WEBVTT - Ed Mendel Talks About Ethics in Finance and Business 0:00:02.279 --> 0:00:06.880 This is Master's in Business with very Ridholts on Bloomberg Radio. 0:00:09.920 --> 0:00:12.440 This week on the podcast, I have an extra special guest. 0:00:12.600 --> 0:00:15.760 His name is Ed Mendel. What can I say about Eddie? 0:00:15.840 --> 0:00:20.320 He is the co founder of ned Davis Research, which 0:00:20.560 --> 0:00:25.599 is a enormously successful institutional research shop sold to euro 0:00:25.680 --> 0:00:29.120 Money about six or seven years ago for for a 0:00:29.200 --> 0:00:32.519 price tag that is uh, google ble, but I could 0:00:32.560 --> 0:00:35.560 tell you it's in the hundreds of millions of dollars. Uh. 0:00:35.600 --> 0:00:39.959 He very successfully took the genius that was ned Davis 0:00:40.000 --> 0:00:44.320 and wrapped an entire business model around it. And while 0:00:44.520 --> 0:00:49.160 Ed himself is very humble and credits uh, Ned's genius 0:00:49.200 --> 0:00:52.000 for the success of the firm, really he is one 0:00:52.040 --> 0:00:57.560 of these um underappreciated UM people in finance who who 0:00:57.600 --> 0:00:59.960 took a great idea and found a way to turn 0:01:00.000 --> 0:01:03.319 it into a very very successful business. I don't think 0:01:03.360 --> 0:01:06.080 there would have been a Nit David's Research without Ed 0:01:06.160 --> 0:01:12.240 Mendel's contributions. He's also very actively involved in philanthropy. He's 0:01:12.240 --> 0:01:15.120 one of the minority owners of the Atlanta Falcons and 0:01:15.240 --> 0:01:20.360 just uh an all around inspirational guy. I've relied on 0:01:20.520 --> 0:01:26.120 his insights over the years not just for helping to 0:01:26.160 --> 0:01:30.120 put together the forerunner of Masters in Business. We discussed 0:01:30.160 --> 0:01:35.640 a little bit about how his contributions actually helped lead 0:01:35.680 --> 0:01:39.160 to this show, but also his insights about running a 0:01:39.160 --> 0:01:42.720 business and managing people, and managing capital and assets, and 0:01:42.800 --> 0:01:47.920 being able to think about the various ways that business 0:01:47.920 --> 0:01:54.120 has done properly intelligently, ethically, and and um just just 0:01:54.200 --> 0:01:56.920 being smart about how to run a shop. And so 0:01:56.960 --> 0:02:00.400 I have tremendous amount of gratitude to him personally for 0:02:00.400 --> 0:02:03.440 for sharing his insights with me over the years. He 0:02:03.520 --> 0:02:06.760 mentors a lot of people. Uh and and he's just 0:02:06.840 --> 0:02:09.040 one of these people who are in a household name 0:02:09.520 --> 0:02:13.799 but have had an enormous influence on on finance and business. 0:02:13.840 --> 0:02:16.160 And even though you may not have heard of him, 0:02:16.680 --> 0:02:19.720 you probably should have. So, with no further ado, here 0:02:19.800 --> 0:02:27.440 is my conversation with Eddie Mendel. My special guest today 0:02:27.639 --> 0:02:31.560 is Ed Mendel. He is co founder of NED Davis 0:02:31.560 --> 0:02:36.399 Research as well as the brokerage firm Davis Mendel and Reeginstein, 0:02:36.960 --> 0:02:39.919 which we're both founded in nineteen eighty. Collectively, they're known 0:02:40.040 --> 0:02:43.840 as the NID Davis Research Group. Ed helped to build 0:02:43.880 --> 0:02:46.560 one of the largest stock and bond research followings on 0:02:46.560 --> 0:02:50.399 Wall Street, working closely with ned Davis since nineteen seventy one. 0:02:51.080 --> 0:02:55.560 Their research is best characterized as an objective, disciplined approach 0:02:55.600 --> 0:03:00.840 to investing, focusing on risk management, primary trends, and avoiding 0:03:01.400 --> 0:03:07.079 major financial disasters. Ed has been associated philanthropically with numerous 0:03:07.200 --> 0:03:11.480 national and Atlanta charities. He is also a minority owner 0:03:11.560 --> 0:03:16.160 of the NFL football team, the Atlanta Falcons. Edmundel, Welcome 0:03:16.200 --> 0:03:19.520 to Bloomberg. Thank you. So I've been looking forward to 0:03:19.560 --> 0:03:22.160 this for a while. I think I know you for 0:03:23.160 --> 0:03:26.800 more than a decade, maybe close to two decades, because 0:03:26.840 --> 0:03:29.920 of your work at ned Davis Research and and being 0:03:29.919 --> 0:03:33.720 a partner, Uh to Ned. Let's ask the first question. 0:03:34.280 --> 0:03:38.160 You guys began in the middle of a bear market 0:03:38.160 --> 0:03:43.640 in the nineteen seventies in your work in markets, How 0:03:43.640 --> 0:03:46.400 did that impact your psychology the rest of your career? 0:03:47.080 --> 0:03:52.880 It's got as focused and uh, we really became an 0:03:52.880 --> 0:03:57.200 institutional research firm, and we were very fortunate that when 0:03:57.200 --> 0:04:00.640 we started it was nanti five percent retail. It ended 0:04:00.720 --> 0:04:06.320 up being n institutional, and so it wasn't a matter 0:04:06.360 --> 0:04:09.600 of anything but being at the right place at the 0:04:09.680 --> 0:04:12.480 right time with the right product, and I just knew 0:04:12.520 --> 0:04:16.280 that Ned was a genius and that we would somehow 0:04:16.800 --> 0:04:21.000 be successful. The seventies, you guys were at a brokerage firm. 0:04:21.040 --> 0:04:22.960 How did you and Ned hook up? How did you 0:04:22.960 --> 0:04:25.920 guys find each other? I started at J. C. Bradford 0:04:25.920 --> 0:04:30.760 in Nashville, and Ned came home from Harvard and started 0:04:30.760 --> 0:04:34.279 working for J. C. Bradford. I went and introduced myself 0:04:34.320 --> 0:04:38.039 to Ned, and we struck a friendship and uh and uh, 0:04:38.320 --> 0:04:41.000 you know, eight years later we left to start our 0:04:41.040 --> 0:04:45.760 own firm. You mentioned being launching your career in the 0:04:45.839 --> 0:04:50.560 nineteen seventies and Ned David's research in eighty. You started 0:04:50.640 --> 0:04:56.200 mostly at retail, but it eventually morphed two institutional Was 0:04:56.279 --> 0:05:00.200 that because the retail investor was not a participant? Was 0:05:00.240 --> 0:05:03.279 it the psychology? How did you shift to such a 0:05:03.360 --> 0:05:07.839 heavily heavily waited institutional practice. Bradford, I don't think really 0:05:08.279 --> 0:05:10.919 understood what they had on their hands with Ned. So 0:05:11.000 --> 0:05:12.960 I was one of the first people to go out 0:05:13.000 --> 0:05:16.440 and market Ned in Texas, in the state of Texas, 0:05:16.440 --> 0:05:21.479 and in Houston, and going backwards, I was a retail broker. 0:05:22.200 --> 0:05:27.120 My career really got helped tremendously. By May Day, uh 0:05:27.160 --> 0:05:32.480 May one commission structures changed used to be you could, 0:05:32.680 --> 0:05:35.280 so I became really one of the first discount brokers. 0:05:35.800 --> 0:05:37.480 And so it was eighty two cents to sell a 0:05:37.560 --> 0:05:40.960 hundred chairs of IBM. But Mary Lynch and Kidder and 0:05:41.120 --> 0:05:43.800 pain Webber would not let you discount. So I went 0:05:43.880 --> 0:05:46.800 around to all the wealthy people I could find in 0:05:46.880 --> 0:05:51.400 Atlanta and offered him at discount. So I became the 0:05:51.400 --> 0:05:56.159 biggest producer at Bradford. But then I started asking Med 0:05:56.240 --> 0:05:59.320 to leave, and we were going to leave in seventy eight, 0:05:59.360 --> 0:06:01.560 and we ended up leaving in nineteen eighty, which is 0:06:01.720 --> 0:06:04.680 another story which I'll get to later. Okay, well, let's 0:06:04.720 --> 0:06:07.200 let's get to it right now. You started in eighty. 0:06:07.800 --> 0:06:10.200 Why why did you wait till that year? We were 0:06:10.200 --> 0:06:13.240 gonna leave in seventy eight, and UH Ned was going 0:06:13.279 --> 0:06:17.440 to move to uh Sarasota, Venice, Florida, and uh we 0:06:17.440 --> 0:06:20.719 were going to start the firm. But Bradford came to 0:06:20.760 --> 0:06:25.120 Ned and made him a partner and uh and he stayed. 0:06:25.520 --> 0:06:29.200 But then in nineteen seventy nine he went to Jimmy 0:06:29.279 --> 0:06:33.080 Bradford and told Jimmy that he wanted a computer, and 0:06:33.160 --> 0:06:36.120 Jimmy told him, I've seen computers that you're doing fine, 0:06:36.200 --> 0:06:39.039 just the way it is. And so Ned went out 0:06:39.200 --> 0:06:42.719 on his own and spent thirty five thousand dollars on 0:06:42.760 --> 0:06:47.440 a Hewitt Packard computer that did graphics. And within the 0:06:47.760 --> 0:06:49.719 six months you could buy a chip that made it 0:06:49.720 --> 0:06:53.520 ten times faster, and within a year you could buy 0:06:53.560 --> 0:06:55.479 the computer with the chip in it. It was ten 0:06:55.520 --> 0:06:59.159 times faster for a total of seven thousand dollars. And 0:06:59.400 --> 0:07:03.560 uh okay uh. And I recall Ned saying that he 0:07:03.920 --> 0:07:08.919 had pitched Bradford on technology and computerization and the ability 0:07:09.000 --> 0:07:12.160 to crunch a lot of numbers, and the response was 0:07:12.200 --> 0:07:14.480 sort of, hey, what you're doing is working fine? Yeah 0:07:14.880 --> 0:07:18.040 that Jimmy said, it's working. It's working just fine. But Ned, 0:07:18.160 --> 0:07:21.880 ned Is was a genius. And you know, among many 0:07:21.920 --> 0:07:24.680 other things, it was clean data. Uh you know, we 0:07:24.840 --> 0:07:28.680 cleaned data for Ibbotson and SMP and uh you know, 0:07:28.720 --> 0:07:31.040 we were known for our charts and our data among 0:07:31.040 --> 0:07:36.040 many other things. But the other great story uh that 0:07:36.160 --> 0:07:39.520 came out of that is uh uh Ned told me 0:07:39.640 --> 0:07:43.120 I think the fourth biggest lie ever told. And he 0:07:43.200 --> 0:07:44.800 told me when we started that we were going to 0:07:44.840 --> 0:07:47.840 need a programmer, but just for a year. And I 0:07:47.840 --> 0:07:50.840 think when we sold the company we had fourteen programmers. 0:07:50.920 --> 0:07:53.760 So the fourth biggest lie is you we're going to 0:07:53.800 --> 0:07:55.640 get a programmer, but just for a year, just for 0:07:55.640 --> 0:07:58.200 a year. Let's talk a little bit about you guys 0:07:58.680 --> 0:08:04.800 hanging you shingle and in really the final inning innings 0:08:04.840 --> 0:08:08.239 of a sixteen year bear market. How did you guys 0:08:08.320 --> 0:08:11.520 have the nerve to launch into that environment and how 0:08:11.520 --> 0:08:14.960 did you get clients? We started and Ned thought that 0:08:15.000 --> 0:08:17.360 within four months we would have the products that he 0:08:17.400 --> 0:08:19.960 had in his head up and running, but it was 0:08:20.000 --> 0:08:23.200 two years later. So we never took any money out 0:08:23.200 --> 0:08:25.040 of the business for two years and put it back 0:08:25.080 --> 0:08:31.160 into the business. Uh, completely and totally. And uh I 0:08:31.240 --> 0:08:36.200 had a big retail business, and so the retail helped 0:08:36.200 --> 0:08:38.400 carry us until we got up and running with the 0:08:38.440 --> 0:08:43.080 institutional business. And that eventually morphed to almost all purely 0:08:43.080 --> 0:08:49.000 institutional totally, which uh's a blessing. Why do you say 0:08:49.040 --> 0:08:53.360 that the retail is h you know, where's my check? 0:08:53.400 --> 0:08:56.679 Where's my dividend? I'm gonna sue you. It's a it's 0:08:56.720 --> 0:09:00.680 just a it's just and so you know, if you're 0:09:00.760 --> 0:09:02.560 going to do it, you might as well get paid big. 0:09:03.520 --> 0:09:06.360 And we we were blessed that as far as the 0:09:06.480 --> 0:09:09.559 right time, in the right place. Um, we got paid 0:09:09.559 --> 0:09:13.280 in soft dollars and commissions. So I explained soft dollars 0:09:13.320 --> 0:09:16.840 because a lot of listeners may not be familiar with it. Well, uh, 0:09:17.120 --> 0:09:19.240 we would go to the State of Texas and tell 0:09:19.320 --> 0:09:22.320 them we wanted twenty five thousand dollars. And if I 0:09:22.360 --> 0:09:24.640 went to you and said, I have this service, and 0:09:24.960 --> 0:09:27.240 you know you'll like it, but you had to write 0:09:27.280 --> 0:09:30.040 a check personally for twenty five thousand dollars, you go, 0:09:30.880 --> 0:09:33.480 I really like a lot of money. But the State 0:09:33.520 --> 0:09:35.439 of Texas was going to buy a million shares of 0:09:35.520 --> 0:09:39.240 Boeing through one of our clearing frooms, pain Web Goldman 0:09:39.280 --> 0:09:42.760 sacks are especially bear Stearns, And so they'd buy a 0:09:42.800 --> 0:09:45.679 million shares and ten sents a share back then or 0:09:45.720 --> 0:09:49.480 fifteen and give us ten or fifteen thousand dollars. And 0:09:49.679 --> 0:09:52.800 it's another word. You guys set up the broker dealer 0:09:52.920 --> 0:09:55.559 in order too. Hey, we're gonna spend the money on 0:09:55.559 --> 0:09:57.800 the commission anyway, it might as well pay for the 0:09:58.040 --> 0:10:01.280 It was other people's money, and so that's what made 0:10:01.320 --> 0:10:05.760 the business very successful. Were you ever actively involved in 0:10:05.840 --> 0:10:10.960 trading yourself? Were you mostly doing institutional sales? Mostly institutional sales? 0:10:11.559 --> 0:10:14.720 And um, so the business was sold in. Do you 0:10:14.720 --> 0:10:17.080 still have any involvement? Because I know Ned still does. 0:10:17.800 --> 0:10:20.959 So you're you're free and clear for seven years now, 0:10:21.000 --> 0:10:26.439 that's right. The falcons and grandchildren is what's keeping you busy? Um. 0:10:26.520 --> 0:10:30.000 So when you guys launched the Night, who are your competitors? 0:10:30.040 --> 0:10:36.000 Who was out there selling the sort of quantitative technical 0:10:36.160 --> 0:10:39.040 research that that you guys were doing. Again, we were 0:10:39.080 --> 0:10:41.360 just at the right place, at the right time, with 0:10:41.360 --> 0:10:43.960 with the right product. And one of the products though 0:10:44.120 --> 0:10:48.720 we ended up by accident, um, was the chart service. 0:10:49.240 --> 0:10:52.319 We did the charts for Ned, and UH, as long 0:10:52.360 --> 0:10:53.679 as you're doing it for him, you might as well 0:10:53.679 --> 0:10:55.960 make we had we really didn't have an idea that 0:10:55.960 --> 0:10:58.520 that would be such a huge hit for client presentations, 0:10:58.559 --> 0:11:03.880 for marketing and meetings and brochures, and so we had 0:11:03.920 --> 0:11:10.000 a huge, uh publishing complex by sending out these huge 0:11:10.120 --> 0:11:12.680 chart books that were three or four inches thick. And 0:11:12.720 --> 0:11:15.440 then we got into customized research. So let's talk about 0:11:15.480 --> 0:11:20.280 customized research because at present and for the past decade 0:11:20.360 --> 0:11:25.840 or so, ned Davis Research generates two thousand custom research 0:11:26.000 --> 0:11:29.959 projects a year. Am I getting that right? It's been 0:11:30.080 --> 0:11:33.240 six years since I've been there, but a lot. So 0:11:34.720 --> 0:11:37.839 what's a typical request? How is this ramped up over time? 0:11:38.320 --> 0:11:43.920 That sounds like a lot of specific, individualized research or 0:11:43.960 --> 0:11:47.840 is there a ton of overlap from one to the next. Again, 0:11:47.960 --> 0:11:50.720 some of the best projects and ideas have come from 0:11:50.720 --> 0:11:56.719 our clients, and so NED is just incredible about devouring 0:11:56.840 --> 0:12:00.480 data and information and studies. And so we had a 0:12:00.480 --> 0:12:04.600 whole research department of people that would do projects that 0:12:04.840 --> 0:12:09.040 other people thought of doing or uh, they would want 0:12:09.040 --> 0:12:11.840 the models or stuff built just for them on a 0:12:11.840 --> 0:12:16.160 proprietary basis. So we once we got in their back pocket, 0:12:17.000 --> 0:12:20.120 we stayed there. So let me let me share one 0:12:20.160 --> 0:12:23.040 of my favorite ned Davis quotes and you could perhaps 0:12:23.080 --> 0:12:25.440 give me a little color on it. We are in 0:12:25.480 --> 0:12:29.400 the business of making mistakes. The only difference between winners 0:12:29.720 --> 0:12:33.680 and losers is that winners make small mistakes while losers 0:12:33.679 --> 0:12:38.520 make big mistakes. Discuss well, you know, Ned's also famous 0:12:38.600 --> 0:12:41.959 for saying they're the only thing worse than making a 0:12:42.080 --> 0:12:45.440 forecast is sticking by it. And he wrote famously wrote 0:12:45.440 --> 0:12:47.760 a book would you Rather be right or Make money? Yes? 0:12:48.120 --> 0:12:53.320 Being right or making money? Title? And uh, you know, 0:12:53.920 --> 0:12:58.520 risk control? Uh you know, I'm reminded of one of 0:12:58.559 --> 0:13:02.680 the biggest hedge fund p pole here in New York 0:13:02.760 --> 0:13:05.839 once told me he puts on a trade and then 0:13:05.880 --> 0:13:10.040 it starts worrying about everything that can go wrong. But uh, 0:13:10.559 --> 0:13:13.960 having a stop loss and controlling risk and not letting 0:13:14.000 --> 0:13:19.359 a little mistake become a disastrous mistake is incredibly important. 0:13:19.960 --> 0:13:21.960 The version of that I learned when I began in 0:13:21.960 --> 0:13:25.479 the business was it's okay to be wrong, it's unforgivable 0:13:25.520 --> 0:13:28.720 to stay wrong. And I think there's a lot to that. UM. 0:13:28.880 --> 0:13:32.320 So the I keep coming back to the risk management 0:13:32.360 --> 0:13:36.280 side of this. How much did really making your bones 0:13:36.320 --> 0:13:39.480 in the nineties seventies, in the midst of that horrific 0:13:39.520 --> 0:13:45.640 bear market plus inflation plus uh twelve risk free treasury yields? 0:13:46.040 --> 0:13:49.600 How much did that impact the psychology of what you 0:13:49.640 --> 0:13:52.840 guys were doing? Because you keep talking about um and 0:13:52.880 --> 0:13:57.640 everything I've read from both of you is manage your risk, 0:13:58.000 --> 0:14:01.480 don't let disasters happen. Pay attention to the primary trend. 0:14:01.960 --> 0:14:09.760 How formative were the nineties seventies to to Ned David's research. Again, Ned, 0:14:10.240 --> 0:14:13.880 Ned's genius is what I what I banked on. I 0:14:13.960 --> 0:14:17.040 realized very early that it wasn't Ed mental research. He 0:14:17.120 --> 0:14:20.720 was Ned Davis research. So you were, you were, and 0:14:21.840 --> 0:14:26.400 I appreciate your humility, but you were instrumental in taking 0:14:27.320 --> 0:14:31.960 his brilliant insights and building a business around it. Because 0:14:32.080 --> 0:14:35.240 left to his own devices, I get the feeling that 0:14:35.320 --> 0:14:37.520 Ned would be very happy to just stare at the 0:14:37.520 --> 0:14:42.560 computer crunch numbers, but perhaps not monetize that in the 0:14:42.600 --> 0:14:45.120 ways that you've managed to. Well, yeah, I had to 0:14:45.160 --> 0:14:47.520 go out on the road and hire the people. Ned 0:14:47.560 --> 0:14:51.240 did not want to deal with lawyers or accountants, and uh, 0:14:51.280 --> 0:14:54.160 he wanted to do research, which it was is that's 0:14:54.200 --> 0:14:58.760 his forte and uh he did it unbelievably well, and 0:14:58.800 --> 0:15:02.320 he wasn't distracted, and so he did not go out 0:15:02.360 --> 0:15:05.360 on the road a whole lot. And uh so it 0:15:05.440 --> 0:15:07.880 was left up to me to to to do the 0:15:07.920 --> 0:15:10.840 marketing and build the firm, and that started in nineteen 0:15:10.880 --> 0:15:13.080 eighty and then thirty years later the firm was sold 0:15:13.120 --> 0:15:16.840 to your own money. You guys built a reputation for 0:15:16.960 --> 0:15:21.520 being fact based, quantitative and really one of the first 0:15:21.840 --> 0:15:26.600 major technical analysis firms. So, so let's talk about that 0:15:26.680 --> 0:15:30.440 a little bit. You're an institutional salesperson, NED is looking 0:15:30.480 --> 0:15:35.720 at charts. How did you perceive the value of technicals 0:15:36.160 --> 0:15:40.120 for for your institutional clients way back in the seventies 0:15:40.160 --> 0:15:42.920 and night when you launched, NED would be the first 0:15:42.960 --> 0:15:46.000 to tell you that technical analysis doesn't work half the time, 0:15:46.640 --> 0:15:50.240 but neither just fundamentals. And so the genius which NED 0:15:50.360 --> 0:15:53.280 has is to be able to mesh and look at everything. 0:15:54.080 --> 0:15:57.680 And so we also, did you know, a incredible deal 0:15:57.880 --> 0:16:04.000 on on sentiment and uh so we had some of 0:16:04.000 --> 0:16:08.600 the best ciniment charts you know around. So Ned's geniuses 0:16:08.600 --> 0:16:11.520 that he looked at everything and he just didn't hang 0:16:11.560 --> 0:16:15.120 his hat on technical analysis. So, but you were out 0:16:15.120 --> 0:16:19.480 in the trenches selling the product to institutions. Did you 0:16:19.560 --> 0:16:23.280 find that when you were discussing charts, sentiment, everything else, 0:16:23.320 --> 0:16:26.360 that all the work that was being generated in house. 0:16:27.000 --> 0:16:30.720 Was there an advantage to working with charts and technicals? 0:16:31.040 --> 0:16:33.680 Was it different than what everybody else was selling? What 0:16:33.680 --> 0:16:37.080 what made this so successful? Because it's easy to say 0:16:37.080 --> 0:16:39.720 in retrospect, well, we were more wrong than right. But 0:16:39.840 --> 0:16:42.840 at the time you're the guy who's selling it and 0:16:42.960 --> 0:16:45.160 you don't know how much wronger or writer it's going 0:16:45.200 --> 0:16:50.440 to be. Ned had incredible historical perspective on the market 0:16:50.440 --> 0:16:54.160 and everything, and so we we we we went out there. 0:16:54.160 --> 0:16:56.160 We had a broad based service. We had like ten 0:16:56.200 --> 0:16:59.960 different services and so uh, we did just didn't hang 0:17:00.040 --> 0:17:04.080 our hat on you know, the bond commentary or the 0:17:04.119 --> 0:17:08.760 stock rankings, but between Ned's hotline, which is probably the 0:17:08.760 --> 0:17:12.520 best historic perspective and FED watching around and then the 0:17:12.600 --> 0:17:15.800 chart service where we got you know, people really dependent 0:17:15.880 --> 0:17:21.160 on us for their client presentations, marketing and meetings, uh 0:17:21.200 --> 0:17:25.240 and brochures. And then we added to that we were 0:17:25.280 --> 0:17:28.959 doing all this customized research. So it's a service business. 0:17:29.080 --> 0:17:33.560 So you know, I came from a southern town retail 0:17:33.760 --> 0:17:38.200 and in Little Rock, Arkansas. But the customers always right, 0:17:38.720 --> 0:17:41.280 and we did we tried to do more than our 0:17:41.320 --> 0:17:45.280 share in a relationship, and we tried not to goug 0:17:45.560 --> 0:17:49.040 the customers and for value received, we we gave them 0:17:49.080 --> 0:17:52.800 a great total product. But we were very lucky that 0:17:52.960 --> 0:17:56.520 the soft dollars we're able to cover the course and 0:17:56.840 --> 0:18:00.360 it was painless for them to pay us. And by 0:18:00.359 --> 0:18:03.840 the time you guys ended up selling in I want 0:18:03.880 --> 0:18:07.679 to say NED Davis Research was institutionally one of the 0:18:07.720 --> 0:18:11.840 most widely followed institutional services out there. Is that a 0:18:12.320 --> 0:18:15.240 Is that a fair statement? Fair statement? We know that 0:18:15.359 --> 0:18:19.960 the early days NED was attracted to computers, but here 0:18:20.000 --> 0:18:24.200 we are in TV computers are running everything from high 0:18:24.200 --> 0:18:30.720 frequency trading to analyzing SEC filings too, just about anything 0:18:30.800 --> 0:18:34.520 you could think of. How have computers changed the game 0:18:34.720 --> 0:18:38.320 of institutional investment? Again, I've been out of the business 0:18:38.440 --> 0:18:44.480 for seven years, and the you know, it's the E 0:18:44.600 --> 0:18:48.960 T F s and the trading that have diminished everything. 0:18:49.320 --> 0:18:53.560 And the it's it's what made it wasn't the computer. 0:18:53.880 --> 0:18:58.080 It was Ned's uh interpretation of the data and the 0:18:58.119 --> 0:19:03.280 information and so uh you layered upon you know, the 0:19:03.320 --> 0:19:09.560 computer you had needs needs, historic perspective and uh economic view, 0:19:09.720 --> 0:19:13.840 monetary view, and that's what made us different. We had 0:19:13.840 --> 0:19:18.680 to differentiate ourselves and so the computer, you know, and 0:19:18.840 --> 0:19:22.199 this goes back to two. Reagan deserves a lot of 0:19:22.200 --> 0:19:24.919 credit for things that he did, but he was very lucky. 0:19:25.320 --> 0:19:29.480 The personal computer came along and created twenty six million 0:19:29.560 --> 0:19:34.880 jobs that it also made us unbelievably productive, I mean 0:19:35.119 --> 0:19:37.480 unbelievably used to take us all day to do a 0:19:37.520 --> 0:19:41.200 mailing list literally, and once you started working with the computer, 0:19:42.040 --> 0:19:45.160 it was seconds. I mean, you know, once we got 0:19:45.200 --> 0:19:49.200 everything up and running. So it's the productivity that made 0:19:49.280 --> 0:19:54.720 us unbelievably successful. Also, but the pushback to that would be, well, 0:19:54.800 --> 0:19:58.200 computers were available and they can make everybody productive. Why 0:19:58.480 --> 0:20:00.639 were you guys able to take advant antage of it 0:20:00.960 --> 0:20:06.080 when others didn't. Well, again, I alluded to the data. 0:20:06.680 --> 0:20:10.280 Ned was the first with data and clean data, and 0:20:10.359 --> 0:20:14.240 so he uh I could look at five charts to 0:20:14.320 --> 0:20:17.120 day and with a red pen and knows knows when 0:20:17.280 --> 0:20:21.040 when a chart is six or the slightest bit off, 0:20:21.200 --> 0:20:24.720 just by eyeballing. Yes, So his one of his many 0:20:24.800 --> 0:20:28.800 genius things is but we we we were a freak 0:20:28.920 --> 0:20:31.200 about clean data. And there's a lot of it was 0:20:31.320 --> 0:20:33.240 a lot of or probably still is a lot of 0:20:33.280 --> 0:20:36.360 bad data out there. Let's talk a little bit about 0:20:36.400 --> 0:20:39.840 the modern stock market. How did you guys think about 0:20:40.280 --> 0:20:45.080 managing risk when you uh launched the firm in in 0:20:45.119 --> 0:20:48.040 the early eighties. You know, I was thirty years old, 0:20:48.880 --> 0:20:56.200 and uh I was too naive or stupid to really worry. 0:20:56.040 --> 0:20:59.760 I knew it would be a big success, and so 0:21:01.240 --> 0:21:04.240 there wasn't any question that, you know, between my retail 0:21:04.280 --> 0:21:07.000 business and having Ned as a partner, that it was 0:21:07.040 --> 0:21:09.639 going to be successful. So it wasn't a question of 0:21:09.680 --> 0:21:13.440 managing risk. It was it was about putting money back 0:21:13.480 --> 0:21:16.520 into the business and building it. And so not taking 0:21:16.520 --> 0:21:20.879 money out for two years and hiring salespeople and hiring 0:21:20.880 --> 0:21:27.160 people and programmers. Uh and and uh you know that's 0:21:27.160 --> 0:21:30.800 wold help laid the foundation for the thing to be successful. 0:21:30.840 --> 0:21:33.399 So you said you didn't take money out for two years, 0:21:33.440 --> 0:21:36.320 and basically the revenue was coming from the high net 0:21:36.320 --> 0:21:39.240 worth side, but you guys had to be taking salaries. 0:21:39.240 --> 0:21:43.480 You weren't just doing nothing, no nothing, not an every 0:21:43.480 --> 0:21:46.840 dollar went back into the business for two years, and 0:21:47.080 --> 0:21:50.200 so you were really paying your dues in in that period. Yeah, 0:21:50.200 --> 0:21:53.160 I remember writing checks for thirty five dollars and seventy 0:21:53.160 --> 0:21:57.400 dollars and cringing and cringing. So at what point did 0:21:57.480 --> 0:22:00.840 the firm begin to be able to allow the two 0:22:00.880 --> 0:22:03.960 of you to take a salary in two years? Took 0:22:04.000 --> 0:22:06.920 two years? Two years? And what was it that changed 0:22:07.000 --> 0:22:09.880 the launch of the new products? You know, we were 0:22:09.920 --> 0:22:13.239 building an institutional base that that was taking off, and 0:22:13.640 --> 0:22:18.000 we started clearing through bear Stearns. Greenberg was very helpful 0:22:18.080 --> 0:22:20.840 and convincing the that you know, he took us aside 0:22:20.920 --> 0:22:24.040 for his eight seconds and said, just come here, we'll 0:22:24.040 --> 0:22:27.600 take care of everything. That They had an unbelievable clearing operation. 0:22:28.280 --> 0:22:30.760 This is bear Stons in the early eighties. At the 0:22:30.800 --> 0:22:33.720 time they were the third or fourth largest broker's farm 0:22:33.800 --> 0:22:36.280 is that, but they were probably the biggest clearing firm 0:22:36.359 --> 0:22:40.159 for for what we did, institutional institutional trading, and so 0:22:40.280 --> 0:22:43.320 we didn't have to have floor brokers or clearing or 0:22:43.440 --> 0:22:46.960 back office. So you know, the banker New York would 0:22:46.960 --> 0:22:49.240 call up bear Stearns and buy a million chairs of 0:22:49.359 --> 0:22:54.280 Boeing for a dime, and they would credit and gave 0:22:54.440 --> 0:22:56.560 credit that this one, this one, and this center at 0:22:56.640 --> 0:23:00.520 Davis Research. So so that's a hundred thousand dollar commission 0:23:00.800 --> 0:23:05.000 on that transaction back then, whatever it was. It made 0:23:05.000 --> 0:23:07.439 it so easy for people to pay us. So in 0:23:07.480 --> 0:23:09.920 other words, they would pay for the research via the 0:23:10.040 --> 0:23:13.280 institutional trades, which they're gonna do anyway, and really, what 0:23:13.320 --> 0:23:15.560 the heck is tanking? It did not cost them anything 0:23:15.880 --> 0:23:19.560 ten cents on on bus share of Boeing then, but 0:23:19.680 --> 0:23:23.360 even then it wasn't their money, so because it's institutional 0:23:23.400 --> 0:23:28.040 and other people fund of but what they spend I 0:23:28.080 --> 0:23:32.480 guess it doesn't really matter who there trading for. What 0:23:32.560 --> 0:23:36.760 matters is who they're UM executing through and where the 0:23:36.760 --> 0:23:39.080 money man. In other words, whether they paid a nickel 0:23:39.160 --> 0:23:42.040 or adam, the fifteen cents didn't affect their bottom line. 0:23:42.119 --> 0:23:45.960 That's right. So o PM and big institutional trading made 0:23:46.000 --> 0:23:49.760 it easy. But you guys are fairly full service. You 0:23:49.800 --> 0:23:54.000 guys were, and ned Davis still is a fairly full 0:23:54.080 --> 0:23:58.080 service UM research shop. What does if I go to 0:23:58.200 --> 0:24:01.040 nd R and say I want everything? How much can 0:24:01.080 --> 0:24:03.440 I spend a year with them? Again, I've been out 0:24:03.480 --> 0:24:08.120 for six years, give me a ballpark from ten years ago? Um, 0:24:08.160 --> 0:24:12.120 you know dollars? Okay, So that's a lot of data, 0:24:12.160 --> 0:24:15.040 a lot of charts, a lot of custom research. But 0:24:15.080 --> 0:24:18.280 you know, Goldman Sachs used to have six hundred cash traders. 0:24:18.280 --> 0:24:21.119 They have now to the soft dollar business has diminished 0:24:21.320 --> 0:24:25.240 two from six hundred to two. Yeah, and that's computers 0:24:25.320 --> 0:24:27.959 essentially well, and also now eat heat. Everything is going 0:24:28.000 --> 0:24:31.359 to E T F s and UM volume is actually 0:24:31.480 --> 0:24:34.720 way down. It's it's a very different business. So we've 0:24:34.760 --> 0:24:38.320 seen a move towards passive investing from a lot of 0:24:38.359 --> 0:24:42.439 the mom and pop investors as well as on the 0:24:42.480 --> 0:24:46.680 institutional side, we've seen the rise of ETFs. And as 0:24:46.720 --> 0:24:49.480 these two things have happened, we've seen a huge decrease 0:24:50.320 --> 0:24:55.200 in trading volume. What does this mean for what used 0:24:55.240 --> 0:24:58.399 to be called institutional training and now is called I 0:24:58.440 --> 0:25:00.320 don't even know what what do you call it these days? 0:25:00.400 --> 0:25:02.919 Is it just by side research? How do how do 0:25:02.960 --> 0:25:06.080 you describe it? If you have to pay hard dollars 0:25:06.119 --> 0:25:09.520 for a service stuff, it's tough and you have to 0:25:09.560 --> 0:25:15.919 justify and it's tough. So, uh, you know people that 0:25:16.040 --> 0:25:18.880 used to pay us one hundred thousand. I just heard 0:25:18.880 --> 0:25:22.920