Speaker 1: This is Master's in Business with Barry Ridholds on Bloomberg Radio.
Speaker 2: This week on the podcast, I have another extra special guest, ANDREWS.
Speaker 2: Lemons has pretty much done everything on the wealth management
Speaker 2: side of the business, starting at Brown Brothers Harriman before
Speaker 2: going on to Morgan Stanley where he started out as
Speaker 2: a client facing wealth manager, before moving into portfolio manager
Speaker 2: and eventually creating the Applied Equity Advisors team that uses
Speaker 2: a combination of quantitative and fundamental and behavioral thinking to
Speaker 2: create portfolios and funds that are sturdy and can survive
Speaker 2: any sort of change in investor sentiment. They look at geography,
Speaker 2: they look at capsize, they look at style, and they
Speaker 2: look at sector and try and keep a portfolio leaning
Speaker 2: towards what's working best. These tend to be concentrated portfolios.
Speaker 2: The US versions are thirty to sixty holdings, where the
Speaker 2: overseas versions are just twenty holdings. I found this conversation
Speaker 2: to be fascinating. There are a few people in asset
Speaker 2: management that have seen the world of investing from both
Speaker 2: the client's perspective and a client facing advisor side to
Speaker 2: a PM and then a broader asset manager than Andrew has.
Speaker 2: He really comes with a wealth of knowledge and he's
Speaker 2: been with Morganstantley since nineteen ninety one. That sort of
Speaker 2: tenure at a single firm is increasingly rare, rare these days.
Speaker 2: I found this discussion to be absolutely fascinating and I
Speaker 2: think you will also, with no further ado, Morgan Stanley
Speaker 2: Andrews Slimmon.
Speaker 1: Thank you. It's an ho to be here.
Speaker 2: Well, it's a pleasure to have you. So let's start
Speaker 2: at the beginning with your background. You get a BA
Speaker 2: from the University of Pennsylvania and an NBA from University
Speaker 2: of Chicago. Was finance always the plan.
Speaker 1: I think being in a competitive industry with all the plan.
Speaker 1: I played tennis competitively in juniors and went out and
Speaker 1: played in college, and I always liked the you know,
Speaker 1: you either won or loss. And what I always liked
Speaker 1: about this industry it was all about, you know, did
Speaker 1: you win or loose? There wasn't a lot of gray
Speaker 1: era and I think that's what I do love about
Speaker 1: the stock market and investing in general, because there's a
Speaker 1: scorecard and you can't there's no room in the scorecard
Speaker 1: for the editorials.
Speaker 2: No points for style or form. It's just did you
Speaker 2: win or lose? So where did you begin? What was
Speaker 2: your first role within the industry?
Speaker 1: Sure? So, well, my first role was opening the mail
Speaker 1: at a broker's firm in Hartford, Connecticut. But I started
Speaker 1: my career at Brown Brothers Harriman right here in New
Speaker 1: York in a training program, which was great because they
Speaker 1: had commercial banking, they had capital markets, and they had
Speaker 1: the investment management side of the business. And that's what
Speaker 1: getting exposure all those led me to believe, Gee, I
Speaker 1: really am interested in the stock market and how it
Speaker 1: works in investing in general.
Speaker 2: So what led you to Morgan Stanley? How'd you find
Speaker 2: your way to write?
Speaker 1: So? Yeah, I was a research analyst at Brown Brothers
Speaker 1: and I was covering, you know, in healthcare stocks. I
Speaker 1: realized that there must be something more to investing than
Speaker 1: just what was going on at the company level, because
Speaker 1: I noticed that the things that were moving my stocks
Speaker 1: on a day to day basis weren't just what was
Speaker 1: going on at the company level. And University's Chicago, where
Speaker 1: I got to my MBA, was obviously very focused on
Speaker 1: more the quantitative areas of investing, and I took FOMA
Speaker 1: and French and so forth. And Miller and all those
Speaker 1: that taught me that what drives a stock price is
Speaker 1: more than just the company level. And so that was
Speaker 1: really how it rounded my knowledge of kind of investing,
Speaker 1: the first steps. And then coming out of business school,
Speaker 1: it was ninety one, and it was a recession. And
Speaker 1: I had met my wife in business school and she
Speaker 1: got a job at kid r Peabody, if you remember that,
Speaker 1: invest in banking in Chicago, and I couldn't find kind
Speaker 1: of a buy side opportunity, and Morgan Stanley had a
Speaker 1: department called Prior Wealth Management that covered wealthy individuals and
Speaker 1: small institutions in Chicago. And I needed a job, and
Speaker 1: I had a lot of student debts, so I said, hey,
Speaker 1: as opposed to go in the traditional buy side route,
Speaker 1: I'll start in this area, covering clients and investing for them.
Speaker 2: So ninety one kind of a mild recession, mild and
Speaker 2: really halfway through what was a rampaging bull market. What
Speaker 2: was it like in the nineteen nineties in New York and.
Speaker 1: Finance, Well, I mean the thing that was amazing is
Speaker 1: we would have clients in the late nineties. It would
Speaker 1: come to us and they'd say, Andrew, I'm not greedy.
Speaker 1: I just want fifteen to twenty percent returns a year,
Speaker 1: right and no, with limited risks. And that is what
Speaker 1: was so fascinating about today is today people say to me, Andrew,
Speaker 1: why would I invest in equities when I can get
Speaker 1: five percent in the money market. And what a difference
Speaker 1: in a mindset, which tells you where we are. In
Speaker 1: the late nineties, we had just gone through a roaring
Speaker 1: bull market. Optimism was just so rampant in the worst
Speaker 1: year in the business I can remember was nineteen ninety
Speaker 1: nine because as an investor covering clients, I was caught
Speaker 1: between doing the right thing for them, which was avoid
Speaker 1: these ridiculously priced stocks or get on the train because
Speaker 1: the money is pouring through. And then it all came
Speaker 1: to an end in two thousand and two thousand and
Speaker 1: I took a step back and say, thank god, I
Speaker 1: never you know, I just didn't buy in the way
Speaker 1: some people did, and therefore save people a lot of money.
Speaker 1: It was a tremendously good learning experience for me to
Speaker 1: stay true to your values of investing. Ultimately, they work
Speaker 1: out you.
Speaker 2: Are identifying something that I'm so fascinated by. The problem
Speaker 2: we run into with surveys or even the risk tolerance questionnaires.
Speaker 2: Is all you find out is, hey, what has the
Speaker 2: market done for the past six months. If the market's
Speaker 2: been good, hey, I of course I want more risk.
Speaker 2: I'm more than comfortable with it. And if the market
Speaker 2: got shellacked, no, no, no, I can't so offer anymore
Speaker 2: draw downs. It's just pure psychology.
Speaker 1: And I would go one step further. You know this,
Speaker 1: you're in the business, but when you first meet someone,
Speaker 1: you never know the ones that are going to be
Speaker 1: truly risk averse or truly can withstand the vault to
Speaker 1: the and ones that can. Some people say, don't worry,
Speaker 1: I'm not worried about the draw downs, and the minute
Speaker 1: happens on the phone to you, and some people I
Speaker 1: told you I wasn't worried and I didn't call you.
Speaker 1: And you can never know just the first time you
Speaker 1: meet people who that's going to be.
Speaker 2: It's a challenge figuring out who people really are not easy.
Speaker 2: So you start at Morgan Stanley in nineteen ninety one,
Speaker 2: you're in. That's a long time ago. You start on
Speaker 2: the private wealth side. What led you to becoming a
Speaker 2: portfolio manager with Morgan Stanley Wealth Strategy.
Speaker 1: So if you think about my career, I learned to
Speaker 1: be a fundamental analyst. I went to Universe Chicago and
Speaker 1: learned that, oh, there's quantitative factors that drive a stock
Speaker 1: price beyond kind of what's going on at the company level.
Speaker 1: The third part of my experience was being in prior
Speaker 1: wealth management. Clients want to believe they all buy low
Speaker 1: and sell high, but bear you know that doesn't isn't
Speaker 1: the case.
Speaker 2: Somebody does accidentally, someone randomly top ticks and bottom ticks
Speaker 2: of market, but nobody does that conceive exactly.
Speaker 1: And here's a great example of what I mean. If
Speaker 1: you think about the years twenty twenty. In twenty twenty one,
Speaker 1: growth stocks took off right, but in twenty twenty two
Speaker 1: they got crushed. Do you think more money went into
Speaker 1: growth managers and funds in twenty twenty one or the
Speaker 1: end of twenty twenty two after they got crushed.
Speaker 2: The flows are always a year behind me exactly what
Speaker 2: people are backwards.
Speaker 1: Like well, and that's because there's something called the tear sheet.
Speaker 1: If you were my client, I went to you and said, Barry,
Speaker 1: I think you should invest in emerging markets because look
Speaker 1: how terribly it's done. The last five years and I can.
Speaker 1: You're the tear sheet everybody. Hey, I hate it. So
Speaker 1: the problem with this business is a stock price does
Speaker 1: not care what happened in the past. It only cares
Speaker 1: about what's happened in the future. But as humans, we
Speaker 1: all suffer from recency buyas. So what I observed in
Speaker 1: the nineties, it's a long winted answer. Your question is
Speaker 1: what I observed in the nineties. As a coverage offer,
Speaker 1: you can't get clients to actually buy what's out of favor.
Speaker 1: And the flaw in the whole growth value US international
Speaker 1: is people frame, Oh, maybe I should buy more growth
Speaker 1: because it's working well, except it gets too expensive. So
Speaker 1: the reason I left being in wealth management, I was
Speaker 1: convinced that I could start strategies using more quantitative but
Speaker 1: give us flexibility. So if we could start core strategies
Speaker 1: so that if growth got too expensive, we could tilt
Speaker 1: away from growth, or if Europe wasn't working, we could
Speaker 1: tilt away from Europe. That gave us more flexibility as
Speaker 1: an active manager, versus saying I'm only a growth manager,
Speaker 1: that I'm always trying to justify why you should buy growth,
Speaker 1: or if I'm a value manager always justifying why buy value. Remember,
Speaker 1: by nineteen ninety nine, a half of value managers had
Speaker 1: gone out of business in the last three years, that
Speaker 1: just before they took off.
Speaker 2: That's unbelievable. I know folks who run short hedge funds
Speaker 2: and they say they could always tell when we're due
Speaker 2: for a major correction because that's when all of their
Speaker 2: redemptions and outflows hit a crescendo.
Speaker 1: And so that's the problem with the dedicated style is
Speaker 1: you're always fighting human behavior just at the juncture with
Speaker 1: which you should be investing. They're selling, they're selling their stocks.
Speaker 2: So let me ask you the flip side of the question.
Speaker 2: If you can't get people or if it's really challenging
Speaker 2: to make people comfortable with buying out of favor styles
Speaker 2: or companies, can you get them to sell the companies
Speaker 2: that are in favor and have had, you know, an
Speaker 2: exorbitant run up and are really pricey or is that
Speaker 2: just the other side of the same coin.
Speaker 1: It's the other side of the same coin. But I
Speaker 1: think what complicates is is taxes, sure, because people don't
Speaker 1: want to sell for taxes and general Electric was a
Speaker 1: very important experience in my life in a you know
Speaker 1: back in the nineties, which was it became the number
Speaker 1: one stock. Everyone loved it, and then you know, it
Speaker 1: went through a can't grow as quickly anymore. So the
Speaker 1: issue that I see in the industry is stocks never
Speaker 1: survive as the number one company, and so eventually they
Speaker 1: decline and people don't want to take money off the
Speaker 1: table when they're the number one or tops because they
Speaker 1: have big gains. And then ultimately people sold a lot
Speaker 1: of General Electric with a lot less of a gain.
Speaker 1: So the trick is is to reduce the exposures over time.
Speaker 1: So if I'm a core manager and I know that
Speaker 1: growth is expensive relative to its history versus value, we'll
Speaker 1: tilt the portfolio, but we won't go all into value
Speaker 1: all in growth because timing these things is very, very tricky.
Speaker 2: So you've been with Morgan Stanley since nineteen ninety one,
Speaker 2: three decades with the same firm, pretty rare these days.
Speaker 2: What makes the firm so special? What's kept you there
Speaker 2: for all this time?
Speaker 1: Well, you have to remember that when I started in
Speaker 1: nineteen ninety one, wealth management was a relatively small part
Speaker 1: of of the firm, and I give James Gorman tremendous credit.
Speaker 1: He really grew that area because of the stability of
Speaker 1: the cash flow. You know, I'm a pretty stable cash flow.
Speaker 1: And then when I progressed to Morgan Stanley Investment Management,
Speaker 1: it was the same concept, which was we value the
Speaker 1: multiple on stable cash flows is higher than on capital
Speaker 1: markets flows. And so that's I've kind of followed the
Speaker 1: progression of how Morgan Stanley's changed, and that's been a
Speaker 1: great opportunity. And then I look and say, well, I
Speaker 1: was able to go from wealth management into the asset
Speaker 1: management because the firm grew in that era. So it's
Speaker 1: been a tremendously great firm to be with. But I've
Speaker 1: you know, my career has changed over time as the
Speaker 1: firm's changed over time.
Speaker 2: Sure, I had John mac on about a year ago
Speaker 2: and he described that exact same thing, the appeal of
Speaker 2: wealth management, and part of the reason what was a
Speaker 2: Dean winner. The big acquisition that was done was, hey,
Speaker 2: this allows us to suffer the ups and downs in
Speaker 2: the other side of the business, which has potential for
Speaker 2: great rewards but no stability versus ready steady, moderate gains
Speaker 2: from the funeral wealth management.
Speaker 1: We bought Smith Barney another thing. So then over the
Speaker 1: acid management side, there's eating Vance each trade wealth management,
Speaker 1: and with eat Advance came Parametric and Calvert. So the
Speaker 1: firm has grown in the areas that I've grown personally.
Speaker 1: So it's been a great, great marriage for a long time.
Speaker 2: So your experience with General Electric, I had a similar
Speaker 2: experience with EMC and with Cisco late nineties, trying to
Speaker 2: get people to recognize, hey, this has been a fantastic run,
Speaker 2: but the growth engine isn't there, the trend has been broken.
Speaker 2: Don't be afraid to ring the bell. And I'm not
Speaker 2: an active trader. I'm a long term holder. Getting people
Speaker 2: to sell their winners not easy to.
Speaker 1: Do, very hard. But also when stocks get very very big,
Speaker 1: companies get very very big, it just gets tougher to grow.
Speaker 1: In my experience, and this has nothing to ge just
Speaker 1: in general, is when companies get big, usually the government
Speaker 1: starts looking into their business because they might dominate too much.
Speaker 1: And so it's a combination of why over time, and
Speaker 1: I know this is hard to believe given the last
Speaker 1: couple of years, why the equal weighted SMP does actually
Speaker 1: outperform the cap weighted S and P because companies mid
Speaker 1: cap companies that are moving up it's easier to grow.
Speaker 2: Well, it hasn't been twenty five years since the Microsoft
Speaker 2: any trust. Uh boy, that's that's that's amazing. How often
Speaker 2: are equal weight SMP outperforming?
Speaker 1: It outperforms about half the time. It's certainly had. I mean,
Speaker 1: think about last year and through October, the cap weighted
Speaker 1: to perform the equated by eleven hundred base ports. Wow.
Speaker 1: That's But the thing that's fascinating about this verier and
Speaker 1: again you know this is that it's always the first
Speaker 1: year off of bear market low investors sell. So tail
Speaker 1: flows were negative from the low of October twenty two
Speaker 1: until for a year in that November twenty three exactly.
Speaker 1: But if you go back to twenty twenty March of
Speaker 1: twenty twenty, flows were negative until February of twenty one.
Speaker 1: So it always takes about.
Speaker 2: A February twenty. That's amazing because from the lows in
Speaker 2: March it was a huge set of game.
Speaker 1: Net flows from muta funds ets. They're always negative the
Speaker 1: first year because of that rear view mirror recency bias.
Speaker 1: The reason why that's relevant, Barry, is because when investors
Speaker 1: finally said I shouldn't sell anymore, I should buy. They're
Speaker 1: not going to buy what's already worked. They're looking for
Speaker 1: other things and that's when the equated really started out before. Huh.
Speaker 1: Really interesting.
Speaker 2: So let's talk a little bit about your concept of
Speaker 2: applied investing. What does that mean? What is applied investing involved?
Speaker 1: Okay, so there's the theoretical story about it, and then
Speaker 1: there's a practical story. I'm sure you'll get a kick
Speaker 1: out of the practical, But the theoretical is that I
Speaker 1: don't believe that a stock price return comes purely from
Speaker 1: what's going on. Fundamentally, you have to decide should I
Speaker 1: own growth, value, large cap, mid cap US versus non
Speaker 1: US any stocks return? About two thirds of return in
Speaker 1: any one year can be defined by those, So we
Speaker 1: have to get that right first, and that's the quantitative size.
Speaker 1: So we use factor models to say, hey, should we
Speaker 1: own growth stocks or value stocks? And so we tilt
Speaker 1: our portfolios quantitatively based on which of those factors are
Speaker 1: setting a signal that they'll work in the future.
Speaker 2: So let me just make sure I understand this geography, size, sector,
Speaker 2: and style, all the four metrics. If you're looking at
Speaker 2: and trying to tilt into what you expect to be
Speaker 2: working away from.
Speaker 1: Exactly, and the goal of that is to keep people
Speaker 1: in the game. Flip side is you know things are
Speaker 1: out of favor, they can stay out of favor. The
Speaker 1: problem in this business is styles and investing can stay
Speaker 1: out of favor longer than the client's patients duration.
Speaker 2: Just look at value in the twenty tens. I mean,
Speaker 2: if you were not leaning into growth, you were left
Speaker 2: way behind exactly.
Speaker 1: And what I observe from my time being advisor is
Speaker 1: at the end of the day, clients don't really care
Speaker 1: where they own growth or value. They don't care where
Speaker 1: they own European US. They want to make money and
Speaker 1: they don't want to go backwards. And if all you
Speaker 1: keep saying is yes, but you know, my value manager
Speaker 1: has outperformed the value index and they're like, yeah, but
Speaker 1: the S and P is going through the roof, right,
Speaker 1: So you have to have some flexibility in your approach.
Speaker 1: So I wanted to start a group that at the
Speaker 1: core would use those quantitative metrics. But pure quantitative takes
Speaker 1: out kind of the fundamentals of investing, because a certain
Speaker 1: portion of a stock's return comes from what's going out
Speaker 1: the company level. And the other thing is if all
Speaker 1: I did was focused on the quantitative. You'd end up
Speaker 1: owning three hundred securities. So let's talk tom and an
Speaker 1: SMA can't do that, or you don't drive enough active share.
Speaker 2: SMA is separately managed account. Let's talk about active share.
Speaker 2: Because your portfolios are fairly concentrated. The US core portfolio
Speaker 2: is thirty to sixty companies. That's considered a modest holding,
Speaker 2: a concentrated holding. Tell us about the thinking behind that concentration.
Speaker 1: So it's funny going back to that first job at
Speaker 1: Brown Brothers, you know, and the time in the eighties,
Speaker 1: no one knew about passive investing. But I observed that,
Speaker 1: you know, they'd have these portfolios and they'd have kind
Speaker 1: of two or three stocks in every sector, so you'd
Speaker 1: end up with you know, one hundred, one hundred and
Speaker 1: fifty stocks, and you know, they not that they did poorly,
Speaker 1: but they never really you know, it's really hard to
Speaker 1: drive a lot of active you know.
Speaker 2: Performance everything is one to two percent.
Speaker 1: And at the time it wasn't really there wasn't really
Speaker 1: passive investing. But then as as time progressed, all these
Speaker 1: studies came out and said, well, actually the most excess
Speaker 1: return in active management comes from managers that are very,
Speaker 1: very active. And if you own one hundred and fifty
Speaker 1: stocks and you're the benchmark is the S and P,
Speaker 1: you're not active. So it was clear to me that
Speaker 1: we needed very concentrated portfolios but control the risk. And
Speaker 1: so that's why we run these limited portfolios. The applied
Speaker 1: term is so it gave some quantitative approach to what
Speaker 1: we do. But here's the practical barrier, which is, when
Speaker 1: the firm came to me and said, okay, you're going
Speaker 1: to become an asset management arm, you got to come
Speaker 1: up with a name for your team. I knew that
Speaker 1: these firms show asset management companies alphabetically, so apply to this.
Speaker 1: I wasn't going to be ze applied, right. I wanted
Speaker 1: to be at the top of the list.
Speaker 2: That's very that's triple a exterminator. So let's talk about
Speaker 2: two things you just mentioned. One is active share. But
Speaker 2: really what you're implying are that a lot of these
Speaker 2: other funds with two hundred and three hundred or more holdings,
Speaker 2: they're all high fee closet indexers. What's the value there?
Speaker 1: Right? And that's why as an active manager, I have
Speaker 1: nothing against ETFs. I think it's done great for the
Speaker 1: industry because shame on funds that own lots and lots
Speaker 1: of securities. You're not doing a service to your investing.
Speaker 1: But at the end of the day, if I marginally underperform,
Speaker 1: not me, but in general, you know, it will take
Speaker 1: time to lose your assets. You know, what's right for
Speaker 1: the money management firm is not always what's right for
Speaker 1: the investors. So the right thing is choose passive strategies.
Speaker 1: But there's a place for activities, but it's got to
Speaker 1: be active.
Speaker 2: Core and satellite. You have a core of a passive index,
Speaker 2: but you're surrounding it, which something that gives you a
Speaker 2: little opportunity for more upside exactly. Huh really really interesting.
Speaker 2: So if the US holdings are thirty to sixty companies,
Speaker 2: the global portfolio is even more concentrated about twenty companies.
Speaker 1: Yeah, I mean, so taking a step back again, one
Speaker 1: of the you know, remember I run mutual funds, but
Speaker 1: I started in the separate managed account business. So what
Speaker 1: it what means is they would wealth manage would implement
Speaker 1: our portfolio for individuals by buying socks. And one of
Speaker 1: the things that I observed is that clients pull from
Speaker 1: the market faster than they pull from stocks. So in
Speaker 1: other words, when you're worried about the market, if it's
Speaker 1: about the market some macro story, Well do you want
Speaker 1: to sell your Microsoft? Oh? No, I like Microsoft, but
Speaker 1: I'm worried about the market. Okay, Well, owning individual securities
Speaker 1: is really powerful because it actually keeps people invested.
Speaker 2: There's a brand name, there's a brand.
Speaker 1: Exactly, so people are more likely to pull from the market.
Speaker 1: So I believe in owning stocks. But the problem is
Speaker 1: again it goes back to but if you own two
Speaker 1: hundred sucks, then they don't have any wedded So did
Speaker 1: we start a strategy? We started this so eight where
Speaker 1: all the securities would be on one page. That's amazing.
Speaker 2: So your global portfolio also has some international US companies.
Speaker 2: So in addition to things like LVMH and some other
Speaker 2: international stocks, you have Microsoft, you have Costco. Correct, what's
Speaker 2: the thinking of putting those because giant US companies in
Speaker 2: a global portfolio.
Speaker 1: It goes back to Barry that concept, which is clients
Speaker 1: don't care really where they make their money. And the
Speaker 1: problem with the benefit of global global strategies. I can
Speaker 1: own some US stocks and international only I can't own
Speaker 1: and what happens If the US just so happens to
Speaker 1: do better than the rest of the world, then international
Speaker 1: doesn't work as well. So it just gives us more
Speaker 1: flex It's that flexible flexibility to go where the opportunity
Speaker 1: set up.
Speaker 2: And to that point, your fund. The Morgan Stanley Institutional
Speaker 2: Global Concentrated Funds, which does have US stock trounce the
Speaker 2: MSCI X US because the US has been out performing international.
Speaker 2: That's another style for fifty since the financial crisis. The
Speaker 2: US has been crushing everyone else.
Speaker 1: But think about this way also, if I can own
Speaker 1: twenty stocks, okay, but they're not all correlated to each other,
Speaker 1: so they have a lot of different themes. Like I
Speaker 1: really like this the infrastructure stocks right now, but I
Speaker 1: also think they're a place as you said Microsoft, but
Speaker 1: luxury brands only a few stocks but have a different theme.
Speaker 1: Then I can control the risk in the portfolio. You
Speaker 1: act to share, good concentrate high act to share, but
Speaker 1: lower kind of risk.
Speaker 2: So when I look at the Morgan Stanley Institutional US Core,
Speaker 2: the description is we seek to outperform the benchmark, regardless
Speaker 2: of which investment style, value or growth, is currently in favor.
Speaker 2: So your style agnostic. You want to just stay with
Speaker 2: what's working exactly.
Speaker 1: And Philip Kim is the other portfolio manager. We've worked
Speaker 1: together fourteen years. I started these quantitative models and then
Speaker 1: he really took it to the next level, and this
Speaker 1: was what has the likelihood of outperforming for the next
Speaker 1: twelve to eighteen months. From a style standpoint, that's how
Speaker 1: we buy us the portfolio. Things could get just too expensive,
Speaker 1: things get too cheaps, but we need to see some
Speaker 1: migration in the opposite direction, and then we buy us accordingly.
Speaker 1: We want to stay in the game.
Speaker 2: What about the Russell three thousand strategy that's not It's
Speaker 2: obviously more concentrated than the Russell, but it's still a
Speaker 2: few hundred stocks. Tell us what goes into that thing.
Speaker 1: Well, we noticed that our just our quantitative factor model
Speaker 1: alone was doing well right beyond just adding the stock
Speaker 1: to buy. So we wanted to start a strategy that
Speaker 1: would add a little bit of excess return versus just
Speaker 1: buying an ETF that was just focused on that factor models,
Speaker 1: but we would diverse five away. The stock risk really intriguing.
Speaker 2: So let's talk a little bit about Slimmon's take, which
Speaker 2: is not only widely read at Morgan Stanley, it's also
Speaker 2: pretty widely distributed on the street itself. Towards the end
Speaker 2: of twenty twenty three, you put out a piece a
Speaker 2: few lessons from the year, and I thought some of
Speaker 2: these were really fascinating, Starting with the S and B
Speaker 2: five hundred has produced a positive return in sixty seven
Speaker 2: of the past ninety three years, the market produced two
Speaker 2: consecutive down years only eleven times. That's amazing.
Speaker 1: I had no idea. Well, I mean, think about it,
Speaker 1: the likelihood over time in any one year the market's
Speaker 1: going to go up, and if it doesn't go up,
Speaker 1: that's irregular, but then to have another year in a
Speaker 1: row is very very irregular. So that's why being in
Speaker 1: twenty twenty three saying hey, it's it's highly likely it's
Speaker 1: going to be a good year, just purely based on
Speaker 1: the odds, and then you layer in that whole recency
Speaker 1: by rear view mirror, and people were way too negative.
Speaker 2: Yeah, At the end of twenty twenty two, the SMP
Speaker 2: peak to troth was down about twenty five percent. You
Speaker 2: point out there were only eight instances since nineteen sixty
Speaker 2: where you had that level of draw down and the
Speaker 2: average one year return was twenty two percent following that.
Speaker 1: So I put out a piece in September of twenty
Speaker 1: twenty two saying market's down twenty percent, you should add
Speaker 1: money down twenty percent, And of course I felt like
Speaker 1: an idiot, you know, a month later, because and then
Speaker 1: the mark was down twenty five percent, and I produce
Speaker 1: a piece saying the average return is just over twenty
Speaker 1: percent if you buy into down twenty five percent, which
Speaker 1: doesn't necessarily mean it stops going down, right, But what's
Speaker 1: amazing about that is, you know what the return off
Speaker 1: that October twenty second low of twenty twenty two was
Speaker 1: thirty something twenty one percent. Oh really, dead right, dead
Speaker 1: on in line. It's uncanny how these things repeat itself.
Speaker 1: And that's Barry again. It goes back to, you know,
Speaker 1: your experience experiences the macro changes, but behaviors don't. That's
Speaker 1: the consistency of this business. And that's what I'm fascinated with.
Speaker 2: Human nature is what it is, no doubt about it.
Speaker 1: And that's what gave me confident that the fun flows
Speaker 1: would turn positive at some point in the fourth quarter,
Speaker 1: because it was a year off below.
Speaker 2: I really liked that be dubious when a stock is
Speaker 2: declared expensive or cheap based on a singular evaluation methodology
Speaker 2: like pe, this is a pet peeve of mine. The
Speaker 2: E is an estimate, it's someone's opinion. How can you
Speaker 2: rely on something, especially from someone who doesn't have a
Speaker 2: great track record of.
Speaker 1: Making it's the I think that's the biggest air investors
Speaker 1: make over time is well, this stock is you know,
Speaker 1: as you said, this stock is cheap or this market.
Speaker 1: Think about Europe mark. Europe has looked cheaper than the
Speaker 1: US for a number of years. The flaw on that
Speaker 1: is the E is a forward estimate, and it's turned
Speaker 1: out that the E for Europe hasn't been as good
Speaker 1: as what's expected, and the E for the US, especially
Speaker 1: the NASTAC has been a lot higher than was expected.
Speaker 1: So the denominator has come up in the US, which
Speaker 1: makes it Pe lower, and the denominator has come down US,
Speaker 1: which made it look more expensive.
Speaker 2: So that's always amazing is if the estimates are wrong
Speaker 2: to the downside, well then expensive stocks aren't that expensive,
Speaker 2: and vice versa. If the estimates are too high, cheap
Speaker 2: stocks really ain't cheap right.
Speaker 1: I watched that, but we also watch revisions, and I've
Speaker 1: learned also from being, you know, cynically in this business.
Speaker 1: Companies don't always come clean right away and say, oh,
Speaker 1: business really bad. It's that they drip out the news.
Speaker 1: Usually one bad quote as follows another bad quote. I mean,
Speaker 1: it's very rare, so be careful that. And analysts are
Speaker 1: slow to adjust their numbers. Anytime someone says, I'm cutting
Speaker 1: my estimates, cutting my price target, but I think it's bottomed. Yeah,
Speaker 1: be careful.
Speaker 2: That's always amusing. I thought this was really very perceptive.
Speaker 2: Over thirty seven years in the investment business, I have
Speaker 2: become convinced that the most money is made when perceptions
Speaker 2: move from very bad to less bad. I love that
Speaker 2: because if you've lived through the dot com implosion, or
Speaker 2: the financial crisis, or even the first quarter of twenty twenty,
Speaker 2: you know how true that is.
Speaker 1: Think about last year. You know it's the old saying
Speaker 1: by Sir John Templeton. Bull markets are born on pessimism,
Speaker 1: they grow in skepticism, they mature on optimism, and they
Speaker 1: die on you for it. Well, we had a bear
Speaker 1: market bottom in October of twenty twenty two. And so
Speaker 1: we came into last year twenty twenty three, with it's
Speaker 1: going to be a hard landing, it's going to be bad,
Speaker 1: and so there's high levels of pessimism. And now as
Speaker 1: you advance into the fourth quarter, fun flows turned positive
Speaker 1: as people realize, well, maybe it wasn't gonna be so bad.
Speaker 1: We've moved into the skepticism phase. So that's why the
Speaker 1: biggest return year is always the first year off the low,
Speaker 1: because that's the biggest pivot and has the least volatility.
Speaker 1: We didn't have a lot of volatility last year, and.
Speaker 2: We saw that in eight oh nine, and we saw
Speaker 2: that in twenty twenty twenty. It was really, it was
Speaker 2: really quite amazing. The flip side of this is also true,
Speaker 2: which is most money is lost when things moved from
Speaker 2: great to just good.
Speaker 1: Well again, if I go back to kind of growth investing,
Speaker 1: it got expensive and the growth rates of companies were
Speaker 1: quite as good. And you know, in twenty twenty two
Speaker 1: and the Fed started raising rates and that was problematic.
Speaker 1: It was no different. It reminded me a little bit
Speaker 1: of the dot com bubble. What brought down the dot
Speaker 1: com bubble is that companies just couldn't report the earnings
Speaker 1: that were expected, and you had plenty of time to
Speaker 1: get out. But the problem is what I said on
Speaker 1: the dot com bubble, people wanted to kept buying these
Speaker 1: stocks as they're going lower because they were you know,
Speaker 1: rear view mirror investing. They were their previous the loves.
Speaker 1: And what's amazing is think about I said before half
Speaker 1: the value managers allount of business ninety nine. By the
Speaker 1: year two thousand and eight, you know what the biggest
Speaker 1: sector of the SMP was financials. They grew from nothing
Speaker 1: to thirty percent of the sp So value worked all
Speaker 1: through the first period until we know what happened in
Speaker 1: Great Financial Crisis.
Speaker 2: It's amazing that muscle memory. When you're rewarded for buying
Speaker 2: the dip for a decade, it's a tough habit to break, exactly.
Speaker 2: So here's another really interesting observation of yours. Whatever the
Speaker 2: hot product is rarely works the next twelve months.
Speaker 1: It's because a hot product invariably pushes oftentimes valuations to
Speaker 1: extreme And one of the things that we got very
Speaker 1: right in twenty twenty three was in twenty twenty two
Speaker 1: bear market, what did people buy into the lows of
Speaker 1: bear market they bought defense stocks. Dividend oriented, low volatility
Speaker 1: type strategies became very popular in twenty twenty two during
Speaker 1: a bear market, and so we could see that the
Speaker 1: defensive factor safety became very expensive. So as we came
Speaker 1: out of this bear market, what lack consumer staples, healthcare utilities,
Speaker 1: all the safe things, so hot products pushes things to
Speaker 1: extreme and that usually, you know, unwinds itself badly.
Speaker 2: Historically, once the FED stops hiking rates, equity rallies last
Speaker 2: longer and go higher than anyone expects.
Speaker 1: Explain the thinking though, So I think it's good news
Speaker 1: for this year, but also worries me about this year
Speaker 1: is if you look at the history of the period
Speaker 1: of time when the FED said we're done hiking till
Speaker 1: we're going to cut, that period does very very well
Speaker 1: for equities, and we're kind of at a juncture where
Speaker 1: we've done pretty well. But if they're not going to
Speaker 1: cut rates until the summer, I think there's more room
Speaker 1: to run for stocks now. The flip side is I
Speaker 1: hear a lot of people talk about when the FED cuts,
Speaker 1: the perception that that's going to be good for equities.
Speaker 1: I'm not so sure about that because if you look
Speaker 1: back in history, when the FED cuts, markets tend to
Speaker 1: go down initially, not up. And you could argue yes,
Speaker 1: but Andrew, that's because usually when they're raising rates, it's
Speaker 1: an economic cycle, and therefore, if they're cutting, there's a
Speaker 1: problem and this time is all about inflation. But what
Speaker 1: worries me is when the Fed does announce the cut, well,
Speaker 1: people say, oh, they know something you don't know. There's
Speaker 1: a problem out there, And I think there's an that
Speaker 1: will increase the anxiety. And so I think that's we're
Speaker 1: in a good period right now. But it worries me
Speaker 1: when they do cut, will it be people start to
Speaker 1: worry about there's a problem in the economy.
Speaker 2: See, I'm a student of Federal Reserve history, and I
Speaker 2: could say with a high degree of confidence, they don't
Speaker 2: know anything that you don't know. They look at the
Speaker 2: same data. They're populated by humans. None of them have
Speaker 2: demonstrated any particular sort of prescience. And if we watched
Speaker 2: the past decade, they were late to get off their
Speaker 2: emergency footing. They were late to recognize inflation, they were
Speaker 2: late to recognize inflation peaked, and now it feels like
Speaker 2: they're late to recognize, Hey, you guys, won you begin
Speaker 2: inflation take a victory lap. They seem to always be
Speaker 2: talking about backwards looking. They always seem to be behind
Speaker 2: the right.
Speaker 1: But I just think the stock market is an emotional beast. Sure,
Speaker 1: And you know, and I looked last year and the
Speaker 1: bears people were too pessimistic. Every time they popped their
Speaker 1: head out of the den, they got stampeded. And so
Speaker 1: they'll have a better year this year. And I think
Speaker 1: it will scare investors, and cynically, I can't help but think, well,
Speaker 1: people missed. A lot of people missed last year, and
Speaker 1: the other started to get back in. And after a
Speaker 1: very low volatility year, there's always more volatile the next year,
Speaker 1: and so it's inevitable it's going to be more. It
Speaker 1: doesn't mean it'll be a bad year for equities, it
Speaker 1: just will have more gut wrenching periods.
Speaker 2: I love this data point. Since nineteen forty, markets have
Speaker 2: always gone up in the year when an incumbent president
Speaker 2: runs for reelection seventeen for seventeen. Now, if we break
Speaker 2: that down, what you're really saying is, hey, if an
Speaker 2: incumbent isn't running, the economy really has to be in
Speaker 2: the stinkaroo when the stock market is following. But anytime
Speaker 2: an incumbent is running typically means we're doing pretty okay well.
Speaker 1: And remember I said, didn't get reelected, just ran for reelection, right,
Speaker 1: And so what happens, and I see it this year,
Speaker 1: is when presidents run for reelection, they want to juice
Speaker 1: the economy. They want the economy going well. And we
Speaker 1: have Joe Biden has in his pocket the Infrastructure Act,
Speaker 1: the Chips Act, in the Inflation Reduction Act, we own.
Speaker 1: The reason why we own industrial stocks is because they
Speaker 1: are telling us that the money is just starting to
Speaker 1: come in from the government and these projects are getting
Speaker 1: just getting off the way. We've seen this with the
Speaker 1: Chips Act. That money has just started poor. That's why
Speaker 1: the market tends do well, because the economy stays afloat
Speaker 1: during a reelection year.
Speaker 2: And the really interesting thing about all this, you know,
Speaker 2: it's funny. The twenty twenties is the decade of fiscal stimulus,
Speaker 2: whereas the twenty tens were monetary stimulus. The first three
Speaker 2: Cares Acts, that was just a boatload of money that
Speaker 2: hit the market, hits the economy all at once. Each
Speaker 2: of the legislation packages you mentioned that's spending over a decade,
Speaker 2: that could be a pretty decent tail wind for a while.
Speaker 1: Very interesting between listening to Wall Street and what you
Speaker 1: listen to companies. And so I'm a company guy. I
Speaker 1: listen to companies, and I'll give you a great example.
Speaker 1: Right now, people think the consumer is getting tapped out,
Speaker 1: but on the costco call the other day, they say
Speaker 1: they see big ticket purchase items reaccelerating. Well, wait a minute,
Speaker 1: I thought, the considering which is it? Which is it? Right?
Speaker 1: And you know, and so the point of this is
Speaker 1: is that I go back to listen to what companies say,
Speaker 1: and I suspect as food inflation starts to come down
Speaker 1: and people have jobs, they actually could start to go buy,
Speaker 1: you know, higher ticket purchases.
Speaker 2: And we've seen some uptick in credit card use, but
Speaker 2: nothing problematic with the ability to service that debt still
Speaker 2: seems to be very much intact.
Speaker 1: Correct, And that goes back to last year. One of
Speaker 1: the reasons. The other reason I was optimistic is I
Speaker 1: kept hearing our companies say to me, I'm being told
Speaker 1: the recessions around the corner, but our business seems to
Speaker 1: be doing with it. We don't see it.
Speaker 2: That's really amazing. So let's talk a little bit about
Speaker 2: who your clients are. You obviously are working with all
Speaker 2: the advisors at Morgan Stanley, but you're managing mutual funds.
Speaker 2: Who are the buyers of those funds? Are they in house?
Speaker 2: Are they the rest of the investing community? Who are
Speaker 2: your clients?
Speaker 1: Yeah? I mean so that's when I left being advisor
Speaker 1: in two thousand and four, I started this group within
Speaker 1: more coan Stailing Wealth Management with the products were only
Speaker 1: available to financial advisors at Morgan Stailing. But when I
Speaker 1: left to go into more Cogan Saliing Investment Management in
Speaker 1: twenty fourteen, the purpose of that was to make my
Speaker 1: products available beyond more con Stailing Wealth Management because I
Speaker 1: was getting calls from consultants and institutional investors saying, how
Speaker 1: do we get access to these funds? And I'd have
Speaker 1: to think, well, you have to go through advisors, So
Speaker 1: that I wanted to broaden out the reach beyond. So
Speaker 1: I would say, we're on a number of platforms. You
Speaker 1: can buy our funds through the self directed route, and
Speaker 1: so we're broading out the distribution. And you mentioned the
Speaker 1: slim and take before that is a methodology that we
Speaker 1: use to reach out to our investor base. Obviously, I'd
Speaker 1: love to talk to each of every one of them,
Speaker 1: but I can't. But I've learned in this business, if
Speaker 1: you communicate in a way that they can understand. I
Speaker 1: don't mean understanding in a bad way, like but writing
Speaker 1: a six page di tribe about why my stocks are
Speaker 1: so great and why the rest of the market stinks,
Speaker 1: no one's going to read that. They put it aside
Speaker 1: and say I'll read it tonight, then they don't. But
Speaker 1: if you can provide short bullets of what's going on
Speaker 1: in the market, why people should be bullish or bearish,
Speaker 1: you provide them with talking points. And that's what we
Speaker 1: really try to do within the firm, but beyond the
Speaker 1: firm as well.
Speaker 2: Yeah, one of the reasons I like Slimmon's take is
Speaker 2: you really boil things down to brass tacks. You're not
Speaker 2: afraid to use third parties in some of your competitors research.
Speaker 2: You cite other people on the street when they have
Speaker 2: an interesting data point or and I very much appreciate
Speaker 2: that because a lot of people sort of take the
Speaker 2: if it wasn't invented here, it doesn't exist to us.
Speaker 1: Yeah, I mean, look, I want to grow the assets,
Speaker 1: I want to perform well, but I value the response
Speaker 1: is from those who sit on the front lines dealing
Speaker 1: with clients every day, because they're the ones that feel
Speaker 1: kind of the emotional side of the business. If you
Speaker 1: sit back in my office and all I'm looking at
Speaker 1: a company and just evaluating whether it's pe is appropriate
Speaker 1: and earnings, you're missing a huge part of this business.
Speaker 1: It's a behavioral business, and so having access to advisors
Speaker 1: and listening to their feedback is so important.
Speaker 2: So you serve on Morgan Stanley's Wealth Management's Global Investment Committee,
Speaker 2: what is that experience? Like, I would imagine that's a
Speaker 2: huge amount of capital and a tremendous responsibility.
Speaker 1: It is a huge amount of capital and it drives
Speaker 1: kind of suggested asset allocation for advisors. They don't necessarily
Speaker 1: have to pursue it that way. My input is obviously
Speaker 1: on the equity side, but they have people in the
Speaker 1: the fixed income, high yield alternatives and they all provide
Speaker 1: inputs into framing and overview. So I'm really I sit
Speaker 1: in more than Stanily Investment Management, but I do provide
Speaker 1: that context and I think they like to have me
Speaker 1: on because I actually have skin in the game and
Speaker 1: I run money for a living, and I'm not always
Speaker 1: there saying you gotta buy growth, you gotta buy value.
Speaker 1: So I'm an agnostic. I'm just trying to figure out
Speaker 1: where the kind of the ball is going.
Speaker 2: So in the old days, you used to speak with
Speaker 2: retail investors all the time as a PM. Do you
Speaker 2: miss that back and forth because there is some signal
Speaker 2: in all of that noise, whether it's fear or greed
Speaker 2: or emotion. How do you operate being arm's length away
Speaker 2: from that.
Speaker 1: That is a big concern I have is losing that access.
Speaker 1: So I still I'm going to I'm speaking an event
Speaker 1: tonight with you know, a room full of advisors, so
Speaker 1: and then you know, we'll get together afterwards and I'll
Speaker 1: listen to what they have to say. So I'm always
Speaker 1: interested in feedback that I get from advised. Obviously, I
Speaker 1: can't spend all day talking on the phone. That's the
Speaker 1: big reason why I left being an advisor was I recognize, hey,
Speaker 1: being advisor, you got to talk to your clients. So
Speaker 1: forth you can't manage money, and we're into you can't
Speaker 1: do both and anyone that things you can't you know,
Speaker 1: it's it's crazy and I really want to develop these models.
Speaker 1: But so so all these communication ways like slim and
Speaker 1: take is a way to be in touch with advisors,
Speaker 1: encourage them. Hey, you think you disagree, send me an email.
Speaker 1: You know, I'm happy to happy to hear from you
Speaker 1: because I think that's very important and really behavioral finance.
Speaker 1: You know, the longer I've been in this busin I've
Speaker 1: been in this business a long time, it's the behavioral
Speaker 1: finance that's the consistency of this business. Geopolitics changes, right,
Speaker 1: but how people react is it's not right.
Speaker 2: You can't control what country is invading what other country, but.
Speaker 1: You can manage your own behavior. And people a hard
Speaker 1: time with that exactly.
Speaker 2: It's really interesting. I know only have you for another
Speaker 2: five minutes, so let me jump to my favorite questions.
Speaker 2: I ask all of my guests starting with what have
Speaker 2: you been screaming these days? Tell us what's been either
Speaker 2: audio or video? What's been keeping you entertained?
Speaker 1: Yeah, so, if I think about my career, no one
Speaker 1: took me aside and said this is how you manage money, right, Like,
Speaker 1: think about it. I learned about fundamental research, I learned
Speaker 1: about quantitative I learn about the practicality of being in
Speaker 1: wealth management. And so I've always researched and watched. And
Speaker 1: what does that do to do with your question is
Speaker 1: I've learned my way to being successful portfolio managers. So
Speaker 1: I'm obsessed with kind of always learning along the way.
Speaker 1: So you know, when I watch podcasts, it's all about
Speaker 1: well or or listen to podcasts or watch you know things,
Speaker 1: it's all how to advance my knowledge base. Now, I
Speaker 1: did play tennis, you know, in college, and so I
Speaker 1: love all those you know, breakpoint first tea, know the
Speaker 1: formula one. I love all those things. But but you know,
Speaker 1: as my wife gets frustrated with me because I'm probably
Speaker 1: not gonna sit down and watch a three hour mindless
Speaker 1: movie because it's kind of like not not advancing, huh.
Speaker 2: Really really interesting to tell us about your mentors who
Speaker 2: helped to.
Speaker 1: Shape your career. So I mean, again, I look at
Speaker 1: points along the way we're in their valuable. When I
Speaker 1: got to Morgan Stanley Byron Ween, who you know, I
Speaker 1: barely knew, but he was the first person that I
Speaker 1: recognized had this very good touch of fundamentals. But also
Speaker 1: the psychology, and so he was a great mentor, even
Speaker 1: though he never really knew me, but listening and reading
Speaker 1: and understanding him was really important. But then I had
Speaker 1: a guy who ran our department named Glenn Reagan, who
Speaker 1: had come from studying money management organizations, and I didn't
Speaker 1: know how to start on money management organizing because it
Speaker 1: was a team within and how do you grow and diversify.
Speaker 1: So there's different people along the way that have really
Speaker 1: shaped me. I came out of Universe Chicago. Gene Fama
Speaker 1: told me buy cheap stocks. But then William O'Neill said, yeah,
Speaker 1: but that doesn't work, and you need to have some
Speaker 1: momentum to you, you know, like he didn't tell cancel. You
Speaker 1: need to know you had a little cancelor, so you
Speaker 1: need to cancel exactly. So there's been people along the
Speaker 1: way that have been great influences on me, that have
Speaker 1: mentioned me at the right time in my correct.
Speaker 2: What are some of your favorite books? And what are
Speaker 2: you reading right now?
Speaker 1: I just finished Same as Ever by Morgan House. Again,
Speaker 1: this concept of behavioral I will eat up at you
Speaker 1: put a behavioral anything about behaviors in front of me.
Speaker 1: I read it so like you know, Richard Thalor or
Speaker 1: misbehaving or you know, think fast and slow, all those
Speaker 1: boasts of books. Daniel Crosby is another one all those books.
Speaker 1: I just but I just finished that and I just
Speaker 1: love it because again, all he spends the whole book
Speaker 1: is about these things. They just don't change over to
Speaker 1: human nature, human human nature. I'll tell you the last story,
Speaker 1: so or I was tell you story I was. I
Speaker 1: was on the floor of the New York Stocks Change
Speaker 1: the day that Russian Vada Crimea and one of my
Speaker 1: stocks was down. My biggest position was down eight percent
Speaker 1: that day. And I said, they don't have any stores
Speaker 1: in Crimea. Why is a stock down? Well, because it
Speaker 1: was geopolitics, well you know. And within three days the
Speaker 1: stock came running back. So it's all it points to
Speaker 1: is sometimes fundamentals dislodge from you know, the stock prices,
Speaker 1: and you have to understand that there's a behavioral element.
Speaker 2: My favorite version of that story was are you familiar
Speaker 2: with Cuba? So Obama announces we're going to normalize or
Speaker 2: start the process of normalizing relationships with Cuba. There's a
Speaker 2: stock that trades under the symbol Cuba, having nothing whatsoever,
Speaker 2: and it runs up twenty percent just on the announcement
Speaker 2: because some algorithm picked up Cuba and bought it and
Speaker 2: off we go. Amazing. All right, our final two questions,
Speaker 2: what sort of advice would you give to a recent
Speaker 2: college grad interested in the career in either investment management
Speaker 2: or finance.
Speaker 1: Yeah, so it's interested to have for kids that are,
Speaker 1: you know, in the process of or have just come
Speaker 1: out of college, or in the process of it. And
Speaker 1: one of the dangers I see today is kids come
Speaker 1: out of school and they think they know exactly what
Speaker 1: they want to do, you know, and then and I'll say,
Speaker 1: you don't know what your capabilities are when you're twenty
Speaker 1: two years old. I mean I was an introvert where
Speaker 1: I was twenty two. I've I've realized in their early thirties,
Speaker 1: I knew how to communicate. So I all say, get
Speaker 1: into if you can get into a firm that has
Speaker 1: a lot of opportunities. You know, today there's less training programs,
Speaker 1: but those types of things with lots of opportunities. Because
Speaker 1: you don't know what you're going to be good at
Speaker 1: and what you're good at, always follow what you think
Speaker 1: you're interested in as long as it makes money, because
Speaker 1: that's ultimately, but you don't know initially. So I always
Speaker 1: encourage people initially, don't come out and say I want
Speaker 1: to do this the rest of my life. You don't know.
Speaker 1: That's too narrow. Try to go to something broad. That's
Speaker 1: the first advice. And I see today we're people too
Speaker 1: narrow in their focus.
Speaker 2: I think that's great advice. People. Most of the folks
Speaker 2: I work with who are very successful, they're not doing
Speaker 2: what they did right out of school. And to imagine
Speaker 2: that that's going to be your career very much misleading.
Speaker 2: And our final question, what do you know about the
Speaker 2: world of investing today that you wish you knew thirty
Speaker 2: plus years ago when you were first getting started.
Speaker 1: Well, I think, you know, thirty years ago, I thought
Speaker 1: it was all about just what's going at the company level,
Speaker 1: and then I realized, oh wait, that doesn't really you know,
Speaker 1: drive most of a stocks return, So you have to
Speaker 1: understand more about the broader implications of companies. I think
Speaker 1: thirty years ago there was less dissemination of fundamental news broadly.
Speaker 1: Today it's much you know, it's much broader, so having
Speaker 1: information access fundamentally is more more difficult. So I think
Speaker 1: the business has changed, but again I go back to
Speaker 1: I think the biggest change in how I think about
Speaker 1: it as behaviorally. I've come to the real estate that
Speaker 1: being an advisor, sitting on the front line. I view
Speaker 1: that as a very key part of what's shaped my career.
Speaker 1: Understanding that, you know, again, it doesn't matter that the
Speaker 1: company didn't have any stories in Crimea it went down
Speaker 1: for you know quite a bit, or your Cuba story.
Speaker 1: I mean that there's just a behavioral element to this
Speaker 1: investing investing business. And look, you know again, I go
Speaker 1: a great example which I've mentioned before, which is it
Speaker 1: didn't matter what gross stocks you're own. In twenty twenty two,
Speaker 1: they all went down right, and so was it. All
Speaker 1: the companies did poorly, no growth, got too overbought, and
Speaker 1: so it had a correction. They all came back last year,
Speaker 1: you know, so understanding kind of those behaviors. I love
Speaker 1: that Warren Buffett quote investors framed their view looking solidly
Speaker 1: in the rearview mirror. Understanding that and having the ability
Speaker 1: to attack against that. That's really what's worked for me
Speaker 1: over time.
Speaker 2: Really fascinating stuff. Thank you Andrew for being so generous
Speaker 2: with your time. We have been speaking with Andrew Slimon.
Speaker 2: He's Managing director at Morgan Stanley Investment Management, where he
Speaker 2: is also lead portfolio manager for the long equity Strategies
Speaker 2: for the Applied Equity Advisors team. If you enjoy this conversation,
Speaker 2: be sure and check out any of the five hundred
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Speaker 2: the Masters in Business podcast feed. I would be remiss
Speaker 2: if I did not thank the Cracked team that helps
Speaker 2: put these conversations together each week. Meredith Frank is my
Speaker 2: audio engineer. Attika of Albron is my project manager. Shortan
Speaker 2: Russo is my head of research. Anna Luke is my producer.
Speaker 2: I'm Barry Ridolts. You've been listening to masters of business
Speaker 2: on Bloomberg Radio.