1 00:00:00,000 --> 00:00:02,599 Speaker 1: And joining us now for an exclusive conversation about these markets. 2 00:00:02,640 --> 00:00:06,720 Speaker 1: Cliff Assness AQR Capital Management, Founder, managing principal and chief 3 00:00:06,760 --> 00:00:10,960 Speaker 1: investment officer. We've been talking so much about these record 4 00:00:11,039 --> 00:00:14,600 Speaker 1: highs we've been experiencing, but within those record highs, there's 5 00:00:14,640 --> 00:00:17,599 Speaker 1: a tremendous amount of stock market concentration. 6 00:00:17,720 --> 00:00:17,919 Speaker 2: Here. 7 00:00:18,000 --> 00:00:21,439 Speaker 1: There's a few stocks that have benefited so disproportionately. 8 00:00:21,840 --> 00:00:23,200 Speaker 3: How do you invest through that? 9 00:00:23,840 --> 00:00:26,960 Speaker 2: Well, first, it's a lot easier to be a quant 10 00:00:27,520 --> 00:00:28,320 Speaker 2: at these times. 11 00:00:28,600 --> 00:00:30,920 Speaker 3: We do run some traditional portfolios, but a lot of 12 00:00:30,920 --> 00:00:32,480 Speaker 3: what we do are. 13 00:00:32,400 --> 00:00:34,760 Speaker 2: Long and short, and it's very common for us to 14 00:00:34,760 --> 00:00:36,760 Speaker 2: be long about seven hundred and fifty stocks around the 15 00:00:36,760 --> 00:00:40,239 Speaker 2: world and short about seven hundred and fifty balanced by industry. 16 00:00:40,680 --> 00:00:44,720 Speaker 3: So we do the courageous thing and run away from 17 00:00:44,760 --> 00:00:47,000 Speaker 3: this problem we've had. 18 00:00:47,280 --> 00:00:49,839 Speaker 2: We've had very good years with the mag seven soaring, 19 00:00:49,880 --> 00:00:52,920 Speaker 2: even though value strategies are part of what we're doing. 20 00:00:53,320 --> 00:00:55,360 Speaker 2: The opposite could hadn't happened in a while, the opposite 21 00:00:55,440 --> 00:01:01,040 Speaker 2: could happen. So concentration is a problem for typical active 22 00:01:01,080 --> 00:01:04,080 Speaker 2: manager and for us in some places, when you're only 23 00:01:04,120 --> 00:01:07,080 Speaker 2: allowed to go long against the benchmark because a lot 24 00:01:07,120 --> 00:01:09,560 Speaker 2: of your information, if you're a good active manager, is 25 00:01:09,600 --> 00:01:13,039 Speaker 2: about what not tone, and when some things are so 26 00:01:13,120 --> 00:01:15,480 Speaker 2: concentrated and big, it shrinks the size of everything else 27 00:01:15,480 --> 00:01:20,160 Speaker 2: and makes that information less relevant. When you're long short 28 00:01:20,319 --> 00:01:22,920 Speaker 2: or even a traditional portfolio that allows you to do 29 00:01:22,959 --> 00:01:25,679 Speaker 2: a little bit of shorting, that really goes away and 30 00:01:25,720 --> 00:01:27,440 Speaker 2: you don't have to think a lot about the mag seven. 31 00:01:27,520 --> 00:01:29,720 Speaker 2: You just have to think about what you like and 32 00:01:29,880 --> 00:01:32,120 Speaker 2: don't like. So I mainly run away from this problem. 33 00:01:32,160 --> 00:01:32,360 Speaker 3: You know. 34 00:01:32,480 --> 00:01:34,399 Speaker 1: Speaking of running away from the problem, you have one 35 00:01:34,440 --> 00:01:36,800 Speaker 1: fund in particular, we're taking a look out. My colleague 36 00:01:36,840 --> 00:01:39,320 Speaker 1: Justina lead pointed this out. You have an equity market 37 00:01:39,400 --> 00:01:42,840 Speaker 1: neutral fund that is up about twenty three percent this year. 38 00:01:42,880 --> 00:01:44,679 Speaker 3: You're beating the market. I'll take your word for. 39 00:01:44,680 --> 00:01:49,240 Speaker 1: It, and that fund, I'm interested in it because traditional 40 00:01:49,320 --> 00:01:51,480 Speaker 1: value factor is generic. Ones out there in the market 41 00:01:51,480 --> 00:01:54,080 Speaker 1: have not performed that well. What do you do differently 42 00:01:54,120 --> 00:01:56,000 Speaker 1: with value? 43 00:01:57,240 --> 00:01:59,240 Speaker 2: I have literally a piece on our website saying we 44 00:01:59,320 --> 00:02:02,800 Speaker 2: are not all about value, except occasionally when we are 45 00:02:03,280 --> 00:02:06,000 Speaker 2: when the world goes into absolute bubble mode. Anyone who 46 00:02:06,080 --> 00:02:09,600 Speaker 2: cares about price is affected by it. But value is 47 00:02:09,600 --> 00:02:13,400 Speaker 2: only a component of what we do. Some particularly strong 48 00:02:13,440 --> 00:02:16,600 Speaker 2: things over the last few years have been and this 49 00:02:16,720 --> 00:02:21,359 Speaker 2: year have been our quality strategies, profitable companies that are. 50 00:02:21,240 --> 00:02:23,280 Speaker 3: Stable, low volatility, low beta. 51 00:02:23,720 --> 00:02:25,880 Speaker 2: Some of the more proprietary things that people at my 52 00:02:25,880 --> 00:02:27,560 Speaker 2: firm will kill me if I try to talk to 53 00:02:27,600 --> 00:02:31,400 Speaker 2: you about, but more mL and alternative data kind of 54 00:02:31,400 --> 00:02:34,600 Speaker 2: things we have had you quoted it, they get mad 55 00:02:34,639 --> 00:02:36,360 Speaker 2: at me if I quoted. But we've had a very 56 00:02:36,400 --> 00:02:39,320 Speaker 2: strong year our versions of value. 57 00:02:39,480 --> 00:02:41,560 Speaker 3: When you go global and you don't. 58 00:02:41,360 --> 00:02:44,320 Speaker 2: Take big industry bets, probably about flat on the year, 59 00:02:44,840 --> 00:02:46,240 Speaker 2: It's not been a terrible year. 60 00:02:46,400 --> 00:02:47,440 Speaker 3: You get very distorted. 61 00:02:47,440 --> 00:02:50,760 Speaker 2: The value indices are cap weighted, and we all focus 62 00:02:50,800 --> 00:02:53,280 Speaker 2: on the US, so they really are mag seven against 63 00:02:53,280 --> 00:02:57,560 Speaker 2: everything else real world, particularly quants, but even non quants 64 00:02:57,880 --> 00:03:01,200 Speaker 2: are often much more subtle in in what they're in 65 00:03:01,240 --> 00:03:03,800 Speaker 2: what they're doing. So not a terrible year for value 66 00:03:03,840 --> 00:03:06,320 Speaker 2: as we define it. But that's not been the driver. 67 00:03:06,480 --> 00:03:08,880 Speaker 2: It's been the other stuff that's made it kind of 68 00:03:08,880 --> 00:03:11,359 Speaker 2: fun this year. So I don't want to still yeah, 69 00:03:11,800 --> 00:03:12,480 Speaker 2: a bunch of time. 70 00:03:12,840 --> 00:03:15,240 Speaker 3: No, No, I just mean the year is not over. 71 00:03:16,200 --> 00:03:20,080 Speaker 2: I hate year to date until December thirty, first four o'clock. 72 00:03:20,120 --> 00:03:21,880 Speaker 3: You really want the family do this thing. How you do. 73 00:03:22,760 --> 00:03:25,040 Speaker 3: I'm a superstitious quant. Okay, there you go. 74 00:03:25,360 --> 00:03:27,400 Speaker 4: I will say you can say anything on TV one, 75 00:03:27,480 --> 00:03:30,480 Speaker 4: so feel free to talk about your returns single stocks. 76 00:03:30,600 --> 00:03:32,919 Speaker 4: And I do want to get your thoughts on size, 77 00:03:32,960 --> 00:03:35,400 Speaker 4: because the phenomenon that we've been discussing is the fact 78 00:03:35,400 --> 00:03:38,800 Speaker 4: that you don't have a lot of small cap IPOs anymore. 79 00:03:38,920 --> 00:03:42,000 Speaker 4: That companies are waiting in the private markets until they're 80 00:03:42,000 --> 00:03:44,480 Speaker 4: a little bit bigger, so maybe they bypass the small 81 00:03:44,520 --> 00:03:47,960 Speaker 4: and the mid cap index. And that's spurred the idea 82 00:03:47,960 --> 00:03:51,520 Speaker 4: that maybe the small cap premium has disappeared as a factor. 83 00:03:51,560 --> 00:03:52,800 Speaker 4: I would love to hear your thoughts. 84 00:03:53,000 --> 00:03:55,840 Speaker 2: Yeah, well this one again. I'm going to turn the 85 00:03:55,920 --> 00:03:58,200 Speaker 2: question around on you, like a quant. Okay, we don't 86 00:03:58,200 --> 00:03:59,880 Speaker 2: think there's ever been a small cap premium. 87 00:04:00,040 --> 00:04:00,720 Speaker 3: What does that mean? 88 00:04:01,480 --> 00:04:04,720 Speaker 2: Well, certainly sometimes small caps win, but a premium means 89 00:04:04,760 --> 00:04:08,160 Speaker 2: they win on average, that on average, you make extra money. 90 00:04:08,520 --> 00:04:10,800 Speaker 2: The early tests of this were in the early nineteen eighties, 91 00:04:10,840 --> 00:04:12,520 Speaker 2: when the so called small firm. 92 00:04:12,280 --> 00:04:13,560 Speaker 3: Effect was discovered. 93 00:04:14,400 --> 00:04:16,880 Speaker 2: I arrived at the University of Chicago about five years 94 00:04:16,880 --> 00:04:19,479 Speaker 2: after this, but it was there, it was being done, 95 00:04:19,760 --> 00:04:22,680 Speaker 2: and it showed that after adjusting for their beta. Another 96 00:04:22,760 --> 00:04:26,400 Speaker 2: thing quants do and non quants. If you're making extra 97 00:04:26,440 --> 00:04:28,880 Speaker 2: money just because you're a one point five beta and 98 00:04:28,960 --> 00:04:30,800 Speaker 2: markets go up, you will make more money than a 99 00:04:30,800 --> 00:04:34,400 Speaker 2: one beta, and small cap does tend to be more 100 00:04:34,400 --> 00:04:39,880 Speaker 2: sensitive to the market. The early tests had to estimate 101 00:04:39,880 --> 00:04:43,880 Speaker 2: the listing returns the databases just say dlisted, so you 102 00:04:43,920 --> 00:04:46,040 Speaker 2: have to guess at how much you would have recovered 103 00:04:46,040 --> 00:04:49,400 Speaker 2: from that, and they overestimated how much you recover, and 104 00:04:49,480 --> 00:04:53,279 Speaker 2: they didn't adjust enough for the fact that the traditional 105 00:04:53,279 --> 00:04:56,799 Speaker 2: statistical methods. You know, I love statistics, but they grossly 106 00:04:56,880 --> 00:04:59,320 Speaker 2: underestimate the market sensitivities. 107 00:04:59,360 --> 00:05:01,600 Speaker 3: The beta is the volatilities of things. 108 00:05:01,360 --> 00:05:03,320 Speaker 2: That don't trade every day, and a lot of small 109 00:05:03,320 --> 00:05:07,239 Speaker 2: caps don't trade enough. When you adjust for both those things, 110 00:05:07,440 --> 00:05:13,160 Speaker 2: there's not been a historical small premium now today it's interesting. 111 00:05:13,200 --> 00:05:17,839 Speaker 2: I do think this effect of companies waiting longer, it's 112 00:05:17,880 --> 00:05:21,080 Speaker 2: probably more we don't trade on this. It's just an opinion, 113 00:05:21,560 --> 00:05:24,040 Speaker 2: but the small world is probably a more distressed value 114 00:05:24,080 --> 00:05:27,400 Speaker 2: world even than it normally interest is. So I don't 115 00:05:27,400 --> 00:05:29,760 Speaker 2: think that necessarily means if you believe in the premium, 116 00:05:30,120 --> 00:05:32,600 Speaker 2: I don't think it necessarily means it's gone. It could 117 00:05:32,640 --> 00:05:35,960 Speaker 2: just be suffering, and along with value strategies in general, 118 00:05:36,720 --> 00:05:38,880 Speaker 2: I know a fair amount of people who look at 119 00:05:38,880 --> 00:05:41,960 Speaker 2: this thing that's spread between cheap and expensive in small 120 00:05:42,560 --> 00:05:44,960 Speaker 2: is even wider than it is in large cap where 121 00:05:44,960 --> 00:05:48,039 Speaker 2: it is wide versus history. So it could be a 122 00:05:48,080 --> 00:05:50,880 Speaker 2: sea change, or it could just be bad things that 123 00:05:50,920 --> 00:05:52,440 Speaker 2: have happened that lead to good things. 124 00:05:53,040 --> 00:05:54,799 Speaker 3: I have a sea change question, please. 125 00:05:55,000 --> 00:06:00,880 Speaker 5: So I pay like half of my income to the 126 00:06:01,000 --> 00:06:03,960 Speaker 5: US government taxes here in the capitalists, you know, free 127 00:06:04,000 --> 00:06:05,280 Speaker 5: market Cliff wants. 128 00:06:05,040 --> 00:06:07,720 Speaker 3: To help you, Taxy of New York. No. 129 00:06:07,720 --> 00:06:10,200 Speaker 5: No, but I lived for like ten years in Germany, 130 00:06:10,240 --> 00:06:14,440 Speaker 5: right socialist Germany, where I paid less in taxes than 131 00:06:14,520 --> 00:06:16,680 Speaker 5: I do here, and I got free health. 132 00:06:16,440 --> 00:06:17,400 Speaker 3: Care and childcare there. 133 00:06:18,000 --> 00:06:21,839 Speaker 5: So when I see a story about reducing my tax liability, 134 00:06:21,880 --> 00:06:24,760 Speaker 5: I'm reading it. Justina Lee wrote a great story about you, guys. 135 00:06:24,839 --> 00:06:28,520 Speaker 5: Quand Giant AQR cuts income tax bills for wealthy clients. 136 00:06:28,800 --> 00:06:29,000 Speaker 3: Yeah. 137 00:06:29,040 --> 00:06:31,400 Speaker 2: I hated the title, but okay, well, how can I 138 00:06:31,440 --> 00:06:32,360 Speaker 2: get in on this? 139 00:06:32,560 --> 00:06:36,719 Speaker 5: Like what am I missing that I'm you know, losing 140 00:06:36,800 --> 00:06:40,160 Speaker 5: half of the money I earn and not getting anything 141 00:06:40,200 --> 00:06:40,800 Speaker 5: back for it. 142 00:06:41,000 --> 00:06:44,599 Speaker 2: I'm well getting even bigger picture, the difference in Germany 143 00:06:44,640 --> 00:06:45,240 Speaker 2: and the US. 144 00:06:45,480 --> 00:06:47,360 Speaker 3: You raise a fair general point. 145 00:06:47,400 --> 00:06:49,480 Speaker 2: People don't realize that, at least when it comes to 146 00:06:49,520 --> 00:06:53,240 Speaker 2: income tax, the US tax code is more far more 147 00:06:53,240 --> 00:06:56,720 Speaker 2: progressive than a lot of other countries that are thought 148 00:06:56,760 --> 00:06:59,359 Speaker 2: of as more progressive. So you're not imagining it. You 149 00:06:59,400 --> 00:07:04,320 Speaker 2: are paying very high rate for us. It probably started 150 00:07:04,320 --> 00:07:05,360 Speaker 2: about ten years ago. 151 00:07:06,279 --> 00:07:10,320 Speaker 3: We always co invested with our with our with. 152 00:07:10,200 --> 00:07:15,040 Speaker 2: Our clients, who are almost all tax non taxable institutions, 153 00:07:15,320 --> 00:07:19,720 Speaker 2: pension funds and Dowmonds foundations, sovereign wealth funds, and we 154 00:07:19,800 --> 00:07:21,160 Speaker 2: knew this was kind of stupid. 155 00:07:21,200 --> 00:07:21,720 Speaker 3: In some ways. 156 00:07:21,760 --> 00:07:23,800 Speaker 2: We believe in our strategies, but you shouldn't invest the 157 00:07:23,800 --> 00:07:27,360 Speaker 2: same for a taxable investor as a non taxable investor. 158 00:07:28,000 --> 00:07:30,560 Speaker 3: It always shocks me when people are like you do 159 00:07:30,640 --> 00:07:31,040 Speaker 3: that for them. 160 00:07:31,080 --> 00:07:34,480 Speaker 2: I'm like, yeah, you remember, we're fiduciaries. We have to 161 00:07:34,600 --> 00:07:38,880 Speaker 2: do what's best for the client. And classic example is 162 00:07:39,360 --> 00:07:41,480 Speaker 2: if this is stock you loved a year ago, you 163 00:07:41,520 --> 00:07:43,600 Speaker 2: made a lot of money on it's eleven and a 164 00:07:43,640 --> 00:07:46,000 Speaker 2: half months later, and your model or your process, or 165 00:07:46,040 --> 00:07:47,560 Speaker 2: even your active managers. 166 00:07:47,120 --> 00:07:49,240 Speaker 3: If you're not a quant, wants to sell it. 167 00:07:49,840 --> 00:07:52,000 Speaker 2: If you're a tax free institution, you just sell it. 168 00:07:52,520 --> 00:07:56,120 Speaker 2: If you're an individual, you're crazy not to wait two weeks. Right, 169 00:07:56,680 --> 00:07:58,200 Speaker 2: I don't know anything about the next two weeks. I 170 00:07:58,240 --> 00:08:01,040 Speaker 2: wish I did. I'd be Janet. You just talked about 171 00:08:01,040 --> 00:08:02,280 Speaker 2: them if I knew about the. 172 00:08:02,200 --> 00:08:05,640 Speaker 3: Next two weeks. So you wait two weeks and they're 173 00:08:05,640 --> 00:08:05,960 Speaker 3: gonna do. 174 00:08:06,040 --> 00:08:08,440 Speaker 2: They design some silly things in the tax code, like 175 00:08:08,800 --> 00:08:11,040 Speaker 2: the difference between selling something after three hundred and sixty 176 00:08:11,040 --> 00:08:13,560 Speaker 2: four days at again and three und sixty six days 177 00:08:13,720 --> 00:08:16,400 Speaker 2: is dramatically difference in your tax bill. So we don't 178 00:08:16,440 --> 00:08:19,800 Speaker 2: do a darn thing different in terms of gross alpha. 179 00:08:20,480 --> 00:08:23,880 Speaker 2: We are basically you have to do, except for making 180 00:08:23,880 --> 00:08:24,800 Speaker 2: holding in another. 181 00:08:24,600 --> 00:08:25,440 Speaker 3: Two weeks or something. 182 00:08:26,000 --> 00:08:29,800 Speaker 2: We are still running mostly about making money before taxes. 183 00:08:30,120 --> 00:08:33,120 Speaker 2: We're running our standard process. But the major things which 184 00:08:33,160 --> 00:08:34,920 Speaker 2: turn out to matter a lot if you do them 185 00:08:34,920 --> 00:08:39,679 Speaker 2: systematically are if we're running your money after tax, you're 186 00:08:39,720 --> 00:08:42,760 Speaker 2: and you're an institution, and we're running your money pre tax, 187 00:08:43,200 --> 00:08:45,320 Speaker 2: and we decide we hate a stock we used to love, 188 00:08:45,960 --> 00:08:48,679 Speaker 2: we'll sell it for you, and we'll wait fifteen days 189 00:08:48,840 --> 00:08:52,440 Speaker 2: to sell it for you. That doesn't sound so powerful, 190 00:08:52,440 --> 00:08:54,960 Speaker 2: but when you're long short and you have seven hundred 191 00:08:54,960 --> 00:08:57,360 Speaker 2: and fifty longs and seven hundred and fifty shorts. And 192 00:08:57,400 --> 00:08:59,959 Speaker 2: when you're us, which we got kind of lucky on this, 193 00:09:00,559 --> 00:09:02,319 Speaker 2: our average holding period is just. 194 00:09:02,320 --> 00:09:03,319 Speaker 3: Under a year anyway. 195 00:09:03,960 --> 00:09:07,240 Speaker 2: So we are making a ton of decisions naturally part 196 00:09:07,280 --> 00:09:11,880 Speaker 2: of the pre tax alpha process around that key decision point. 197 00:09:13,040 --> 00:09:17,520 Speaker 2: If you're a high frequency trader, you can't do very much. 198 00:09:18,000 --> 00:09:20,840 Speaker 2: You're realizing it all every day. If you're Warren Buffett, 199 00:09:20,920 --> 00:09:23,640 Speaker 2: you already have a good tax plan. It's eventually to 200 00:09:24,000 --> 00:09:27,160 Speaker 2: hopefully not for a long time, but to die and 201 00:09:27,240 --> 00:09:30,360 Speaker 2: to pass it on to your airs or charity tax free. 202 00:09:31,400 --> 00:09:35,000 Speaker 2: One year is a beautiful time because the tax code 203 00:09:35,040 --> 00:09:37,559 Speaker 2: is kind of silly about it. The tax code I 204 00:09:37,559 --> 00:09:40,920 Speaker 2: would write is not necessarily the tax code that I will, 205 00:09:41,000 --> 00:09:43,559 Speaker 2: as a fiduciary manage my clients too well. 206 00:09:43,600 --> 00:09:46,120 Speaker 4: I want to talk about the after tax return a 207 00:09:46,120 --> 00:09:48,400 Speaker 4: little bit more, because of course there's always been a 208 00:09:48,440 --> 00:09:50,440 Speaker 4: focus on after tax returns, but it feels like there's 209 00:09:50,480 --> 00:09:52,840 Speaker 4: more and more products that are coming to market that 210 00:09:52,880 --> 00:09:54,600 Speaker 4: are focused on the after tax return. 211 00:09:55,160 --> 00:09:56,880 Speaker 3: I think about what's going on in. 212 00:09:56,800 --> 00:09:59,719 Speaker 4: The ETF space where I live, and there's an a 213 00:10:00,120 --> 00:10:04,360 Speaker 4: tier to make exchange funds in the ETF wrapper and 214 00:10:04,840 --> 00:10:06,960 Speaker 4: to get a little dystopian. I wonder if that's like 215 00:10:07,000 --> 00:10:10,640 Speaker 4: the future of asset management after tax return products and 216 00:10:11,080 --> 00:10:12,480 Speaker 4: leverage single sock ETFs. 217 00:10:12,800 --> 00:10:15,480 Speaker 2: I mean, I have strong opinions on what's the best 218 00:10:15,520 --> 00:10:19,560 Speaker 2: way to do this. Exchange funds. I watched some of 219 00:10:19,559 --> 00:10:22,000 Speaker 2: them at Goldman Sachs thirty years ago. They always struck me. 220 00:10:22,400 --> 00:10:24,080 Speaker 2: You know, we like to do really natural things, like 221 00:10:24,080 --> 00:10:26,200 Speaker 2: we're doing our process anyway, but we're gonna wait two 222 00:10:26,200 --> 00:10:26,720 Speaker 2: and a half. 223 00:10:26,559 --> 00:10:29,640 Speaker 3: Weeks to do this. They you know, those always struck 224 00:10:29,679 --> 00:10:30,800 Speaker 3: me as a little like in alchemy. 225 00:10:31,160 --> 00:10:33,520 Speaker 2: Yeah, I'm not super comfortable with that kind of solution. 226 00:10:34,360 --> 00:10:38,480 Speaker 2: But what you said in general, a larger focus on 227 00:10:38,520 --> 00:10:41,560 Speaker 2: after tax I have been waiting for this for my 228 00:10:41,760 --> 00:10:45,320 Speaker 2: entire career as a as a little kid in this business. 229 00:10:46,600 --> 00:10:47,360 Speaker 3: This is not genius. 230 00:10:47,360 --> 00:10:48,840 Speaker 2: I think a lot of people did it. I was like, 231 00:10:48,960 --> 00:10:51,320 Speaker 2: why does everyone? Why do tax will people focus on 232 00:10:51,360 --> 00:10:53,839 Speaker 2: pre tax returns. I mean, they've been studies that look 233 00:10:53,840 --> 00:10:55,560 Speaker 2: at mutual funds and say the money flows to the 234 00:10:55,600 --> 00:10:58,880 Speaker 2: largest pre tax return, which is often for the obvious 235 00:10:59,200 --> 00:11:02,680 Speaker 2: canonical invest there not the best post tax return. 236 00:11:03,600 --> 00:11:04,040 Speaker 3: Rob are not. 237 00:11:04,240 --> 00:11:05,520 Speaker 2: Who has been a friend of me of mine for 238 00:11:05,559 --> 00:11:08,360 Speaker 2: a long time. We've written articles back and forth. He 239 00:11:08,400 --> 00:11:10,080 Speaker 2: wrote a brilliant piece on this, and I think in 240 00:11:10,120 --> 00:11:13,640 Speaker 2: the eighties it might be saying, but nobody cared for 241 00:11:13,679 --> 00:11:17,120 Speaker 2: a long long time. So I think it's a positive development. 242 00:11:17,720 --> 00:11:21,200 Speaker 2: I think you have to have pre tax alpha. You 243 00:11:21,200 --> 00:11:23,640 Speaker 2: can't do things that are just about taxes. But once 244 00:11:23,679 --> 00:11:27,560 Speaker 2: you're doing it, you should money different for your tax 245 00:11:27,600 --> 00:11:28,280 Speaker 2: will investors. 246 00:11:28,520 --> 00:11:32,360 Speaker 3: And that is shockingly new. It should have been a 247 00:11:32,400 --> 00:11:33,120 Speaker 3: long time ago. 248 00:11:33,400 --> 00:11:35,839 Speaker 1: Let's switch back to something you were talking about a 249 00:11:35,840 --> 00:11:39,680 Speaker 1: little earlier. We were talking about places. Let's talk about 250 00:11:39,679 --> 00:11:41,240 Speaker 1: it in terms of places to find alpha, because you 251 00:11:41,240 --> 00:11:45,520 Speaker 1: had went there. Where outside of the stock market are. 252 00:11:45,400 --> 00:11:45,960 Speaker 3: You finding it? 253 00:11:46,000 --> 00:11:48,400 Speaker 1: You've made a lot of money in recent years on commodities. 254 00:11:48,679 --> 00:11:50,400 Speaker 1: A lot of people have been talking about bonds. You 255 00:11:50,400 --> 00:11:54,199 Speaker 1: were weeks away from putting around new capital markets assumptions. 256 00:11:54,640 --> 00:11:58,160 Speaker 1: How do you think about diversification? What's the new sixty forty? 257 00:11:59,400 --> 00:12:03,280 Speaker 2: The new sixty forty still sixty forty. I don't know 258 00:12:03,440 --> 00:12:06,040 Speaker 2: who on earth has ever invested in sixty forty. Somehow 259 00:12:06,040 --> 00:12:08,720 Speaker 2: that became you have to do sixty forty if you 260 00:12:08,800 --> 00:12:11,960 Speaker 2: like write a piece like we do on the perspective 261 00:12:11,960 --> 00:12:14,680 Speaker 2: returns of fifty to fifty. The world goes I can't, 262 00:12:14,720 --> 00:12:16,520 Speaker 2: I can't deal with this. This is fifty to fifty. 263 00:12:18,200 --> 00:12:20,800 Speaker 2: We do think both stocks and bonds, and this will 264 00:12:20,800 --> 00:12:23,120 Speaker 2: be reflected in our piece that's coming out soon. We 265 00:12:23,160 --> 00:12:26,760 Speaker 2: do these capital market assumption pieces. They're really are client service. 266 00:12:26,840 --> 00:12:29,679 Speaker 2: We're interested. We don't trade on them. They're like ten 267 00:12:29,760 --> 00:12:33,480 Speaker 2: year signals. I've had a couple bad years in a 268 00:12:33,559 --> 00:12:36,800 Speaker 2: row that I can survive. Things that only work over 269 00:12:36,840 --> 00:12:40,000 Speaker 2: ten year horizons are not very practical. 270 00:12:40,160 --> 00:12:42,520 Speaker 3: And they often give you kind of weird indicators. They'll 271 00:12:42,520 --> 00:12:44,640 Speaker 3: say things like, we expect to this right now. 272 00:12:44,679 --> 00:12:47,840 Speaker 2: We expect to make less on the next ten years 273 00:12:47,880 --> 00:12:52,199 Speaker 2: on sixty forty, particularly on stocks, than the long term 274 00:12:52,240 --> 00:12:56,200 Speaker 2: average because they're expensive. You know how hard it is 275 00:12:56,240 --> 00:12:59,080 Speaker 2: to make money With the phrase make less? What if 276 00:12:59,080 --> 00:13:01,760 Speaker 2: you underweight or short them, if they go up but 277 00:13:01,880 --> 00:13:03,680 Speaker 2: less than normal. At the end of ten years, you 278 00:13:03,720 --> 00:13:06,680 Speaker 2: tell your client, we lost you money, but we lost 279 00:13:06,720 --> 00:13:08,880 Speaker 2: you less than we would have in the twentieth century. 280 00:13:08,960 --> 00:13:11,079 Speaker 2: We talk about this a lot, and people don't get 281 00:13:11,120 --> 00:13:13,640 Speaker 2: very excited about that. Having said that, everyone's got to 282 00:13:13,640 --> 00:13:16,240 Speaker 2: plan their life, from individuals to pension funds. 283 00:13:16,480 --> 00:13:18,760 Speaker 3: How much am I going to make on my assets 284 00:13:18,800 --> 00:13:21,360 Speaker 3: to cover what I have to cover? So these numbers 285 00:13:21,400 --> 00:13:22,160 Speaker 3: are very important. 286 00:13:22,200 --> 00:13:24,360 Speaker 2: If you're going to make less, it's important, But I 287 00:13:24,360 --> 00:13:27,400 Speaker 2: want to be clear, it's not a trading signal, but cost. 288 00:13:27,440 --> 00:13:31,000 Speaker 2: We think less of the markets. We think diversification away 289 00:13:31,000 --> 00:13:33,960 Speaker 2: from sixty forty, which, to be honest, we always believe in. 290 00:13:34,520 --> 00:13:36,320 Speaker 2: So I'm singing a song I would sing all the time, 291 00:13:36,320 --> 00:13:38,600 Speaker 2: but we do think it is somewhat more important when 292 00:13:38,640 --> 00:13:42,400 Speaker 2: markets are probably offering you less trend following strategies long 293 00:13:42,480 --> 00:13:48,200 Speaker 2: short equity strategies that are truly short, not long short, 294 00:13:48,520 --> 00:13:50,640 Speaker 2: because that's just window dressing. 295 00:13:50,720 --> 00:13:51,319 Speaker 3: Well, what's the. 296 00:13:51,240 --> 00:13:53,640 Speaker 1: Best advice you would give to somebody who is primarily 297 00:13:53,679 --> 00:13:55,839 Speaker 1: an equity investor. It's kind of like what David Cosson 298 00:13:55,920 --> 00:13:57,720 Speaker 1: was saying a couple of weeks ago, like Golden Sachs. 299 00:13:57,880 --> 00:14:00,840 Speaker 1: If you're standing at these valuations and you're worried about 300 00:14:00,880 --> 00:14:03,840 Speaker 1: long term returns and you're investing today, how do you 301 00:14:03,920 --> 00:14:05,760 Speaker 1: play just equities? 302 00:14:06,679 --> 00:14:09,400 Speaker 3: If you're playing just equities, it's in your question. 303 00:14:09,480 --> 00:14:12,480 Speaker 2: You are stuck with just equities, then it's about can 304 00:14:12,520 --> 00:14:16,719 Speaker 2: you add alpha to it? And we think some of 305 00:14:16,760 --> 00:14:19,800 Speaker 2: the more publicly known things buying high quality companies at 306 00:14:19,840 --> 00:14:22,400 Speaker 2: reasonable price, what Warren Buffett does, we think is still 307 00:14:22,400 --> 00:14:26,120 Speaker 2: going to work going forward. It doesn't fix the equity 308 00:14:26,200 --> 00:14:29,080 Speaker 2: risk premium. To fix that you have to go outside 309 00:14:29,120 --> 00:14:32,120 Speaker 2: of equities or be willing to short some equities. So 310 00:14:32,120 --> 00:14:34,600 Speaker 2: with in equities, we still think there's alpha for active 311 00:14:34,600 --> 00:14:37,960 Speaker 2: managers who have a discipline, rational process. 312 00:14:38,880 --> 00:14:41,680 Speaker 3: But to cheat the question, I think to. 313 00:14:41,680 --> 00:14:45,520 Speaker 2: Really move the dial on an all equity exposure, you know, 314 00:14:45,560 --> 00:14:49,640 Speaker 2: why are you all equities? You've lived through one of 315 00:14:49,720 --> 00:14:52,880 Speaker 2: several but a golden age for equities, and people tend 316 00:14:52,880 --> 00:14:55,920 Speaker 2: to look at ten years and extrapolate that forever, when 317 00:14:55,920 --> 00:14:59,360 Speaker 2: in real life at that horizon there's at least some 318 00:14:59,440 --> 00:15:02,040 Speaker 2: degree again and it's not a daily tradable strategy, but 319 00:15:02,040 --> 00:15:03,920 Speaker 2: there at least some degree of mean reversion. So the 320 00:15:03,920 --> 00:15:06,440 Speaker 2: world on average gets this little backwards. They get all 321 00:15:06,480 --> 00:15:09,160 Speaker 2: excited and are comfortable with one hundred percent whatever it is, 322 00:15:09,200 --> 00:15:11,320 Speaker 2: one hundred percent one thing, when that one thing has 323 00:15:11,400 --> 00:15:14,080 Speaker 2: won same thing for us versus non us. 324 00:15:14,520 --> 00:15:15,800 Speaker 3: US has crushed the world. 325 00:15:16,480 --> 00:15:18,800 Speaker 2: Most of that has been the US getting more expensive 326 00:15:18,840 --> 00:15:21,520 Speaker 2: than the world. The fundamentals have come in somewhat better 327 00:15:21,520 --> 00:15:24,080 Speaker 2: on the US, but as we measure, that's about ten 328 00:15:24,080 --> 00:15:27,480 Speaker 2: to fifteen percent of the US's victory. Eighty five percent 329 00:15:27,800 --> 00:15:31,120 Speaker 2: is people being willing to pay more for those multiples. 330 00:15:31,400 --> 00:15:34,920 Speaker 2: That's not something you want to extrapolate fundamental performance. You 331 00:15:34,960 --> 00:15:37,160 Speaker 2: can argue maybe there's something better in the US, maybe 332 00:15:37,160 --> 00:15:40,920 Speaker 2: this is not, but just price multiple moves. So I 333 00:15:40,920 --> 00:15:43,280 Speaker 2: think the number one thing is to cheat your question 334 00:15:43,720 --> 00:15:46,640 Speaker 2: and go You've lived through a tremendous period of richening, 335 00:15:46,640 --> 00:15:49,680 Speaker 2: particularly for a US investor. I'm not saying dump them, 336 00:15:50,000 --> 00:15:52,000 Speaker 2: but I'm saying to assume that's going to happen again 337 00:15:52,440 --> 00:15:55,400 Speaker 2: is a little crazy. And doing some other things, be 338 00:15:55,480 --> 00:15:58,520 Speaker 2: they the things we like or whatever you think can 339 00:15:58,560 --> 00:16:01,000 Speaker 2: add value. That's not just a great bed on equities. 340 00:16:01,080 --> 00:16:03,680 Speaker 2: Rising is always important. You always want to build the 341 00:16:03,680 --> 00:16:07,000 Speaker 2: best portfolio you can. Is more important now than it 342 00:16:07,040 --> 00:16:07,560 Speaker 2: normally is. 343 00:16:07,760 --> 00:16:09,960 Speaker 5: Yeah, this is what Oswa thamzar And was talking about 344 00:16:10,280 --> 00:16:12,040 Speaker 5: with has Linda, and the fact that we're in a 345 00:16:12,040 --> 00:16:14,920 Speaker 5: pricing market right now. It's about momentum and vibes more 346 00:16:14,960 --> 00:16:17,360 Speaker 5: than fundamentals. I want to ask about we have a 347 00:16:17,360 --> 00:16:20,000 Speaker 5: really cool function on the Bloomberg E can go Eca 348 00:16:20,160 --> 00:16:23,680 Speaker 5: and go and you can. We have AI now powering 349 00:16:23,720 --> 00:16:27,200 Speaker 5: a search through companies earnings reports, and I ran a 350 00:16:27,200 --> 00:16:30,320 Speaker 5: search here to see how often people mentioned machine learning 351 00:16:30,480 --> 00:16:34,080 Speaker 5: and AI itself, and obviously you know it's blown up 352 00:16:34,320 --> 00:16:38,360 Speaker 5: in twenty twenty three. And whenever I started thinking about this, 353 00:16:38,400 --> 00:16:41,520 Speaker 5: at first, I thought a lot about you and AQR. 354 00:16:41,160 --> 00:16:42,600 Speaker 3: Because how often do you think about me? 355 00:16:42,840 --> 00:16:47,160 Speaker 5: Well with shanology to me, No, I mean I love 356 00:16:47,240 --> 00:16:49,000 Speaker 5: to think about quants and how they can put this 357 00:16:49,160 --> 00:16:51,440 Speaker 5: kind of thing to use. And I remember a couple 358 00:16:51,400 --> 00:16:53,320 Speaker 5: of years ago reading a story about how you were 359 00:16:53,400 --> 00:16:56,440 Speaker 5: hiring all of these you know, computer science guys from 360 00:16:56,920 --> 00:17:00,080 Speaker 5: University of Chicago, and how much can you put a 361 00:17:00,680 --> 00:17:04,160 Speaker 5: use and gain an edge over other people who are 362 00:17:04,200 --> 00:17:05,640 Speaker 5: I hope, doing the same thing. 363 00:17:05,760 --> 00:17:08,760 Speaker 2: Sure, well that's a separate question, and I do think 364 00:17:08,840 --> 00:17:10,800 Speaker 2: i'll skip to the end on that. I do think 365 00:17:10,800 --> 00:17:13,439 Speaker 2: the AI world will be far more dynamic than what 366 00:17:13,480 --> 00:17:16,600 Speaker 2: you might call the quant factor investing world. You do 367 00:17:16,680 --> 00:17:19,040 Speaker 2: a very good version of Warren Buffett's doing. You'll have 368 00:17:19,119 --> 00:17:22,080 Speaker 2: bad times, but if you stick with it, I think 369 00:17:22,119 --> 00:17:23,679 Speaker 2: the whole world can know about it, and you can 370 00:17:23,720 --> 00:17:24,560 Speaker 2: still make money from. 371 00:17:24,480 --> 00:17:26,000 Speaker 3: It, but we don't have to throw away the Benjamin 372 00:17:25,960 --> 00:17:26,480 Speaker 3: Graham book. 373 00:17:26,480 --> 00:17:31,439 Speaker 2: Now AI big data, alternative data sets will be I 374 00:17:31,440 --> 00:17:33,680 Speaker 2: think a more constant arms race where you have to 375 00:17:33,760 --> 00:17:36,160 Speaker 2: keep reinventing what you do. I'm actually optimistic we can 376 00:17:36,200 --> 00:17:38,560 Speaker 2: do that, but it will have more of that element. 377 00:17:39,680 --> 00:17:42,800 Speaker 2: AI is a really complex topic to even discuss about 378 00:17:42,800 --> 00:17:45,280 Speaker 2: how a firm like ours is using it. If you 379 00:17:45,320 --> 00:17:46,840 Speaker 2: guys want to give me a three hour segment and 380 00:17:46,960 --> 00:17:50,600 Speaker 2: kill your ratings forever. I know it's hard to do 381 00:17:50,640 --> 00:17:53,360 Speaker 2: AI in three minutes, but at our firm we're using 382 00:17:53,520 --> 00:17:57,200 Speaker 2: at least three different ways. One is signal generation, literally, 383 00:17:57,320 --> 00:17:58,200 Speaker 2: you know quant signals. 384 00:17:58,240 --> 00:17:59,800 Speaker 3: We've always done that could be done better. 385 00:18:00,359 --> 00:18:04,320 Speaker 2: The classic example is using natural language processing to look 386 00:18:04,400 --> 00:18:09,080 Speaker 2: at written and verbal information and turn that into is 387 00:18:09,119 --> 00:18:10,320 Speaker 2: this good news or bad news? 388 00:18:10,560 --> 00:18:12,080 Speaker 3: Quants have done this forever. They've done it. 389 00:18:12,240 --> 00:18:13,960 Speaker 2: Word counts, you see the word increasing, You do a 390 00:18:14,000 --> 00:18:14,520 Speaker 2: plus one. 391 00:18:15,240 --> 00:18:16,119 Speaker 3: That was very course. 392 00:18:16,520 --> 00:18:19,919 Speaker 2: If the actual sentence was massive embezzlement is increasing, then 393 00:18:20,000 --> 00:18:23,400 Speaker 2: plus one was probably not your best call. Quants only 394 00:18:23,400 --> 00:18:25,200 Speaker 2: have to be right about fifty three percent of the time, 395 00:18:25,280 --> 00:18:29,520 Speaker 2: so that's okay. Turns out NLP machine learning is better 396 00:18:30,000 --> 00:18:32,600 Speaker 2: than our old methods at doing that. A second way 397 00:18:32,640 --> 00:18:35,560 Speaker 2: we're using AI is how to combine our factors, how 398 00:18:35,560 --> 00:18:37,960 Speaker 2: to weight them. This is a little annoying because you 399 00:18:37,960 --> 00:18:41,480 Speaker 2: know the old joke or recession is when your neighbor 400 00:18:41,520 --> 00:18:43,160 Speaker 2: loses your job, or depression. 401 00:18:42,760 --> 00:18:43,840 Speaker 3: Is when you lose your job. 402 00:18:45,520 --> 00:18:47,919 Speaker 2: AI is coming for me now because I've always been 403 00:18:48,000 --> 00:18:49,600 Speaker 2: one of the AQO and makes kind of the final 404 00:18:49,640 --> 00:18:52,680 Speaker 2: call on weights on how much you know, I don't 405 00:18:52,680 --> 00:18:55,040 Speaker 2: do this every day. We're not traders, but what should 406 00:18:55,040 --> 00:18:57,720 Speaker 2: be The final weights are not all model driven because 407 00:18:57,720 --> 00:18:59,520 Speaker 2: you can overfit that way. 408 00:19:00,280 --> 00:19:01,920 Speaker 3: AI is taking over some of that role. 409 00:19:01,960 --> 00:19:05,320 Speaker 2: It turns out it's annoyingly better than me, So that's 410 00:19:05,359 --> 00:19:08,119 Speaker 2: another way. Finally, just as a productivity tool, which is 411 00:19:08,160 --> 00:19:12,120 Speaker 2: the most mundane, but just to code, AI is making 412 00:19:12,160 --> 00:19:14,439 Speaker 2: everything faster and probably moving where you talked about that 413 00:19:14,480 --> 00:19:20,199 Speaker 2: innovation cycle itself AI for a to use AI is 414 00:19:20,240 --> 00:19:23,240 Speaker 2: there the other really kind of cool way to think 415 00:19:23,280 --> 00:19:26,040 Speaker 2: about AI. And I probably slowed our firm down by 416 00:19:26,040 --> 00:19:28,439 Speaker 2: a year or two on this. I think sometimes the 417 00:19:28,440 --> 00:19:30,800 Speaker 2: old man's job at the firm is to slow things 418 00:19:30,840 --> 00:19:34,320 Speaker 2: down when there's new stuff. But forever we've talked about 419 00:19:34,359 --> 00:19:39,240 Speaker 2: not overfitting that. A danger of quantitative processes is you 420 00:19:39,280 --> 00:19:41,920 Speaker 2: see things in the data that were random. You think 421 00:19:41,960 --> 00:19:45,920 Speaker 2: you can trade them, but they weren't real AI. And 422 00:19:46,359 --> 00:19:48,399 Speaker 2: the way you combat that, by the way, is to 423 00:19:48,520 --> 00:19:51,399 Speaker 2: combine data with theory and common sense. 424 00:19:52,440 --> 00:19:54,360 Speaker 3: AI, to be honest. 425 00:19:54,080 --> 00:19:57,159 Speaker 2: Pushes us a little on the spectrum away from some 426 00:19:57,240 --> 00:19:59,000 Speaker 2: of the traditional things we've talked about, and I was 427 00:19:59,040 --> 00:20:01,719 Speaker 2: uncomfortable from me. You are surrending yourself a little bit 428 00:20:01,760 --> 00:20:04,800 Speaker 2: more to the machine. If there's limited data, you still 429 00:20:04,800 --> 00:20:07,000 Speaker 2: need some economic priors. If there's a lot of data, 430 00:20:07,040 --> 00:20:10,479 Speaker 2: you sometimes don't. One of my partners, Brian Kelly, has 431 00:20:10,480 --> 00:20:12,320 Speaker 2: written a paper with a title I love called the 432 00:20:12,400 --> 00:20:15,560 Speaker 2: Virtue of Complexity, because everyone always talks about the virtue 433 00:20:15,560 --> 00:20:18,720 Speaker 2: of simplicity, even I've had to adjust to a world 434 00:20:18,960 --> 00:20:21,680 Speaker 2: where maybe simplicity isn't always the goal. Complexity can be 435 00:20:21,720 --> 00:20:22,040 Speaker 2: the goal. 436 00:20:22,160 --> 00:20:25,000 Speaker 3: You know, over and over and over, we. 437 00:20:25,040 --> 00:20:28,040 Speaker 1: Have one Wall Street executive after another saying AI is 438 00:20:28,080 --> 00:20:30,040 Speaker 1: not going to take your job. But you've come here 439 00:20:30,040 --> 00:20:32,480 Speaker 1: and said AI's even coming for me in some respects. 440 00:20:32,800 --> 00:20:35,480 Speaker 1: What does that mean about a job on Wall Street 441 00:20:35,480 --> 00:20:38,760 Speaker 1: over the next five, ten, twenty years that's. 442 00:20:38,560 --> 00:20:42,040 Speaker 2: The operative question is over what time horizon, Not to 443 00:20:42,040 --> 00:20:45,200 Speaker 2: get philosophical, but on significantly long enough time horizon. 444 00:20:45,280 --> 00:20:46,320 Speaker 3: It's coming after all our. 445 00:20:46,280 --> 00:20:50,760 Speaker 2: Jobs, right, which is not necessarily a bad thing depending 446 00:20:50,800 --> 00:20:52,720 Speaker 2: on the transition, you know, we get to a world 447 00:20:52,760 --> 00:20:54,520 Speaker 2: of Star Trek with where we have a replicator that 448 00:20:54,560 --> 00:20:58,119 Speaker 2: can make whatever we want. That's not necessarily terrible news, 449 00:20:58,240 --> 00:21:00,439 Speaker 2: but it could be a lot of upheaval on the 450 00:21:00,440 --> 00:21:05,359 Speaker 2: way to that. I think clearly so far at AQR 451 00:21:06,280 --> 00:21:10,520 Speaker 2: it is certainly we've not shrunk because of AI. It 452 00:21:10,560 --> 00:21:15,200 Speaker 2: has made our existing people more productive. Forecasting five or 453 00:21:15,280 --> 00:21:17,359 Speaker 2: ten years down the road is of course a lot harder, 454 00:21:17,400 --> 00:21:20,640 Speaker 2: and I'm not sure a quonkeeek who lives for diversification 455 00:21:20,760 --> 00:21:22,280 Speaker 2: is the guy you want doing this. 456 00:21:23,000 --> 00:21:25,080 Speaker 3: But increasingly. 457 00:21:25,800 --> 00:21:27,840 Speaker 2: You have a job like doing an RFP a client 458 00:21:27,880 --> 00:21:31,320 Speaker 2: wants questions answered. That's going to get much more AI 459 00:21:31,400 --> 00:21:33,960 Speaker 2: over time. I doubt even on a ten year horizon, 460 00:21:34,040 --> 00:21:35,720 Speaker 2: we'll get to a point where no human has to 461 00:21:35,720 --> 00:21:38,320 Speaker 2: look at it. Right now, we are not at that point. 462 00:21:38,400 --> 00:21:41,080 Speaker 2: I would not release something that was pure chat GPT 463 00:21:42,000 --> 00:21:45,359 Speaker 2: to a client, But it's all about time horizing all 464 00:21:45,440 --> 00:21:48,239 Speaker 2: this is coming, and I'm not the guy to do it, 465 00:21:48,280 --> 00:21:51,679 Speaker 2: but how society adjusts to it, that's the question. You 466 00:21:51,720 --> 00:21:54,680 Speaker 2: cannot stop technology. And I always laugh when I hear 467 00:21:54,680 --> 00:21:56,840 Speaker 2: about people like we're going to stop automation. 468 00:21:57,240 --> 00:21:58,560 Speaker 3: I'm like, good luck with that. 469 00:21:59,000 --> 00:22:00,640 Speaker 2: You can slow it down at little bit and maybe 470 00:22:00,720 --> 00:22:02,320 Speaker 2: let some other country beat us at it. 471 00:22:03,080 --> 00:22:04,560 Speaker 3: But it's common for all our jobs. 472 00:22:05,840 --> 00:22:08,080 Speaker 2: My wife went on a quest for our four children, 473 00:22:08,160 --> 00:22:10,560 Speaker 2: we're all in the early twenties right at one point 474 00:22:10,600 --> 00:22:13,560 Speaker 2: saying what jobs should they pursue that are most safe 475 00:22:13,600 --> 00:22:17,080 Speaker 2: from a from AI and she concluded at the end, 476 00:22:17,400 --> 00:22:18,480 Speaker 2: you just do what you're interested in. 477 00:22:18,600 --> 00:22:21,960 Speaker 3: I can't figure it out, since she's pretty smart. Yeah, yeah, So. 478 00:22:22,040 --> 00:22:24,359 Speaker 4: Cliff, we have less than two minutes left with you. 479 00:22:24,880 --> 00:22:26,520 Speaker 4: I want to talk about market mechanics here, and I 480 00:22:26,600 --> 00:22:29,399 Speaker 4: want to talk about leverage single stock ETFs. I was 481 00:22:29,400 --> 00:22:32,280 Speaker 4: speaking with your new friend Mike Green from Simplify on 482 00:22:32,400 --> 00:22:36,720 Speaker 4: Friday and we were talking about these leverage micro strategy ETFs. 483 00:22:36,760 --> 00:22:40,640 Speaker 4: His belief is that that's helping to fuel this record premium. 484 00:22:40,640 --> 00:22:44,679 Speaker 4: That micro strategy has to bitcoin itself, not specifically about 485 00:22:44,680 --> 00:22:48,000 Speaker 4: that product, but you think about the proliferation of these 486 00:22:48,040 --> 00:22:50,440 Speaker 4: types of products, what do you think that means for 487 00:22:50,680 --> 00:22:52,880 Speaker 4: the market structure and the motion of markets. 488 00:22:53,760 --> 00:22:55,800 Speaker 2: All right, I'm drifting from quant now. Whenever I give 489 00:22:55,920 --> 00:22:59,560 Speaker 2: like broad opinions about market psychology, ye, you should weigh 490 00:22:59,560 --> 00:23:01,920 Speaker 2: my opinion somewhat less than when I'm talking about AI 491 00:23:02,200 --> 00:23:05,000 Speaker 2: or diversification because I'm a little out of my wheelhouse. 492 00:23:05,920 --> 00:23:08,720 Speaker 2: But I do think if you look at valuation differences, 493 00:23:09,000 --> 00:23:11,840 Speaker 2: we're still at a time of extremes. And that's not 494 00:23:11,920 --> 00:23:13,560 Speaker 2: just the mag seven. You could do it within any 495 00:23:13,600 --> 00:23:17,239 Speaker 2: industry you want and add them up. I wouldn't call 496 00:23:17,280 --> 00:23:19,160 Speaker 2: it a bubble four years ago. I would have called 497 00:23:19,200 --> 00:23:21,280 Speaker 2: it a bubble. But we still are a time of extremes. 498 00:23:21,640 --> 00:23:25,800 Speaker 2: I think animal spirits are high. Keep hearing that it's 499 00:23:25,880 --> 00:23:29,600 Speaker 2: you know, that's I don't know how to judge this exactly, 500 00:23:30,160 --> 00:23:32,920 Speaker 2: but it's partly quantitative, looking at just the spread between 501 00:23:32,920 --> 00:23:35,960 Speaker 2: what we think are reasonable and unreasonable price stocks, and 502 00:23:36,200 --> 00:23:38,399 Speaker 2: part of it is qualitative, the part you shouldn't trust 503 00:23:38,400 --> 00:23:41,159 Speaker 2: me on. But the part you shouldn't trust me on 504 00:23:41,720 --> 00:23:48,920 Speaker 2: looks at the rise of say, aggressively levered ETFs and says, yeah, 505 00:23:48,960 --> 00:23:51,800 Speaker 2: nobody needs those, And then you combine it with twenty 506 00:23:51,800 --> 00:23:54,600 Speaker 2: four to seven trading. You know, if you're waking up 507 00:23:54,640 --> 00:23:57,399 Speaker 2: at two am and you need a levered bed on, 508 00:24:00,320 --> 00:24:04,080 Speaker 2: then you might want to reconsider not just your financial plans, 509 00:24:04,080 --> 00:24:09,080 Speaker 2: but many things in your life. Extremely lebretytfs if you 510 00:24:09,119 --> 00:24:11,800 Speaker 2: hold them long enough, are almost and I only say 511 00:24:11,840 --> 00:24:14,640 Speaker 2: almost for legal reasons, are almost certainly going to lose 512 00:24:14,640 --> 00:24:16,960 Speaker 2: their money. The volatility drag is very large if you 513 00:24:17,000 --> 00:24:19,520 Speaker 2: rebalance them religiously. It depends on the costs that are 514 00:24:19,560 --> 00:24:22,359 Speaker 2: embedded in them. If you use them for very short 515 00:24:22,400 --> 00:24:24,760 Speaker 2: term tactical views, they can make some sense. 516 00:24:25,560 --> 00:24:26,880 Speaker 3: And then I ask, why do. 517 00:24:26,800 --> 00:24:29,640 Speaker 2: You have very short term tactical views, because very few 518 00:24:29,640 --> 00:24:33,680 Speaker 2: of us, certainly including me, certainly in concentrated non quan 519 00:24:33,800 --> 00:24:36,800 Speaker 2: not Jane Street, but you know two stocks. I don't think. 520 00:24:36,840 --> 00:24:38,960 Speaker 2: I don't think these people have any information on it. 521 00:24:39,000 --> 00:24:41,159 Speaker 2: So I do think it is a speculative tool, a 522 00:24:41,240 --> 00:24:45,000 Speaker 2: symptom of some things that are still pretty extreme in markets. 523 00:24:45,280 --> 00:24:48,280 Speaker 2: And well, this is clearly not investment advice, but I 524 00:24:48,280 --> 00:24:50,480 Speaker 2: wouldn't use them. And I speaking of by the way, 525 00:24:50,520 --> 00:24:51,480 Speaker 2: that was investment of ice. 526 00:24:51,520 --> 00:24:54,920 Speaker 5: Speaking speaking of speculation outside of your wheelhouse. 527 00:24:57,280 --> 00:24:59,000 Speaker 3: My boss does want me to ask this question. I'm 528 00:24:59,000 --> 00:24:59,639 Speaker 3: like he's a quat. 529 00:24:59,640 --> 00:25:02,280 Speaker 5: But how are you investing in Asia with the backdrop 530 00:25:02,320 --> 00:25:03,240 Speaker 5: of Trump tariffs? 531 00:25:04,040 --> 00:25:06,520 Speaker 2: Your bosses are asking me a stupid question. I would 532 00:25:06,520 --> 00:25:08,639 Speaker 2: never insult you guys, but I'm very comfortable now. 533 00:25:08,680 --> 00:25:09,159 Speaker 3: I'm kidding. 534 00:25:09,800 --> 00:25:15,160 Speaker 2: We're investing like quant We are relatively actually really close 535 00:25:15,200 --> 00:25:18,879 Speaker 2: to balanced by country and industry around the world. 536 00:25:19,080 --> 00:25:20,600 Speaker 3: We don't. That doesn't make us ristless. 537 00:25:20,600 --> 00:25:24,160 Speaker 2: We have bad periods when the styles we like, reasonable 538 00:25:24,160 --> 00:25:26,520 Speaker 2: companies at good prices that are starting to turn around 539 00:25:26,800 --> 00:25:27,840 Speaker 2: are not being favored. 540 00:25:28,040 --> 00:25:29,960 Speaker 3: Not gonna be a fun time for us. But we 541 00:25:30,040 --> 00:25:30,920 Speaker 3: have been very. 542 00:25:30,760 --> 00:25:35,760 Speaker 2: Good over time at avoiding the big Thematic themes like 543 00:25:36,240 --> 00:25:40,200 Speaker 2: tariffs are a lot about specific countries and specific industries. 544 00:25:40,840 --> 00:25:42,840 Speaker 2: That's where they can play havoc. They can make real 545 00:25:42,880 --> 00:25:43,800 Speaker 2: winners and losers. 546 00:25:44,040 --> 00:25:46,080 Speaker 5: Can you use Trump one point zero as a blueprint 547 00:25:46,080 --> 00:25:47,080 Speaker 5: for Trump two point zero? 548 00:25:48,000 --> 00:25:50,439 Speaker 2: Oh? There are a lot of jokes that write themselves here. 549 00:25:51,119 --> 00:25:52,880 Speaker 2: I think we're at a time it could work out 550 00:25:52,960 --> 00:25:55,840 Speaker 2: very well. I'm not necessarily a pessimist, but I think 551 00:25:55,880 --> 00:25:59,240 Speaker 2: we are at a time of elevated uncertainty. We can 552 00:25:59,280 --> 00:26:02,120 Speaker 2: measure that. That's not just an opinion. You can look 553 00:26:02,119 --> 00:26:06,560 Speaker 2: at dispersion and forecasts of earnings. Of economic forecasts, you 554 00:26:06,560 --> 00:26:09,000 Speaker 2: can look at how bad they're missing when the numbers 555 00:26:09,040 --> 00:26:12,159 Speaker 2: come out up or down. Dispersion is just about the 556 00:26:12,200 --> 00:26:16,040 Speaker 2: size of the miss. It's elevated and as a soft sense, 557 00:26:16,480 --> 00:26:18,399 Speaker 2: whether you love it or hate it, the Trump world's 558 00:26:18,400 --> 00:26:20,439 Speaker 2: going to be very different than the prior world. So 559 00:26:20,480 --> 00:26:24,080 Speaker 2: I do think economic uncertainty is larger. I'll give a 560 00:26:24,080 --> 00:26:27,840 Speaker 2: blatant commercial I think things like trend following strategy strategies. 561 00:26:27,359 --> 00:26:28,920 Speaker 3: That what are called positively convex. 562 00:26:29,280 --> 00:26:31,159 Speaker 2: It's the geek term for they tend to do well 563 00:26:31,600 --> 00:26:36,000 Speaker 2: in tumult are probably a better time. But mostly when 564 00:26:36,040 --> 00:26:38,960 Speaker 2: it comes to picking individual stocks, we run away from 565 00:26:39,000 --> 00:26:39,480 Speaker 2: your question. 566 00:26:40,280 --> 00:26:41,920 Speaker 3: It wasn't a stupid question, it was just not the 567 00:26:42,000 --> 00:26:43,000 Speaker 3: right question for a while. 568 00:26:43,160 --> 00:26:45,040 Speaker 1: Another Trump question for you. We do have less than 569 00:26:45,080 --> 00:26:47,600 Speaker 1: a minute left here, but do you think that the 570 00:26:47,640 --> 00:26:51,159 Speaker 1: tax cuts, if achieved, will be fuel for the market 571 00:26:51,200 --> 00:26:52,760 Speaker 1: as certain investors believe. 572 00:26:52,720 --> 00:26:59,040 Speaker 2: They usually are in the short term? We do have 573 00:27:00,520 --> 00:27:02,240 Speaker 2: You don't need me here to tell you we have 574 00:27:02,280 --> 00:27:04,879 Speaker 2: a bit of a deficit problem that it doesn't appear 575 00:27:04,920 --> 00:27:07,639 Speaker 2: that either party wants to take. We could talk about 576 00:27:08,200 --> 00:27:09,480 Speaker 2: government getting more efficient. 577 00:27:09,560 --> 00:27:13,000 Speaker 3: We could talk about the DOGE. Do they still pronounce 578 00:27:13,040 --> 00:27:14,320 Speaker 3: it doze when it's a department? 579 00:27:14,480 --> 00:27:17,240 Speaker 2: Still those even when it's the Department of Government Efficiency? 580 00:27:17,320 --> 00:27:20,280 Speaker 3: I think, so let's doggy. I'm copying this from Twitter. 581 00:27:20,440 --> 00:27:21,960 Speaker 2: Someone else said it, but it cracks me up that 582 00:27:22,040 --> 00:27:24,880 Speaker 2: we have two guys heading the Department of Government Efficiency. Yes, 583 00:27:24,960 --> 00:27:27,280 Speaker 2: it's like first thing, fire one guy. That's what either 584 00:27:27,320 --> 00:27:28,880 Speaker 2: of them would do, and I'm not saying which one. 585 00:27:29,920 --> 00:27:34,119 Speaker 2: I'm not going there. I do think we are in 586 00:27:34,160 --> 00:27:38,000 Speaker 2: a world of more uncertainty. I think when it comes 587 00:27:38,160 --> 00:27:43,120 Speaker 2: to stimulative things, the budget deficits are going to matter 588 00:27:43,119 --> 00:27:44,760 Speaker 2: at some point. Many of us would have thought they'd 589 00:27:44,800 --> 00:27:45,879 Speaker 2: matter twenty years ago. 590 00:27:45,760 --> 00:27:47,240 Speaker 3: And have been dead wrong. 591 00:27:47,400 --> 00:27:49,000 Speaker 2: So I'm not going to do the suckers game of 592 00:27:49,040 --> 00:27:51,879 Speaker 2: trying to time when that matters. But at what point 593 00:27:52,560 --> 00:27:55,880 Speaker 2: we consider something stimulative versus oh my god, we've gone 594 00:27:55,920 --> 00:27:58,960 Speaker 2: too far is something I would be terrified to trade on. 595 00:27:59,000 --> 00:27:59,959 Speaker 3: So I'm not trading on that. 596 00:28:00,359 --> 00:28:03,360 Speaker 2: But that point does exist, so I won't make any 597 00:28:03,440 --> 00:28:06,159 Speaker 2: firm forecasts. I just think we're in for an interesting 598 00:28:06,240 --> 00:28:08,160 Speaker 2: ride in one direction or another coming up. 599 00:28:08,560 --> 00:28:09,960 Speaker 1: Cliff, we thank you so much for joining us.