opportunity that's
Speaker 1: in front of them. And so we really I think
Speaker 1: we did a good job, and I think Kathy is
Speaker 1: doing a job of making those judgments because at the
Speaker 1: end of the day, that's what it comes down to,
Speaker 1: his judgment. Now, you talked about not wanting to buy
Speaker 1: the fife best idea you had or you know, as
Speaker 1: you go down the list, it's nice to have just
Speaker 1: your best ideas. A lot of funds I really can't
Speaker 1: do that, like, and there's a lot of active funds
Speaker 1: who I know, for a factor, sort of watching Cathy
Speaker 1: and all her success and they're probably getting a little
Speaker 1: jealous or wondering how they can fit into the new world,
Speaker 1: especially as five billion leaves around there leaves active mutual
Speaker 1: funds last year to steady drumbeat of outflows, especially on
Speaker 1: the equity side. What are your thoughts on on the
Speaker 1: legacy active and that traditional more closet indexing active and
Speaker 1: how it can sort of evolve into the future as
Speaker 1: passive becomes bigger. And then on the other side, you've
Speaker 1: got this barbell where the high active share gets success.
Speaker 1: But the middle seems like a tough spot to be.
Speaker 1: The middle is always a tough spot to be. Um.
Speaker 1: You know, I don't know, really, UM. I think that
Speaker 1: a lot of the mutual fund companies, if I were
Speaker 1: looking at them critically across the actively, I think they
Speaker 1: have too many funds. I think they have way too
Speaker 1: many funds. You know, I don't know how and this
Speaker 1: is not you know, if you look at key ro
Speaker 1: Price or Fidelity, you know, fifty seventy any funds. I mean,
Speaker 1: that's a lot of actively managed and I don't think
Speaker 1: there's you know, talented managers. I think that there's seventy
Speaker 1: managers in the mutual funds actively traded mutual funds in
Speaker 1: the country. They're not good portfolio managers. There are I mean,
Speaker 1: to my way of thinking, there's a dozen, but there
Speaker 1: are there. You know, let's say it's a hundred. Okay,
Speaker 1: So if I were running some of the some of
Speaker 1: these big actively managed fund complexes, I would start combining
Speaker 1: funds and make it simpler for the consumer to understand.
Speaker 1: And then in terms of concentration, I think it takes
Speaker 1: a special sort of DNA to run a concentrated fund.
Speaker 1: So one of the things that we were very good
Speaker 1: at it Janice is being able to match people with
Speaker 1: their natural investment style with the fund that they were
Speaker 1: responsible to run. So the people that we were had
Speaker 1: running our biotech funds, etcetera, where they were not only
Speaker 1: had extraordinary academic backgrounds, it said they were passionate about biotech.
Speaker 1: You know, Uh, I'm managing money today exactly the way
Speaker 1: I managed money in the Janis twenty fund. When I
Speaker 1: ran the twenty fund, I had of my assets and
Speaker 1: my investible assets in the fund. I ran it exactly
Speaker 1: the way I would run my own money. So to me,
Speaker 1: I would if I were running an actively trade a
Speaker 1: mutual fund shop, I would try to narrow the number
Speaker 1: of offerings, make them simpler to understand, and I would
Speaker 1: try to to really do a good job of matching
Speaker 1: people into those funds that are that have a natural
Speaker 1: inclination to whatever the criteria of that fund is um
Speaker 1: and invest. And then from there they ended up, they'll
Speaker 1: end up investing naturally with a with a very convicted
Speaker 1: point of view because you've got everything kind lined up. Um.
Speaker 1: I think that it's become more of a little bit
Speaker 1: of a marketing game when you when you have eighty
Speaker 1: three different funds or a hundred and six different funds,
Speaker 1: that to me doesn't make as much sense so as
Speaker 1: a as a former actively managing mutual fund guy. Like,
Speaker 1: when you look at the E t F do you
Speaker 1: think it's a better vehicle? Well, I think that depends.
Speaker 1: I mean yes and no. So I do think that
Speaker 1: the E t F s are obviously much more tax efficient. Um,
Speaker 1: you know some number you guys know this better than
Speaker 1: I do. Of the active managers can't beat the index um,
Speaker 1: and the indexes are not static. I mean the SMP
Speaker 1: five hundred. Everybody thinks, okay, it's the SMP five hundred,
Speaker 1: but it's a lot different than the SMP five hundred
Speaker 1: two years ago, four years ago, ten years ago. So
Speaker 1: it's very subtly act we managed. So I think between
Speaker 1: which is why it's tough to beat. But I think
Speaker 1: I do think the way to to beat the S
Speaker 1: and P five or your benchmark is to invest with
Speaker 1: the point of view, be able to size positions material
Speaker 1: above quote the benchmark, and um, if you're right, you
Speaker 1: know you can you can outperform the markets over a
Speaker 1: long arc of time. But I think that that's a
Speaker 1: very It's like I was saying that Eric the other day,
Speaker 1: it's kind of like professional golf. There's a lot of
Speaker 1: golfers out there, okay, but there's ten twelve that are
Speaker 1: really the elite players. And I think the mutual fund business,
Speaker 1: the actively twe the mutual fund business, is very, very similar.
Speaker 1: So if you can buy par, the number of people
Speaker 1: who can dreat part in this country is what five three?
Speaker 1: So if you can buy par, okay, that's a good foundation.
Speaker 1: And then if I can go find the Dustin Johnson
Speaker 1: or the Rory McElroy or the Tiger Woods of the
Speaker 1: of the actively traded mutual fund business, that's probably not
Speaker 1: a bad way to complement par Scott when it comes
Speaker 1: to picking active and analyzing active. How important is it
Speaker 1: that the manager invests in their own funds? Did you
Speaker 1: do that at Jane's twenty? I think it is absolutely
Speaker 1: critical that you invest in your own fund. The level
Speaker 1: of acuity that you have when you have ownership is
Speaker 1: a whole lot different. You know. One of the things, Um,
Speaker 1: Peter Lynch, she used to have a very large you know,
Speaker 1: his portfolios used to be very large stocks, etcetera, etcetera.
Speaker 1: But if you really drilled down, most of his performance
Speaker 1: was our performance was in those top names. But he
Speaker 1: has said that the reason he owns such a broad
Speaker 1: love all of stocks is because once you own five
Speaker 1: thousand shares or ten thousand shares of a particular stock,
Speaker 1: your level of acuity goes up. Then if you're just
Speaker 1: kind of looking and following the price on paper and
Speaker 1: this and so, you amplify that. If you're running a
Speaker 1: fund and you have eight of your net worth in
Speaker 1: that fund, trust me, it is um it has your
Speaker 1: undivided attention. Seven three. Now I get that there are
Speaker 1: some highly specialized actively traded funds that are very narrow
Speaker 1: and focus and it may not make sense prudently to
Speaker 1: have that level of ownership in the fund. But to me,
Speaker 1: the baseline is if you don't have, if your portfolio manager,
Speaker 1: whoever it is, doesn't have their assets and fund they're running,
Speaker 1: move on. So I gotta ask about another sort of
Speaker 1: elephant in the room, or at least last year, and
Speaker 1: I expected to be true this year, which is the FED.
Speaker 1: The FED is was just you know, Jerome Powell was
Speaker 1: basically we've called them Superman on the show before um
Speaker 1: and what they were able to do last year was basically,
Speaker 1: you know, keep the markets on the table um and
Speaker 1: then actually probably helped put a fair amount of confidence
Speaker 1: into the system. So I'm just wondering, Scott, is you
Speaker 1: kind of look back at what you witnessed in the
Speaker 1: green Span era and then what we're seeing from Powell
Speaker 1: right now? What are your thoughts? How are we supposed
Speaker 1: to kind of evaluate the FED and and and what
Speaker 1: do you think? What do you expect as an investor? Well,
Speaker 1: I think a great question. I think that Jerome Pale
Speaker 1: has done a brilliant job. He's been unwavering, he's been decisive,
Speaker 1: and he's been consistent. The green Span era, you know,
Speaker 1: everybody used to you know, there's so much Greenspan speak
Speaker 1: at the time, you couldn't you know what is he
Speaker 1: really saying? And is he carrying a big brief gaze
Speaker 1: or a small briefcase. I mean there used to be
Speaker 1: twenty minutes dedicated to see on CNBC and Bloomberg as
Speaker 1: to you know, what, what does briefcase look like this?
Speaker 1: You know, what's what's he gonna say and what does
Speaker 1: that really mean? Jerome Pal's taken that off the table
Speaker 1: and he's been very um decisive at a critical time,
Speaker 1: you know, back in March, in particular March in April. UM.
Speaker 1: So I think what the Fed is done. And the
Speaker 1: reason I'm still bullish on financial assets broadly is that,
Speaker 1: if I think Buffett is correct, there are three asset
Speaker 1: classes that most normal people can invest in. Stocks, bonds,
Speaker 1: real estate. Okay, let's think about that. The bond market
Speaker 1: until today, UM has been giving you nothing. The ten
Speaker 1: year has been at point six six okay, point seven two.
Speaker 1: It's now climbed a little bit over one percent. Okay,
Speaker 1: So you can pack away money for ten years risk
Speaker 1: free at one you know. Yahoo. Okay, Let's look at
Speaker 1: the real estate market. The real estate market is really
Speaker 1: four different markets. There's commercial the space probably not in
Speaker 1: a hurry to invest a lot of money in commercial
Speaker 1: office space. There's retail. Okay, the retail will be around
Speaker 1: a hundred years from now. But I think we're over retailed.
Speaker 1: We were over retailed before Jeff Bezos was born. Um.
Speaker 1: Then you've got industrial space okay, last mile Okay, that
Speaker 1: that looks pretty interesting to me. And you've got um,
Speaker 1: residential of all shapes and sizes. So of the four
Speaker 1: sectors in the real estate business, two are really not
Speaker 1: that interesting to me, and two are doing We're very robustly.
Speaker 1: So you've got bonds not too exciting half of the
Speaker 1: real estate market. Then you've got the equity market okay,
Speaker 1: and you've got the FED pushing a ton of money
Speaker 1: into the system, so to me, um, I think you
Speaker 1: know the FED. And I've been saying this for a while.
Speaker 1: The FED has been forcing people into the stock market. Um,
Speaker 1: And I don't say and I don't spect that to
Speaker 1: um to change anytime soon now. And I've been telling people,
Speaker 1: watch the tenure. The tenure is where it all happens.
Speaker 1: And if all of a sudden, the ten years starts
Speaker 1: to trade one and depending on how it gets there,
Speaker 1: if it's kind of a slow walk up, or if
Speaker 1: it's all of a sudden, oh my god, you know,
Speaker 1: stop the printing presses. You know, we've kind of hit saturation. Uh,
Speaker 1: people aren't going to take you know, one and one
Speaker 1: and a half percent or two or three percent from
Speaker 1: from corporate bonds. They want more and more and more.
Speaker 1: Then that's a paradigm shift. But for the last number
Speaker 1: of years, and I still think today it's you know,
Speaker 1: there's a pretty good tail wind to go into financial assets.
Speaker 1: I just want to fall up real quick, though. But
Speaker 1: I think some people wonder if if if that does
Speaker 1: happen and you see equities you really get a hit,
Speaker 1: that the and the and the FED would fix it again,
Speaker 1: and that maybe equities will will just never see the
Speaker 1: kind of correction you saw or when the market went
Speaker 1: down that during those two years, was there any thought
Speaker 1: the FED would just come in and just you know,
Speaker 1: bail you out as an equity investor that I feel
Speaker 1: like investors assumed that now, like you know, the FED
Speaker 1: put it's like in a something like yeah, So I think,
Speaker 1: isn't is that a pretty big difference? Does that actually
Speaker 1: create a little difference? And and and and it worries
Speaker 1: me at the highest levels. That worries me that the
Speaker 1: that the markets are more and more dependent on fiscal
Speaker 1: and monetary stimulus. I mean, how much time did we all,
Speaker 1: you know, kind of hang on the edge of our
Speaker 1: seats the last six weeks or see me the last
Speaker 1: six months waiting for that second stimulus package from Congress. Um.
Speaker 1: That that does worry me, that that that in order
Speaker 1: to sustain these markets. You it's an addiction. You think
Speaker 1: you're addicted to either fiscal or monetary still ways now
Speaker 1: with the Dems running three branches of government, you know,
Speaker 1: I think that the fiscal stimulus will certainly be there.
Speaker 1: Now does that start to crowd out the monetary you know,
Speaker 1: the stimulus you've friended so much money and the dollar
Speaker 1: gets whacked um. So, but I agree with your your um.
Speaker 1: You know you were nervousness about the increased need for
Speaker 1: fiscal and monetary stimulus to stay these markets. That is
Speaker 1: a worry. Is there anything that we didn't ask you
Speaker 1: that that you wanna you want to make sure that
Speaker 1: we we discuss No, not really. I mean you guys
Speaker 1: are obviously very very very well versed in this, and
Speaker 1: you know the E T F phenomenon. I was talking
Speaker 1: to Charles Chuck Schwab not long ago, and I asked
Speaker 1: him what he thought, you know, where are we in this?
Speaker 1: And you know he's even though it would be talking
Speaker 1: his own book to say, hey, we're in early days
Speaker 1: of moving to a t F etcetera, etcetera. I mean,
Speaker 1: he's really very you know, I know him well enough
Speaker 1: that he's not trying to sell me on anything, and
Speaker 1: he and he just feels as though that we're still
Speaker 1: early days. You know that we're still early days in
Speaker 1: this move into different flavors of EPFs, etcetera. Because UM,
Speaker 1: like today today is a perfect example. A lot of
Speaker 1: the people that have been investing in a lot of
Speaker 1: these tech stocks and and biotech stocks that have been
Speaker 1: up into the right well, they're not gonna they haven't
Speaker 1: They don't have the time or don't have the expertise
Speaker 1: to be able to differentiate between JP Morgan, City Group, Well, Spargo, Goldman, Sachs,
Speaker 1: Morgan Stanley, UM. And again, the financials are sort of
Speaker 1: on fire, so the easiest thing to do is just
Speaker 1: to go buy the xlf UM. So they serve a
Speaker 1: very very very real purpose UM. And I think that Eric,
Speaker 1: to your point earlier, I think that the good way
Speaker 1: to construct a portfolio is with a baseline of E
Speaker 1: t F s UM, maybe some some actively managed funds,
Speaker 1: but more E t F s and then augment that
Speaker 1: with people with the golfers that can really um, you know,
Speaker 1: exert a point of view and have the infrastructure at
Speaker 1: the firm their look. That's that's actually one thing that
Speaker 1: we didn't talk about is that after two after certainly
Speaker 1: after oh eight, a lot of these big firms a
Speaker 1: mutual fund complexes of all sizes, actually it becomes so
Speaker 1: risk averse that in order and and concentrated funds are
Speaker 1: looked at as risky. I personally believe they're less risky,
Speaker 1: but be that as it may. To be able to
Speaker 1: find a fun complex that has culturally the ability to
Speaker 1: let a talented manager invest with that point of view
Speaker 1: and take some repue ptational risk at the firm, you know,
Speaker 1: that's a rare more rare and rare breed. One of
Speaker 1: the things I like about Cathy's fund is that it's
Speaker 1: all one thing. You know, Uh, it's not. They don't
Speaker 1: have eighty five different funds trying to satisfy five different appetites.
Speaker 1: They have six or seven funds that are trying to
Speaker 1: satisfy sort of one appetite. Um. So if I were
Speaker 1: looking at trying to find a concentrated, actively managed fund,
Speaker 1: I would also one of my things on the checklist
Speaker 1: would be able to find a fund family that is
Speaker 1: willing to risk some reputational capital to allow and create
Speaker 1: an environment for um uh, a portfolio manager who's willing
Speaker 1: to invest with a point of view the latitude because
Speaker 1: there will be some volatility. But if you have the
Speaker 1: ability to stay with it over a long arc of
Speaker 1: time and they're good at it, you know you've found
Speaker 1: the Dustin Johnson, the Roy McElroy, the tire Woods. You
Speaker 1: know it can be very, very very rewarding. So last
Speaker 1: question for you here we are at the beginning of one.
Speaker 1: I'm just wondering, as a professional investor of sorts with
Speaker 1: your family office, how much risk are you willing to
Speaker 1: take right now? UM, I'm about ninety invested UM, which
Speaker 1: the big portfolio has eight stocks in it. UM the
Speaker 1: most aggressive portfolio has two. UM. So I'm a believer.
Speaker 1: I like the I like the companies I own, I
Speaker 1: like the management teams that I own, I like the
Speaker 1: total addressable markets. I'm willing to live with a different
Speaker 1: level of volatility than maybe UH some investors. UM. But
Speaker 1: I'm an optimist. I think the future looks bright and
Speaker 1: UM there's there's more opportunity in front of us than
Speaker 1: there is behind us. Boom. If you if you got
Speaker 1: a second with Cathy, would, what advice would you have
Speaker 1: for her? Um? Advice? Wow? Um, I would. I would.
Speaker 1: I would frame it a little bit differently. I would.
Speaker 1: I would just be encouraging. I don't think I don't.
Speaker 1: I don't. I'm in no position to give anybody in
Speaker 1: her position advice. UM. I would simply give her encouragement
Speaker 1: and um, you know, and I would, And I would
Speaker 1: just encourage her to educate her shareholder base, you know,
Speaker 1: which she does a great job of. I mean she
Speaker 1: sends out all those materials about on their research, and
Speaker 1: the crowdsourcing of the research means she does a really
Speaker 1: good job at that. UM and and there hasn't been
Speaker 1: a big draw down there yet. UM. But I would
Speaker 1: be encouraging perfect and and and and size science is
Speaker 1: the only thing that and I don't have an answer
Speaker 1: for that, So I really I don't have advice to
Speaker 1: give her. But I would just simply be encouraging. That's
Speaker 1: what Tom That's what Tom Bailey was to me when
Speaker 1: I ran the twenty fund, and you know he was
Speaker 1: at I we're getting way off in the weeds on stuff.
Speaker 1: But I believe that in order to have the successful
Speaker 1: mutual fund company you had, the person who runs the
Speaker 1: company has to come from portfolio management. Okay, look at Fidelity.
Speaker 1: Fidelity was run by portfolio managers for a period of time.
Speaker 1: There though, it was run by a lawyer, and they
Speaker 1: really struggled. And then you know, now and Abby used
Speaker 1: to run funds, etcetera, etcetera, and so they're back on track.
Speaker 1: Look at Microsoft, the person at the top of the
Speaker 1: firm has to be from the DNA of that firm.
Speaker 1: You know, Bill Gates was a software engine near Steve
Speaker 1: Balmer was a marketing guy that Trust stock traded flat
Speaker 1: for fourteen years. You bring in Sacha and all of
Speaker 1: a sudden the stocks up, you know, twelve x. It's
Speaker 1: so true in the mutual one business that the people
Speaker 1: that are at the top of that are running the
Speaker 1: business have to come from the DNA of the business
Speaker 1: because and that's the thing that one of why I
Speaker 1: loved working for Tom Bailey is because he was a
Speaker 1: portfolio manager. He knew that they were always gonna they
Speaker 1: were gonna be you know, bumps in the road and
Speaker 1: his advice. It was he never gave advice. He just
Speaker 1: gave encouragement. And that was so reassuring because you start
Speaker 1: the second guest yourself, you know, you start to there's
Speaker 1: so many things. Your head just starts to explode when
Speaker 1: things start to move against you. But he was so encouraging,
Speaker 1: and so if I were my I think that Kathy
Speaker 1: would would not be advice, it would just be encouragement. Perfect.
Speaker 1: All right, Scott, I wish you a healthy and and
Speaker 1: happy Okay, thank you very much, really appreciate it. Thank
Speaker 1: you for your time. You're fantastic. Thanks for listening to Trillions.
Speaker 1: Until next time. You can find us on the Bloomberg terminal,
Speaker 1: Bloomberg dot com, Apple Podcast, Spotify, and where brails you
Speaker 1: like to listen. We'd love to hear from you. We're
Speaker 1: on Twitter. I'm at Joel Webber Show. He's at Eric Baltunus.
Speaker 1: This episode of Trillions was produced by Magnus Hendrickson. Francesca
Speaker 1: Levy is the head of Bloomberg podcast by