Speaker 1: Well Care trillions. I'm Joel Weber and I'm Eric bel
Speaker 1: Tunis Eric. Now that is the beginning of the year.
Speaker 1: I feel like I need to speak with a financial advisor. Yeah. Yeah,
Speaker 1: there's so much going on, and what is going on?
Speaker 1: I mean, Bitcoin Tesla, what in the hell is happening
Speaker 1: right now? There's a new political lance gap, so that
Speaker 1: so so I figured, uh, we We've had a gentleman
Speaker 1: on before named Barry Ritt Holtz who's a Bloomberg opinion
Speaker 1: columnist has a podcast with Bloomberg called Masters in Business,
Speaker 1: and he's also the head of Holts Wealth Management. And
Speaker 1: I was like, oh, yeah, Barry, we can solve this problem.
Speaker 1: Let's dr Barry. Barry is great. You can throw anything
Speaker 1: at him and he's probably has three opinions on it um.
Speaker 1: And that's exactly the kind of thing we want to do,
Speaker 1: is just bring up these things we're seeing and just
Speaker 1: get his take. And he does not have a shortage
Speaker 1: of takes, and they're usually good and they usually get
Speaker 1: your thinking. And so you know, it's a good top
Speaker 1: of the year guest. And if you are interested in
Speaker 1: listening to prayer conversations with Barry, We've did a Use
Speaker 1: Your Disillusion Volume one and two episode a while back,
Speaker 1: and we basically just went really long on that one.
Speaker 1: We'll try to keep this one a little shorter though.
Speaker 1: That was the first and only episode that was two episodes.
Speaker 1: It was we could not contain Barry into one episode.
Speaker 1: But this time we're gonna do it right. We're gonna
Speaker 1: keep keep it to one, aren't we. Yes, we are, well,
Speaker 1: we're gonna try our damnedest this time on Trillions. Welcome
Speaker 1: to the Jungle of with Barry rid holes Berry. Welcome
Speaker 1: actor Trillions. Well, thanks for having me again. Okay, we
Speaker 1: got to talk about the fact that this is uh
Speaker 1: the beginning of a new year with a completely different
Speaker 1: political landscape than we've had for a bit, which is,
Speaker 1: you know, a democratic uh sweep. Uh So, So, Barry,
Speaker 1: what how are you talking to investors and to to
Speaker 1: prepare them for this new world? So first off, the
Speaker 1: data about is so amazing and compelling that I think
Speaker 1: it's going to, if not influence the incoming Biden administration
Speaker 1: at the very least, it will look it will confirm
Speaker 1: their priors. It will it will basically give them license
Speaker 1: to do what they wanted to do anyway, and the
Speaker 1: data is this externality hits the market, the economy collapse
Speaker 1: that it's worst. GDP was probably cut in half. We
Speaker 1: saw the single biggest drop in the markets, the single
Speaker 1: biggest spike unemployment in the shortest period of time. And
Speaker 1: then Congress that normally can't agree on renaming the library
Speaker 1: past the first Cares Act. It was what two point
Speaker 1: one trillion dollars um versus you know, six or seven
Speaker 1: hundred eight hundred billion for the financial crisis that was
Speaker 1: doled out over four months for years. This was eight months.
Speaker 1: And what's amazing is you can really see it in
Speaker 1: the economic data. So year of a year we saw
Speaker 1: a one trillion plus increase in the after tax personal
Speaker 1: income of Americans compared to the previous year. That's an
Speaker 1: eight percent gain over like eight or nine months from
Speaker 1: like March to November, same period versus giant increase. How
Speaker 1: does that manifest itself? Um savings rates go up. Not
Speaker 1: only does retail sales go higher, they go above the
Speaker 1: pre pandemic level. They spiked up, and credit card delinquencies
Speaker 1: are now at you know, if not all time lows,
Speaker 1: really close to it. And that's what you know the
Speaker 1: old joke. I think it was Warren Buffett who said,
Speaker 1: give me a trillion dollars, I'll throw you a hell
Speaker 1: of a party. Um, hey, here's a trillion dollars and
Speaker 1: they threw a hell of a party. What does that
Speaker 1: mean going forward? Well, it means that the Biden administration
Speaker 1: now has carte blanche first for the Cares Act three. Right,
Speaker 1: we just had a you know, a mini Cares Act,
Speaker 1: a trillion dollars. They're gonna do another two trillion dollars,
Speaker 1: part of which is going to include four hundred billion
Speaker 1: dollars for the vaccine rollout for the States. Another part
Speaker 1: of that is going to be a two thousand dollar
Speaker 1: check for everybody. Um, they'll problem I'm guessing that there'll
Speaker 1: be a national mask mandate and a temporary lockdown while
Speaker 1: vaccines go out. And you can't fix the economy until
Speaker 1: you fix the pandemic. A lot of my friends on
Speaker 1: the right, um, completely couldn't wrap their head around that.
Speaker 1: And uh, I think the data absolutely shows that. But
Speaker 1: it's not just the pandemic. You're gonna see a long
Speaker 1: overdue infrastructure bill. I don't know, four billions, four trillion,
Speaker 1: five trillion, six trillion over a decade. If they were smart,
Speaker 1: they would fund this with fifty or a hundred year bonds.
Speaker 1: I don't know how smart these guys are, but that's
Speaker 1: what I would do. We we may have actually said
Speaker 1: that exact same thing last time I was on This time,
Speaker 1: we're gonna get an infrastructure bill. There's gonna be a
Speaker 1: green new deal with extended UM tax credits for solar
Speaker 1: and e vs, and maybe even smart roads with implanted
Speaker 1: RF devices so self driving cars don't have to rely on,
Speaker 1: you know, crappy little cameras to see where they're going.
Speaker 1: They'll know exactly where they're going just a giant rollout.
Speaker 1: Oh and ps, we're also going to see a massive
Speaker 1: expansion of Obamacare. When we added thirty five to forty
Speaker 1: million people to the role of to the roles of
Speaker 1: sured the first Obamacare, it had a huge impact on
Speaker 1: healthcare and hospital and pharmaceuticals and that entire sector, which
Speaker 1: is a huge chunk of UM retail sales. This time,
Speaker 1: maybe we had another twenty to twenty five million people
Speaker 1: similarly going to impact UH, the economy and retail sales.
Speaker 1: All of those things cares at three. The infrastructure deal
Speaker 1: the Green New Deal. The expansion of Obamacare means that
Speaker 1: we're looking at a massive multi year stimulus, which, as
Speaker 1: we learned in twenty it turned out that John Maynard
Speaker 1: Keynes was right, and when demand falls off, it's very
Speaker 1: easy for the government to replace it by substituting their
Speaker 1: own spending. For what you would normally see from households
Speaker 1: and businesses, there's some offsetting costs. You're gonna see everybody
Speaker 1: making more than four k is going to see their
Speaker 1: tap top tax rate pick up a couple of percent.
Speaker 1: You're gonna the corporate tax rate probably go back towards
Speaker 1: I don't know if it'll get to tht I'm more
Speaker 1: interested in the alternative minimum tax for corporations. So if
Speaker 1: you're an Apple or a Facebook and you're making hundreds
Speaker 1: of billions or Microsoft, you can't pay like no taxes.
Speaker 1: There'll be a twelve percent. Hey, you report your profits
Speaker 1: to the your shareholders. That's what we're gonna attack you on.
Speaker 1: So that's the that's gonna be the trade offs we'll see.
Speaker 1: So you just laid out a lot of spending, a
Speaker 1: lot of stimulus. That's your vision of the future. It's
Speaker 1: very it's very clear, How do you shift portfolios or
Speaker 1: or do you not? You just know all this and
Speaker 1: know that that's why you're in you know, the Vanguard
Speaker 1: Total Market Fund and you know whatever else? Or do
Speaker 1: you tweak things? Do you add an infrastructure e t
Speaker 1: F onto it or a clean energy e t F.
Speaker 1: Those have been seeing some flows. No. So basically the
Speaker 1: big philosophy we try and share with our clients and
Speaker 1: investors is this, there's a lot of noise, there's a
Speaker 1: lot of cross currents. You should leave I I wasn't
Speaker 1: exaggerating when I said own a globally diversified portfolio of
Speaker 1: low cost ETFs. Hey, maybe I'll add rebalance once a
Speaker 1: year and then leave it the hell alone. But were
Speaker 1: you mentioned the behavioral side. How do you train people
Speaker 1: to leave it the hell alone? Well, you give them
Speaker 1: a data based explanation of what's going on in the world,
Speaker 1: so they're comfortable with leaving it alone. Because when things
Speaker 1: don't make sense, they want to sell. When when there
Speaker 1: are cross currents and there's confusion and there's noise, hey
Speaker 1: I don't really understand this, Maybe I should sell. And
Speaker 1: you know, one of the most popular pieces I wrote
Speaker 1: for Bloomberg opinion this year was explaining why, hey, maybe
Speaker 1: mr market isn't so rational after all. And we looked
Speaker 1: at all the components of the SMP five hundred index
Speaker 1: to figure out to answer the question that we got
Speaker 1: over and over from clients. This market doesn't make sense.
Speaker 1: I look around, the economy isn't going to hell? How
Speaker 1: can the stock market keep going up? There's something wrong here.
Speaker 1: And when you look around at at why the economy
Speaker 1: looks like how well your local dry cleaner is doing
Speaker 1: a third of the business, they were all the little
Speaker 1: restaurants are closing, the bars are closing, the retailers. Even
Speaker 1: the gas station isn't doing well. Gases like a buck nineties,
Speaker 1: so everything is so cheap. Their personal experience is the
Speaker 1: economy is terrible, but that's not what drives the market.
Speaker 1: When we look at we took apart to the SMP
Speaker 1: five index and found top ten names are sent of
Speaker 1: the index. And these are companies that are a global
Speaker 1: They get most of them get half of more of
Speaker 1: their business from overseas, where they admittedly did a much
Speaker 1: better job than we in America did managing the pandemic,
Speaker 1: and be they're perfectly set up for the work from
Speaker 1: home environment. So Apple, Microsoft, Amazon, Netflix, go go down
Speaker 1: the list of all those giant companies that are doing great. Hey,
Speaker 1: the pandemic went for another ten years, they would be fine.
Speaker 1: They don't care. But when you look at what's doing
Speaker 1: really poorly, it's travel and hotels, and you know, your
Speaker 1: most people's personal economic experience is not very well reflected
Speaker 1: in the SMP five hundred, and in fact the number
Speaker 1: that blows people away. Take the thirty worst industrial sectors um,
Speaker 1: thirty words sectors in the SMP five, the little sub
Speaker 1: industry groups and just throw them away, send them all
Speaker 1: to zero. It takes two off of the SMP five hundred.
Speaker 1: So it when you could explain to clients, hey, it
Speaker 1: may seem that the market is irrational, but your personal
Speaker 1: economic situation and what you're seeing around you is very
Speaker 1: very um not publicly traded, it's very private, and so
Speaker 1: therefore it's actually rational that the global, profitable, big cap
Speaker 1: companies that are working um taking advantage of working from home,
Speaker 1: are doing really well and therefore leave your damn portfolio alone. Okay,
Speaker 1: so if I if I leave my portfolio alone, I'm
Speaker 1: still living in a world that has gigantic infusions of cash. Yeah, stimulus,
Speaker 1: stimulus coming fed doing what it's gonna do. How concerned
Speaker 1: about you know this bubblicious environment? Are you so? Having
Speaker 1: been a trader and lived through the nineties and two thousand, um,
Speaker 1: this isn't this, this is this is still a fraction
Speaker 1: of that, right, I remember when you would buy something
Speaker 1: and that would go up there. Every sale was punished immediately.
Speaker 1: It was it was just hey, from from I remember,
Speaker 1: it was from my birthday in October untill the top
Speaker 1: in March from the nasdack doubled. Right, we had the
Speaker 1: best year in in a decade. The Nasdaq was up
Speaker 1: forty So it's still not not even anywhere close to that.
Speaker 1: And by the way, most of those companies that are
Speaker 1: doing really well have giant revenues and giant cash on
Speaker 1: the balance sheets and huge profits. That said, there are
Speaker 1: all sorts of pockets of speculation. UM Bitcoin probably the
Speaker 1: poster child speculation. Uh, someone smarter than me can explain
Speaker 1: what it's fundamental intrinsic value is. Um. I like to
Speaker 1: tell people the intrinsic value of a dollar is that
Speaker 1: we it's are all. I'll admit it's a delusion it's
Speaker 1: a collective delusion that a dollar has value. Plus it's
Speaker 1: with Uncle Sam demands you pay your taxes in and
Speaker 1: they have a standing army to enforce it. So it's
Speaker 1: more than just an abstract thing. Bitcoin has become an
Speaker 1: asset to speculate with um. The spacks clearly have gone,
Speaker 1: you know, berserk And what was the thing Elon Musk
Speaker 1: mentioned the other day? And the wrong company you know
Speaker 1: went up fift These are all anecdotes, but you know
Speaker 1: you see enough of them. Oh and did I mention Tesla?
Speaker 1: Testlas looks a little bubblicious. I don't want to short
Speaker 1: it yet, but I'm interested in it. I mean, the
Speaker 1: trader in me says there's a there's some money to
Speaker 1: be made on the downside there. I've just watched too
Speaker 1: many people carry down on their shields to want to
Speaker 1: step into that fray just yet. I don't want to.
Speaker 1: I don't want to go deep on bitcoin. But do
Speaker 1: you own any crypto? No? None. And by the way,
Speaker 1: when clients come to me and say I want to
Speaker 1: buy some crypto, it's like, all right, go buy some crypto.
Speaker 1: I don't care. I'm not gonna tell you not to.
Speaker 1: Just don't mortgage the house and leverage up with crypto,
Speaker 1: because he'll knows I was. I was just gonna end
Speaker 1: I could tell you where equities will be a hundred
Speaker 1: years from now, more or less. I have no idea
Speaker 1: what crypto will be. Where will equities being in a
Speaker 1: hundred years from now higher? That's not a hard bet
Speaker 1: to make, right And if it's not higher, we have
Speaker 1: you have to worry about clean water and air at
Speaker 1: that point, right right, Well, you know a lot of
Speaker 1: advisors are talking about working in crypto to the portfolio.
Speaker 1: You see institutions getting into it. Is there any thought
Speaker 1: that you might lose or upset clients if if it's
Speaker 1: not part of the ritolds portfolio. You know, some of
Speaker 1: the basic rules of investing are know what you are own,
Speaker 1: know what it's worth, and understand how it fits into
Speaker 1: a diversified portfolio. And if someone wants to take you know,
Speaker 1: five percent two of their liquid net worth and by bitcoin,
Speaker 1: um I would tell them two things. Write your password
Speaker 1: down and put it in your bank vault. Because what
Speaker 1: what is it? Something like twenty of bitcoin value has
Speaker 1: been lost? That stop and think about that just for
Speaker 1: a second. A fifth to a quarter of the value
Speaker 1: of bitcoin is lost behind forgotten passwords or lost thumb drives,
Speaker 1: So to me, that's not necessarily a Hopefully institutions will
Speaker 1: be able to solve that. Maybe maybe Fidelity or somebody
Speaker 1: else that is moving into that space will do it.
Speaker 1: But that's kind of a warning. The other thing is,
Speaker 1: you know, until you understand what it is, what it does,
Speaker 1: and what it's you know purpose. I like the explanation
Speaker 1: that it's a solution in search of a problem, but
Speaker 1: none of that matters. If someone says to me, hey,
Speaker 1: I want to own two or three percent of bitcoin, great,
Speaker 1: we'll set up a side pocket for you, you you know,
Speaker 1: a separate account. We won't charge you on it, and
Speaker 1: it'll be here, and anytime you want to sell it
Speaker 1: or buy more, you can do it. Just understand, assume
Speaker 1: it goes to zero. That's how much you should put
Speaker 1: into it, enough that it doesn't change your lifestyle. And
Speaker 1: if it goes to a million, hey god bless Tesla. Okay,
Speaker 1: we were looking at some numbers in my team and
Speaker 1: there's some mind blowing stuff. Besides the price jump. Obviously
Speaker 1: that's been parabolic. The volume in tesla um so for
Speaker 1: twenty years, not nothing traded more than Spy. I think
Speaker 1: Apple did on one days. Now, yeah, Tesla has now
Speaker 1: traded more than Spy for twenty six out of less
Speaker 1: twenty days, and in the past month it's traded a
Speaker 1: trillion dollars. UM, what's going on here? Have you have
Speaker 1: you ever seen anything like this? Is this the retail investor? Um?
Speaker 1: What do you think will happen to Tesla? If we
Speaker 1: were to you know, timestamp now and look back and
Speaker 1: we're you know, we're five years down the road, what
Speaker 1: call would you make? Where will Tesla be? And just
Speaker 1: give me your general wide take on Tesla? So so
Speaker 1: I have a hard time. UM. You know, you need
Speaker 1: a certain distance from things to be objective. If you're
Speaker 1: too far away, you don't understand anything about it, And
Speaker 1: if you're too close, you know too much and it's
Speaker 1: hard to see it. You guys know, I'm a car guy,
Speaker 1: and while I'm both fascinated and intrigued by Tesla, the automobile, Tesla,
Speaker 1: the company has not shown itself to be UM a
Speaker 1: great automobile manufacturer. They are interesting cars with great technologies,
Speaker 1: but terrible manufacturing. UM. And I understand why Tesla didn't
Speaker 1: hook up with Ford or Toyota to manufacturer that the US,
Speaker 1: But I don't know how long their lead is going
Speaker 1: to stay. Keep them in the lead. So, uh, the
Speaker 1: number of cars that are coming out of kind of fascinating,
Speaker 1: the the initial ones. Everybody is following here. First off,
Speaker 1: before we go into the details, Tesla one like hold
Speaker 1: hold aside the company the stock. Elon Musk changed the
Speaker 1: paradigm of automobiles for the right reason. Hey, uh, internal
Speaker 1: combustion engines and and carbon based transportation is destroying the
Speaker 1: planet and just impacting the them the climate. And so
Speaker 1: therefore I'm going to introduce this electric car and everybody
Speaker 1: better come along. We're gonna You're gonna be left behind.
Speaker 1: And the rest of the car industry said, we're not
Speaker 1: gonna let Musk do to us what Bezos did to retail,
Speaker 1: and Bezos did to cloud computing, and Bezos did to
Speaker 1: go down the list. So the paradigm has shifted. Elon
Speaker 1: Musk has won the internal combustion versus electric car debate.
Speaker 1: Now that he's won that, he has created a massive
Speaker 1: amount of future competition for himself. So the Porsche take
Speaker 1: Can Turbo comes out and it's spectacular. It's much better
Speaker 1: than anything out of Tesla, except it's a hundred and
Speaker 1: eighty six thousand dollars. It's it's a high end luxury,
Speaker 1: very fast forward four seat e V. The question is,
Speaker 1: can somebody come out and make a product that's competitive
Speaker 1: with the Tesla UM with either the Model three UM
Speaker 1: or or them the model uh at? Why? Or go
Speaker 1: down the list? And we now have an answer. The
Speaker 1: new Ford Mustang Maki is every bit as good as
Speaker 1: anything from Tesla. It the reviews are spectacular. Everybody seems
Speaker 1: to love it. The one thing people don't like is
Speaker 1: the name Mustang. But you know, get over yourself. And
Speaker 1: the argument now is, and I have this argument with
Speaker 1: some mutual friends, Dave not Agan. I argue about this
Speaker 1: all the time. You seem to think Tesla is a
Speaker 1: car company. Their genius is the network of super fast
Speaker 1: charging stations. Dave range anxiety was has always been nonsense
Speaker 1: of all trips in a car are within you know,
Speaker 1: fifty miles of the home. And if you're gonna take
Speaker 1: any electric car and along the trip, well you may
Speaker 1: have to do a little more planning in the Mustang
Speaker 1: than the Tesla. But you know, so what and PS,
Speaker 1: there's still a bajillion gasoline cars around, so this isn't
Speaker 1: gonna be a problem. By the time the gasoline cars
Speaker 1: go away. I don't know if it will be some
Speaker 1: consortium a ford in Toyota and Volkswagen will have the
Speaker 1: charging network equal to Tesla's. Maybe the government rolls went out.
Speaker 1: Maybe a bunch of manufacturers agree in a standard and
Speaker 1: they all use it interoperably. But I don't think that's
Speaker 1: worth the massive premium that Tesla is getting. And PS,
Speaker 1: there are startups like the Lucid Air is a spectacular car.
Speaker 1: Um uh, the I'm gonna get the name wrong, the
Speaker 1: Bolinger Bodinger, the suv and the pickup truck really interesting. PS.
Speaker 1: The the GM Electric Hummer, Oh my god, that that's
Speaker 1: a spectacular vehicle. So elon Muskwaden. We're all going electric.
Speaker 1: And it's a matter of time before it becomes clear
Speaker 1: that Tesla is not going to have a market share
Speaker 1: of the electric market. Um and so at a certain point,
Speaker 1: and and this is the difference between a company and
Speaker 1: a stock. And this is why I have no interest
Speaker 1: in shorting Tesla yet um the stock looks fantastic. Think
Speaker 1: the companies on fire. It's just going higher and higher.
Speaker 1: It's a great story. The narrative behind it is just
Speaker 1: kicking everything else's ass. Eventually that'll probably come to an end,
Speaker 1: and at a certain point the downside in Tesla is
Speaker 1: going to be a great trade. But I don't think
Speaker 1: we're there yet. We're maybe we're closer than further. I
Speaker 1: don't know, but you know the three bullet points elon
Speaker 1: musk one. Everybody's going e V. Tesla stock is on fire.
Speaker 1: Anybody who shorts this is killing themselves. But one day
Speaker 1: they'll say, oh, I wish I had a few pennies
Speaker 1: left to still short this. It's a shame I went
Speaker 1: broke in. Can I give you a fourth bullet point?
Speaker 1: Cathy Wood might be even hotter than Tesla. So I
Speaker 1: don't want to disc Cathy because I think she built
Speaker 1: something spectacular. I um, I watched from a distance that
Speaker 1: entire arc of her minority shareholder exercising the right to
Speaker 1: buy that forced her to buy him out. Now, I
Speaker 1: don't know if she goes on to be a hundred
Speaker 1: billion or a trillion dollar company. I kind of think
Speaker 1: that she may have top picked herself. When so, when
Speaker 1: you see someone who's had just an amazing ride. I mean,
Speaker 1: what was it six years ago? They were a hundred million,
Speaker 1: two hundred million. That's when they went to Reliance as
Speaker 1: their marketer. And there, this and that, and nobody expected
Speaker 1: her to blow up to be a fifty billion dollar company.
Speaker 1: But she just bought them out with a note at
Speaker 1: some ungodly price. It's undisclosed. I don't know if it's
Speaker 1: fifty million, a hundred million. It's kind of weird. It
Speaker 1: reminds me so God bless her for kicking ass. I
Speaker 1: hope the farm goes to a hundred billion dollars. But
Speaker 1: when we look back in hindsight and say, hey, Cathy
Speaker 1: would financed a hundred million dollar buy out of her
Speaker 1: firm after they raised fifty billion dollars and after a
Speaker 1: hundred and sixty percent raise, we may look back at
Speaker 1: that and say she is like the mutual fund buyers
Speaker 1: that managed to top tick the hot funds, she may
Speaker 1: have top ticked herself. I hope that doesn't happen. I
Speaker 1: hope the fund does great. Um. I find her research
Speaker 1: and her approach fascinating, but it would really make for
Speaker 1: an ironic ending to that story. And like as an advisor.
Speaker 1: You guys don't touch anything like that, anything that's highly concentrated,
Speaker 1: you know, because we do talk about this idea of
Speaker 1: a Barbell portfolio very low cost passive and then you
Speaker 1: you know, put some hot sauce on top. And you know,
Speaker 1: because the middle those middle closet indexing active managers seem
Speaker 1: like it's just they're not nobody's interested in that anymore.
Speaker 1: They want either cheap beta or shiny objects, right right, Well, well,
Speaker 1: the you know, the closet indexers, what's the point. Come
Speaker 1: for the high fees, stay for the under performance. It
Speaker 1: does nothing for you. So so if you're gonna be
Speaker 1: pretty um, if you're gonna be pretty beta, and maybe
Speaker 1: you have a lean towards value or small cap or whatever.
Speaker 1: To me, the more interesting aspect of the concentrated positions
Speaker 1: is not us putting clients into a concentrated position, but
Speaker 1: a client coming to us and saying, hey, I'm a
Speaker 1: sea level executive at fill in the blank Exo, Mobile, Amazon, Google, Apple,
Speaker 1: It doesn't matter, and while I love your concept of
Speaker 1: a diversified portfolio, I don't want any more exposure to
Speaker 1: fill in the blank, technology, energy, whatever it is. And
Speaker 1: so That's one of the reasons we've been embracing UM
Speaker 1: for those sort of clients. Direct indexing. We work with
Speaker 1: O'Shaughnessy's product called Canvas, and we have about two million
Speaker 1: dollars in that product and basically what and we with
Speaker 1: one of the beta testers with them and and just
Speaker 1: really blown away with how good the technology is. Basically,
Speaker 1: we could take our core portfolios of you know, fifteen
Speaker 1: mutual funds and give it to them and say replicate
Speaker 1: these with all individual stocks and they run the holdings
Speaker 1: through their their software and they say, here's stocks that
Speaker 1: look exactly like your seventy thirty portfolio UM. And then
Speaker 1: we get to say, okay, separate from this five million dollars.
Speaker 1: This client has ten million dollars in Apple UM employee
Speaker 1: stock options and another two million dollars in Apple stock
Speaker 1: that he can't sell. So a, let's tune out Apple
Speaker 1: from his holdings and be what else trades very much
Speaker 1: like Apple that he doesn't need more exposure to, And
Speaker 1: then we tune that out and so they get a
Speaker 1: diversified portfolio without all of the hyper concentration that they
Speaker 1: come to us. There's a couple of other things This
Speaker 1: software does. The E s G aspect of it is
Speaker 1: mind blowing. How specifically you can tune out different things,
Speaker 1: whether it's gun manufacturers, or reduce the exposure to companies
Speaker 1: that never have had a woman on their board of directors,
Speaker 1: like you can really fine tune this. The software really
Speaker 1: is just amazing and it's it's one of the better
Speaker 1: E s G projects products I've I've ever seen. Okay,
Speaker 1: a couple of questions on this, So customer dexting and
Speaker 1: director next to get something we've been tracking UM Parametric
Speaker 1: custom Core is the big one. It didn't really see
Speaker 1: much in flows last year. You guys are definitely tip
Speaker 1: of the spear type advisors. But it's I the E
Speaker 1: T F and Vanguard and a couple. You can get
Speaker 1: a whole portfolio for four basis points and you're not
Speaker 1: making active bets, so there's no chance you're gonna underperform
Speaker 1: because as you are the market, you're gonna take active
Speaker 1: bets and pay up. Isn't that against where where it
Speaker 1: all went? It all went from complex to simple. Isn't
Speaker 1: this going the other under direction? Yes and no. So
Speaker 1: so first I'm not of the camp that things direct
Speaker 1: indexing eats passive. I think it's a very specific niche
Speaker 1: with a very specific audience. UM, and the three key
Speaker 1: audiences are a the concentrated equity position that you have
Speaker 1: to work around. That's one be the E S G.
Speaker 1: Um investor who really wants the ability to fine tune
Speaker 1: it in a lot of ways and see the high
Speaker 1: income as opposed to high asset investor who has a
Speaker 1: giant tax bill. The tax lost harvesting ability when you
Speaker 1: have two thousand stocks as opposed to twelve mutual funds,
Speaker 1: it's world's apart. It's it's you know, hundreds and hundreds
Speaker 1: of basis points versus I could squeeze twenty or thirty
Speaker 1: basis points swapping this total market funds for that total
Speaker 1: market funds. This is just a huge, huge um source
Speaker 1: of tax alpha. If I could use a horrific cliche
Speaker 1: and so I agree the tax alpha and it makes
Speaker 1: so much sense. The E S G is hard to
Speaker 1: argue with because E S G. E T s aren't
Speaker 1: going to cut it if you have specific views, because
Speaker 1: it's a copy cutter approach. So subjectivity is great. UM,
Speaker 1: that's I get that the tax alpha. At first, you're
Speaker 1: gonna run out of losses to use at some point
Speaker 1: and if a bear market hits, what the e t
Speaker 1: s and the mutual funds that can that advantage should
Speaker 1: go away, and then your left giving all your money
Speaker 1: to one company? Does that? Is that a little concerning?
Speaker 1: Like whereas when I go food shopping, I like to
Speaker 1: get different brands, so I don't want to give my
Speaker 1: whole I don't know, there's something about having choy some
Speaker 1: different brands and sure, um, well that's why I said,
Speaker 1: I don't. I don't see us with one eight billion
Speaker 1: and I have two million in this. I don't see
Speaker 1: the whole thing rotating over to that anytime soon. That said,
Speaker 1: the complexity is certainly an aspect there. The software covers it.
Speaker 1: The cost and credit O'Shaughnessy with something very very clever
Speaker 1: that they did. They said, if you set this up
Speaker 1: as pure beta, there's no cost to it. We're only
Speaker 1: going to charge you for the active share. So our
Speaker 1: portfolios are about a twenty lean towards value and small cap,
Speaker 1: and so you're only paying a fee on that um
Speaker 1: and you're you're basically getting it no charge because the
Speaker 1: transactions are free, the holding is free, and so yes,
Speaker 1: you're adding a level of complexity, but surprisingly you are
Speaker 1: not increasing the fees, so it's not six BIPs, but
Speaker 1: it'll end up being you know, twenty or thirty BIPs,
Speaker 1: which is pretty reasonable. And that's before you know the
Speaker 1: tax advantage. So I don't see a cost penalty with
Speaker 1: this if you're that type of client who's got a
Speaker 1: bigger income and a lot of tax um issues they're
Speaker 1: dealing with. So Barry, I just want to get your
Speaker 1: take on this too, which is that obviously Vanguard is
Speaker 1: getting bigger and black Rock to do oppoly. They now
Speaker 1: want about of most stocks with a concern. I think
Speaker 1: that distortion concerns have died down a little bit, like
Speaker 1: you know, because they're seeing stocks go up and down.
Speaker 1: So clearly Active is in control. But what is bubbling
Speaker 1: up is how are they voting? And should two companies
Speaker 1: have that much power in their voting? And I guess,
Speaker 1: as somebody who owns Vanguard and just watches this stuff,
Speaker 1: what do you do? You think they have too much power?
Speaker 1: And if they do, what should be done? So we
Speaker 1: own Van Garden black Rock also, and I just saw
Speaker 1: the other day the crossed I think the Financial Times
Speaker 1: reported um Vanguard crossed seven trillion, which is a pretty
Speaker 1: big milestone. Um, do they have too much power? Well, well,
Speaker 1: first of all, any investor who wants to vote their
Speaker 1: own you know, um individual proxies can we just know
Speaker 1: from experience, nobody does that. Nobody really cares so um
Speaker 1: or or or they don't care enough to vote the proxy.
Speaker 1: And so when you look at black Rock and you
Speaker 1: look at Vanguard as fiduciaries for their clients, the you
Speaker 1: know the I want to reframe the question. The better
Speaker 1: way to my response to that question is another question,
Speaker 1: which is do you think that black Rock and Vanguard
Speaker 1: with six of the outstanding equities seven trillion for Vanguard,
Speaker 1: what what is black Rock? Eight points something trillion? Does
Speaker 1: anybody believe for a moment they want to get into
Speaker 1: the business of voting proxies against the interest of their investors. No,
Speaker 1: this isn't the arguments the Milton Friedman argument that no,
Speaker 1: banks and brokers would never behave ridiculously and blow themselves
Speaker 1: up by using leverage um, and therefore they don't need
Speaker 1: to be they don't need to be regulated. That argument
Speaker 1: is very, very different, because they're engaging in a risky
Speaker 1: behavior for further profit. This is hey, maybe there, This
Speaker 1: is what the legal law the law review community, in
Speaker 1: desperate need of topics to write about, has been, you
Speaker 1: know about and and it's kind of silly stuff. I mean,
Speaker 1: I guess there is a risk that a big private
Speaker 1: company like Vanguard or a big publicly traded company like
Speaker 1: black Rock, maybe they might in a given instance abuse
Speaker 1: their seven percent market share and vote a proxy in
Speaker 1: a way on a given company that is against their
Speaker 1: interests but against the investor's interest. But why why are
Speaker 1: they going to go down that rabbit hole? They own
Speaker 1: some percentage of twenty companies like Now, that's why you
Speaker 1: get these letters as to why from Larry Fink as
Speaker 1: to why you should be more green and you should
Speaker 1: have a diverse portfolio board of directors, And he's doing
Speaker 1: it by letters because he can't do it by proxy. Otherwise,
Speaker 1: as our colleague Matt Levin would say, that would be
Speaker 1: you know, the basis of securities litigation. You're giving an
Speaker 1: excuse for lawyers to sue you because you're not operating
Speaker 1: in your in your client's best interest. So that's a
Speaker 1: long answer to I don't really see that as as
Speaker 1: a realistic um thing that's going to happen, and the
Speaker 1: first time it were to happen, the outcry would be
Speaker 1: so you know loud, it would never happen again. There
Speaker 1: would be new restrictions put in place internally. But you
Speaker 1: have a really nice business. Why mess with it for
Speaker 1: something as stupid as a proxy vote? Who cares? Okay,
Speaker 1: here's my question. When we get back two normal times,
Speaker 1: whatever that looks like, what's the thing from this time
Speaker 1: that you want to make sure that you retain. So
Speaker 1: there's a couple of things we we've talked about this,
Speaker 1: my wife and I, my partners and I. First, UM,
Speaker 1: I've lived in New York my whole life, and the
Speaker 1: winters here are less than desirable. And while I'm not
Speaker 1: a giant fan of Florida, I've always fantasized of just
Speaker 1: going someplace warm and sunny for a month or two
Speaker 1: and working remote. And I always wondered if that was doable,
Speaker 1: and and now we all know it's completely doable. Um.
Speaker 1: The more r I A related aspect to that, UM
Speaker 1: we've discussed internally. My partner JESSH. Brown wrote a long
Speaker 1: blog post about this. You now know as an r
Speaker 1: I A that local doesn't mean anything. You have a
Speaker 1: national potential client base because nobody saw anybody for the
Speaker 1: past nine months and everything worked fine, and so whatever
Speaker 1: hesitancy there was about I need a local advisor, that's gone.
Speaker 1: Because if we're doing this over Zoom or Google Hangout
Speaker 1: or whatever your preferred technology is, if I'm down the
Speaker 1: block or across the country, it's meaningless. And I think
Speaker 1: that's gonna potentially change the industry to some degree. Um,
Speaker 1: the the ability to hire people remotely that I don't
Speaker 1: have to come into the office every day, So I think,
Speaker 1: I think that's going to be a change. And then
Speaker 1: the other thing you kind of come to realize is
Speaker 1: the advantage of just a clean sheet of paper and
Speaker 1: just saying to yourself, Hey, I have to drop all
Speaker 1: my assumptions. I can't assume that I have to be
Speaker 1: in the office five days a week. I can't assume
Speaker 1: that clients want to meet us all the time. I
Speaker 1: can't assume that we have to have, you know, a
Speaker 1: big office in the city. That I think a lot
Speaker 1: of fundamental assumptions that had inertia and a general rational
Speaker 1: for their existence. Um, get get a clean um review
Speaker 1: because it's clear that a lot of our assumptions about
Speaker 1: everything turn out to be wrong. Very ahole. Thanks joining
Speaker 1: us on Trillians. As always, Thanks guys, thanks for listening
Speaker 1: to Trillions. Until next time. You can find us on
Speaker 1: the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, and
Speaker 1: wherever else you like to listen. We'd love to hear
Speaker 1: from you. We're on Twitter, I'm at Joel Webber Show,
Speaker 1: He's at Eric Baltunas, and you can find Barry at
Speaker 1: rid Holes. This episode of Trillions was produced by Magnus Hendrickson.
Speaker 1: Francesca Levy is the head of Bloomberg Podcast. Bye.