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Speaker 1: This is Master's in Business with Barry rid Holds on

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Speaker 1: Bloomberg Radio.

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Speaker 2: This week on the podcast, I have an extra special guest,

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Speaker 2: Greg Davis, chief investment officer at a little shop called

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Speaker 2: the Vanguard Group, which manages eight trillion dollars. He's only

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Speaker 2: responsible for seven point three trillion of it, so kind

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Speaker 2: of a slacker. I found this conversation to be absolutely

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Speaker 2: a masterclass in how to think about investing risk, how

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Speaker 2: to think about where your returns come from, what sort

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Speaker 2: of behavioral problems lead to bad outcomes, and all of

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Speaker 2: the usual things that we've learned over the years from

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Speaker 2: the success of Vanguard. Few people are in a position

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Speaker 2: to see what's going on in the world of investing,

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Speaker 2: whether it's institutional or retail, better than Vanguard's CIO, and

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Speaker 2: Greg Day just does an amazing job. I thought this

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Speaker 2: was a really fascinating conversation. I think you will also

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Speaker 2: with no further ado, my interview with Vanguard CIO Greg Davis.

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Speaker 2: Greg Davis, Welcome to Bloomberg.

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Speaker 1: Thanks very great to be here with you.

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Speaker 2: Great to have you. So let's talk a little bit

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Speaker 2: about your background, which is kind of interesting. Undergraduate you

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Speaker 2: get a BSN insurance from Penn State. What led to

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Speaker 2: an interest in insurance.

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Speaker 3: It's a long story, but originally I went to school

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Speaker 3: for engineering. Got to school, realized that I wasn't very

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Speaker 3: good at mechanical drawing, which is a big part of

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Speaker 3: aerospace engineering curriculum. So I started to look at other

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Speaker 3: opportunities and primarily in a business space, so start examining

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Speaker 3: opportunities in finance, real estate, and insurance. Penn State was

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Speaker 3: one of the few schools that actually had an insurance major,

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Speaker 3: and you know, with the goal of actually getting becoming

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Speaker 3: gainfully employed. When I graduated college, I thought, hey, having

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Speaker 3: a a somewhat unique background would be helpful and it

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Speaker 3: worked out. And had multiple job offers coming out of

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Speaker 3: school from a number of different insurance companies and had

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Speaker 3: an opportunity to be an underwriter for a few years

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Speaker 3: before I decided to go back to school to get

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Speaker 3: the NBA.

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Speaker 2: How'd you end up at Merrill Lynch in the nineteen nineties,

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Speaker 2: So I ended up going through the Wharton program.

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Speaker 3: I did an internship in the summer at City Bank

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Speaker 3: Securities and fixing come sales and trading, got a couple

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Speaker 3: different job offers across the Street. But the reason I

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Speaker 3: went to Meryl was because they had this unique global

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Speaker 3: debt rotation program that allowed you to rotate through a

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Speaker 3: couple of different business units in fixingcome sales, and trading,

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Speaker 3: and I knew I wanted to do trading.

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Speaker 2: Were you at the Downtown the World Final Financial by

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Speaker 2: the way, that could be the most amazing trading desk.

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Speaker 2: I've been there a couple of times, and in the

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Speaker 2: nineteen nineties, when you walked onto the equity floor, you

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Speaker 2: were just hit with a wall of sound and energy.

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Speaker 2: I've never seen or experienced anything like that anywhere else.

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Speaker 3: And the fixed income floor was equally sized, just on

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Speaker 3: a different floor, but also a similar type environment. But

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Speaker 3: it was a very interesting place to start a career

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Speaker 3: after grad school. But that experience got cut short because

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Speaker 3: right around that time when my class started, it was

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Speaker 3: the tail end of the Asian financial crisis, the.

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Speaker 2: Russian roue seven or ninety eight.

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Speaker 3: I started in the beginning of I started in September

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Speaker 3: of ninety eight, and that happened in ninety seven, but

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Speaker 3: you had the Asian financial crisis, the Russian ruble devaluation,

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Speaker 3: and then you had long term capital management blowing up.

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Speaker 3: So there was a lot of changes that was happening

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Speaker 3: across the street in terms of you know, layoffs happening,

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Speaker 3: and our program got cut short, ended up getting placed

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Speaker 3: in a non trading role, and you know, decided to

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Speaker 3: look at other opportunities outside and came across this great

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Speaker 3: opportunity to pursue trading at Vanguard, you know, twenty four

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Speaker 3: years ago.

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Speaker 2: So let's talk about that, and your bio explains how

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Speaker 2: you were recruited to Van Guard. I thought that was

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Speaker 2: a really interesting story. Tell us a little bit about

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Speaker 2: what brought you to Vanguard.

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Speaker 3: So it was interesting because I was pretty pretty keen

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Speaker 3: on staying in New York. I had a number of

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Speaker 3: relationships that I built up and had another job lined

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Speaker 3: up in New York City. But one of my best

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Speaker 3: friends that I grew up with actually worked in the

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Speaker 3: HR department at Vanguard, and she was like, you should

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Speaker 3: come down and talk to some people at Vanguard, And

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Speaker 3: at first I kind of blew it off, but she

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Speaker 3: was pretty persistent. So I came down, met with our

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Speaker 3: head of the portfolio review department, which oversees our external managers,

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Speaker 3: met with our head of brokerage, and then met with

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Speaker 3: the head of Bond Indexing, who was Ken Volpert at

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Speaker 3: the time, and me and him had an instant connection,

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Speaker 3: and so Ken was the main reason I came to Vanguard.

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Speaker 3: Vanguard had a great reputation already we were much smaller

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Speaker 3: at the time, but Ken had a track record of

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Speaker 3: bringing new people onto his team, developing them and seeing

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Speaker 3: them move into bigger jobs over time. And as somebody

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Speaker 3: who was relatively new to the industry, that's the kind

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Speaker 3: of mentor and boss I was looking for. So, you know,

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Speaker 3: Ken ended up being, you know, one of the best

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Speaker 3: bosses I've ever had in my career.

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Speaker 2: We'll talk a little bit about leadership and crew development

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Speaker 2: a little later. It's really a fascinating subject. But you

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Speaker 2: eventually serve as director of Vanguard Australia and Asia Pacific

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Speaker 2: and CIO of the region. Tell us a little bit

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Speaker 2: about that experience in the two thousands, I mean, the

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Speaker 2: nineties was its own unique animal, but the two thousands

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Speaker 2: certainly weren't boring.

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Speaker 3: Now, So my family and I we moved to Melbourne,

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Speaker 3: Australia where offices. It was a just a fabulous experience,

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Speaker 3: both professionally and personally. Just having an opportunity to work,

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Speaker 3: you know, in a different country, embracing the Australian culture,

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Speaker 3: but being part of the Asia pac region because at

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Speaker 3: the time we had an office in Hong Kong as well,

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Speaker 3: where we were starting up our ETF business. But it

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Speaker 3: was a tremendous experience because I had started off in

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Speaker 3: bond trading, worked my way into portfolio management and running

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Speaker 3: the bond the nexting team for a number of years,

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Speaker 3: and then it got asked to take this responsibility which

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Speaker 3: was much broader. So I was a mile deep on

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Speaker 3: a subject matter of bond indexing, but now I had

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Speaker 3: the opportunity to lead an equity indexing group, the entire

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Speaker 3: fixed income team, our investment strategy team that does research

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Speaker 3: for our clients around portfolio construction, those types of things.

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Speaker 3: But the other big part of it was having an

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Speaker 3: opportunity to be on the Australian executive team that actually

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Speaker 3: ran the business. So from a broadening standpoint, I'm an

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Speaker 3: investment guy, but that was an opportunity to actually learn

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Speaker 3: about the business, how Vanguard Australia operates in the ecosystem,

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Speaker 3: how we're trying to market our products and services, how

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Speaker 3: we're engaging with regulators, the media, the whole nine yards,

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Speaker 3: and then also being part of the board of directors

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Speaker 3: down there. So from a broadening standpoint, that experience was unbelievable,

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Speaker 3: so valued every minute that I was down there. And

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Speaker 3: unfortunately or fortunately depending on how you look at it,

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Speaker 3: you know, the three to four year assignment ended up

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Speaker 3: being thirteen months, but I got a great opportunity to

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Speaker 3: come back to run the fixed income group as you

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Speaker 3: had As you had mentioned, but the time in Australia

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Speaker 3: was fabulous for both myself, my wife and the kids.

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Speaker 2: Yeah. You know, what's really interesting is everybody tends to

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Speaker 2: think of Wall Street and investing in finance in terms

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Speaker 2: of the investing side, but the business side is really intriguing.

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Speaker 2: There are a lot endless variety of business models and

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Speaker 2: seeing how people operate that it's really an education one

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Speaker 2: that I think a lot of people coming out of

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Speaker 2: school don't think about goes. You think about the sexy things. Hey,

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Speaker 2: I want to do venture capital, I want to do this,

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Speaker 2: I want to do that. The business side is really

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Speaker 2: quite fascinating and somewhat overlooked.

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Speaker 3: That's very, very true, but it's also one of those

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Speaker 3: things that you don't necessarily appreciate it until you've been

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Speaker 3: doing a certain job for a while. So if you

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Speaker 3: would have said to me, you know, when I first

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Speaker 3: came out of grad school and you said to me, hey,

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Speaker 3: I want you to go to the business side, you

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Speaker 3: know I would have said, no, thank you, I really

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Speaker 3: want to do trading and portfolio management. But you get

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Speaker 3: to a point in your career where you feel like, hey,

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Speaker 3: you've you've learned a lot, You've developed a team, and

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Speaker 3: you're looking for new challenges and a chance to stretch

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Speaker 3: yourself and grow and learn.

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Speaker 1: And that's exactly what that opportunity provided.

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Speaker 2: So now you eventually get you go to fixed in

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Speaker 2: and then you're elevated to chief investment officer of all

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Speaker 2: a vangroup. Take us through a day in the life

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Speaker 2: or or a week in the life of Vanguard CIO.

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Speaker 1: Well, it's a lot.

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Speaker 3: I mean, there's a there's a tremendous amount of meetings

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Speaker 3: and the way I would the way I would describe it, Barry,

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Speaker 3: it's a mix. It's you know, client related, it's media

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Speaker 3: like we're doing today. It's also being part of the

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Speaker 3: senior team that runs Vanguard, the business of Vanguard right

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Speaker 3: from a client strategy marketing standpoint, and then you know, overseeing,

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Speaker 3: overseeing the the the investment team, So a variety of

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Speaker 3: risk meetings, a variety of economic meetings. So it's a

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Speaker 3: any given day could be slightly different, but it typically

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Speaker 3: will capture those categories over time. And so you know,

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Speaker 3: it's uh, there's there's always plenty of stuff going on

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Speaker 3: in the marketplace and then the business that that that

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Speaker 3: keeps us very busy.

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Speaker 2: And you've now been with Vanguard for almost twenty five years.

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Speaker 1: You have to be twenty four in November.

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Speaker 2: So you're you're year away from a big milestone. That

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Speaker 2: period very much encompasses Vanguard going from and admittedly successful

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Speaker 2: but not enormous entity till you know, I think the

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Speaker 2: two thousands, especially the financial crisis, changed how people thought

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Speaker 2: about managed assets, indexing advisory versus transactional and Vanguard along

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Speaker 2: with black Rock, have been two of the biggest beneficiaries

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Speaker 2: of this. Tell us a little bit about what you've

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Speaker 2: experienced over the arc of those twenty four years that

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Speaker 2: you were really there as the company ramped up and

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Speaker 2: then went they found a whole other gear and just exploded.

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Speaker 3: Yeah, it's absolutely right, Barry I mean, it's been a

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Speaker 3: lot in terms of, you know, just the changing perception

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Speaker 3: in the marketplace of how investors invest right. And you're right,

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Speaker 3: So you think back thirty years, you know, there are

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Speaker 3: so many people who are focused on individual security selection,

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Speaker 3: picking individual stocks and the reality is that you know,

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Speaker 3: we know that's very difficult to do and outperforming a

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Speaker 3: broader market. So does a big push for folks to

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Speaker 3: get the appropriate level of asset allocation in a highly diversified,

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Speaker 3: low cost way. And you know, the ETF the ETF rapper,

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Speaker 3: you know, allowed people to get that exposure inexpensively holding

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Speaker 3: it in a brokerage account. So it really provided a

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Speaker 3: nice tailwind to folks in the indexing space who provided

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Speaker 3: those products. In Vanguard, is you know, one of the

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Speaker 3: big beneficiaries of that that migration away from individual stock

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Speaker 3: selection to to broad based index exposure to.

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Speaker 2: Say the very least. So let's discuss leadership and what

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Speaker 2: you do to develop crew members and to identify and

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Speaker 2: foster other people's leadership skills.

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Speaker 1: Yeah, so it's a great question.

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Speaker 3: You know, one of the things that we try to

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Speaker 3: focus on is you know, as part of our interview process,

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Speaker 3: you know, always trying to assess and gauge the the

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Speaker 3: willingness and the interest for folks to develop the leadership

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Speaker 3: competencies in addition to the technical competencies. So you know,

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Speaker 3: when we think about our investment professionals, clearly they have

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Speaker 3: to be technically sharp, they have to learn those skills

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Speaker 3: to do their jobs day to day. But if they

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Speaker 3: also want to be the head of a trading desk

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Speaker 3: and lead a major function within our group or within

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Speaker 3: broader vanguard, they also have to be really good at

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Speaker 3: identifying talent, developing talent, maintaining really strong relationships, you know,

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Speaker 3: being strategic thinkers and things of that nature. And so,

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Speaker 3: you know, these are the types of things that we

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Speaker 3: have a number of programs that we run to help

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Speaker 3: us assess how people are progressing through that leadership journey.

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Speaker 1: We help develop people on that leadership journey along the way.

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Speaker 3: But the assessment process also allows us to figure out,

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Speaker 3: you know, where people might have gaps and need an

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Speaker 3: opportunity to go back and do a bit of a refresher.

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Speaker 3: So you know, we've been very actively involved in that

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Speaker 3: whole process for our investment professionals, and you know, it's

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Speaker 3: paid off. It's paid spades in terms of you know,

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Speaker 3: it helps us make sure that we're recruiting the right people.

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Speaker 3: It helps us in terms of retaining folks because when

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Speaker 3: you work for a great boss, you're motivated to stay

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Speaker 3: at that firm because we know, you know, it's difficult

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Speaker 3: to make a strong connection with the boss at times.

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Speaker 3: And to the extent that Vanguard has great leaders in

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Speaker 3: the seats and we feel like, hey, we have some

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Speaker 3: of the coolest jobs that are available to people. You

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Speaker 3: couple that with great leadership. I mean, it's a win

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Speaker 3: win formula for long term success for our organization.

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Speaker 2: That's really interesting. A lot of people in finance have

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Speaker 2: been saying it's difficult to find people in this environment.

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Speaker 2: What is Vanguard doing to keep the seats filled and

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Speaker 2: make sure you have an ongoing source of talent coming

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Speaker 2: to Pennsylvania.

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Speaker 1: Yeah, so we are very heavily involved. We have you

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Speaker 1: in our group.

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Speaker 3: Specifically, we have the Investment Management Development Program where every

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Speaker 3: year we have a cadre of summer interns as well

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Speaker 3: as full time folks who just finished their undergraduate studies

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Speaker 3: who come to us in a rotational program that gives

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Speaker 3: them exposure to equities various points in fixed income and

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Speaker 3: risk and our portfolio reviewed department as a nice entry

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Speaker 3: point for people to explore and see what they really

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Speaker 3: want to do. And so we just had a cadre

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Speaker 3: that launched to their final placement earlier this week, and

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Speaker 3: so there were seven individuals that span the range from

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Speaker 3: risk to high yield trading to investment grade research. And

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Speaker 3: you know, it's a nice talent pipeline. And the great

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Speaker 3: thing is the talent that we're seeing today is so

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Speaker 3: much greater than the talent that we were able to

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Speaker 3: attract twenty years ago. And so, you know, just the

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Speaker 3: level of awareness, understanding of markets, the technical skills from

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Speaker 3: an IT and data science standpoint that these folks are

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Speaker 3: bringing to the table today is pretty amazing. And so

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Speaker 3: that's really the pipeline for us. And then you know,

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Speaker 3: we will supplement that with experienced senior hires, you know,

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Speaker 3: as we you know, if there's turnover and we don't

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Speaker 3: have somebody on a bench ready to go to move

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Speaker 3: into a bigger seat as well, or if we're trying

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Speaker 3: to build that new capabilities like we've done in the.

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Speaker 2: Past, huh, really impressive. Let's talk a little bit about

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Speaker 2: the Vanguard total market index that's become the largest fund

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Speaker 2: in the world. What goes into managing a fund of

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Speaker 2: that size and that importance to Vanguard.

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Speaker 3: I mean, it really starts, It really starts with the people,

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Speaker 3: you know, just making sure that we have humble, really

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Speaker 3: talented professionals who you know are truly dedicated to managing

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Speaker 3: these uh these index funds on a day to day basis.

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Speaker 3: And you know, the way the way we think about

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Speaker 3: it are our pms also service traders, and so they're

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Speaker 3: working very closely day by day making sure that Total

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Speaker 3: Stock Market Index fund and all of our other equity

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Speaker 3: index funds are you know, minimizing the tracking here, also

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Speaker 3: trying to make sure that we're minimizing transaction costs as

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Speaker 3: we're transacting in the marketplace, also being cognizant of the

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Speaker 3: tax implications of trading activity, and then also looking to

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Speaker 3: add value at the margin through opportunistic ideas and you know,

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Speaker 3: through rebalancing corporate actions, new issues and things that nature

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Speaker 3: to try to eat into the expense ratio at the margin,

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Speaker 3: but again in a highly highly riskcontrolled way. And the

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Speaker 3: great thing is we have, you know a team of

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Speaker 3: folks who have been doing this for decades, and you know,

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Speaker 3: they're unmatched in the industry because they're dedicated to doing indexing.

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Speaker 3: A lot of firms you find folks who start with

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Speaker 3: indexing and move on to something else. At Vanguard, this

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Speaker 3: is a career destination for a lot of these folks

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Speaker 3: and they love every minute of what they do.

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Speaker 2: So a lot of indexers will track somebody else's index.

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Speaker 2: The Vanguard Total Market Index is something that Vanguard itself creates.

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Speaker 2: There's a separate index group and there's a whole bunch

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Speaker 2: of technical ways that's set up. What goes into making

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Speaker 2: changes in stock memberships tell us a little bit about

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Speaker 2: what that process is like.

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Speaker 3: So so for total stock market, the Total Stock Market

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Speaker 3: Index fund that is a CRIPS fund that is you know,

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Speaker 3: run by the University Chicago. They create the benchmark. We

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Speaker 3: help them in terms of identifying and creating the parameters

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Speaker 3: around how.

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Speaker 1: That that that index should be constructed.

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Speaker 3: The biggest things are you know, primarily when there's corporate actions,

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Speaker 3: there's there's I pos. Those are the things that typically

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Speaker 3: drive changes because again this represents the total market. So

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Speaker 3: you have small cap, small cap, MidCap, large cap, you

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Speaker 3: have growth value and blend in there. So the turnover

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Speaker 3: is primarily driven by corporate actions and I pos and

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Speaker 3: then you know, the team spends a lot of time

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Speaker 3: just making sure they handle those you know, really really

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Speaker 3: well to minimize costs, make sure that tracking are remains

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Speaker 3: relatively tight, and the other thing the team does. And

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Speaker 3: we have a securities lending team that that also spends

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Speaker 3: a lot of time making sure that we're getting value

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Speaker 3: for the securities that are in demand, and that that

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Speaker 3: those earnings from the securities lending revenue, net of the

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Speaker 3: cost to run that group, goes right back to the fund.

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Speaker 3: So our shareholders benefit whenever there's a lot of demand

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Speaker 3: for certain securities that we own. So that's a that's

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Speaker 3: another contributing factor to performance in those funds as well.

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Speaker 2: That's a performance enhancer that ultimately leads to the ability

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Speaker 2: to lower costs to that fund.

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Speaker 3: Well, it lowers the ultimate drag that you would have

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Speaker 3: from transaction costs exactly.

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Speaker 1: Yeah.

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Speaker 2: So so how often does Vanguard create a new index?

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Speaker 2: So what's that process?

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Speaker 1: Like, we tend not to create the index. You know,

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Speaker 1: that's an outsourced process.

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Speaker 3: So you know it's really function of you know, do

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Speaker 3: we have gaps in our lineup, and so you know,

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Speaker 3: we get we get input from, you know, the various

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Speaker 3: business divisions, whether or not it's our retail group or

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Speaker 3: institutional group, our financial advisor services group. You know, are

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Speaker 3: there gaps where we feel like, hey, we don't have

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Speaker 3: a relevant offering that's that's needed by our clients. And

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Speaker 3: then we find out we do research. The portfolio review

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Speaker 3: department does the research to figure out who would be

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Speaker 3: the best and most well equipped you know, index provider

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Speaker 3: for that type of mandate, and then our team works

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Speaker 3: very closely with them in terms of the due diligence

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Speaker 3: process and making sure that that index is constructed in

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Speaker 3: a way that we're comfortable and the right levels of

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Speaker 3: controls are in place. And then you know, once that's

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Speaker 3: set up, the team is ready to go to start

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Speaker 3: managing against that newly defined index.

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Speaker 2: And when you say there are gaps in your lineup,

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Speaker 2: you're not talking about trendy things like hey we don't

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Speaker 2: have a metaverse index. Oh look, we don't have an

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Speaker 2: AI index. It's always much broader and more permanent if

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Speaker 2: that's the right word, or long lasting on.

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Speaker 3: That yeah, yeah, you know, again, these need to have enduring,

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Speaker 3: long term investment merit. That's one of the key defining

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Speaker 3: principles before we launch a fund, is it is there

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Speaker 3: real value long term for this type of investment strategy.

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Speaker 3: And you're absolutely right, Vanguard is not the type of

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Speaker 3: firm that, you know, we'll launch thematic products that you

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Speaker 3: know are focused on when not it's AI water whatever,

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Speaker 3: That's just not what Vanguard does. We're looking for long term, enduring,

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Speaker 3: you know, investment solutions and products that will be you know,

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Speaker 3: we'll provide our investors with you know, long term opportunity

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Speaker 3: that will serve them really well.

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Speaker 2: So a couple of years ago I wrote a column

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Speaker 2: about this shocking little aspect of Vanguard that I think

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Speaker 2: nobody understood, which is the patents that Vanguard had on

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Speaker 2: the way you manage taxes for mutual funds, which made

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Speaker 2: your mutual funds behave more like atfs and that there

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Speaker 2: was no tax pass through typically. It kind of made

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Speaker 2: me think of a question. When you're the size of Vanguard,

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Speaker 2: how do you balance discipline on the one hand with

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Speaker 2: the need for creativity and occasionally thinking out of the box.

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Speaker 2: You would think they might be at odds. What's that like?

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Speaker 3: Yeah, the main thing very it's a great question. The

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Speaker 3: main thing goes back to, like what's the enduring philosophy.

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Speaker 3: What are we trying to accomplish for our clients. And

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Speaker 3: you know, at the end of the day, they come

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Speaker 3: to us to try to get long term exposure to

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Speaker 3: a segment of the market, and we want to do

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Speaker 3: that in the best possible way, making sure they're getting

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Speaker 3: the market return, you know, minus the expense ratio, which

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Speaker 3: again we will try to you know offset with security

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Speaker 3: lending revenue and you know thoughtful rebalancing strategies. But at

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Speaker 3: the end of the day, it's really boils down to

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Speaker 3: you know, broad based exposure in a low cost, diversified

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Speaker 3: way for our clients, which we think will ultimately serve

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Speaker 3: them really well as they're constructing their portfolios.

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Speaker 2: Most people think of Vanguard as passive. First, tell us

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Speaker 2: a little bit about what the chief investment officer does

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Speaker 2: for the passive side of an investment business.

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Speaker 3: A big part of it is really around when there's

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Speaker 3: more complicated corporate actions that are happening that you know,

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Speaker 3: entail a level risk. There's conversations that happen with our

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Speaker 3: risk management department to make sure we're comfortable in terms

404
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Speaker 3: of what kind of exposure that that that creates in

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Speaker 3: the fund.

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Speaker 2: And when you say corporate actions, we're talking about M

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Speaker 2: and A, I POS bankruptcies. Anytime somebody outside of your

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Speaker 2: decision making process either exits or enters.

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Speaker 1: A market, yeah, exactly.

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Speaker 3: So when you know when there's major turnover like that

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Speaker 3: that happens, you know you always have the option, Hey,

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Speaker 3: can you do it exactly on the time that it

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Speaker 3: enters the benchmark?

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Speaker 1: Do you need to do some of it ahead of time?

415
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Speaker 3: Do you need to do some of it afterwards to

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Speaker 3: try to smooth out the process. And you know that's

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Speaker 3: a risk decision that you have to make. You know

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Speaker 3: how much liquidy is going to be there when there's

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Speaker 3: a major activity that happens. Is the pricing more attractive

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Speaker 3: right away versus waiting until it starts trading in the

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Speaker 3: secondary market. Those are the considerations and the conversations that

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Speaker 3: we have with our risk team and our senior investment

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Speaker 3: professionals on the equity side.

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Speaker 2: So it's pretty well established amongst the academic research that

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Speaker 2: passive on the equity side beats active over the long haul,

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Speaker 2: but that's not true on the fixed income side. Active

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Speaker 2: on the fixed income tends to be passive because the

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Speaker 2: choices amongst fixed income are just so much greater than

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Speaker 2: what you have in equity. Tell us a little bit

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Speaker 2: about what USCIO do on the bond side.

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Speaker 3: So on the bond side, we have both, so you know,

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Speaker 3: we do bond indexing in a highly diversified way, cutting

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Speaker 3: across segments including you know, treasuries and including governments, corporates,

434
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Speaker 3: mortgages and things of that nature, global portfolios that give

435
00:21:26,680 --> 00:21:29,119
Speaker 3: you a tremendous amount of diversification that's headed back to

436
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Speaker 3: the US dollar, which in a highly diversified way is

437
00:21:32,600 --> 00:21:35,600
Speaker 3: a great way to get to get bond exposure. To

438
00:21:35,640 --> 00:21:37,919
Speaker 3: your point, in terms of you know, active fixed income,

439
00:21:38,440 --> 00:21:41,359
Speaker 3: we do have a very large active fixed income team

440
00:21:41,880 --> 00:21:44,080
Speaker 3: where that team has been very successful in terms of

441
00:21:44,080 --> 00:21:46,240
Speaker 3: being able to add value over the long term. And

442
00:21:46,280 --> 00:21:48,280
Speaker 3: so when you look at some of the results, and

443
00:21:48,640 --> 00:21:51,320
Speaker 3: a big chunk of that comes from, you know, our

444
00:21:51,400 --> 00:21:54,679
Speaker 3: credit research capabilities within the team, both investment grade, emerging

445
00:21:54,760 --> 00:21:58,200
Speaker 3: market as well as high yield. But ninety two percent

446
00:21:58,200 --> 00:22:00,119
Speaker 3: of our active bond funds have done better than the

447
00:22:00,440 --> 00:22:02,880
Speaker 3: average fund over their lipper group averages over a five

448
00:22:02,920 --> 00:22:05,560
Speaker 3: year period and eighty seven percent of our active fixed

449
00:22:05,560 --> 00:22:08,080
Speaker 3: income fund of outperform at benchmarks on a three year

450
00:22:08,119 --> 00:22:10,560
Speaker 3: basis against their benchmarks. And then you know, if you

451
00:22:10,600 --> 00:22:13,399
Speaker 3: look at a five year time horizon's seventy seven percent.

452
00:22:13,480 --> 00:22:16,600
Speaker 3: So you know our active team has been successful outperforming

453
00:22:16,600 --> 00:22:18,919
Speaker 3: at benchmarks. And you know, big part of it is

454
00:22:18,960 --> 00:22:20,399
Speaker 3: do you have the credit team that can do to

455
00:22:20,480 --> 00:22:23,199
Speaker 3: due diligence because credit is where we think we can

456
00:22:23,240 --> 00:22:25,800
Speaker 3: add the most value by credit research, and we see

457
00:22:25,840 --> 00:22:27,720
Speaker 3: that on the municipal bond side as well, where we

458
00:22:27,760 --> 00:22:31,240
Speaker 3: have a very active municipal bond franchise, and the credit

459
00:22:31,280 --> 00:22:34,800
Speaker 3: research allows that team to consistently add value relative to

460
00:22:34,800 --> 00:22:38,080
Speaker 3: the benchmarks, providing better, better outcomes for our client's long term.

461
00:22:38,200 --> 00:22:40,840
Speaker 2: It's really quite fascinating. On the equity side, two or

462
00:22:40,880 --> 00:22:43,679
Speaker 2: three percent of the stocks are where all the value

463
00:22:43,760 --> 00:22:47,080
Speaker 2: is created. On the fixed income side, it seems like

464
00:22:47,640 --> 00:22:51,240
Speaker 2: eliminating the worst ten twenty thirty percent of stocks in

465
00:22:51,359 --> 00:22:55,040
Speaker 2: terms of either risk or duration is where all the

466
00:22:56,280 --> 00:22:57,400
Speaker 2: alpha gets generated.

467
00:22:57,440 --> 00:22:59,400
Speaker 3: Yeah, I mean in fixed income because again it tends

468
00:22:59,440 --> 00:23:01,280
Speaker 3: to be a defense into act class. What you want

469
00:23:01,320 --> 00:23:03,040
Speaker 3: to do is you want to try try to avoid

470
00:23:03,040 --> 00:23:05,159
Speaker 3: the losers, right, where you know, what's the what's the

471
00:23:05,240 --> 00:23:07,320
Speaker 3: upside When you invest in the bond, you know, you

472
00:23:07,320 --> 00:23:08,680
Speaker 3: get your money back, You get your money back, you

473
00:23:08,720 --> 00:23:10,480
Speaker 3: get your coup on payments and your principal. You know,

474
00:23:10,520 --> 00:23:13,560
Speaker 3: at maturity on time, the downside is you get zero

475
00:23:13,600 --> 00:23:16,200
Speaker 3: because the company files for bankruptcy and there's no recovery value.

476
00:23:16,920 --> 00:23:19,399
Speaker 3: So you know, again, for defensive asset class, we've always

477
00:23:19,440 --> 00:23:22,320
Speaker 3: thought that you want to limit the amount of risk

478
00:23:22,359 --> 00:23:24,479
Speaker 3: that you take in in what's supposed to be ballanced

479
00:23:24,480 --> 00:23:27,040
Speaker 3: in the portfolio. And you know, the way we're able

480
00:23:27,080 --> 00:23:29,720
Speaker 3: to accomplish that is that, you know, because we are

481
00:23:30,520 --> 00:23:33,320
Speaker 3: we have so much scale and ability, you know, to

482
00:23:33,400 --> 00:23:36,200
Speaker 3: keep costs low. At Vanguard at the end of the day,

483
00:23:36,720 --> 00:23:39,000
Speaker 3: our active fix income managers don't need to take the

484
00:23:39,000 --> 00:23:40,960
Speaker 3: same level of risk as some of our competitors, simply

485
00:23:41,000 --> 00:23:43,239
Speaker 3: because they don't have the same level of headwind. Our

486
00:23:43,240 --> 00:23:45,800
Speaker 3: expense ratios are lower, so when things don't look attractively

487
00:23:45,840 --> 00:23:48,479
Speaker 3: priced in the marketplace, you don't need to sit there

488
00:23:48,480 --> 00:23:51,200
Speaker 3: and try to overcome a heavy expense ratio all the time.

489
00:23:51,240 --> 00:23:53,120
Speaker 3: We can be patient, we can wait, we can wait

490
00:23:53,160 --> 00:23:55,439
Speaker 3: till the market's a bit more attractive. And when we

491
00:23:55,520 --> 00:23:58,520
Speaker 3: feel what we feel, we're being rewarded for risk taking.

492
00:23:58,800 --> 00:24:02,639
Speaker 2: There's a little mold ultiplier effect from the low cost

493
00:24:02,760 --> 00:24:07,399
Speaker 2: side of Vanguard in that you don't have to swing

494
00:24:07,440 --> 00:24:10,200
Speaker 2: at every pitch. The ability to say no, no, we're

495
00:24:10,200 --> 00:24:12,960
Speaker 2: good with this, We'll wait till opportunities look a lot

496
00:24:13,000 --> 00:24:16,120
Speaker 2: more attractive. I don't get that sense from a lot

497
00:24:16,119 --> 00:24:19,840
Speaker 2: of people in finance. They're judged every month, they're judged

498
00:24:19,880 --> 00:24:23,600
Speaker 2: every quarter, and they feel like, what's the old joke,

499
00:24:24,119 --> 00:24:27,160
Speaker 2: never never mistake activity for progress?

500
00:24:27,200 --> 00:24:27,600
Speaker 1: That's right?

501
00:24:27,640 --> 00:24:29,919
Speaker 2: That seems to be really common in Wall Street.

502
00:24:30,000 --> 00:24:30,200
Speaker 1: Yeah.

503
00:24:30,200 --> 00:24:32,840
Speaker 3: I mean for our teams, our active teams, their performance

504
00:24:32,840 --> 00:24:34,919
Speaker 3: is valued on a three year basis, so you know,

505
00:24:35,520 --> 00:24:38,080
Speaker 3: three years, Ye, it's amazing. So when we think about

506
00:24:38,080 --> 00:24:41,160
Speaker 3: how how those teams are evaluated, it's a three year number.

507
00:24:41,160 --> 00:24:41,960
Speaker 1: So how did you perform?

508
00:24:42,000 --> 00:24:44,959
Speaker 3: Because in any given quarter, any given year, you know,

509
00:24:45,640 --> 00:24:47,760
Speaker 3: you could have you know, winners and losers in terms

510
00:24:47,800 --> 00:24:50,000
Speaker 3: of strategies. But what you're trying to do is you're

511
00:24:50,000 --> 00:24:53,120
Speaker 3: trying to string you know, good periods together and over

512
00:24:53,160 --> 00:24:55,439
Speaker 3: three year period, we feel like there's enough opportunities for

513
00:24:55,480 --> 00:24:57,359
Speaker 3: teams if they're good at what they do to add value,

514
00:24:57,520 --> 00:24:59,480
Speaker 3: and that's what we've been able to demonstrate over time.

515
00:25:00,000 --> 00:25:05,040
Speaker 2: It's so fascinating because I would assume that intellectually everybody

516
00:25:05,119 --> 00:25:09,639
Speaker 2: understands that's true, but emotionally two bad quarters and it's like,

517
00:25:09,720 --> 00:25:12,040
Speaker 2: we know, we told you three years, but we're getting

518
00:25:12,040 --> 00:25:14,320
Speaker 2: pressure from investors and we have to make a change,

519
00:25:14,560 --> 00:25:16,880
Speaker 2: Like to stay with that is really challenging.

520
00:25:16,920 --> 00:25:19,399
Speaker 3: Well, you know, it's a great point, Barry, but the

521
00:25:19,440 --> 00:25:21,240
Speaker 3: reality is, like when you're running portfolio is in a

522
00:25:21,320 --> 00:25:24,120
Speaker 3: highly risk controlled way. You're trying to manage the downside, right,

523
00:25:24,160 --> 00:25:26,159
Speaker 3: So when you have three years, you have three years

524
00:25:26,560 --> 00:25:28,239
Speaker 3: again because you're trying to make sure people have an

525
00:25:28,240 --> 00:25:31,159
Speaker 3: opportunity for their strategies to play out over time. But

526
00:25:31,200 --> 00:25:33,280
Speaker 3: you're also making sure that you're contraining the risk that

527
00:25:33,280 --> 00:25:34,720
Speaker 3: even if you do have a bad year, it's not

528
00:25:34,760 --> 00:25:37,680
Speaker 3: going to be it's not going to be so bad

529
00:25:37,680 --> 00:25:39,720
Speaker 3: that investors start running for the hills.

530
00:25:39,800 --> 00:25:40,000
Speaker 1: Again.

531
00:25:40,040 --> 00:25:42,000
Speaker 3: We want investors to stay in each product long term

532
00:25:42,040 --> 00:25:45,639
Speaker 3: because we think they provide good, long term, enduring value

533
00:25:45,640 --> 00:25:46,720
Speaker 3: for our clients.

534
00:25:46,720 --> 00:25:51,000
Speaker 2: And Vanguard famously, during the financial crisis, not only did

535
00:25:51,040 --> 00:25:54,359
Speaker 2: you not see outflows, you actually saw inflows. I got

536
00:25:54,480 --> 00:25:58,160
Speaker 2: to imagine a year like twenty twenty two wasn't horrible

537
00:25:58,160 --> 00:25:59,840
Speaker 2: for Vanguard's asset growth.

538
00:26:00,160 --> 00:26:01,800
Speaker 1: You know, it's interesting.

539
00:26:01,840 --> 00:26:04,240
Speaker 3: I mean, there's certain segments of markets that did quite well,

540
00:26:04,320 --> 00:26:06,480
Speaker 3: certain segments of the business. But you know, you also

541
00:26:06,560 --> 00:26:09,000
Speaker 3: have you also have a period of time when there's

542
00:26:09,000 --> 00:26:11,840
Speaker 3: repricing that happens in the fixed income space, like we

543
00:26:11,880 --> 00:26:13,879
Speaker 3: saw and it was pretty rapid last year, right, and

544
00:26:13,920 --> 00:26:14,399
Speaker 3: you had a.

545
00:26:14,480 --> 00:26:16,800
Speaker 2: Five hundred basis points of rate increases.

546
00:26:16,600 --> 00:26:18,760
Speaker 3: Exactly, that's exactly. And when you saw you know, the

547
00:26:19,240 --> 00:26:22,439
Speaker 3: US AD down thirteen percent last year. For folks who

548
00:26:22,400 --> 00:26:24,600
Speaker 3: again who are investing for retirement and in their five

549
00:26:24,680 --> 00:26:27,200
Speaker 3: twenty nine plans, they're not concerned about it. But when

550
00:26:27,240 --> 00:26:30,280
Speaker 3: you translate that to folks who might have a heavy

551
00:26:30,960 --> 00:26:34,720
Speaker 3: municipal bond portfolio, right, and those folks who are in retirement,

552
00:26:34,880 --> 00:26:37,399
Speaker 3: and you know, they don't like principal losses. They like

553
00:26:37,480 --> 00:26:40,200
Speaker 3: tax free income, but they also don't like principal losses.

554
00:26:40,200 --> 00:26:42,199
Speaker 3: So when you have a big backup like that, you

555
00:26:42,280 --> 00:26:44,560
Speaker 3: tend to see outflows in that segment of the market

556
00:26:44,600 --> 00:26:46,360
Speaker 3: more than you would see in the taxable market, which

557
00:26:46,440 --> 00:26:49,080
Speaker 3: tends to be in our case more long term retirement

558
00:26:49,119 --> 00:26:50,840
Speaker 3: orient in things of that nature. So you will see

559
00:26:50,840 --> 00:26:53,880
Speaker 3: some pressure on unis in those types of interest rate environments.

560
00:26:53,960 --> 00:26:57,440
Speaker 2: Huh. Really interesting. So let's talk a little bit about

561
00:26:57,640 --> 00:27:01,840
Speaker 2: last year, where all I heard was the sixty portfolio

562
00:27:02,119 --> 00:27:02,920
Speaker 2: is dead.

563
00:27:03,240 --> 00:27:07,119
Speaker 3: Discuss it's interesting. I mean, we've heard that over and

564
00:27:07,160 --> 00:27:10,119
Speaker 3: over again. You know, it was a tough year for

565
00:27:10,200 --> 00:27:12,440
Speaker 3: investors in terms of both stocks and bonds being down,

566
00:27:12,520 --> 00:27:15,399
Speaker 3: where stocks were down about twenty percent, the USAG was

567
00:27:15,440 --> 00:27:16,399
Speaker 3: down thirteen percent.

568
00:27:17,359 --> 00:27:19,480
Speaker 2: When was the last time we saw stocks and bonds down?

569
00:27:19,520 --> 00:27:21,680
Speaker 2: Double jigg It's like eighty one something like.

570
00:27:21,600 --> 00:27:23,560
Speaker 1: That somewhere in that type of horizon. Yeah, exactly.

571
00:27:23,640 --> 00:27:25,720
Speaker 3: So it's not something that many investors have been accustomed

572
00:27:25,720 --> 00:27:28,560
Speaker 3: to or have seen in their lifetimes. But the reality is,

573
00:27:28,640 --> 00:27:31,879
Speaker 3: the reality is when you think about the components in

574
00:27:31,920 --> 00:27:34,920
Speaker 3: the terms of long term investing, the bond portion of

575
00:27:34,960 --> 00:27:38,359
Speaker 3: the of the equation provides that balance in diversification. Now, again,

576
00:27:38,520 --> 00:27:41,919
Speaker 3: in any one given year, you will have a sixty,

577
00:27:41,960 --> 00:27:44,280
Speaker 3: You can have a sixty forty portfolio that underperforms and

578
00:27:44,760 --> 00:27:46,679
Speaker 3: both sides of the equation go down. But for a

579
00:27:46,680 --> 00:27:49,760
Speaker 3: long term investor who's saving for retirement, that balance and

580
00:27:49,840 --> 00:27:55,320
Speaker 3: diversification has has proved and developed delivered really good long

581
00:27:55,400 --> 00:27:58,000
Speaker 3: term returns. So when you go back to nineteen twenty six,

582
00:27:58,560 --> 00:28:01,160
Speaker 3: if you were an investor since then, sixty forty portfolio

583
00:28:01,160 --> 00:28:02,240
Speaker 3: has returned eight point eight.

584
00:28:02,119 --> 00:28:05,040
Speaker 1: Percent on average over that time horizon, which is impressive.

585
00:28:05,200 --> 00:28:07,920
Speaker 3: Yeah, because you know, again it provides you diversification and

586
00:28:08,000 --> 00:28:10,240
Speaker 3: reduces some of the volatility. But there will be periods

587
00:28:10,280 --> 00:28:13,879
Speaker 3: of time where again that type of portfolio when you know,

588
00:28:13,920 --> 00:28:16,600
Speaker 3: we were an environment where interest rates were held down

589
00:28:16,720 --> 00:28:20,720
Speaker 3: to historically low levels, so you know, when they repriced,

590
00:28:20,720 --> 00:28:22,640
Speaker 3: it's not surprising that you see losses on the bond

591
00:28:22,640 --> 00:28:25,320
Speaker 3: side of the equation. But if you go back to

592
00:28:25,320 --> 00:28:29,199
Speaker 3: the period before twenty twenty two, from twenty nineteen to

593
00:28:29,200 --> 00:28:32,480
Speaker 3: twenty twenty one, a sixty forty portfolio actually produced fourteen

594
00:28:32,520 --> 00:28:35,119
Speaker 3: percent returns over that time horizon, which is above the

595
00:28:35,160 --> 00:28:37,160
Speaker 3: long term average. So you know, in a grand scheme

596
00:28:37,200 --> 00:28:40,440
Speaker 3: of things, it's not surprising that there's periods of outperformance

597
00:28:40,640 --> 00:28:42,680
Speaker 3: and that ultimately will lead to periods of underperformance.

598
00:28:42,840 --> 00:28:45,560
Speaker 2: That's right, and I'm glad you mentioned the period before that.

599
00:28:45,600 --> 00:28:48,680
Speaker 2: Go to the decade before twenty twenty two. The equity

600
00:28:48,720 --> 00:28:51,600
Speaker 2: side was something like thirteen percent, and then whatever you

601
00:28:51,640 --> 00:28:53,920
Speaker 2: got from bonds was just a bonus. That's exactly the

602
00:28:53,960 --> 00:28:56,600
Speaker 2: top of that. People forget that when they see a

603
00:28:56,640 --> 00:29:00,479
Speaker 2: single year like twenty twenty two, and they really forget

604
00:29:00,520 --> 00:29:04,400
Speaker 2: that in a year like twenty twenty three where everything

605
00:29:04,480 --> 00:29:07,000
Speaker 2: is going up, I mean other than gold, what hasn't

606
00:29:07,000 --> 00:29:09,640
Speaker 2: been going up this year? How do you deal with

607
00:29:09,800 --> 00:29:14,040
Speaker 2: the opposite of last year with the first half like

608
00:29:14,080 --> 00:29:14,480
Speaker 2: this year.

609
00:29:14,600 --> 00:29:17,160
Speaker 3: Well, look, you know, clearly the equity market has been

610
00:29:17,480 --> 00:29:19,840
Speaker 3: on a tremendous tear so far this year, up eighteen

611
00:29:20,000 --> 00:29:23,360
Speaker 3: eighteen nineteen percent year to date. But the key thing

612
00:29:23,400 --> 00:29:25,840
Speaker 3: there is, like again, investors have to keep in mind

613
00:29:25,880 --> 00:29:29,880
Speaker 3: that that's probably not sustainable long term. And so again

614
00:29:30,000 --> 00:29:33,480
Speaker 3: the importance of having a diversified portfolio is critically important.

615
00:29:33,880 --> 00:29:36,240
Speaker 3: And just think about, you know, fixed income and money

616
00:29:36,240 --> 00:29:38,640
Speaker 3: markets as an asset class. You know, for a decade

617
00:29:39,120 --> 00:29:41,640
Speaker 3: you weren't earning anything in a money market fund because

618
00:29:41,760 --> 00:29:44,120
Speaker 3: interest rates by the Federal Reserve were pegged to zero

619
00:29:44,760 --> 00:29:47,040
Speaker 3: and you have to take on significant duration risk and

620
00:29:47,080 --> 00:29:49,320
Speaker 3: credit risk just to earn a couple percentage points. And

621
00:29:49,360 --> 00:29:52,080
Speaker 3: now you know you're in an environment where money market

622
00:29:52,120 --> 00:29:54,960
Speaker 3: funds are yielding five and a quarter percent. You have,

623
00:29:55,160 --> 00:29:57,360
Speaker 3: you know, the US AG that's yielding somewhere close to

624
00:29:57,400 --> 00:30:00,040
Speaker 3: five percent, so four and a half five percent, And

625
00:30:00,080 --> 00:30:02,000
Speaker 3: so in a grand scheme of things, investors are actually

626
00:30:02,040 --> 00:30:04,360
Speaker 3: being rewarded for having exposure.

627
00:30:03,880 --> 00:30:05,440
Speaker 1: To money markets and bond funds.

628
00:30:05,480 --> 00:30:07,800
Speaker 3: And so, you know, if people are truly concerned about

629
00:30:07,800 --> 00:30:09,800
Speaker 3: a sixty forty portfolio, they should be concerned about it

630
00:30:09,880 --> 00:30:12,160
Speaker 3: for ten years. Now's not the time when you're back

631
00:30:12,200 --> 00:30:14,400
Speaker 3: to an environment where you're actually getting a real yield

632
00:30:14,480 --> 00:30:16,040
Speaker 3: when it comes to the bond market.

633
00:30:16,160 --> 00:30:19,160
Speaker 2: I'm glad you brought up money markets because it's this

634
00:30:19,320 --> 00:30:24,440
Speaker 2: overlooked area that when you have rates at ultra low levels,

635
00:30:25,160 --> 00:30:28,480
Speaker 2: it kind of gets forgotten about. But is it fair

636
00:30:28,520 --> 00:30:32,240
Speaker 2: to say that this year and perhaps last year you

637
00:30:32,280 --> 00:30:36,920
Speaker 2: saw a big shift of client cash assets into money markets.

638
00:30:36,960 --> 00:30:39,160
Speaker 3: We definitely saw we definitely saw a number of clients

639
00:30:39,160 --> 00:30:42,480
Speaker 3: who started embracing money markets. And the reality is for

640
00:30:42,520 --> 00:30:45,040
Speaker 3: a lot of investors, it truly is free money. Right,

641
00:30:45,080 --> 00:30:46,880
Speaker 3: So when you think about what people are earning in

642
00:30:46,960 --> 00:30:50,280
Speaker 3: their deposit accounts at their banks, and banks have historically

643
00:30:50,280 --> 00:30:53,400
Speaker 3: been very slow, today very slow in terms of raising

644
00:30:53,440 --> 00:30:56,560
Speaker 3: deposit rates because those deposits tend to be very sticky.

645
00:30:56,800 --> 00:30:59,680
Speaker 3: And I've had people stop me, even at Vanguard in

646
00:30:59,720 --> 00:31:01,920
Speaker 3: the hall way and say, wow, I didn't realize that

647
00:31:01,960 --> 00:31:03,760
Speaker 3: I've been leaving this much money on the table by

648
00:31:03,800 --> 00:31:06,400
Speaker 3: keeping you know, a sizeable amount of deposits at my bank.

649
00:31:06,560 --> 00:31:08,080
Speaker 1: Yeah, I've moved it to a money market.

650
00:31:08,160 --> 00:31:09,840
Speaker 3: Now I'm getting a you know, five and a quarter

651
00:31:09,840 --> 00:31:12,600
Speaker 3: percent type yield, which is amazing when some folks are

652
00:31:12,600 --> 00:31:14,680
Speaker 3: still getting you know, less than half a percent in

653
00:31:14,760 --> 00:31:16,680
Speaker 3: many cases at the in the in the bank.

654
00:31:16,800 --> 00:31:19,920
Speaker 2: So it's shocking that this has gone on. How much

655
00:31:20,000 --> 00:31:24,280
Speaker 2: inertia there is in finance that even if you're just

656
00:31:24,360 --> 00:31:27,600
Speaker 2: getting your December bonus that you're going to pay Uncle

657
00:31:27,640 --> 00:31:31,320
Speaker 2: Sam in April, leaving that money in a savings account

658
00:31:31,400 --> 00:31:33,320
Speaker 2: for a third of the year, you're leaving a chunk

659
00:31:33,360 --> 00:31:33,680
Speaker 2: of change.

660
00:31:33,800 --> 00:31:35,840
Speaker 1: Free money. It's free money. It's free money.

661
00:31:36,360 --> 00:31:40,280
Speaker 2: Quite interesting. So at what point do you think high

662
00:31:40,440 --> 00:31:44,600
Speaker 2: yields become a headwind for stocks or is it just

663
00:31:45,120 --> 00:31:48,440
Speaker 2: overall part of the sixty forty portfolio? And hey, we'll

664
00:31:48,480 --> 00:31:50,520
Speaker 2: either taken on the equity have for the bond half.

665
00:31:50,560 --> 00:31:51,080
Speaker 2: We don't care.

666
00:31:51,440 --> 00:31:52,880
Speaker 3: Well, you know, I think if you look at if

667
00:31:52,880 --> 00:31:55,680
Speaker 3: you look at what our return expectations are for the

668
00:31:55,720 --> 00:31:59,480
Speaker 3: global balance portfolio, we're expecting that over the next decade

669
00:31:59,560 --> 00:32:01,960
Speaker 3: or so, somewhere in the neighborhood of about you know,

670
00:32:02,040 --> 00:32:04,560
Speaker 3: five and a half percent for a global balance portfolio,

671
00:32:04,720 --> 00:32:09,960
Speaker 3: so combination of equities, bonds, US and international stocks. And

672
00:32:10,520 --> 00:32:13,560
Speaker 3: the reality is, you know, our return expectations for the

673
00:32:13,640 --> 00:32:15,480
Speaker 3: US equity market is a bit more muted. You know,

674
00:32:15,520 --> 00:32:18,760
Speaker 3: we're expecting US equity market returns to help our somewhere

675
00:32:18,760 --> 00:32:22,400
Speaker 3: around five percent or so were international equities because of valuations,

676
00:32:22,400 --> 00:32:23,960
Speaker 3: probably seven to seven and a half perc.

677
00:32:24,120 --> 00:32:28,800
Speaker 2: So let's talk about that because that gap invaluation has

678
00:32:28,960 --> 00:32:32,400
Speaker 2: persisted for a long time. Certainly for a few years

679
00:32:32,840 --> 00:32:37,720
Speaker 2: after the financial crisis, it seemed like US stocks were pricey,

680
00:32:39,120 --> 00:32:44,520
Speaker 2: forward return expectations were low, and the opposite was true overseas,

681
00:32:45,080 --> 00:32:47,600
Speaker 2: but the US seemed to be the only place to be.

682
00:32:48,480 --> 00:32:54,120
Speaker 2: How durable is that shift, given how large that gap

683
00:32:54,120 --> 00:32:58,160
Speaker 2: has gotten in valuation between US stocks and the rest

684
00:32:58,200 --> 00:32:59,240
Speaker 2: of the developed world.

685
00:32:59,440 --> 00:33:01,560
Speaker 3: Yeah, I mean, if you were to take a look

686
00:33:01,600 --> 00:33:05,800
Speaker 3: at what's happened over the last last ten years, looking

687
00:33:05,800 --> 00:33:07,920
Speaker 3: at the s and P five hundred index versus you know,

688
00:33:07,960 --> 00:33:11,440
Speaker 3: like the Footz Global Allcap XUS there was a seven

689
00:33:11,560 --> 00:33:15,240
Speaker 3: percentage point difference per year by being seven seven hundred

690
00:33:15,280 --> 00:33:18,600
Speaker 3: basis points of outperformance by the US market relative to

691
00:33:19,040 --> 00:33:21,720
Speaker 3: the international markets. But you know, so if you were

692
00:33:21,760 --> 00:33:23,960
Speaker 3: to take a look at where PE ratios are today

693
00:33:24,520 --> 00:33:26,400
Speaker 3: between the S and P, which has an earning yield

694
00:33:26,440 --> 00:33:28,400
Speaker 3: of about five percent, and you look at the Footz

695
00:33:28,560 --> 00:33:31,640
Speaker 3: Global Allcap x US, it has an earning yield of

696
00:33:31,680 --> 00:33:34,959
Speaker 3: eight point three percent, right, and so not in substantial

697
00:33:35,200 --> 00:33:37,840
Speaker 3: there's a substantial difference. Now, there are sector differences, so

698
00:33:38,000 --> 00:33:39,840
Speaker 3: you know, and we could talk about that to some

699
00:33:39,920 --> 00:33:41,920
Speaker 3: degree as well, but the reality, even if you adjust

700
00:33:41,960 --> 00:33:44,720
Speaker 3: for sector differences, there's still a big gap. There's still

701
00:33:44,720 --> 00:33:47,000
Speaker 3: a big gap in terms of the PE ratios across

702
00:33:47,040 --> 00:33:49,080
Speaker 3: the US market relative to the rest of the world.

703
00:33:49,520 --> 00:33:53,680
Speaker 3: And so unless we expect earnings for US companies to

704
00:33:53,960 --> 00:33:57,680
Speaker 3: vastly outpace what's happening in the international markets, and it might,

705
00:33:58,120 --> 00:33:59,840
Speaker 3: but there's a lot of great news already priced into

706
00:33:59,840 --> 00:34:02,320
Speaker 3: the marketplace. And when you think about translating S and

707
00:34:02,360 --> 00:34:05,560
Speaker 3: P five hundred PE to a you know, an implied

708
00:34:05,640 --> 00:34:09,680
Speaker 3: equity risk premium. By looking at the ten year treasury yield,

709
00:34:10,400 --> 00:34:12,279
Speaker 3: you know, you're two hundred basis points below what it's

710
00:34:12,320 --> 00:34:13,560
Speaker 3: been for the last ten years.

711
00:34:13,920 --> 00:34:18,200
Speaker 2: So let's let's do a little comparison. Because I'm always

712
00:34:18,520 --> 00:34:22,480
Speaker 2: skeptical when we're people focus on a single metric like

713
00:34:22,560 --> 00:34:26,280
Speaker 2: price to earnings. I want to make that more three dimensional.

714
00:34:26,560 --> 00:34:29,960
Speaker 2: So if Europe is at an eight point three earning

715
00:34:30,000 --> 00:34:33,640
Speaker 2: shield and we're about a five percent, what's the growth

716
00:34:33,719 --> 00:34:37,719
Speaker 2: rate difference between the two? Meaning are people willing to

717
00:34:37,760 --> 00:34:40,160
Speaker 2: give up a little bit of earnings in order to

718
00:34:40,520 --> 00:34:44,360
Speaker 2: accept a faster growth rate that certainly we've seen on

719
00:34:44,400 --> 00:34:47,600
Speaker 2: the tech side. I can't speak across every sector.

720
00:34:47,920 --> 00:34:49,600
Speaker 3: Well, I think there's a couple of things. There's a

721
00:34:49,600 --> 00:34:51,080
Speaker 3: couple of things that are very I mean, one of

722
00:34:51,120 --> 00:34:53,520
Speaker 3: it is, you know, you know, do you expect the

723
00:34:53,560 --> 00:34:55,840
Speaker 3: earnings growth to live up to the expectations that are

724
00:34:55,880 --> 00:34:59,799
Speaker 3: already priced into the US market. And if so, that's

725
00:35:00,080 --> 00:35:01,880
Speaker 3: fine for where we are, but that's not necessarily going

726
00:35:01,920 --> 00:35:04,120
Speaker 3: to lead to multiple multiple expansion, right, And a big

727
00:35:04,200 --> 00:35:07,799
Speaker 3: driver of the outperformance over the last decade of US

728
00:35:07,840 --> 00:35:11,360
Speaker 3: stocks for relative the international evaluation expansion. So that's all sentiment

729
00:35:11,920 --> 00:35:13,719
Speaker 3: that's exactly it, and a lot of we would say,

730
00:35:13,719 --> 00:35:15,920
Speaker 3: a lot of that's probably already baked into the marketplace

731
00:35:15,920 --> 00:35:17,839
Speaker 3: and is run its course. Could it go further, of

732
00:35:17,840 --> 00:35:20,560
Speaker 3: course it could, but at some point there is a

733
00:35:20,600 --> 00:35:23,399
Speaker 3: tipping point where people start saying, well, in the US,

734
00:35:23,440 --> 00:35:26,560
Speaker 3: I have alternatives. I have alternatives because I can go

735
00:35:26,600 --> 00:35:28,239
Speaker 3: out and buy a money market fund at five and

736
00:35:28,280 --> 00:35:30,640
Speaker 3: a quarter percent and I don't have to take a

737
00:35:30,640 --> 00:35:33,479
Speaker 3: lot of risk. And you know, if if again based

738
00:35:33,520 --> 00:35:38,000
Speaker 3: on our forecast for US equity markets, they're somewhat muted

739
00:35:38,040 --> 00:35:40,719
Speaker 3: because valuations are stretched in our view relative to our

740
00:35:40,760 --> 00:35:43,440
Speaker 3: fair value model. And so I think a lot of

741
00:35:43,440 --> 00:35:45,880
Speaker 3: investors have alternatives. They can buy money markets, they can

742
00:35:45,880 --> 00:35:49,000
Speaker 3: buy bond funds, where there was no alternative ten you know,

743
00:35:49,040 --> 00:35:50,680
Speaker 3: for the last ten years, because we didn't get any

744
00:35:50,680 --> 00:35:52,960
Speaker 3: real yield when it came to the fixed income or

745
00:35:53,000 --> 00:35:55,160
Speaker 3: a money market space. But there's really alternatives today for

746
00:35:55,239 --> 00:35:57,480
Speaker 3: investors either in fixed income money markets.

747
00:35:57,480 --> 00:35:58,759
Speaker 1: Are international stocks? Right?

748
00:35:58,840 --> 00:36:02,280
Speaker 2: The twenty ten's were certainly the Tina decade. It's funny

749
00:36:02,280 --> 00:36:05,880
Speaker 2: you mentioned multiple expansion. When you look at the eighty

750
00:36:05,880 --> 00:36:09,560
Speaker 2: two to two thousand bull market, something like seventy five

751
00:36:09,600 --> 00:36:12,719
Speaker 2: percent of those gains came not from earnings growth, but

752
00:36:12,880 --> 00:36:16,480
Speaker 2: from a multiple expansion. I'm curious if that's kind of

753
00:36:16,520 --> 00:36:22,719
Speaker 2: repeating now and the twenty twenty pandemic fiscal stimulus, which

754
00:36:22,840 --> 00:36:26,920
Speaker 2: was massive under two presidents, What does that do in

755
00:36:27,000 --> 00:36:31,200
Speaker 2: terms of resetting the cycle? And can we stay pricey

756
00:36:31,320 --> 00:36:34,160
Speaker 2: forget higher for longer? Can we stay pricey for longer

757
00:36:34,200 --> 00:36:37,240
Speaker 2: given all the stimulus that's coursing through the system.

758
00:36:37,400 --> 00:36:39,400
Speaker 3: Well, I think there's a couple of things. One, it

759
00:36:39,520 --> 00:36:42,319
Speaker 3: becomes a factor. Yeah, you know, the economy can clearly

760
00:36:42,440 --> 00:36:45,760
Speaker 3: keep rowing along, which we've seen, you know, the fiscal

761
00:36:45,760 --> 00:36:48,000
Speaker 3: stimulus that we've seen. You know, you know there's over

762
00:36:48,040 --> 00:36:51,320
Speaker 3: two trillion dollars that was saved. You know, our reports

763
00:36:51,360 --> 00:36:53,040
Speaker 3: show and some of the data out in the marketplace

764
00:36:53,080 --> 00:36:56,200
Speaker 3: shows that about a trillion dollars of that has already

765
00:36:56,239 --> 00:36:59,280
Speaker 3: been spent down. So we you know, investors and savers

766
00:36:59,360 --> 00:37:01,879
Speaker 3: are definitely eating into that that that safety net, which

767
00:37:02,239 --> 00:37:04,360
Speaker 3: over time is that continues to decline, should slow the

768
00:37:04,360 --> 00:37:05,800
Speaker 3: economy down to some degree.

769
00:37:06,560 --> 00:37:08,080
Speaker 1: So I think that's going to be a big factor.

770
00:37:08,120 --> 00:37:09,880
Speaker 3: But then you know, when you think about you know,

771
00:37:09,920 --> 00:37:14,200
Speaker 3: the broader equity markets, again, the biggest thing that would

772
00:37:14,200 --> 00:37:16,640
Speaker 3: be concerning if you start seeing a continued rise in

773
00:37:16,640 --> 00:37:20,840
Speaker 3: interest rates and that has to put pressure on equity valuations.

774
00:37:20,880 --> 00:37:24,120
Speaker 3: I mean, equities are a ultra long duration asset, and

775
00:37:24,160 --> 00:37:27,799
Speaker 3: if you're discounting those future cash flows at higher interest rates,

776
00:37:27,840 --> 00:37:29,520
Speaker 3: that means you get a lower present value and at

777
00:37:29,520 --> 00:37:31,960
Speaker 3: some point that will bite. Who knows when that's going

778
00:37:32,000 --> 00:37:34,000
Speaker 3: to be. Nobody knows when when you could see that

779
00:37:34,080 --> 00:37:37,279
Speaker 3: kind of that kind of return to normal, but you

780
00:37:37,320 --> 00:37:39,520
Speaker 3: know you would you would definitely expect that higher interest

781
00:37:39,600 --> 00:37:42,600
Speaker 3: rates will put continued pressure on the equity market and

782
00:37:42,640 --> 00:37:46,239
Speaker 3: get valuations back to something that's more more normalized over time,

783
00:37:46,280 --> 00:37:48,680
Speaker 3: because you do expect if you're investing in equities, to

784
00:37:48,719 --> 00:37:50,920
Speaker 3: earn equity risk premium, and the fact that it's so

785
00:37:51,000 --> 00:37:53,319
Speaker 3: much lower than what we've seen historically, it starts to

786
00:37:53,320 --> 00:37:55,440
Speaker 3: beg the question how much exposure. If I'm a shorter

787
00:37:55,520 --> 00:37:57,800
Speaker 3: term investor, how much exposure do I want in that space?

788
00:37:58,080 --> 00:37:59,640
Speaker 3: For long term investors, it doesn't matter.

789
00:37:59,760 --> 00:38:02,640
Speaker 2: So let's let's stay with interest rates for a moment.

790
00:38:03,200 --> 00:38:06,040
Speaker 2: Interest rates are much higher than they've been over the

791
00:38:06,080 --> 00:38:09,520
Speaker 2: past decade, But let's look at the past fifty or

792
00:38:09,800 --> 00:38:14,200
Speaker 2: seventy five years. Interest rates today are clearly above where

793
00:38:14,239 --> 00:38:17,880
Speaker 2: they were, but they're not especially high by historical standards.

794
00:38:17,880 --> 00:38:19,560
Speaker 2: I think a lot of people confuse those two.

795
00:38:19,760 --> 00:38:21,480
Speaker 3: Yeah, I think I think a lot of investors end

796
00:38:21,520 --> 00:38:25,160
Speaker 3: up succumbing to recency biases. Right, So, the fact that

797
00:38:25,200 --> 00:38:29,080
Speaker 3: we've been in an environment where interesting zero anymore, that's

798
00:38:29,120 --> 00:38:31,759
Speaker 3: exactly so people think that that's the end. I think

799
00:38:31,800 --> 00:38:33,480
Speaker 3: what you have to look at, and our team has

800
00:38:33,480 --> 00:38:35,520
Speaker 3: done work on this, you have to look at what

801
00:38:35,600 --> 00:38:39,759
Speaker 3: do you think is the appropriate level for FED funds

802
00:38:39,760 --> 00:38:43,160
Speaker 3: in the neutral state where it's not stimulative or you know,

803
00:38:44,360 --> 00:38:47,200
Speaker 3: or you know, contracting the marketplace. And so some of

804
00:38:47,200 --> 00:38:49,280
Speaker 3: the research our team has done it says that, look,

805
00:38:49,480 --> 00:38:52,160
Speaker 3: you know, long term FED funds could be higher than

806
00:38:52,160 --> 00:38:54,000
Speaker 3: what the market is pricing in the market, and the

807
00:38:54,040 --> 00:38:56,320
Speaker 3: Fed have said, you know, probably when they put our stars,

808
00:38:56,680 --> 00:38:58,880
Speaker 3: you know, fifty basis points or half a percent. You

809
00:38:58,920 --> 00:39:00,799
Speaker 3: have two percent inflation on top of that, that gives

810
00:39:00,800 --> 00:39:02,320
Speaker 3: you a long term FED funds at two and a

811
00:39:02,360 --> 00:39:05,759
Speaker 3: half percent, right. You know, our Investment Strategy group, through

812
00:39:05,800 --> 00:39:08,960
Speaker 3: their analysis, they estimate that our star is probably closer.

813
00:39:08,719 --> 00:39:09,560
Speaker 1: One and a half percent.

814
00:39:09,920 --> 00:39:11,600
Speaker 3: So that brings you to a longer term FED funds

815
00:39:11,640 --> 00:39:13,359
Speaker 3: target of closer to three and a half if they're

816
00:39:13,360 --> 00:39:16,879
Speaker 3: successful at bringing rates back down to two inflation back

817
00:39:16,880 --> 00:39:18,640
Speaker 3: down to two, I should say, and then if you

818
00:39:18,640 --> 00:39:21,480
Speaker 3: build a normal you know, term structure on top of

819
00:39:21,480 --> 00:39:24,719
Speaker 3: that between you know, three month treasury bills and ten

820
00:39:24,760 --> 00:39:27,120
Speaker 3: year bonds of about one hundred basis points, you know,

821
00:39:27,080 --> 00:39:28,520
Speaker 3: and that brings you to a ten year that's probably

822
00:39:28,520 --> 00:39:31,799
Speaker 3: fair around four and a half percent. And so, but

823
00:39:31,880 --> 00:39:33,680
Speaker 3: it all depends on you know, what happens from a

824
00:39:33,880 --> 00:39:38,080
Speaker 3: you know, an inflation perspective, economic growth perspective, and how

825
00:39:38,120 --> 00:39:40,719
Speaker 3: aggressive the Fed will have to be, you know, going

826
00:39:40,760 --> 00:39:42,200
Speaker 3: down and going down the path here.

827
00:39:43,040 --> 00:39:44,360
Speaker 1: But again we think.

828
00:39:44,160 --> 00:39:46,680
Speaker 3: That you know, there is some risks that you know,

829
00:39:46,760 --> 00:39:48,960
Speaker 3: rach will have to go a bit higher here, you know,

830
00:39:49,040 --> 00:39:50,800
Speaker 3: just giving everything that's going on in the economy, in

831
00:39:50,840 --> 00:39:51,960
Speaker 3: the marketplace.

832
00:39:51,719 --> 00:39:53,719
Speaker 2: And the ten year is not all that far away

833
00:39:53,760 --> 00:39:55,520
Speaker 2: from four and a half. It's not that that's something

834
00:39:55,600 --> 00:39:58,799
Speaker 2: that end of year is not unthinkable, that's right, Huh.

835
00:39:58,880 --> 00:40:03,720
Speaker 2: Really interesting, So everybody seems kind of shocked by what's

836
00:40:03,760 --> 00:40:07,239
Speaker 2: taking place in twenty twenty three, although to be fair,

837
00:40:07,400 --> 00:40:10,879
Speaker 2: everybody seemed shocked at what took place in twenty twenty two.

838
00:40:11,640 --> 00:40:14,120
Speaker 2: What are your thoughts about how Wall Street plays this

839
00:40:14,280 --> 00:40:19,759
Speaker 2: forecasting game where everybody's thrown a dart, someone randomly gets

840
00:40:19,800 --> 00:40:22,520
Speaker 2: it right, But it just seems like it's a weird

841
00:40:22,560 --> 00:40:25,880
Speaker 2: game to be playing with people's serious money.

842
00:40:26,120 --> 00:40:29,440
Speaker 3: Yeah, we try not to be in the short term

843
00:40:29,480 --> 00:40:32,520
Speaker 3: forecasting game. And you know, forecasting is really hard, and

844
00:40:32,600 --> 00:40:34,920
Speaker 3: it's even harder to the extent you're doing it for

845
00:40:34,960 --> 00:40:37,600
Speaker 3: the short term. And so you know, when we think

846
00:40:37,600 --> 00:40:40,239
Speaker 3: about the vang Or Capital Markets model, which drives a

847
00:40:40,239 --> 00:40:44,239
Speaker 3: lot of our advice engines and the recommendations that we

848
00:40:44,320 --> 00:40:47,759
Speaker 3: provide the client, the truly not point forecast in the

849
00:40:47,880 --> 00:40:50,719
Speaker 3: narrow sense of how people tend to do forecast. It's

850
00:40:50,760 --> 00:40:55,600
Speaker 3: really the median results of a large simulation that shows

851
00:40:55,640 --> 00:40:58,920
Speaker 3: a probabilistic you know, determination of results, and it runs

852
00:40:58,920 --> 00:41:01,759
Speaker 3: a scale and then meetiing is basically that midpoint of

853
00:41:01,840 --> 00:41:04,279
Speaker 3: all those observations, and so you know, we have a

854
00:41:04,320 --> 00:41:07,200
Speaker 3: distribution around that, and so again, you know there's gonna

855
00:41:07,200 --> 00:41:08,640
Speaker 3: be periods of time when you're in the tail, both

856
00:41:08,640 --> 00:41:11,879
Speaker 3: positively and negatively. But again, what we try to say

857
00:41:11,920 --> 00:41:14,640
Speaker 3: to our clients, you have no control about how volatile

858
00:41:14,680 --> 00:41:16,480
Speaker 3: the market it's going to be. What you can control

859
00:41:16,520 --> 00:41:19,120
Speaker 3: at the end of the day is how diversified you are,

860
00:41:19,800 --> 00:41:23,120
Speaker 3: how cognizant you are to the cost that you're paying

861
00:41:23,160 --> 00:41:26,160
Speaker 3: for the funds that you're investing in, and doing that

862
00:41:26,200 --> 00:41:28,080
Speaker 3: in a highly diversified, low cost way, we think is

863
00:41:28,080 --> 00:41:30,360
Speaker 3: going to provide investors the best chance for their investment

864
00:41:30,520 --> 00:41:35,080
Speaker 3: success long term, versus focusing on you know, daily news announcements,

865
00:41:35,120 --> 00:41:38,640
Speaker 3: what's happening. Those are the types of things that create

866
00:41:38,680 --> 00:41:41,520
Speaker 3: trading activity but don't tend to add value for long

867
00:41:41,600 --> 00:41:42,320
Speaker 3: term investors.

868
00:41:42,560 --> 00:41:47,319
Speaker 2: So you recently came out and criticized some of the

869
00:41:47,360 --> 00:41:51,840
Speaker 2: market timing that's been going on. What I found shocking

870
00:41:51,880 --> 00:41:55,200
Speaker 2: about that was we really have to warn people about

871
00:41:55,200 --> 00:41:59,239
Speaker 2: the dangers of market timing and overtrading to hasn't that

872
00:41:59,719 --> 00:42:04,360
Speaker 2: isn't had an issue that the academics have long ago resolved.

873
00:42:04,800 --> 00:42:06,200
Speaker 1: Yeah, but it is.

874
00:42:06,280 --> 00:42:09,080
Speaker 3: It is very I mean, the data will show that

875
00:42:09,160 --> 00:42:12,680
Speaker 3: it is not fruitful. It is not helpful to long

876
00:42:12,760 --> 00:42:15,040
Speaker 3: term investors to engage in that type activity. But we

877
00:42:15,080 --> 00:42:17,799
Speaker 3: don't have to look too far past with the meme

878
00:42:17,880 --> 00:42:20,960
Speaker 3: stocks and things of that nature, where you know, a

879
00:42:21,080 --> 00:42:23,839
Speaker 3: variety of reasons. Things pop on the headline and there's

880
00:42:23,880 --> 00:42:26,759
Speaker 3: a lot of momentum, and folks get involved, and you know,

881
00:42:26,840 --> 00:42:29,120
Speaker 3: people get caught up and believe it's you know, it's

882
00:42:29,160 --> 00:42:31,560
Speaker 3: easy money and it's free money, and the reality is

883
00:42:31,600 --> 00:42:35,399
Speaker 3: that's speculation and not investing. And so, you know, speculating

884
00:42:35,520 --> 00:42:39,000
Speaker 3: is you know, that's a very risky strategy, and you know,

885
00:42:39,040 --> 00:42:41,040
Speaker 3: when we think about investing, that's not the way you

886
00:42:41,080 --> 00:42:43,200
Speaker 3: construct an investment portfolio. If you want to do that

887
00:42:43,280 --> 00:42:47,200
Speaker 3: from a speculative, speculative standpoint, that's fine, do that with

888
00:42:47,280 --> 00:42:50,080
Speaker 3: a very small portion of your portfolio, but the majority

889
00:42:50,080 --> 00:42:52,279
Speaker 3: of it should be investing in long term strategies that

890
00:42:52,280 --> 00:42:54,040
Speaker 3: will add value and are enduring.

891
00:42:54,560 --> 00:43:01,640
Speaker 2: My favorite part of TikTok were the TikTok speculative traders. Hey,

892
00:43:02,320 --> 00:43:05,040
Speaker 2: investing is easy just by stocks that are going up

893
00:43:05,440 --> 00:43:07,279
Speaker 2: and when they stop going up, you sell them. And

894
00:43:07,680 --> 00:43:10,960
Speaker 2: what could be an easier way to support your lifestyle?

895
00:43:11,440 --> 00:43:14,880
Speaker 2: And as that was happening in real time during twenty twenty,

896
00:43:15,640 --> 00:43:17,960
Speaker 2: I'm sure you felt the same thing. I felt like,

897
00:43:18,600 --> 00:43:21,239
Speaker 2: I've seen this movie. I know exactly how this is

898
00:43:21,280 --> 00:43:21,759
Speaker 2: going to end.

899
00:43:21,960 --> 00:43:23,920
Speaker 3: That's exactly right, very I mean, I've been in this

900
00:43:23,960 --> 00:43:28,719
Speaker 3: industry long enough. I started my career in finance in

901
00:43:28,840 --> 00:43:32,319
Speaker 3: nineteen ninety eight and very familiar with the dot com

902
00:43:32,360 --> 00:43:35,359
Speaker 3: era and what happened there, and it was very very

903
00:43:35,400 --> 00:43:38,399
Speaker 3: reminiscent of that period of time where you know, during

904
00:43:38,400 --> 00:43:42,160
Speaker 3: that period, anything with a dot com behind it, you know,

905
00:43:42,520 --> 00:43:45,240
Speaker 3: ran to the moon and you couldn't go wrong. Well,

906
00:43:45,440 --> 00:43:47,319
Speaker 3: that works until it doesn't, and then one day you

907
00:43:47,360 --> 00:43:49,799
Speaker 3: realize that these companies actually they have to be real

908
00:43:49,840 --> 00:43:53,440
Speaker 3: companies that make money, produce earnings, and our viable businesses.

909
00:43:53,680 --> 00:43:57,399
Speaker 3: And you know, in a speculative fever, people lose sight

910
00:43:57,520 --> 00:44:01,160
Speaker 3: that you know, having cash flow, having earnings matters in

911
00:44:01,200 --> 00:44:03,600
Speaker 3: the long run. And you know, sometimes people have to

912
00:44:03,640 --> 00:44:07,400
Speaker 3: learn a hard, hard lesson that again, that's not investing

913
00:44:07,480 --> 00:44:11,080
Speaker 3: and that's really speculative. And you know it's a lesson

914
00:44:11,080 --> 00:44:13,360
Speaker 3: to learn early on in your career. Huh, when you

915
00:44:13,400 --> 00:44:15,200
Speaker 3: don't have a lot of money, versus later on in

916
00:44:15,200 --> 00:44:17,680
Speaker 3: your career where you start to accumulate some massets, you

917
00:44:17,719 --> 00:44:19,880
Speaker 3: definitely want to be more of an investor versus the speculator.

918
00:44:19,960 --> 00:44:22,839
Speaker 2: Right making mistakes early. You know, there's a chapter in

919
00:44:23,440 --> 00:44:25,759
Speaker 2: I want to say it's Adam Smith's The Money Game

920
00:44:25,840 --> 00:44:30,320
Speaker 2: from the nineteen sixties where he talks about a fund

921
00:44:30,360 --> 00:44:35,120
Speaker 2: manager running a bunch of you know, young run and

922
00:44:35,200 --> 00:44:38,920
Speaker 2: gun managers. Why do you have these young kids working

923
00:44:38,920 --> 00:44:41,719
Speaker 2: for you? Oh, because they'll buy all this stuff that

924
00:44:41,800 --> 00:44:44,719
Speaker 2: I won't buy, and we'll make money in it, and

925
00:44:44,760 --> 00:44:47,440
Speaker 2: when it blows up, I'll sell early and fire them

926
00:44:47,440 --> 00:44:49,759
Speaker 2: all and go on to the next group. I was

927
00:44:49,840 --> 00:44:54,240
Speaker 2: reminded of that last time, but it seems shocking. I guess,

928
00:44:54,440 --> 00:44:58,600
Speaker 2: like the market timing argument, we're still in a debate

929
00:44:58,680 --> 00:45:04,359
Speaker 2: between me stock pickers and indexers. It's fascinating that every

930
00:45:04,400 --> 00:45:07,719
Speaker 2: new generation has to learn the hard lessons over and

931
00:45:07,760 --> 00:45:08,280
Speaker 2: over again.

932
00:45:08,960 --> 00:45:10,360
Speaker 1: I mean, you just have to look at history.

933
00:45:11,000 --> 00:45:13,200
Speaker 3: But you know, some people have to learn the hard way,

934
00:45:13,320 --> 00:45:16,560
Speaker 3: using real money to do that. But eventually most people

935
00:45:16,560 --> 00:45:20,040
Speaker 3: find religion and start thinking about, Hey, how do I

936
00:45:20,040 --> 00:45:23,400
Speaker 3: actually construct a portfolio that's durable that will provide the

937
00:45:23,400 --> 00:45:26,839
Speaker 3: type of economic return that's required to you know, meet

938
00:45:26,880 --> 00:45:30,240
Speaker 3: their retirement needs, college saving needs, or you know, buying

939
00:45:30,280 --> 00:45:31,719
Speaker 3: that new house or whatever the case may be.

940
00:45:32,400 --> 00:45:35,920
Speaker 2: So let's talk about some adult decision making around a

941
00:45:36,000 --> 00:45:41,600
Speaker 2: durable portfolio. Internally, we've been having discussions about extending duration.

942
00:45:41,760 --> 00:45:44,879
Speaker 2: If you tightened up duration in twenty one or even

943
00:45:44,920 --> 00:45:48,880
Speaker 2: twenty two, you did better than the index. At what

944
00:45:49,000 --> 00:45:52,920
Speaker 2: point do you say, hey, I'm not getting paid to

945
00:45:53,080 --> 00:45:57,439
Speaker 2: take risk short term because of the possibility of those

946
00:45:57,520 --> 00:46:00,839
Speaker 2: rates dropping. Whether it's twenty four or twenty five, where

947
00:46:00,840 --> 00:46:04,160
Speaker 2: do you start thinking about going back out on the

948
00:46:04,239 --> 00:46:06,960
Speaker 2: duration curve for fixed income?

949
00:46:07,360 --> 00:46:09,080
Speaker 3: I think you have to get to a place where

950
00:46:09,120 --> 00:46:12,719
Speaker 3: you feel like the FED is done and inflation is

951
00:46:12,760 --> 00:46:16,040
Speaker 3: starting to be you know, you can you're convinced that

952
00:46:16,480 --> 00:46:18,920
Speaker 3: inflation is under control and path towards you know, the

953
00:46:18,960 --> 00:46:22,000
Speaker 3: Fed's two percent target. So we think there's still some

954
00:46:22,200 --> 00:46:25,440
Speaker 3: ways for that to go. And again, you know, if

955
00:46:25,480 --> 00:46:26,839
Speaker 3: you if you go back to what I was saying

956
00:46:26,880 --> 00:46:30,440
Speaker 3: earlier about our star and the neutral FED funds, Right,

957
00:46:30,480 --> 00:46:32,120
Speaker 3: if we believe that's three and a half percent with

958
00:46:32,200 --> 00:46:33,920
Speaker 3: a normal shape y old curve at four and a half,

959
00:46:34,239 --> 00:46:37,000
Speaker 3: we're not far from that, but it's also that's far

960
00:46:37,040 --> 00:46:38,640
Speaker 3: from neutral. Right if we think four and a half

961
00:46:38,640 --> 00:46:41,560
Speaker 3: percent is fair value, like, we're not at fair value yet,

962
00:46:41,760 --> 00:46:44,120
Speaker 3: so that means it also means that, hey, it's not cheap,

963
00:46:44,480 --> 00:46:47,120
Speaker 3: so you don't want to dive in with both feet.

964
00:46:47,680 --> 00:46:49,480
Speaker 3: You know, when you're approaching a fair value, want things

965
00:46:49,520 --> 00:46:51,640
Speaker 3: to actually be cheap before you do that. So you know,

966
00:46:51,719 --> 00:46:53,959
Speaker 3: the risk is that, you know, rates back up more,

967
00:46:54,920 --> 00:46:56,479
Speaker 3: and so I think you still want to be somewhat

968
00:46:56,480 --> 00:46:58,880
Speaker 3: conservative when it comes to duration positioning in a portfolio.

969
00:46:58,960 --> 00:47:01,960
Speaker 2: So I always have a question about that two percent

970
00:47:03,200 --> 00:47:08,200
Speaker 2: UH inflation target. It not to be flippant, but it

971
00:47:08,280 --> 00:47:12,480
Speaker 2: seems like a made up number. I hunted for some

972
00:47:12,760 --> 00:47:16,400
Speaker 2: academic research that said here's why, and I came up

973
00:47:16,400 --> 00:47:19,600
Speaker 2: with something. The former FED Vice chair I wrote a

974
00:47:19,600 --> 00:47:22,320
Speaker 2: paper that said, oh, it's a thing from New Zealand

975
00:47:22,360 --> 00:47:25,000
Speaker 2: in nineteen eighties. It's kind of a made up round number,

976
00:47:25,080 --> 00:47:28,560
Speaker 2: and everybody adopted it. Can it be that simple? We're

977
00:47:28,640 --> 00:47:31,840
Speaker 2: using a FED inflation target that's just a made up number.

978
00:47:31,920 --> 00:47:33,640
Speaker 3: Well, that's that's what the that's what the market is

979
00:47:33,680 --> 00:47:36,279
Speaker 3: gravitating towards. That is what the FED is operating off of.

980
00:47:36,400 --> 00:47:40,399
Speaker 3: And until they decide to communicate a different message, that's

981
00:47:40,440 --> 00:47:42,239
Speaker 3: what the market is going to continue to follow. Right,

982
00:47:43,200 --> 00:47:46,319
Speaker 3: And you know their behavior says that, hey, they want

983
00:47:46,320 --> 00:47:47,759
Speaker 3: to see inflation coming down.

984
00:47:47,800 --> 00:47:48,840
Speaker 1: It's also difficult.

985
00:47:49,000 --> 00:47:52,759
Speaker 3: It's also difficult to be you know, changing, you know,

986
00:47:52,920 --> 00:47:55,720
Speaker 3: changing the strategy when you're falling behind your current strategy.

987
00:47:55,719 --> 00:47:57,680
Speaker 3: Because if you say, hey, I'm going from a two

988
00:47:57,719 --> 00:48:00,560
Speaker 3: percent target to three percent, well you're at three percent

989
00:48:00,600 --> 00:48:02,919
Speaker 3: because you couldn't hit two percent. Well it is three

990
00:48:02,920 --> 00:48:05,799
Speaker 3: percent the right number, and so well.

991
00:48:05,719 --> 00:48:07,719
Speaker 2: If you're going to make up a number, make up

992
00:48:07,800 --> 00:48:09,799
Speaker 2: one you can reach as opposed to one you can.

993
00:48:09,920 --> 00:48:11,440
Speaker 3: But we have to we have to be realistic too,

994
00:48:11,520 --> 00:48:14,680
Speaker 3: right Berry. I mean, the reality is, for ten years,

995
00:48:14,680 --> 00:48:16,440
Speaker 3: we couldn't hit two percent inflation. We were on the

996
00:48:16,440 --> 00:48:20,160
Speaker 3: other side, downside, yea, right, we were underneath that two percent.

997
00:48:20,200 --> 00:48:22,000
Speaker 3: They were working really hard to try to get to

998
00:48:22,040 --> 00:48:23,359
Speaker 3: two percent, and they couldn't achieve it.

999
00:48:23,480 --> 00:48:27,640
Speaker 2: So, in an era of low monetary policy and almost

1000
00:48:27,800 --> 00:48:32,240
Speaker 2: non existent fiscal stimulus, upside target of two percent doesn't

1001
00:48:32,239 --> 00:48:34,560
Speaker 2: seem to make a lot of sense. Fast forward to

1002
00:48:34,560 --> 00:48:37,040
Speaker 2: the twenty twenties. Now we're in an era of massive

1003
00:48:37,040 --> 00:48:40,960
Speaker 2: fiscal stimulus, not nearly as much monetary stimulus. Does it

1004
00:48:41,000 --> 00:48:43,480
Speaker 2: make sense to have the same target when you're coming

1005
00:48:43,520 --> 00:48:46,040
Speaker 2: from five percent above it as opposed to zero percent

1006
00:48:46,560 --> 00:48:46,920
Speaker 2: under it.

1007
00:48:46,960 --> 00:48:48,200
Speaker 3: Well, the thing is it's supposed to be a long

1008
00:48:48,239 --> 00:48:50,680
Speaker 3: term target, and it's supposed to be an average target over time.

1009
00:48:50,880 --> 00:48:53,440
Speaker 3: So you know, I haven't heard anything that would say

1010
00:48:53,480 --> 00:48:55,279
Speaker 3: that they're in the process of deciding to switch it

1011
00:48:55,320 --> 00:48:57,920
Speaker 3: to a higher number. I think that's something to be debated.

1012
00:48:57,960 --> 00:49:01,040
Speaker 3: Once you get back to close to your target and

1013
00:49:01,120 --> 00:49:03,480
Speaker 3: that gives you greater credibility over time, which you don't

1014
00:49:03,480 --> 00:49:05,160
Speaker 3: want to do, is you don't want to change. You

1015
00:49:05,160 --> 00:49:08,040
Speaker 3: don't want to change the you know, the the mile

1016
00:49:08,120 --> 00:49:10,640
Speaker 3: post while you know the cars, the car still in

1017
00:49:10,719 --> 00:49:13,040
Speaker 3: motion and you're running the race. You want to basically say, hey,

1018
00:49:13,400 --> 00:49:16,080
Speaker 3: we're anchored to this, we believe in this, and ultimately

1019
00:49:16,080 --> 00:49:18,200
Speaker 3: we think this is going to allow us to pursue

1020
00:49:18,200 --> 00:49:20,400
Speaker 3: a level of economic growth that continues to give us

1021
00:49:20,400 --> 00:49:24,320
Speaker 3: full employment, you know, moderate price increases. Again, it's debatable

1022
00:49:24,320 --> 00:49:26,200
Speaker 3: when not two percent is the right number three percent.

1023
00:49:26,280 --> 00:49:28,080
Speaker 3: All I would say is that it took us a

1024
00:49:28,200 --> 00:49:29,840
Speaker 3: long time to get north of two percent.

1025
00:49:30,160 --> 00:49:31,080
Speaker 1: We finally got to.

1026
00:49:31,280 --> 00:49:36,160
Speaker 2: Six trillion dollars in physical stimulus. But that raises the question, Hey,

1027
00:49:36,200 --> 00:49:37,920
Speaker 2: you know, when it gets icy out, you got to

1028
00:49:37,960 --> 00:49:38,600
Speaker 2: slow down.

1029
00:49:38,920 --> 00:49:39,759
Speaker 1: You do have to slow down.

1030
00:49:39,760 --> 00:49:41,640
Speaker 3: But the reality is, like that stimulus is starting to

1031
00:49:41,640 --> 00:49:43,840
Speaker 3: wear off, Like those savings are starting to be consumed.

1032
00:49:43,880 --> 00:49:45,640
Speaker 3: You're starting to see you're starting to see the Fed

1033
00:49:45,680 --> 00:49:48,480
Speaker 3: reduce its balance sheet slowly, but it's starting to happen.

1034
00:49:48,480 --> 00:49:51,319
Speaker 3: And you've seen you've seen the Federal Reserve clearly, you know,

1035
00:49:51,440 --> 00:49:54,000
Speaker 3: raise interest rates dramatically five hundred and twenty five basis

1036
00:49:54,000 --> 00:49:57,560
Speaker 3: points in fifteen months. That they're they're definitely trying to

1037
00:49:57,600 --> 00:49:59,880
Speaker 3: slow the economy down, and so you know, we'll have

1038
00:49:59,920 --> 00:50:04,239
Speaker 3: to wait and see if that's enough. But again, we

1039
00:50:04,320 --> 00:50:06,680
Speaker 3: have to remember and we can't be blindsided by the

1040
00:50:06,719 --> 00:50:09,759
Speaker 3: fact that, you know, inflation has been well above their

1041
00:50:09,760 --> 00:50:12,319
Speaker 3: target because of all this stimulus. But this stimulus was

1042
00:50:12,360 --> 00:50:16,600
Speaker 3: slowly ebbing out of the system and we're gradually going

1043
00:50:16,640 --> 00:50:18,919
Speaker 3: back to We're going in the right direction. The question

1044
00:50:18,920 --> 00:50:20,239
Speaker 3: is how long will it take for us to get there?

1045
00:50:20,280 --> 00:50:22,759
Speaker 2: Huh? Really interesting. I'm going to throw you a curveball

1046
00:50:23,160 --> 00:50:26,480
Speaker 2: question which I did not disclose in advance, as I

1047
00:50:26,560 --> 00:50:31,160
Speaker 2: wanted to surprise you. You're born in Germany, raised in

1048
00:50:31,200 --> 00:50:35,080
Speaker 2: a military family, and you speak fluent German with your

1049
00:50:35,080 --> 00:50:37,799
Speaker 2: mom and English with your dad. Tell us a little

1050
00:50:37,840 --> 00:50:41,680
Speaker 2: bit about your experience growing up overseas as a military brat.

1051
00:50:41,920 --> 00:50:44,719
Speaker 3: It was a phenomenal, phenomenal experience. I mean, I had

1052
00:50:44,760 --> 00:50:50,680
Speaker 3: the privilege of growing up in a bilingual household, and

1053
00:50:50,920 --> 00:50:54,080
Speaker 3: my maternal grandmother was also home and she spoke primarily

1054
00:50:54,120 --> 00:50:57,239
Speaker 3: primarily German to me. So what was challenging for me

1055
00:50:57,400 --> 00:50:58,920
Speaker 3: was like, actually, when we moved to the US when

1056
00:50:58,920 --> 00:51:01,520
Speaker 3: I was seven years old, I was always good with math,

1057
00:51:01,920 --> 00:51:03,960
Speaker 3: but my English, my English.

1058
00:51:03,760 --> 00:51:05,200
Speaker 1: Was below average.

1059
00:51:05,800 --> 00:51:08,520
Speaker 3: And what I my wife is an English She taught

1060
00:51:08,520 --> 00:51:13,040
Speaker 3: English at the college level. She said, you, you dummy,

1061
00:51:13,280 --> 00:51:15,440
Speaker 3: English was a second language for you, because and it

1062
00:51:15,520 --> 00:51:17,279
Speaker 3: really was. I didn't know it, even though you know,

1063
00:51:17,320 --> 00:51:19,920
Speaker 3: I went to a US Department of Defense school in Germany.

1064
00:51:19,920 --> 00:51:22,920
Speaker 3: But my primary language I was spoken by my grandmother

1065
00:51:22,960 --> 00:51:24,760
Speaker 3: who I spent most of my time with, was German.

1066
00:51:24,960 --> 00:51:25,120
Speaker 2: Huh.

1067
00:51:25,440 --> 00:51:27,439
Speaker 1: So you know that.

1068
00:51:27,440 --> 00:51:30,200
Speaker 3: Was that was interesting. And I loved the experience of

1069
00:51:30,600 --> 00:51:32,440
Speaker 3: living over in Germany. And I had the benefit as

1070
00:51:32,440 --> 00:51:35,200
Speaker 3: a kid, you know, during my teenage years going back

1071
00:51:35,200 --> 00:51:37,480
Speaker 3: to visit family members and friends over the years going

1072
00:51:37,520 --> 00:51:41,160
Speaker 3: back to Germany, which is also a very rewarding and

1073
00:51:41,200 --> 00:51:42,440
Speaker 3: memorable part of my childhood.

1074
00:51:42,520 --> 00:51:44,920
Speaker 2: Huh. Really interesting. So I only have you for a

1075
00:51:44,920 --> 00:51:47,879
Speaker 2: few more minutes. Let's jump to our favorite questions that

1076
00:51:47,920 --> 00:51:50,359
Speaker 2: we ask all of our guests that are a little

1077
00:51:50,360 --> 00:51:52,959
Speaker 2: bit revealing of who they are. Tell us a little

1078
00:51:52,960 --> 00:51:55,799
Speaker 2: bit about what you've been streaming. What's been keeping you

1079
00:51:56,000 --> 00:51:57,040
Speaker 2: entertained these days?

1080
00:51:57,239 --> 00:52:00,960
Speaker 3: So from a streaming standpoint, there was a series went

1081
00:52:01,000 --> 00:52:02,640
Speaker 3: through the first season that ended. They're going to start

1082
00:52:02,640 --> 00:52:05,960
Speaker 3: a new one in twenty twenty four. It's called Night Agent, Yeah,

1083
00:52:06,000 --> 00:52:08,279
Speaker 3: which was really interesting. There was an FBI agent who

1084
00:52:08,320 --> 00:52:12,840
Speaker 3: was manning a telephone in the basement of the White House, right.

1085
00:52:12,960 --> 00:52:13,160
Speaker 1: Yeah.

1086
00:52:13,239 --> 00:52:15,239
Speaker 3: It was actually a really good series, and the good

1087
00:52:15,280 --> 00:52:16,839
Speaker 3: news is it got picked up and I think they're

1088
00:52:16,840 --> 00:52:18,640
Speaker 3: coming out with new episodes in twenty twenty four.

1089
00:52:18,680 --> 00:52:21,439
Speaker 1: But it was a really, really interesting.

1090
00:52:20,920 --> 00:52:22,600
Speaker 2: He kind of gets the crappiat out of him in

1091
00:52:22,600 --> 00:52:23,560
Speaker 2: the first episode.

1092
00:52:23,600 --> 00:52:24,120
Speaker 1: I saw that.

1093
00:52:24,120 --> 00:52:26,640
Speaker 3: It was very fun. It was a really interesting So

1094
00:52:26,760 --> 00:52:30,520
Speaker 3: that's one. And then because of my kids also been

1095
00:52:31,120 --> 00:52:34,080
Speaker 3: you know, big fans of All American and bel Air,

1096
00:52:35,320 --> 00:52:38,040
Speaker 3: which are also really cool series that we've been watching.

1097
00:52:38,120 --> 00:52:39,200
Speaker 3: So those were a couple.

1098
00:52:39,640 --> 00:52:41,839
Speaker 2: Tell us a little bit about your early mentors who

1099
00:52:41,920 --> 00:52:43,560
Speaker 2: helped to shape your career.

1100
00:52:44,000 --> 00:52:46,719
Speaker 3: I had a number and I'll go back to the

1101
00:52:46,760 --> 00:52:49,200
Speaker 3: first two I had when I started in this industry.

1102
00:52:49,880 --> 00:52:54,200
Speaker 3: Darryl Thomas was leading investment grade capital market the City Bank.

1103
00:52:54,239 --> 00:52:56,360
Speaker 3: He actually helped me, helped me get my internship. I

1104
00:52:56,360 --> 00:52:58,879
Speaker 3: met him at a career fair. He helped me get

1105
00:52:58,880 --> 00:53:01,960
Speaker 3: my first internship on Wall Street with somebody I kept

1106
00:53:01,960 --> 00:53:05,239
Speaker 3: in contact with over the years and he helped me,

1107
00:53:05,320 --> 00:53:08,160
Speaker 3: you know him. And there was another individual, carmin Or Cilio,

1108
00:53:09,200 --> 00:53:11,600
Speaker 3: who also worked at City at the time. Those two

1109
00:53:11,600 --> 00:53:13,759
Speaker 3: individuals gave me a lot of perspective when I was

1110
00:53:13,800 --> 00:53:16,280
Speaker 3: thinking about moving from Wall Street to the by side,

1111
00:53:16,760 --> 00:53:20,120
Speaker 3: and thanks to some of the words of wisdom from Carmine,

1112
00:53:20,560 --> 00:53:22,120
Speaker 3: you know. He said to me when I was thinking

1113
00:53:22,120 --> 00:53:23,760
Speaker 3: about making a change, he said, if you could.

1114
00:53:23,600 --> 00:53:24,719
Speaker 1: If you could join.

1115
00:53:26,000 --> 00:53:29,560
Speaker 3: A well regarded, well respected asset manager, you're going to

1116
00:53:29,640 --> 00:53:32,120
Speaker 3: have a much longer and more fruitful career than if

1117
00:53:32,120 --> 00:53:34,400
Speaker 3: you stay on the cell side. And that was advice

1118
00:53:34,440 --> 00:53:37,879
Speaker 3: he gave me back in nineteen and ninety nine.

1119
00:53:38,200 --> 00:53:40,080
Speaker 2: Good good advice and good time.

1120
00:53:40,520 --> 00:53:43,640
Speaker 3: I send Carmine chats every once in you know, every

1121
00:53:43,680 --> 00:53:46,160
Speaker 3: once in a few years, saying thank you for the advice,

1122
00:53:46,200 --> 00:53:49,160
Speaker 3: and I appreciated it really interesting. And then along the

1123
00:53:49,200 --> 00:53:52,560
Speaker 3: way Ken Volpert, who hired me huge Huge Mentor. He

1124
00:53:52,640 --> 00:53:54,640
Speaker 3: hired me to trade treasuries and mortgages on the team

1125
00:53:54,760 --> 00:53:58,440
Speaker 3: Big Mentor Advocate sponsored friend, and of course Tim Buckley

1126
00:53:58,480 --> 00:54:00,000
Speaker 3: who put me, who gave me the opportunity to go

1127
00:54:00,040 --> 00:54:03,200
Speaker 3: to Australia and then ultimately the Fixed Income Group and

1128
00:54:03,200 --> 00:54:04,640
Speaker 3: then put me in the seat that I'm in today.

1129
00:54:04,840 --> 00:54:07,080
Speaker 3: I've only had two bosses at Vanguard in twenty four

1130
00:54:07,160 --> 00:54:08,920
Speaker 3: years and they've both been phenomenal.

1131
00:54:09,040 --> 00:54:12,359
Speaker 2: Wow, really really interesting. Let's talk about books. What are

1132
00:54:12,400 --> 00:54:14,440
Speaker 2: some of your favorites and what are you reading right now?

1133
00:54:14,800 --> 00:54:19,120
Speaker 1: Right now, I'm reading Plunder by Brendan Below.

1134
00:54:19,160 --> 00:54:21,720
Speaker 3: It talks about the private equity, the private equity world.

1135
00:54:21,719 --> 00:54:24,160
Speaker 3: I have a daughter who wants to do private equity investing,

1136
00:54:24,200 --> 00:54:30,040
Speaker 3: so I'm doing some some due diligence and the book

1137
00:54:30,080 --> 00:54:32,319
Speaker 3: is actually an interesting read, but it talks a bit

1138
00:54:32,320 --> 00:54:34,640
Speaker 3: about the dark side of private equity with it versus

1139
00:54:34,680 --> 00:54:36,520
Speaker 3: some of the favorable things that come out of that

1140
00:54:36,560 --> 00:54:38,960
Speaker 3: space as well. And then there was another book that

1141
00:54:39,000 --> 00:54:42,200
Speaker 3: I read, you know previously, that I thought was really interesting.

1142
00:54:42,760 --> 00:54:45,080
Speaker 3: It's non market related, but it talks a lot about

1143
00:54:45,160 --> 00:54:47,520
Speaker 3: history in the US. It's called From Here to Equality

1144
00:54:48,160 --> 00:54:51,720
Speaker 3: by William Darty. And Kirsten Mullen, and it really examines

1145
00:54:51,760 --> 00:54:54,280
Speaker 3: a lot of American history that isn't covered in in

1146
00:54:54,280 --> 00:54:56,520
Speaker 3: in school. You know, it's a deep look at some

1147
00:54:56,600 --> 00:54:58,760
Speaker 3: of the you know, really pivotal points in the nation's

1148
00:54:58,800 --> 00:55:02,120
Speaker 3: history that you know, where we had a number of

1149
00:55:02,160 --> 00:55:04,840
Speaker 3: opportunities to create a more equal in just society, where

1150
00:55:05,000 --> 00:55:09,000
Speaker 3: we chose to go left instead of right, and you know,

1151
00:55:09,040 --> 00:55:11,840
Speaker 3: we're still dealing with some of those ramifications in today's

1152
00:55:11,840 --> 00:55:13,439
Speaker 3: modern age. So I thought it was a really really

1153
00:55:13,440 --> 00:55:14,799
Speaker 3: interesting book about American history.

1154
00:55:15,000 --> 00:55:18,919
Speaker 2: Huh, really interesting. What sort of advice would you give

1155
00:55:18,920 --> 00:55:22,280
Speaker 2: a recent college grad who was interested in a career

1156
00:55:22,520 --> 00:55:25,920
Speaker 2: in either asset management or finance.

1157
00:55:26,680 --> 00:55:28,840
Speaker 1: I would say a couple of things. One is, be

1158
00:55:28,920 --> 00:55:31,400
Speaker 1: a continual learner. Master your craft.

1159
00:55:31,400 --> 00:55:33,239
Speaker 3: So spend the time and energy and the effort to

1160
00:55:33,800 --> 00:55:37,839
Speaker 3: learn and become an expert. And you know, the key

1161
00:55:37,880 --> 00:55:41,480
Speaker 3: thing is, you know, continuous learning, and there's opportunities to

1162
00:55:41,560 --> 00:55:44,319
Speaker 3: learn from everybody that you interact from and interact with.

1163
00:55:44,440 --> 00:55:47,440
Speaker 3: And so the other thing I would say is, you know,

1164
00:55:47,480 --> 00:55:49,600
Speaker 3: for young people, you have to remember a career as

1165
00:55:49,600 --> 00:55:52,160
Speaker 3: a marathon and not a sprint. The problem that people

1166
00:55:52,160 --> 00:55:55,080
Speaker 3: face is that they're constantly comparing themselves with somebody else

1167
00:55:55,080 --> 00:55:56,839
Speaker 3: who started at the same time, or one of their

1168
00:55:56,880 --> 00:55:59,360
Speaker 3: peers who is working at a different firm. And what

1169
00:55:59,360 --> 00:56:01,560
Speaker 3: I always say to the younger joiners to our firm

1170
00:56:01,600 --> 00:56:04,080
Speaker 3: is run your own race. Judge your success by how

1171
00:56:04,120 --> 00:56:05,680
Speaker 3: you're doing. Are you getting better than where you were

1172
00:56:05,719 --> 00:56:07,600
Speaker 3: a year before, are you continuing to learn?

1173
00:56:07,640 --> 00:56:08,680
Speaker 1: Are you being developed?

1174
00:56:09,160 --> 00:56:12,000
Speaker 3: And if you focus on yourself about getting better every day,

1175
00:56:12,000 --> 00:56:13,759
Speaker 3: you're going to have a much more fruitful and long

1176
00:56:13,800 --> 00:56:17,279
Speaker 3: living career than somebody who's constantly comparing themselves to somebody else.

1177
00:56:17,520 --> 00:56:21,279
Speaker 2: Huh. Really good advice. And our final question, what do

1178
00:56:21,320 --> 00:56:23,799
Speaker 2: you know about the world of investing today? You wish

1179
00:56:23,880 --> 00:56:27,200
Speaker 2: you knew thirty or so years ago when you were

1180
00:56:27,239 --> 00:56:28,680
Speaker 2: really first getting started.

1181
00:56:28,880 --> 00:56:31,360
Speaker 3: I would say, the power of compounding is such a

1182
00:56:31,360 --> 00:56:33,720
Speaker 3: beautiful thing. I just thought wish i'd learn that lesson

1183
00:56:33,760 --> 00:56:36,720
Speaker 3: earlier on. And you know what we were speaking about before,

1184
00:56:36,800 --> 00:56:40,239
Speaker 3: the idea of investing versus speculating as a youngster. You know,

1185
00:56:40,280 --> 00:56:44,000
Speaker 3: it's always it's always interesting to you know, you think

1186
00:56:44,000 --> 00:56:46,480
Speaker 3: about an industry or a company and you're like, oh,

1187
00:56:46,520 --> 00:56:49,040
Speaker 3: it'd be a great investment, But what you what you're

1188
00:56:49,080 --> 00:56:51,440
Speaker 3: doing is speculating, and you should be investing and let

1189
00:56:51,440 --> 00:56:54,680
Speaker 3: that investment compound over thirty forty fifty years, and you

1190
00:56:54,680 --> 00:56:56,799
Speaker 3: can see that even small amounts of money will grow

1191
00:56:56,800 --> 00:56:58,480
Speaker 3: into a rather large sum if you do it on

1192
00:56:58,480 --> 00:57:01,080
Speaker 3: a consistent basis. So I wish I'll learn those lessons

1193
00:57:01,080 --> 00:57:02,800
Speaker 3: earlier and early in my lifetime.

1194
00:57:02,960 --> 00:57:06,760
Speaker 2: Huh, really great stuff. We have been speaking with Greg Davis.

1195
00:57:07,040 --> 00:57:10,760
Speaker 2: He is the chief investment officer at the Vanguard Group.

1196
00:57:11,280 --> 00:57:14,239
Speaker 2: If you enjoy this conversation, please check out any of

1197
00:57:14,280 --> 00:57:17,520
Speaker 2: the five hundred previous interviews we've done over the past

1198
00:57:17,800 --> 00:57:22,040
Speaker 2: eight years. You can find those at iTunes, Spotify, YouTube,

1199
00:57:22,320 --> 00:57:26,040
Speaker 2: wherever you find your favorite podcasts. Sign up for my

1200
00:57:26,160 --> 00:57:29,000
Speaker 2: daily reading list at rid Halts dot com. Follow me

1201
00:57:29,080 --> 00:57:33,600
Speaker 2: on Twitter at Barry Underscore rit Halts until I get

1202
00:57:33,640 --> 00:57:37,320
Speaker 2: back my hacked Twitter account at rit Holts. Follow all

1203
00:57:37,360 --> 00:57:41,000
Speaker 2: of the Bloomberg Family of podcasts on Twitter at podcast

1204
00:57:41,520 --> 00:57:43,520
Speaker 2: I would be remiss if I did not thank the

1205
00:57:43,560 --> 00:57:47,240
Speaker 2: Crack team who helps put these conversations together each week.

1206
00:57:47,560 --> 00:57:52,880
Speaker 2: Paris Wald is my producer, Attika Valbrun is my project manager.

1207
00:57:53,280 --> 00:57:57,440
Speaker 2: Justin Milner is my audio engineer. Joan Russo is my researcher.

1208
00:57:58,120 --> 00:58:02,360
Speaker 2: I'm Barry Ridholts. Been listening to Masters in Business on

1209
00:58:02,440 --> 00:58:03,400
Speaker 2: Bloomberg Radio