1 00:00:02,240 --> 00:00:06,439 Speaker 1: This is Master's in Business with very Ridholts on Bloomberg 2 00:00:06,519 --> 00:00:12,400 Speaker 1: Radio this weekend. On the podcast, I have a fascinating 3 00:00:12,480 --> 00:00:15,080 Speaker 1: guest and I think you'll really enjoy listening to him. 4 00:00:15,240 --> 00:00:19,960 Speaker 1: His name is John Montgomery. He is a former UH 5 00:00:20,320 --> 00:00:27,319 Speaker 1: civil engineer slash transportation engineer who decided to take his 6 00:00:27,440 --> 00:00:31,840 Speaker 1: love of quantitative mathematics and apply it in the world 7 00:00:32,720 --> 00:00:37,640 Speaker 1: of investing. If that isn't somewhat unusual enough of a background, 8 00:00:37,760 --> 00:00:41,200 Speaker 1: he managed to put together not only a firm that's 9 00:00:41,240 --> 00:00:44,479 Speaker 1: running eight and a half billion dollars, but a very 10 00:00:44,560 --> 00:00:50,160 Speaker 1: unusual firm with as you'll hear, some very unusual qualifications, 11 00:00:50,200 --> 00:00:54,400 Speaker 1: including the fact that Bridgeway gives away half of their 12 00:00:54,440 --> 00:01:00,280 Speaker 1: profits to various charitable organizations every year. He also has 13 00:01:00,320 --> 00:01:04,600 Speaker 1: some internal rules about um how much he can be 14 00:01:04,640 --> 00:01:09,560 Speaker 1: compensated relative to the lowest compensated person in the firm. 15 00:01:09,600 --> 00:01:13,720 Speaker 1: You know, thirty years ago, the CEO to factory floor 16 00:01:14,319 --> 00:01:17,839 Speaker 1: ratio is something about five to one. UH it's now 17 00:01:17,880 --> 00:01:20,360 Speaker 1: somewhere depending on whose numbers you use, two hundred and 18 00:01:20,400 --> 00:01:25,240 Speaker 1: fifty to four hundred to one. At Bridgeway, the highest 19 00:01:25,240 --> 00:01:27,840 Speaker 1: paid person and lowest paid person, it's a seven to 20 00:01:27,880 --> 00:01:32,880 Speaker 1: one ratio that is really quite unusual. Their goals and 21 00:01:33,000 --> 00:01:36,600 Speaker 1: focus and client customer service are just not what you 22 00:01:36,760 --> 00:01:41,640 Speaker 1: typically here on Wall Street. And there their evidence base, 23 00:01:41,720 --> 00:01:45,480 Speaker 1: their data driven. I think that they are not the 24 00:01:45,600 --> 00:01:47,720 Speaker 1: usual farm. And that's why I wanted to have John 25 00:01:47,720 --> 00:01:51,440 Speaker 1: on the show because his story and Bridgeway story is 26 00:01:51,480 --> 00:01:55,480 Speaker 1: somewhat unique and kind of fascinating. So, with no further ado, 27 00:01:55,880 --> 00:02:04,040 Speaker 1: my conversation with Bridgeways John Montgomery. My special guest today 28 00:02:04,280 --> 00:02:09,400 Speaker 1: is John Montgomery. He is the founder of Bridgeway Capital Management, 29 00:02:09,760 --> 00:02:13,200 Speaker 1: an asset management firm which is running eight point four 30 00:02:13,760 --> 00:02:17,639 Speaker 1: billion dollars. Bridgeway is unique in a number of ways, 31 00:02:17,960 --> 00:02:23,200 Speaker 1: perhaps most notably, the firm donates fifty of its profits 32 00:02:23,440 --> 00:02:29,000 Speaker 1: to nonprofit organizations each year. John Montgomery, Welcome to Bloomberg. 33 00:02:29,120 --> 00:02:31,400 Speaker 1: It's an honor to be here, Barry. So you have 34 00:02:31,520 --> 00:02:34,720 Speaker 1: a really interesting background, and before we get to the 35 00:02:34,800 --> 00:02:37,760 Speaker 1: asset management side, I have to talk a little bit 36 00:02:37,760 --> 00:02:43,240 Speaker 1: about your education, which is someone unusual for someone running 37 00:02:43,240 --> 00:02:47,360 Speaker 1: an asset management firm. Undergraduate, You're at swarth Mar and 38 00:02:47,440 --> 00:02:51,880 Speaker 1: what are you studying there? Philosophy and engineering, okay, which 39 00:02:51,919 --> 00:02:55,520 Speaker 1: is a good combination of things. A little left brain, 40 00:02:55,639 --> 00:02:58,680 Speaker 1: right brain. It kind of works. And then you end 41 00:02:58,760 --> 00:03:00,920 Speaker 1: up going to M I T and Harvard. What do 42 00:03:00,960 --> 00:03:04,919 Speaker 1: you study there? Engineering at M I T. So that's 43 00:03:04,919 --> 00:03:08,040 Speaker 1: where I had my background in statistics and quantitative modeling, 44 00:03:08,360 --> 00:03:12,800 Speaker 1: and at Harvard I study business. And so you come 45 00:03:12,840 --> 00:03:18,359 Speaker 1: out of that world essentially working in transportation engineering. That's right. 46 00:03:18,520 --> 00:03:21,200 Speaker 1: That was my first career. But while you were at 47 00:03:21,280 --> 00:03:24,280 Speaker 1: Harvard Business School, you you have written about and told 48 00:03:24,320 --> 00:03:28,080 Speaker 1: the story of a for lack of a better word, 49 00:03:28,160 --> 00:03:32,160 Speaker 1: and epiphany that you had there. Tell us about that. Well, 50 00:03:32,160 --> 00:03:36,160 Speaker 1: I call it my my first behavioral finance insight. This 51 00:03:36,280 --> 00:03:40,160 Speaker 1: was in UH and it was very early on in 52 00:03:40,200 --> 00:03:43,520 Speaker 1: behavioral finance, so I didn't even know the field existed. UM, 53 00:03:43,600 --> 00:03:47,360 Speaker 1: But I was at Harvard Business School really to um 54 00:03:47,640 --> 00:03:51,840 Speaker 1: learn more fill in gaps in my knowledge base about 55 00:03:51,880 --> 00:03:55,160 Speaker 1: business and specifically in transportation. I didn't have any idea 56 00:03:55,200 --> 00:03:57,200 Speaker 1: at that point that I would go into finance, but 57 00:03:57,240 --> 00:04:00,360 Speaker 1: I thought, while I'm at Harvard, I'll take a few 58 00:04:00,440 --> 00:04:04,040 Speaker 1: investing courses and maybe turned back the opportunity cost of 59 00:04:04,560 --> 00:04:06,920 Speaker 1: taking two years out of your life after you were 60 00:04:06,920 --> 00:04:11,000 Speaker 1: already UM had some jobs. So did that. My grades 61 00:04:11,040 --> 00:04:13,560 Speaker 1: said that I should have gone to Wall Street. Those 62 00:04:13,560 --> 00:04:16,600 Speaker 1: were among my best grades in business school. But I 63 00:04:16,640 --> 00:04:20,040 Speaker 1: was in one particular class one day where we were 64 00:04:20,080 --> 00:04:25,080 Speaker 1: studying a quantitative method of investing, and I found that fascinating. 65 00:04:25,520 --> 00:04:27,719 Speaker 1: And at the end of the class, the professor steps 66 00:04:27,760 --> 00:04:30,320 Speaker 1: back from the blackboard and he kind of tugs on 67 00:04:30,400 --> 00:04:33,440 Speaker 1: his beard and he says, so, who among the people 68 00:04:33,480 --> 00:04:35,480 Speaker 1: in this class think that when you get out of 69 00:04:35,520 --> 00:04:38,880 Speaker 1: school here and probably go to Wall Street, that you'll 70 00:04:38,920 --> 00:04:41,720 Speaker 1: be beating this record? Well, this was a pretty fine record. 71 00:04:41,839 --> 00:04:43,680 Speaker 1: It wasn't just beating the market. It was it was 72 00:04:43,720 --> 00:04:46,840 Speaker 1: doing quite well in the hands and the class go up, 73 00:04:47,040 --> 00:04:49,839 Speaker 1: and the immediate thought that I had was the twenty 74 00:04:49,960 --> 00:04:53,600 Speaker 1: rule of the people think they can beat the market, 75 00:04:53,680 --> 00:04:56,159 Speaker 1: but it's probably the other way around, and it's probably 76 00:04:56,279 --> 00:04:59,960 Speaker 1: at that point not the UM that had the discipline 77 00:05:00,279 --> 00:05:02,600 Speaker 1: to do it. And if you think about UM, you know, 78 00:05:03,200 --> 00:05:07,080 Speaker 1: a top tier business school with very bright people. What 79 00:05:07,279 --> 00:05:09,600 Speaker 1: has worked for them getting them to a certain place 80 00:05:09,640 --> 00:05:12,360 Speaker 1: in life doesn't always work in investments. As a matter 81 00:05:12,360 --> 00:05:14,840 Speaker 1: of fact, some of the dynamics of that works against you. 82 00:05:15,279 --> 00:05:18,599 Speaker 1: Michael Mobus uncles that the paradox of skill, when you 83 00:05:18,680 --> 00:05:23,520 Speaker 1: have an entire marketplace filled with very smart, very competitive people, 84 00:05:23,960 --> 00:05:26,520 Speaker 1: they all kind of cancel each other out. Yes, So 85 00:05:26,640 --> 00:05:29,479 Speaker 1: part of the dynamics of that that I thought was, Uh, 86 00:05:29,560 --> 00:05:32,120 Speaker 1: if this is a microcosm of Wall Street five years 87 00:05:32,120 --> 00:05:35,960 Speaker 1: from now, then using quantitative methods should help get you 88 00:05:36,040 --> 00:05:39,720 Speaker 1: on the other side of that investment, which should have 89 00:05:39,839 --> 00:05:43,480 Speaker 1: some benefits of efficiency and cost and some other things. 90 00:05:43,480 --> 00:05:46,200 Speaker 1: So that that was just a seed planet for what 91 00:05:46,240 --> 00:05:50,960 Speaker 1: would become Bridgeway uh some decade later. So that's still 92 00:05:51,000 --> 00:05:54,480 Speaker 1: a pretty significant insight to look around a room full 93 00:05:54,520 --> 00:05:58,320 Speaker 1: of really smart people and say, like Laby Lake will 94 00:05:58,400 --> 00:06:01,400 Speaker 1: be gone, where all the children are above average, how 95 00:06:01,480 --> 00:06:04,400 Speaker 1: is it possible that of the room thinks they're going 96 00:06:04,480 --> 00:06:07,200 Speaker 1: to beat the market. If you want to see the 97 00:06:07,240 --> 00:06:10,120 Speaker 1: same numbers come up, ask a room next time you're 98 00:06:10,120 --> 00:06:12,719 Speaker 1: speaking in front of a group of people. Ask everyone 99 00:06:12,800 --> 00:06:15,520 Speaker 1: in the room how many of them are above average drivers? 100 00:06:15,839 --> 00:06:18,080 Speaker 1: And it's the same number. Eight in the hands go 101 00:06:18,120 --> 00:06:20,400 Speaker 1: off And if you've been on the roads, you know 102 00:06:20,520 --> 00:06:23,440 Speaker 1: that everybody seems to be below out. So Barry, my 103 00:06:23,520 --> 00:06:26,200 Speaker 1: answer to that question, usually it's a humble was like, no, 104 00:06:26,320 --> 00:06:29,239 Speaker 1: I'm not. Probably i'm not. And in business school I 105 00:06:29,279 --> 00:06:31,120 Speaker 1: didn't think I was going to be in the top 106 00:06:31,160 --> 00:06:34,120 Speaker 1: half of the class. But with respect to driving, I've 107 00:06:34,160 --> 00:06:37,000 Speaker 1: never had a chargeable accident um and I've never had 108 00:06:37,000 --> 00:06:40,240 Speaker 1: a moving traffic violation and never had a moving traffic 109 00:06:42,600 --> 00:06:45,080 Speaker 1: So I always go back to the statistics, the logic, 110 00:06:45,120 --> 00:06:48,080 Speaker 1: the data, the evidence. Evidence based investing is what we do. 111 00:06:48,120 --> 00:06:50,440 Speaker 1: And and so that's a knee jerk reaction for me 112 00:06:50,600 --> 00:06:51,880 Speaker 1: is like, well, let's just take a look at the 113 00:06:51,960 --> 00:06:54,719 Speaker 1: numbers and see what So if you believe in mean regression, 114 00:06:55,120 --> 00:06:57,120 Speaker 1: that would suggest you might be due for it, so 115 00:06:57,279 --> 00:06:59,760 Speaker 1: that that could be true as well. And so you 116 00:06:59,760 --> 00:07:02,880 Speaker 1: want differentiate when things do and don't regress to the 117 00:07:02,920 --> 00:07:06,040 Speaker 1: main is their skill or just luck and driving this 118 00:07:06,920 --> 00:07:11,880 Speaker 1: like investing, there's certainly both the and and like sports 119 00:07:12,120 --> 00:07:15,400 Speaker 1: where you need a certain amount of skill to make 120 00:07:15,440 --> 00:07:18,320 Speaker 1: it to the major leagues, but at that level where 121 00:07:18,600 --> 00:07:22,400 Speaker 1: everybody is so skillful, luck becomes even more important. So 122 00:07:22,480 --> 00:07:26,480 Speaker 1: how did you go from transportation engineering as a career 123 00:07:27,120 --> 00:07:30,520 Speaker 1: to turning around and saying, Gee, that epiphany at Harvard 124 00:07:30,520 --> 00:07:34,280 Speaker 1: Business School is something I really want to pursue. First 125 00:07:34,280 --> 00:07:37,440 Speaker 1: of all, transportation is a service industry. I love service industries, 126 00:07:37,480 --> 00:07:42,520 Speaker 1: and anytime anytime I'm experienced service that's uh subpar, I 127 00:07:42,560 --> 00:07:45,560 Speaker 1: think there's a market opportunity there, whether it's a restaurant, 128 00:07:45,600 --> 00:07:48,280 Speaker 1: a hotel, anywhere. Like if you're just doing a lousy 129 00:07:48,360 --> 00:07:52,960 Speaker 1: job providing service, you're inviting competition. In UM. So I 130 00:07:53,080 --> 00:07:56,320 Speaker 1: was in the transportation service industry, but I was also 131 00:07:56,360 --> 00:07:58,600 Speaker 1: an investor in a couple of mutual funds setting up 132 00:07:58,600 --> 00:08:01,080 Speaker 1: an I RA and think and like, you should be 133 00:08:01,120 --> 00:08:03,280 Speaker 1: able to do better than this, not just the investment, 134 00:08:03,600 --> 00:08:06,800 Speaker 1: the whole promin side, but the communications well you know 135 00:08:06,840 --> 00:08:09,360 Speaker 1: the talked about just I had a dozen ideas for 136 00:08:09,440 --> 00:08:13,120 Speaker 1: how you could um improve that industry. So UM at 137 00:08:13,160 --> 00:08:17,080 Speaker 1: the time, I have an entrepreneurial spirit and hit a 138 00:08:17,080 --> 00:08:20,920 Speaker 1: certain roadblock wall you could say, professionally in the transportation 139 00:08:21,360 --> 00:08:25,840 Speaker 1: industry where I was trying to bring private sector incentives 140 00:08:26,160 --> 00:08:29,040 Speaker 1: UM and some insights I had about how to reorganize 141 00:08:29,600 --> 00:08:34,040 Speaker 1: city urban transportation bus systems in particular, took that to 142 00:08:34,080 --> 00:08:37,240 Speaker 1: a certain level and UM and and then it was 143 00:08:37,280 --> 00:08:39,560 Speaker 1: clear it wasn't gonna happen. The wall problem. I hit 144 00:08:39,600 --> 00:08:43,520 Speaker 1: the wall. This was an opportunity to transition and do 145 00:08:43,640 --> 00:08:45,800 Speaker 1: something that I've been doing as a hobby let's talk 146 00:08:45,800 --> 00:08:48,240 Speaker 1: a little bit about some current trends and as we 147 00:08:48,280 --> 00:08:52,200 Speaker 1: ease into quantitative investing, what you've been doing for a 148 00:08:52,240 --> 00:08:57,600 Speaker 1: long time is essentially factor investing, which really today goes 149 00:08:57,679 --> 00:09:02,400 Speaker 1: under the branding name smart Beta. Yes, so the first 150 00:09:02,520 --> 00:09:05,360 Speaker 1: question is how did you manage to find your way 151 00:09:05,520 --> 00:09:08,640 Speaker 1: into that methodology and what do you think of the 152 00:09:10,000 --> 00:09:12,439 Speaker 1: rise of smart beta today. Well, first of all, the 153 00:09:12,720 --> 00:09:16,720 Speaker 1: name smart beta kind of revels my feathers. Sum so, uh, 154 00:09:16,760 --> 00:09:20,840 Speaker 1: you know, it's data. It's there's nothing human or or 155 00:09:21,000 --> 00:09:24,079 Speaker 1: or um. There's nothing smart or beta about it. Well 156 00:09:24,120 --> 00:09:27,160 Speaker 1: maybe beta, you can you can argue beta or alpha 157 00:09:27,360 --> 00:09:29,600 Speaker 1: or you know, a different system of looking at it. 158 00:09:30,080 --> 00:09:32,440 Speaker 1: But the smart part sounds to me like a bunch 159 00:09:32,480 --> 00:09:35,079 Speaker 1: of guys in a room of marketing trying to figure 160 00:09:35,080 --> 00:09:37,720 Speaker 1: out how to sell something. It's good branding, and I 161 00:09:37,760 --> 00:09:40,880 Speaker 1: think everybody and there's and there's nothing wrong with branding, 162 00:09:40,920 --> 00:09:43,040 Speaker 1: but um, you know, we want to we we go 163 00:09:43,120 --> 00:09:45,679 Speaker 1: first to the substance of it. So well, first of all, 164 00:09:45,720 --> 00:09:48,480 Speaker 1: we didn't call it factor investing twenty five years ago, 165 00:09:48,679 --> 00:09:52,600 Speaker 1: but absolutely applying quantitative methods to the process of investing 166 00:09:52,840 --> 00:09:55,480 Speaker 1: and then figuring out as many different ways to apply 167 00:09:56,160 --> 00:09:59,960 Speaker 1: numerical methods as possible. So that's not just the deciding 168 00:10:00,080 --> 00:10:03,160 Speaker 1: which stocks to stay away from and which you're adding 169 00:10:03,200 --> 00:10:06,800 Speaker 1: to a portfolio to UM produce a certain design and 170 00:10:07,200 --> 00:10:10,080 Speaker 1: results that you're going for. But it's also think things 171 00:10:10,200 --> 00:10:15,120 Speaker 1: like transaction cost managing every other aspects of cost. UM 172 00:10:15,160 --> 00:10:18,440 Speaker 1: the business side, strategy side, we like UM what we 173 00:10:18,480 --> 00:10:23,280 Speaker 1: call evidence based worldview at Bridgeway. So if you're using 174 00:10:23,360 --> 00:10:29,600 Speaker 1: quantitative methods for what we now call factor investing Fama, French, etcetera. UM, 175 00:10:29,640 --> 00:10:33,240 Speaker 1: were you ever playing with the idea of individual stock 176 00:10:33,280 --> 00:10:37,600 Speaker 1: picking or was it always a mathematical screen. We don't. 177 00:10:37,800 --> 00:10:41,240 Speaker 1: We don't purchase individual stocks. We buy groups of stocks. 178 00:10:41,080 --> 00:10:45,000 Speaker 1: And so that is key to UM factor based investing 179 00:10:45,080 --> 00:10:49,640 Speaker 1: in an evidence based worldview. And so that leads to 180 00:10:49,720 --> 00:10:53,160 Speaker 1: the important question, what is it that drive stock performance 181 00:10:53,280 --> 00:10:57,640 Speaker 1: over the long term? So the stock market has to 182 00:10:57,679 --> 00:11:01,160 Speaker 1: follow the economy long term. UM. The problem is in 183 00:11:01,160 --> 00:11:04,280 Speaker 1: the short term it absolutely doesn't. There are two things 184 00:11:04,320 --> 00:11:07,640 Speaker 1: we think that drive returns. One is risks. So in 185 00:11:07,679 --> 00:11:10,520 Speaker 1: the beginning twenty five years ago, definitely had a risk 186 00:11:10,559 --> 00:11:14,479 Speaker 1: based worldview, and and Eugene Fama was a major contributor 187 00:11:14,520 --> 00:11:17,680 Speaker 1: to my thinking on that. Uh. I took a year 188 00:11:17,679 --> 00:11:20,520 Speaker 1: and a half off before founding Bridgeway to do research 189 00:11:20,920 --> 00:11:24,480 Speaker 1: on the quantitative methods I've been using individually, writing a 190 00:11:24,480 --> 00:11:29,600 Speaker 1: big business plan for Bridgeway and and learning more. UH 191 00:11:29,760 --> 00:11:32,200 Speaker 1: the the let me let me interrupt you there, because 192 00:11:32,240 --> 00:11:35,720 Speaker 1: I find that fascinating. You're you're working in a field, 193 00:11:35,840 --> 00:11:39,560 Speaker 1: you're fairly well compensated, but you hit the wall and 194 00:11:39,640 --> 00:11:42,200 Speaker 1: you instead of saying I'm going to just switch jobs 195 00:11:42,600 --> 00:11:45,400 Speaker 1: or even switch careers, you say I'm going to take 196 00:11:45,440 --> 00:11:47,840 Speaker 1: a year off and think about what i want the 197 00:11:48,000 --> 00:11:51,520 Speaker 1: next phase of my life to be. Is that a 198 00:11:51,600 --> 00:11:53,800 Speaker 1: fair descript That's right? And I had I had a 199 00:11:53,840 --> 00:11:56,000 Speaker 1: model for that. There was a mayor of Houston, Bob 200 00:11:56,120 --> 00:11:58,880 Speaker 1: Lanier at the time, who had four different careers and 201 00:11:58,880 --> 00:12:01,000 Speaker 1: every time he switched to ears, he took a year 202 00:12:01,040 --> 00:12:03,360 Speaker 1: off to study the heck out of the next thing 203 00:12:03,920 --> 00:12:06,000 Speaker 1: that he was doing, and he's very thoughtful about it. 204 00:12:06,000 --> 00:12:09,160 Speaker 1: And I thought that was a fascinating idea. UM Let 205 00:12:09,200 --> 00:12:13,360 Speaker 1: the record reflect that the guests used the word fascinating 206 00:12:13,440 --> 00:12:17,520 Speaker 1: multiple times before I did. I always get emails making 207 00:12:17,559 --> 00:12:21,640 Speaker 1: fun of my over alliance on the word fascinating. But 208 00:12:21,840 --> 00:12:24,840 Speaker 1: I find things fascinating, as do you. So I'm glad 209 00:12:24,880 --> 00:12:28,400 Speaker 1: you you brought that up. UM. So that's pretty interesting. 210 00:12:28,440 --> 00:12:32,920 Speaker 1: Four separate careers, and you based this decision making on 211 00:12:33,280 --> 00:12:36,200 Speaker 1: that model. That's correct. And so when you spent the 212 00:12:36,280 --> 00:12:41,280 Speaker 1: year researching quantitative finance and running an asset management firm, 213 00:12:41,760 --> 00:12:44,120 Speaker 1: where did that lead you? How that was? That was? 214 00:12:44,200 --> 00:12:47,080 Speaker 1: That period was when Family French published their seminal paper 215 00:12:47,720 --> 00:12:50,360 Speaker 1: on value and building. So so we had, you know, 216 00:12:50,440 --> 00:12:54,719 Speaker 1: early nineteen eighties, uh small the small size effect. It 217 00:12:54,760 --> 00:12:57,559 Speaker 1: had been around why and I was fascinating premium, it's 218 00:12:57,559 --> 00:13:01,640 Speaker 1: absolutely but the value part was really resonated with me. 219 00:13:02,000 --> 00:13:05,400 Speaker 1: The thought, you know, I'm buying a refrigerator. It's one 220 00:13:05,440 --> 00:13:08,840 Speaker 1: place or another place, and if it's basically the same refrigerator, 221 00:13:08,840 --> 00:13:11,280 Speaker 1: there's some way to figure out that they're comparable. I'm 222 00:13:11,280 --> 00:13:14,120 Speaker 1: gonna go for the lower price. That just resonated with 223 00:13:14,160 --> 00:13:16,960 Speaker 1: me and made sense that that would work. And there 224 00:13:17,000 --> 00:13:20,920 Speaker 1: was a risk based world UM framework for that that 225 00:13:20,960 --> 00:13:24,560 Speaker 1: I really bought into. And it wasn't until probably fifteen 226 00:13:24,720 --> 00:13:28,880 Speaker 1: ten ten fifteen years later that I started reading more 227 00:13:29,080 --> 00:13:31,680 Speaker 1: and thinking about the behavioral insights, and there was one 228 00:13:31,760 --> 00:13:34,679 Speaker 1: factor that really put me over the top on that. 229 00:13:35,240 --> 00:13:38,280 Speaker 1: Explain that's the low volatility factor. So if you think, 230 00:13:38,320 --> 00:13:41,400 Speaker 1: if you have a risk based worldview and you think, okay, 231 00:13:41,480 --> 00:13:46,040 Speaker 1: value stocks are more volatile in some sense, they're riskier, um, 232 00:13:46,320 --> 00:13:49,120 Speaker 1: so they should liquid less, go through the number of 233 00:13:49,160 --> 00:13:51,720 Speaker 1: things they should do, you know, as a group better 234 00:13:51,880 --> 00:13:55,320 Speaker 1: in the long term size, same thing. If you've got 235 00:13:55,360 --> 00:14:00,480 Speaker 1: fewer products, uh, less diversification, less act access to the 236 00:14:00,520 --> 00:14:04,160 Speaker 1: capital markets, that's more risk absolutely, and then it makes 237 00:14:04,160 --> 00:14:06,439 Speaker 1: sense that you would have higher returns over the long 238 00:14:06,559 --> 00:14:11,400 Speaker 1: term with that. But the but the low volatility factor 239 00:14:12,040 --> 00:14:15,239 Speaker 1: turns that on its head, and and what was remarkable 240 00:14:15,240 --> 00:14:17,360 Speaker 1: to me was that it wasn't a bigger problem for 241 00:14:17,440 --> 00:14:21,800 Speaker 1: more people that the low volatility stocks did better in 242 00:14:21,840 --> 00:14:25,160 Speaker 1: the long terming wait a minute. We talk about measuring risk, 243 00:14:25,280 --> 00:14:27,400 Speaker 1: and we can go into a lot of detail on 244 00:14:27,400 --> 00:14:30,040 Speaker 1: what's risk, but most common way to measure risk and 245 00:14:30,080 --> 00:14:34,920 Speaker 1: academia standard deviation of returns, specifically measuring the exact same way. 246 00:14:35,000 --> 00:14:39,480 Speaker 1: The low volatility is less risk by definition and should 247 00:14:39,480 --> 00:14:41,880 Speaker 1: do less well over the long term. But the reverse 248 00:14:41,960 --> 00:14:45,520 Speaker 1: is true. Why is that you can't In my mind, 249 00:14:45,560 --> 00:14:48,200 Speaker 1: it was just a complete short circuit that those two 250 00:14:48,280 --> 00:14:51,040 Speaker 1: things don't go together. If that's true, something else must 251 00:14:51,080 --> 00:14:54,280 Speaker 1: be driving these stocks. What is that? And I think 252 00:14:54,280 --> 00:14:58,320 Speaker 1: that's behavioral finance. So a lot of people focus on 253 00:14:58,360 --> 00:15:01,240 Speaker 1: the models, but they don't pay that close attention to 254 00:15:01,280 --> 00:15:07,160 Speaker 1: the execution of these models. How can you take advantage 255 00:15:07,320 --> 00:15:12,840 Speaker 1: of of ability to execute, ability to perform versus just 256 00:15:13,120 --> 00:15:16,320 Speaker 1: the plain old algorithm. Well, the first of all, the 257 00:15:16,360 --> 00:15:19,720 Speaker 1: algorithms are built by people, so there's a very strong 258 00:15:19,840 --> 00:15:22,760 Speaker 1: human component to that. And the models are only as 259 00:15:22,800 --> 00:15:25,800 Speaker 1: good as the modeling process that you've got, So that 260 00:15:25,800 --> 00:15:29,080 Speaker 1: would be um where I start. I think there are 261 00:15:29,160 --> 00:15:32,760 Speaker 1: huge advantages to machines being able to process huge amounts 262 00:15:32,760 --> 00:15:36,840 Speaker 1: of data. So that's the key advantage there. And we're 263 00:15:36,920 --> 00:15:41,320 Speaker 1: learning more all the time about technology and artificial intelligence 264 00:15:41,360 --> 00:15:44,360 Speaker 1: and where that might go. Let's talk a little bit 265 00:15:44,400 --> 00:15:49,200 Speaker 1: about your corporate culture, and I find some things about 266 00:15:49,200 --> 00:15:53,240 Speaker 1: Bridgeway quite fascinating. First, eight and a half billion dollars 267 00:15:53,320 --> 00:15:56,960 Speaker 1: is a nice chunk of money. You're somewhat under the radar. 268 00:15:57,120 --> 00:16:01,440 Speaker 1: Is that a conscious decision or is that just happenstance 269 00:16:01,480 --> 00:16:05,120 Speaker 1: of being in Houston? I would say both. Early on, 270 00:16:05,280 --> 00:16:08,680 Speaker 1: we had some thought of being about substance and not fluff, 271 00:16:08,960 --> 00:16:12,400 Speaker 1: and that has continued in our culture and worldview and 272 00:16:12,600 --> 00:16:18,000 Speaker 1: obviously the other giants issue. It's unusual to see a 273 00:16:18,080 --> 00:16:22,440 Speaker 1: finance company that gives away half their profits to charity 274 00:16:22,480 --> 00:16:24,880 Speaker 1: each year. Tell us a little bit about how that 275 00:16:24,960 --> 00:16:28,480 Speaker 1: came about and uh, how you execute on that well, Barry, 276 00:16:28,480 --> 00:16:31,240 Speaker 1: I'd say naivete has worked pretty well for me in life. 277 00:16:31,520 --> 00:16:34,720 Speaker 1: So I got married at twenty one. That's not the 278 00:16:34,800 --> 00:16:38,480 Speaker 1: statistics on that are not great. Um. Uh, statistic would 279 00:16:38,520 --> 00:16:41,320 Speaker 1: say wait a while, get more life experience. But it 280 00:16:41,360 --> 00:16:44,360 Speaker 1: was awesome for me. I'm married to um, the love 281 00:16:44,360 --> 00:16:47,280 Speaker 1: of my dreams for forty years now. Just celebrated to 282 00:16:47,320 --> 00:16:51,920 Speaker 1: fort anniversary. I think you just celebrated, um, So that's 283 00:16:51,960 --> 00:16:55,760 Speaker 1: worked out great. Also, when I was founding Bridgeway, we 284 00:16:55,960 --> 00:16:59,480 Speaker 1: we had some concern my wife and I about if 285 00:16:59,520 --> 00:17:04,000 Speaker 1: professorly we were successful as I had been over the 286 00:17:04,040 --> 00:17:06,840 Speaker 1: prior six years individually with the model that I had. 287 00:17:06,920 --> 00:17:08,840 Speaker 1: This is a quantitative model, so you didn't have to 288 00:17:08,920 --> 00:17:11,200 Speaker 1: hire an army of analysts, so it was a low 289 00:17:11,240 --> 00:17:15,520 Speaker 1: cost strategy aspects that of modeling that we had worked 290 00:17:15,520 --> 00:17:18,359 Speaker 1: with for some time. Then it should be a cash 291 00:17:18,359 --> 00:17:21,840 Speaker 1: cow in the investment advisory business. There's no accounts receivable. 292 00:17:21,880 --> 00:17:25,399 Speaker 1: There's no accounts because people you manage money, you have 293 00:17:25,440 --> 00:17:29,879 Speaker 1: their money. There's no inventory except computers, which are actually 294 00:17:29,920 --> 00:17:33,440 Speaker 1: pretty cheap these days. There's no It's an amazing cash 295 00:17:33,480 --> 00:17:35,399 Speaker 1: cow business. And we thought, so what would you do 296 00:17:35,480 --> 00:17:38,840 Speaker 1: with those resources? And we actually had some concern twenty 297 00:17:38,840 --> 00:17:40,919 Speaker 1: five years ago that that could be a problem in 298 00:17:41,000 --> 00:17:44,080 Speaker 1: raising kids and the environment within which we raised more 299 00:17:44,080 --> 00:17:46,119 Speaker 1: money is not always good in spite of the fact 300 00:17:46,200 --> 00:17:49,440 Speaker 1: what we do for living is is managed money. So 301 00:17:49,880 --> 00:17:52,800 Speaker 1: we thought, had the naive thought of giving half away, 302 00:17:52,840 --> 00:17:57,439 Speaker 1: there'd be less around. Interestingly, about ten years into the 303 00:17:57,520 --> 00:18:01,199 Speaker 1: process of of Bridgeway capital manage I had the thought, well, 304 00:18:01,280 --> 00:18:03,880 Speaker 1: that didn't work out at all. The money that's left 305 00:18:03,960 --> 00:18:06,280 Speaker 1: when you're that generous and you build it in the 306 00:18:06,320 --> 00:18:09,160 Speaker 1: fabric of a company and you are able to hire 307 00:18:09,520 --> 00:18:13,359 Speaker 1: and retain inspired people, the benefits of that to the 308 00:18:13,359 --> 00:18:15,719 Speaker 1: company far outweigh the half that you give away. So 309 00:18:15,760 --> 00:18:18,600 Speaker 1: we actually that was a bust. I figured out at 310 00:18:18,680 --> 00:18:20,760 Speaker 1: ten years is much more powerful when you have a 311 00:18:20,800 --> 00:18:24,240 Speaker 1: generous spirit. So, in other words, giving away money ended 312 00:18:24,320 --> 00:18:26,879 Speaker 1: up generating too much in return for yourself. Is that 313 00:18:27,040 --> 00:18:29,840 Speaker 1: is that what I'm hearing too much? You know? Okay, 314 00:18:29,920 --> 00:18:32,879 Speaker 1: So the expect more than expected for sure, and you 315 00:18:32,960 --> 00:18:37,240 Speaker 1: also do something else that's kind of unusual. Your compensation 316 00:18:37,480 --> 00:18:42,600 Speaker 1: as chairman is limited to seven x the lowest paid employee. 317 00:18:42,640 --> 00:18:44,840 Speaker 1: Am I getting that correct? So we now talk about 318 00:18:44,880 --> 00:18:48,280 Speaker 1: that is our stewardship imperative. So if you're a new 319 00:18:48,320 --> 00:18:51,639 Speaker 1: person coming into Bridgeway, of the conversation goes something along 320 00:18:51,680 --> 00:18:54,679 Speaker 1: these lines. One, We're here to make a difference in 321 00:18:54,720 --> 00:18:57,920 Speaker 1: the world. And that's that's really cool about for our 322 00:18:58,000 --> 00:19:01,119 Speaker 1: clients first, because that's why we're here for our fellow 323 00:19:01,280 --> 00:19:04,240 Speaker 1: partners each other. And that's partners is the word we 324 00:19:04,320 --> 00:19:06,439 Speaker 1: use for all the staff um with a full time 325 00:19:06,560 --> 00:19:09,840 Speaker 1: and long term commitment at Bridgeway and also the communities 326 00:19:09,840 --> 00:19:13,080 Speaker 1: that we live in. However, we expect everybody to engage 327 00:19:13,080 --> 00:19:15,680 Speaker 1: in that. And and if you look back over forty 328 00:19:15,760 --> 00:19:18,240 Speaker 1: years of compensation in the US, it's pretty clear to 329 00:19:18,280 --> 00:19:19,960 Speaker 1: me that things have gotten out of hand at the 330 00:19:20,000 --> 00:19:22,239 Speaker 1: top end. I just didn't want to get caught up 331 00:19:22,280 --> 00:19:25,600 Speaker 1: in that. It Bridgeway and actually it's a pretty great 332 00:19:25,640 --> 00:19:28,719 Speaker 1: screening tool for if you if you put at one 333 00:19:28,800 --> 00:19:31,720 Speaker 1: end of the spectrum, greed and a lot of things 334 00:19:31,760 --> 00:19:34,800 Speaker 1: that the finance industry is criticized for. And at the 335 00:19:34,800 --> 00:19:38,000 Speaker 1: other hand, generosity and making a difference in life at 336 00:19:38,000 --> 00:19:40,119 Speaker 1: the other end of the spectrum. It's pretty great to 337 00:19:40,119 --> 00:19:41,760 Speaker 1: be able to say, if you want to make seven 338 00:19:41,800 --> 00:19:45,359 Speaker 1: figures and you're about generating you know, personal wealth at 339 00:19:45,359 --> 00:19:47,159 Speaker 1: the high end, you won't come to Bridgeway like there 340 00:19:47,160 --> 00:19:48,720 Speaker 1: are other places to do that. We don't make any 341 00:19:48,800 --> 00:19:52,359 Speaker 1: value judgments about that. We just think that life is 342 00:19:52,359 --> 00:19:56,359 Speaker 1: about um more and if you take that attitude in worldview, 343 00:19:56,480 --> 00:20:01,080 Speaker 1: it's incredibly powerful. You also have a requirement that all 344 00:20:01,160 --> 00:20:05,680 Speaker 1: the staff members are shareholders in Bridgeway and they are 345 00:20:05,880 --> 00:20:11,000 Speaker 1: unable to make investments outside of the firm. UH. Does 346 00:20:11,040 --> 00:20:14,480 Speaker 1: that include the firm's investment portfolios? How do you? How 347 00:20:14,520 --> 00:20:17,000 Speaker 1: do you manage that? So two things. One, we have 348 00:20:17,040 --> 00:20:20,480 Speaker 1: what we call a partner stock ownership, which is typically 349 00:20:20,520 --> 00:20:23,880 Speaker 1: referred to as an esop so UM all the UH 350 00:20:24,240 --> 00:20:30,119 Speaker 1: full time UH people at Bridgeway. UH currently about of 351 00:20:30,160 --> 00:20:33,160 Speaker 1: your W two goes to buy stock in the advisory firm. 352 00:20:33,200 --> 00:20:35,480 Speaker 1: And that's across the board. That's not typically a firm 353 00:20:35,480 --> 00:20:38,960 Speaker 1: our size. The top five people or so would have stock. Uh. 354 00:20:38,960 --> 00:20:42,680 Speaker 1: This is broadly based across the full spectrum of salaries. 355 00:20:43,160 --> 00:20:45,720 Speaker 1: Some people thinks like, oh, so you have an ownership culture. 356 00:20:45,840 --> 00:20:48,800 Speaker 1: We say, yeah, they're aspects of that. So yes, you 357 00:20:48,840 --> 00:20:51,720 Speaker 1: want to you know, treat costs as you know your 358 00:20:51,800 --> 00:20:54,600 Speaker 1: cost and but we we like to focus on the 359 00:20:54,640 --> 00:20:58,840 Speaker 1: stewardship aspect of that. There's a there's an asset resources 360 00:20:58,840 --> 00:21:02,720 Speaker 1: that we've been entrusted with on behalf of our clients, 361 00:21:03,240 --> 00:21:05,880 Speaker 1: on behalf of the public good. When you talk about 362 00:21:05,880 --> 00:21:08,520 Speaker 1: the foundation, we want to do an excellent job with that. 363 00:21:08,520 --> 00:21:12,040 Speaker 1: That's the focus um and we think that comes back 364 00:21:12,080 --> 00:21:16,119 Speaker 1: in in multiple ways. Let's talk a little bit about 365 00:21:16,200 --> 00:21:20,840 Speaker 1: the modern world of investing. We see index funds taking 366 00:21:20,880 --> 00:21:27,560 Speaker 1: assets from active managers. You're experiencing the opposite. You're seeing inflows. 367 00:21:28,400 --> 00:21:32,399 Speaker 1: What are you doing to attract assets when most non 368 00:21:32,520 --> 00:21:37,280 Speaker 1: index funds are seeing outflows. Well, certainly we're experiencing that 369 00:21:37,320 --> 00:21:39,639 Speaker 1: in some places at Bridgeway. First of all, we do 370 00:21:39,720 --> 00:21:42,600 Speaker 1: have our own proprietary index fund. It's it's non market 371 00:21:42,600 --> 00:21:45,920 Speaker 1: cap weighted, has some really cool I'm an engineer by back, 372 00:21:46,119 --> 00:21:49,080 Speaker 1: really cool design features that we've executed. We just celebrated 373 00:21:49,080 --> 00:21:53,920 Speaker 1: twenty years. What makes that index unique and what led 374 00:21:53,960 --> 00:21:58,720 Speaker 1: you away from cap waiting research research is what we 375 00:21:58,920 --> 00:22:02,680 Speaker 1: live and breathe and do for living on the investment team, 376 00:22:02,960 --> 00:22:06,199 Speaker 1: market cap weighted index. The more stock goes up, the 377 00:22:06,200 --> 00:22:08,920 Speaker 1: more money you throw at it. That's a momentum strategy. 378 00:22:08,920 --> 00:22:11,000 Speaker 1: There's nothing wrong with momentum. It works of the long 379 00:22:11,080 --> 00:22:14,400 Speaker 1: term except well that's true. But but the main thing 380 00:22:14,440 --> 00:22:16,359 Speaker 1: is you have to you have to you have to 381 00:22:16,440 --> 00:22:19,560 Speaker 1: sell it over relatively short period of time, probably you know, 382 00:22:19,600 --> 00:22:21,879 Speaker 1: somewhere between three months and twelve months. If you just 383 00:22:21,920 --> 00:22:23,840 Speaker 1: hold on forever, then it goes up and then when 384 00:22:23,840 --> 00:22:27,120 Speaker 1: it falls, you go down. That's a very inefficient structure. 385 00:22:27,520 --> 00:22:29,680 Speaker 1: So with that insight, we went back and said, okay, 386 00:22:29,760 --> 00:22:31,960 Speaker 1: is there is there a different structure. We studied a 387 00:22:32,040 --> 00:22:34,680 Speaker 1: number of them. This was you know, twenty plus years 388 00:22:34,680 --> 00:22:38,439 Speaker 1: ago now, UH and a very basic equal what we 389 00:22:38,480 --> 00:22:43,760 Speaker 1: call roughly equal waiting strategy. UH has some really cool 390 00:22:44,000 --> 00:22:49,600 Speaker 1: risk statistics. So over the entire time frame since inception, UM, 391 00:22:49,640 --> 00:22:52,879 Speaker 1: you know, call it kind of flat between our fund 392 00:22:53,280 --> 00:22:56,280 Speaker 1: our strategy in the Blue Ship thirty five area and 393 00:22:56,800 --> 00:23:01,200 Speaker 1: SMP five fund. But the risk characteristic are really cool 394 00:23:01,880 --> 00:23:06,359 Speaker 1: at that the ten worst downturn quarters of the SMP 395 00:23:06,480 --> 00:23:09,480 Speaker 1: five hundred we've out we've provided cushion and nine of 396 00:23:09,480 --> 00:23:11,840 Speaker 1: those So there's something special going on. And I think 397 00:23:11,840 --> 00:23:15,919 Speaker 1: that relates right back to momentums with no hold period. 398 00:23:16,000 --> 00:23:19,000 Speaker 1: Just spinning it out is not a great strategy. That's 399 00:23:19,040 --> 00:23:21,359 Speaker 1: what a market cap waiting is. So you have to 400 00:23:21,359 --> 00:23:23,920 Speaker 1: be really careful about when you use market cap waiting 401 00:23:24,000 --> 00:23:26,879 Speaker 1: and when you don't. So you're you're evidence based. You 402 00:23:26,920 --> 00:23:30,680 Speaker 1: crunch a lot of data. The data typically suggests that 403 00:23:30,760 --> 00:23:36,080 Speaker 1: when markets are enjoying a high valuation, your future expected 404 00:23:36,080 --> 00:23:41,160 Speaker 1: returns are likely to be lower. How do you perceive, uh, 405 00:23:41,240 --> 00:23:44,520 Speaker 1: the current environment? Is that a fair statement? Or or 406 00:23:44,560 --> 00:23:46,919 Speaker 1: am I overstating it? So if the question is do 407 00:23:46,960 --> 00:23:50,440 Speaker 1: I think the market is expensive, the answers yes, how 408 00:23:50,440 --> 00:23:53,040 Speaker 1: expensive depends on how you measure it. But the second 409 00:23:53,119 --> 00:23:56,399 Speaker 1: question relates like okay, like statistically you can measure this 410 00:23:56,480 --> 00:23:59,320 Speaker 1: based on history that is more more expensive. So does 411 00:23:59,359 --> 00:24:01,080 Speaker 1: that mean we should get out of the market? Should 412 00:24:01,080 --> 00:24:04,399 Speaker 1: we time that somehow? And that's a very very different 413 00:24:04,480 --> 00:24:08,320 Speaker 1: question with with with an answer that takes you into 414 00:24:08,400 --> 00:24:11,000 Speaker 1: a buy and hold strategy on the market overall in 415 00:24:11,040 --> 00:24:14,560 Speaker 1: other words, your your expectation is the odds are strongly 416 00:24:14,600 --> 00:24:18,919 Speaker 1: against us. It's not only strongly, it's incredibly strongly against you. 417 00:24:19,400 --> 00:24:21,399 Speaker 1: This goes back to that year and a half that 418 00:24:21,440 --> 00:24:25,120 Speaker 1: I took off in in nine into ninety three doing 419 00:24:25,200 --> 00:24:28,680 Speaker 1: research where I actually went back and studied the Great Depression. 420 00:24:28,960 --> 00:24:31,560 Speaker 1: So like, if you want a granddaddy of downturns and 421 00:24:31,600 --> 00:24:33,639 Speaker 1: you want to understand if you're studying risk, which is 422 00:24:33,680 --> 00:24:35,879 Speaker 1: what I was doing, you go back to that period. 423 00:24:35,920 --> 00:24:37,880 Speaker 1: Some people say, like John, you know, like the FED 424 00:24:37,960 --> 00:24:39,960 Speaker 1: didn't even exist in his current form, why would you 425 00:24:40,000 --> 00:24:42,879 Speaker 1: go back to the nineteen thirties. My answer to that 426 00:24:43,080 --> 00:24:46,440 Speaker 1: is the specifics of risk have changed. Nuclear bonds didn't 427 00:24:46,440 --> 00:24:49,040 Speaker 1: exist in the nineteen thirties, so obviously that's a very 428 00:24:49,080 --> 00:24:51,920 Speaker 1: different risk. But the nature of risk itself has been 429 00:24:51,960 --> 00:24:54,399 Speaker 1: around a long time. You can learn a lot, and 430 00:24:54,440 --> 00:24:57,040 Speaker 1: I convinced myself from that a couple of things out 431 00:24:57,040 --> 00:24:59,879 Speaker 1: of that exercise. One is, be prepared for the downturn. 432 00:25:00,080 --> 00:25:03,679 Speaker 1: They will happen. It's not it's inevitable and and its behavioral. 433 00:25:03,720 --> 00:25:07,800 Speaker 1: It's not just based on how expensive, uh the market is. 434 00:25:08,240 --> 00:25:12,200 Speaker 1: Number Two, it's incredibly difficult to time that, and and 435 00:25:12,320 --> 00:25:14,520 Speaker 1: we've done all this research on a lot of different 436 00:25:14,520 --> 00:25:19,680 Speaker 1: ways systems that people have done that. It's just very 437 00:25:19,800 --> 00:25:22,800 Speaker 1: difficult to do. There's certain things you can reduce risk on, 438 00:25:23,040 --> 00:25:27,399 Speaker 1: like I mentioned the the market cap waiting in large 439 00:25:27,400 --> 00:25:30,880 Speaker 1: cap stocks UM. But the second thing I learned from 440 00:25:30,880 --> 00:25:34,919 Speaker 1: that is about leverage so UM. Some of my quant 441 00:25:34,960 --> 00:25:38,280 Speaker 1: competitors use a very significant amount of leverage and long 442 00:25:38,320 --> 00:25:40,720 Speaker 1: short strategies. I won't say that, you know that's a 443 00:25:40,760 --> 00:25:43,800 Speaker 1: complete You know that in all circumstances that's a bad idea, 444 00:25:43,880 --> 00:25:46,440 Speaker 1: but you should be very, very very careful. The Dow 445 00:25:46,560 --> 00:25:49,600 Speaker 1: Jones Industrial Average and the Great Depression fell eight s. 446 00:25:50,520 --> 00:25:53,320 Speaker 1: You can't say it can't happen. It has happened. That's 447 00:25:53,320 --> 00:25:55,680 Speaker 1: one thing about statistics is it's like, oh, that will 448 00:25:55,720 --> 00:25:59,080 Speaker 1: never Well, of course it can happen. It has already happened. 449 00:26:00,119 --> 00:26:03,480 Speaker 1: If you've got debt on top of you know, buying stocks, 450 00:26:03,680 --> 00:26:06,440 Speaker 1: it doesn't take much debt to completely blow you out, 451 00:26:06,440 --> 00:26:09,760 Speaker 1: to cash you out, like you're out of investing. People 452 00:26:09,880 --> 00:26:17,160 Speaker 1: forget how how recently we've seen a near crash. Everybody says, well, 453 00:26:17,280 --> 00:26:20,879 Speaker 1: twenty nine is so long ago. The NASDAC in two 454 00:26:20,920 --> 00:26:24,320 Speaker 1: thousand fell almost as much as the Dad Jones did 455 00:26:24,760 --> 00:26:27,399 Speaker 1: in twenty nine. It was I think it's just a 456 00:26:27,440 --> 00:26:31,159 Speaker 1: hair under eight percent of memory serves. So it's not 457 00:26:31,240 --> 00:26:33,960 Speaker 1: like it's a hundred years ago. It's a decade and 458 00:26:34,000 --> 00:26:37,480 Speaker 1: a half ago we experienced something very very similar. Yes, 459 00:26:38,080 --> 00:26:42,119 Speaker 1: So let's that brings us obviously to the behavioral side. 460 00:26:42,480 --> 00:26:46,840 Speaker 1: And you said something that I found quite fascinating. One. 461 00:26:47,200 --> 00:26:50,760 Speaker 1: The first part of it is the importance of behavior 462 00:26:50,840 --> 00:26:55,800 Speaker 1: to successful investing, but the second half was really interesting. 463 00:26:55,880 --> 00:26:59,639 Speaker 1: You said, it's been twenty five years of trying to 464 00:26:59,720 --> 00:27:04,520 Speaker 1: help investors manage their behavior, and it sometimes feels like 465 00:27:04,560 --> 00:27:09,200 Speaker 1: it's a losing battle. Yes, tell us about that. So, um, 466 00:27:09,240 --> 00:27:13,840 Speaker 1: so this is probably my biggest source spot professionally in 467 00:27:13,880 --> 00:27:17,800 Speaker 1: the investment uh, you know, the investment industry, in the 468 00:27:17,800 --> 00:27:22,239 Speaker 1: service that we've provided, the place where we're still living, uh, 469 00:27:22,280 --> 00:27:24,040 Speaker 1: the film. We have not solved the problem with what 470 00:27:24,119 --> 00:27:26,440 Speaker 1: I refer to as the behavior gap. The behavior gap 471 00:27:26,520 --> 00:27:31,680 Speaker 1: coined I believe by Carl Richards as a description of, um, 472 00:27:31,720 --> 00:27:36,680 Speaker 1: the natural tendency of human beings uh to uh buy 473 00:27:36,720 --> 00:27:39,919 Speaker 1: more when things are going up. Call it greed or 474 00:27:40,640 --> 00:27:44,359 Speaker 1: just wanting to get on the bandwagon. So it's chasing 475 00:27:44,359 --> 00:27:49,160 Speaker 1: hot returns. Uh. And on the downside, UH, fear when 476 00:27:49,200 --> 00:27:53,240 Speaker 1: things go poorly, when the stock market goes down, it predictably, 477 00:27:53,480 --> 00:27:57,320 Speaker 1: and it is so broad based, uh that people are 478 00:27:57,320 --> 00:27:59,000 Speaker 1: going to panic and and what do you do? You 479 00:27:59,080 --> 00:28:01,720 Speaker 1: get out? And they are all different versions of this. 480 00:28:01,840 --> 00:28:04,640 Speaker 1: It's but so it's another version of marketing timing. It's 481 00:28:04,920 --> 00:28:08,040 Speaker 1: it's behaviorally based. Um. And let me let me, let 482 00:28:08,080 --> 00:28:10,360 Speaker 1: me give you a real world example of this. At Bridgeway, 483 00:28:10,359 --> 00:28:13,920 Speaker 1: I looked at statistics on just before coming in updated 484 00:28:14,040 --> 00:28:17,000 Speaker 1: on one of our more aggressive strategies over the last 485 00:28:17,080 --> 00:28:21,560 Speaker 1: fifteen years. According to morning Star, the returns to investors 486 00:28:21,640 --> 00:28:24,920 Speaker 1: of this fund is the average in return is about 487 00:28:24,920 --> 00:28:28,960 Speaker 1: two thirds of the total return. So we've produced what 488 00:28:29,040 --> 00:28:32,720 Speaker 1: I think is very attractive fifteen year track record. The 489 00:28:32,800 --> 00:28:35,280 Speaker 1: timing of when people get get in and get out, 490 00:28:35,320 --> 00:28:38,080 Speaker 1: they're chasing hot returns. They panic, you know in oh A. 491 00:28:38,240 --> 00:28:40,440 Speaker 1: The net of all that over the last fifteen years 492 00:28:40,520 --> 00:28:44,440 Speaker 1: is the average January return is one third less. Like 493 00:28:45,440 --> 00:28:47,920 Speaker 1: from that standpoint, think like a third of the value 494 00:28:47,960 --> 00:28:51,320 Speaker 1: that we've created and that the economy has created gets 495 00:28:51,320 --> 00:28:54,280 Speaker 1: washed down the toilet by when people are in and out. 496 00:28:54,320 --> 00:28:57,160 Speaker 1: It's worse than that though. Think of that number one third. 497 00:28:57,560 --> 00:29:01,320 Speaker 1: If you take an investing rising of thirty years, like 498 00:29:01,360 --> 00:29:04,800 Speaker 1: you're saving for retirement, when you're forty thirty years later, 499 00:29:05,400 --> 00:29:08,240 Speaker 1: the amount of money that you've got is one third, 500 00:29:08,640 --> 00:29:11,360 Speaker 1: two thirds less one third of what it would be 501 00:29:11,480 --> 00:29:14,360 Speaker 1: had you just used to buy and hold stuff that alone. 502 00:29:14,440 --> 00:29:18,240 Speaker 1: So so the emotional side of the behavior is that 503 00:29:18,360 --> 00:29:22,880 Speaker 1: people underperform their own holdings. And then you add to 504 00:29:23,000 --> 00:29:26,840 Speaker 1: that the insult of you add insult to injury by 505 00:29:26,920 --> 00:29:29,480 Speaker 1: the loss of compounding of that over the long haul. 506 00:29:29,560 --> 00:29:31,600 Speaker 1: And this is not this is not just true of 507 00:29:31,640 --> 00:29:34,720 Speaker 1: individual investors. It's true in a very broad sense of 508 00:29:34,840 --> 00:29:38,400 Speaker 1: institutional investors as well. And the study I like to 509 00:29:38,400 --> 00:29:40,560 Speaker 1: cite on that is a study that was done of 510 00:29:40,640 --> 00:29:43,760 Speaker 1: pension fund performers, and they took a look at the 511 00:29:43,800 --> 00:29:47,360 Speaker 1: three year forward returns of managers that were fired versus 512 00:29:47,400 --> 00:29:49,960 Speaker 1: the ones that they hired to replace them. And what 513 00:29:50,000 --> 00:29:53,080 Speaker 1: do you think happen? I'm assuming the activity ends up 514 00:29:53,160 --> 00:29:56,080 Speaker 1: costing them more than have they done nothing. Well, it 515 00:29:56,200 --> 00:29:58,880 Speaker 1: not only costs them more if their transaction costs, but 516 00:29:58,960 --> 00:30:02,800 Speaker 1: the actual perform of those two players is flipped based 517 00:30:02,800 --> 00:30:05,080 Speaker 1: on what you would think the fired manager does better, 518 00:30:05,120 --> 00:30:09,360 Speaker 1: because there by you know they're being fired at if 519 00:30:09,400 --> 00:30:11,920 Speaker 1: they have a solid process, and if they're doing you know, 520 00:30:11,960 --> 00:30:14,280 Speaker 1: screw stuff, that's one thing, but they have a solid process, 521 00:30:14,400 --> 00:30:16,600 Speaker 1: is just out of favor. That's the time to be buying, 522 00:30:16,720 --> 00:30:20,320 Speaker 1: not selling. It's upside down. I have a buddy who's 523 00:30:20,400 --> 00:30:23,400 Speaker 1: a fairly well known household name. He's a hedge fund 524 00:30:23,400 --> 00:30:27,320 Speaker 1: manager and a value investor, and he says all the 525 00:30:27,400 --> 00:30:31,440 Speaker 1: time he could tell when an underperforming investment is about 526 00:30:31,480 --> 00:30:34,600 Speaker 1: to pay off. First the phone starts to ring, and 527 00:30:34,640 --> 00:30:38,520 Speaker 1: then the emails come, and then ultimately clients start pulling 528 00:30:38,640 --> 00:30:44,160 Speaker 1: money out. And usually it's at the moment when this 529 00:30:44,280 --> 00:30:48,600 Speaker 1: underperforming value approach is about to take off, and it's 530 00:30:48,640 --> 00:30:52,840 Speaker 1: it's been a it's been an interesting observation, just like 531 00:30:52,880 --> 00:30:57,200 Speaker 1: the pension funds firing people at the nature of their cycle. 532 00:30:57,560 --> 00:31:00,400 Speaker 1: I'm most comfortable when everyone else is ringing the hands 533 00:31:00,520 --> 00:31:03,479 Speaker 1: As an investor, that's just my my personal makeup. That 534 00:31:03,520 --> 00:31:05,960 Speaker 1: doesn't mean, however, that I should take that information and 535 00:31:06,040 --> 00:31:08,480 Speaker 1: try and time the market. That would be the wrong conclusion. 536 00:31:09,200 --> 00:31:13,960 Speaker 1: Just just holding through the downturns here's the here's another 537 00:31:14,520 --> 00:31:17,760 Speaker 1: great I mean you think Bilo said, all right, everybody 538 00:31:17,760 --> 00:31:20,320 Speaker 1: knows that most people will say they're doing that, and 539 00:31:20,320 --> 00:31:22,240 Speaker 1: then you go back and track their actual numbers, they're 540 00:31:22,240 --> 00:31:26,000 Speaker 1: not doing them. Most behavioral thing is much much stronger. 541 00:31:26,320 --> 00:31:29,560 Speaker 1: It's much easier said than done. Actually doing it requires 542 00:31:29,600 --> 00:31:33,040 Speaker 1: you to be comfortable when everybody is miserable and and 543 00:31:33,040 --> 00:31:35,640 Speaker 1: and we haven't solved that problem. Like I can show 544 00:31:35,640 --> 00:31:38,160 Speaker 1: you statistically, this is a problem at Bridgeway. By the way, 545 00:31:38,200 --> 00:31:39,959 Speaker 1: it's it's true of the index or still you can 546 00:31:40,000 --> 00:31:43,000 Speaker 1: look at Vanguard's, you know, biggest index fund. They've got 547 00:31:43,000 --> 00:31:46,000 Speaker 1: this problem as well. We've as an industry, we have 548 00:31:46,080 --> 00:31:48,040 Speaker 1: got to work on this and solve it. And I 549 00:31:48,080 --> 00:31:51,600 Speaker 1: think that's the next frontier. We have been speaking with 550 00:31:51,720 --> 00:31:54,960 Speaker 1: John Montgomery. He is the chairman and chief investment Officer 551 00:31:55,200 --> 00:31:59,360 Speaker 1: of Bridgeway Capital Management. If you enjoy this conversation, be 552 00:31:59,400 --> 00:32:02,400 Speaker 1: sure and stick around for the podcast extras, where we 553 00:32:02,400 --> 00:32:06,520 Speaker 1: continue to chat about all things investing. Check out my 554 00:32:06,600 --> 00:32:09,959 Speaker 1: daily column on Bloomberg View dot com. You can follow 555 00:32:09,960 --> 00:32:13,800 Speaker 1: me on Twitter at rid Halts. We love your comments, 556 00:32:14,000 --> 00:32:19,320 Speaker 1: feedback and suggestions. Email us at m IB podcast at 557 00:32:19,400 --> 00:32:22,840 Speaker 1: Bloomberg dot Net. I'm Barry rich Halts. You're listening to 558 00:32:22,920 --> 00:32:40,040 Speaker 1: Masters in Business on Bloomberg Radio. Welcome to the podcast. John. 559 00:32:40,080 --> 00:32:42,520 Speaker 1: Thank you so much for doing this. I really appreciate 560 00:32:43,080 --> 00:32:45,880 Speaker 1: um all of your time. There are so many questions 561 00:32:45,960 --> 00:32:49,240 Speaker 1: we didn't get to Before I get to my favorite 562 00:32:49,760 --> 00:32:53,280 Speaker 1: standard questions, there's a bunch of things I have to 563 00:32:53,320 --> 00:32:56,280 Speaker 1: go back and and ask you about. Course, we blew 564 00:32:56,360 --> 00:33:00,400 Speaker 1: through them so quickly. We talked earlier about the behavior gap. 565 00:33:00,880 --> 00:33:03,480 Speaker 1: I have to ask you a question about that. Now. 566 00:33:03,880 --> 00:33:06,440 Speaker 1: Are you hearing from clients? Are you're getting emails and 567 00:33:06,480 --> 00:33:11,440 Speaker 1: phone calls? Given the supposed nosebleed valuation of the US markets, 568 00:33:11,600 --> 00:33:13,800 Speaker 1: we get questions, but I don't. I don't. I wouldn't 569 00:33:13,800 --> 00:33:18,959 Speaker 1: say it's it's overwhelming in previous that leads to the 570 00:33:19,080 --> 00:33:24,040 Speaker 1: quantitative evidence question. And you've been doing this long enough. 571 00:33:24,520 --> 00:33:28,320 Speaker 1: In previous market peaks, let's call it late oh seven 572 00:33:28,600 --> 00:33:33,760 Speaker 1: or late were you getting the same sorts of inquiries? 573 00:33:33,800 --> 00:33:37,240 Speaker 1: Did you? Was there anything to be learned by client 574 00:33:37,880 --> 00:33:41,920 Speaker 1: expressions of fear or they're usually greedier at the top 575 00:33:42,000 --> 00:33:46,640 Speaker 1: than fearful. Well, the main thing is it's always easy 576 00:33:46,760 --> 00:33:49,920 Speaker 1: to know what the top was after the fact, uh 577 00:33:49,960 --> 00:33:53,000 Speaker 1: in the middle of it. Uh like take us back 578 00:33:53,040 --> 00:33:59,200 Speaker 1: to remember the period very clearly in I thought, oh, gee, 579 00:33:59,280 --> 00:34:03,280 Speaker 1: this is really really expensive, Like we're really getting outside 580 00:34:03,320 --> 00:34:07,840 Speaker 1: the sweet spot of how how cheap or reasonable even 581 00:34:08,440 --> 00:34:10,960 Speaker 1: the market is. I don't like that. If I had 582 00:34:11,000 --> 00:34:13,680 Speaker 1: acted on that inside, and I wasn't wrong along with 583 00:34:13,760 --> 00:34:16,319 Speaker 1: other people, I wasn't wrong on that. Had I done that, 584 00:34:16,360 --> 00:34:17,960 Speaker 1: we would have missed one of the best years in 585 00:34:17,960 --> 00:34:21,680 Speaker 1: the stock market the following year. Absolutely, just because things 586 00:34:21,680 --> 00:34:24,680 Speaker 1: are expensive doesn't mean that they won't get more expensive 587 00:34:24,760 --> 00:34:27,640 Speaker 1: and that you should hold through that period. I remember 588 00:34:27,719 --> 00:34:32,560 Speaker 1: in nineties was when Louis Rukaser's elves first kind of 589 00:34:32,600 --> 00:34:38,120 Speaker 1: turn barished because they I remember the phrase the market 590 00:34:38,200 --> 00:34:42,359 Speaker 1: is now fully valued, as if that is significant, Like 591 00:34:42,440 --> 00:34:45,920 Speaker 1: markets go to fair value and then stop and that 592 00:34:45,920 --> 00:34:48,600 Speaker 1: that doesn't seem to happen. Sometimes they do, and at 593 00:34:48,600 --> 00:34:50,759 Speaker 1: some point they will. You just don't know when it's 594 00:34:50,760 --> 00:34:53,840 Speaker 1: gonna be so on your firm brochure, there's a line 595 00:34:54,120 --> 00:34:57,239 Speaker 1: um that I have to ask you about putting investors 596 00:34:57,280 --> 00:35:00,400 Speaker 1: long term interest first is a whole mo of our 597 00:35:00,440 --> 00:35:03,719 Speaker 1: firm's unique culture. Tell us what that means, what is 598 00:35:03,760 --> 00:35:07,160 Speaker 1: putting investors first mean it means sometimes you can make 599 00:35:07,160 --> 00:35:10,600 Speaker 1: more money for yourself and you shouldn't say that. Again 600 00:35:10,760 --> 00:35:13,640 Speaker 1: sometimetimes you can make more of money for yourself than 601 00:35:13,680 --> 00:35:16,600 Speaker 1: your client, and you shouldn't because we have a fiduciary 602 00:35:16,680 --> 00:35:19,400 Speaker 1: duty that should come first. That's what fiduciary duty is. 603 00:35:19,640 --> 00:35:22,320 Speaker 1: And by the way, that this is the financial services industry, 604 00:35:22,360 --> 00:35:26,160 Speaker 1: like some of this is law built into the forty Act, right, However, 605 00:35:26,200 --> 00:35:28,520 Speaker 1: it's true of any industry like this should always be 606 00:35:28,560 --> 00:35:31,120 Speaker 1: the case. I have a friend that says business is 607 00:35:31,160 --> 00:35:34,080 Speaker 1: a platform for community and service. That's a good way 608 00:35:34,120 --> 00:35:36,640 Speaker 1: to think about capitalism and what we're trying to do. 609 00:35:37,239 --> 00:35:40,080 Speaker 1: Putting our customer first should be how we wake up 610 00:35:40,080 --> 00:35:42,879 Speaker 1: in the morning, like that's that's what they pay us 611 00:35:42,920 --> 00:35:46,200 Speaker 1: to do, and it's and it's a beautiful thing to 612 00:35:46,239 --> 00:35:48,520 Speaker 1: be able to do that and to create wealth and 613 00:35:48,800 --> 00:35:53,280 Speaker 1: opportunities and employment and services and goods that people value 614 00:35:53,280 --> 00:35:58,160 Speaker 1: and need and want. So two and with gated withdrawals, 615 00:35:58,480 --> 00:36:01,360 Speaker 1: not a big fan, not a big and uh soft 616 00:36:01,440 --> 00:36:04,040 Speaker 1: dollars would be you know the an example from day 617 00:36:04,040 --> 00:36:06,719 Speaker 1: one where you know, in the early days of Bridgeway, 618 00:36:06,880 --> 00:36:10,200 Speaker 1: we could have paid for our Bloomberg terminals with soft 619 00:36:10,239 --> 00:36:13,120 Speaker 1: dollars and you know, like that would have flowed straight 620 00:36:13,120 --> 00:36:15,120 Speaker 1: through to our blind Frankly, it was a big deal, 621 00:36:15,440 --> 00:36:17,319 Speaker 1: and we just said, no, it's not the right thing 622 00:36:17,360 --> 00:36:20,319 Speaker 1: to do because this is really our customers money. It's 623 00:36:20,440 --> 00:36:22,959 Speaker 1: it's it's their money, and it's a it's a poor 624 00:36:23,040 --> 00:36:26,239 Speaker 1: structure that leads to poor decisions. We just don't think 625 00:36:26,280 --> 00:36:28,160 Speaker 1: we should have anything to do with it. That was 626 00:36:28,200 --> 00:36:31,680 Speaker 1: twenty five years ago. We've never paid uh soft dollar 627 00:36:31,719 --> 00:36:34,360 Speaker 1: commissions for research and terminals and the other things that 628 00:36:34,480 --> 00:36:37,640 Speaker 1: you can do. So let's talk about your annual report. 629 00:36:37,680 --> 00:36:40,960 Speaker 1: I've been reading Warren Buffett's most recent annual report and 630 00:36:41,040 --> 00:36:44,520 Speaker 1: some of the ones from the two thousands. You've been 631 00:36:44,600 --> 00:36:48,400 Speaker 1: doing an annual report for quite a while. Tell me 632 00:36:48,480 --> 00:36:52,920 Speaker 1: about quote the worst thing of the fiscal year. What 633 00:36:53,120 --> 00:36:57,840 Speaker 1: is that? Well, you know, I like to think that 634 00:36:57,880 --> 00:37:02,680 Speaker 1: we listened to our our investors um and I had 635 00:37:02,719 --> 00:37:06,200 Speaker 1: an investor conversation that wins something like this, you know, like, 636 00:37:06,400 --> 00:37:08,960 Speaker 1: so I'm the like this in the forty Act fun 637 00:37:09,080 --> 00:37:13,400 Speaker 1: I'm I'm the shareholder, I'm the customer, and you're the 638 00:37:13,480 --> 00:37:18,080 Speaker 1: manager and you work for me, and I think that 639 00:37:18,160 --> 00:37:20,160 Speaker 1: I have the right to know like the bad stuff 640 00:37:20,360 --> 00:37:23,200 Speaker 1: like most you know, here's the shareholder letter, all this 641 00:37:23,280 --> 00:37:27,120 Speaker 1: great stuff we did and look at this and yes, 642 00:37:27,320 --> 00:37:29,880 Speaker 1: and he said, spare me the accolades. Tell me what 643 00:37:29,960 --> 00:37:33,000 Speaker 1: you guys messed up. I just I like, think about it. 644 00:37:33,040 --> 00:37:35,640 Speaker 1: You have a boss. Your boss wants to know the 645 00:37:35,680 --> 00:37:37,960 Speaker 1: stuff that's good, but also the stuff that's bad. I 646 00:37:38,000 --> 00:37:41,160 Speaker 1: just couldn't get around that logic. And I thought, you know, 647 00:37:41,280 --> 00:37:43,160 Speaker 1: there's just gotta be some way to do. So we 648 00:37:43,560 --> 00:37:47,040 Speaker 1: brainstorm that this was probably coming up on twenty years. 649 00:37:47,120 --> 00:37:49,239 Speaker 1: It wasn't the very beginning bridgeway, but it wasn't too 650 00:37:49,239 --> 00:37:51,840 Speaker 1: long after that, and we thought, well, we're just gonna 651 00:37:51,840 --> 00:37:54,040 Speaker 1: put in our annual report the worst thing that happened 652 00:37:54,040 --> 00:37:56,520 Speaker 1: in the year. We'll just you know, own up to it. 653 00:37:56,920 --> 00:38:00,440 Speaker 1: Our law this by this drives lawyer's nuts. It's like 654 00:38:01,040 --> 00:38:04,560 Speaker 1: admitting a liability. It's like you're putting on a silver 655 00:38:04,680 --> 00:38:07,200 Speaker 1: platter stuff for people to see you everything. But built 656 00:38:07,239 --> 00:38:10,880 Speaker 1: into that is otherwise is the implication that we're flawless. 657 00:38:11,000 --> 00:38:13,480 Speaker 1: We never made any mistakes. It's not only that, but 658 00:38:13,600 --> 00:38:16,160 Speaker 1: you can't learn from the mistakes if you don't get 659 00:38:16,200 --> 00:38:18,120 Speaker 1: them out in the open and on the table. That's 660 00:38:18,120 --> 00:38:21,160 Speaker 1: the bottom line, and we are absolutely committed to learning 661 00:38:21,160 --> 00:38:23,640 Speaker 1: from mistakes. We have this ball called the Mistakes Ball 662 00:38:23,680 --> 00:38:26,000 Speaker 1: that we passed to the newest partner coming into Bridgeway. 663 00:38:26,040 --> 00:38:28,359 Speaker 1: So whoever is the latest one has got it. And 664 00:38:28,400 --> 00:38:30,799 Speaker 1: it's on the ball it says it's a baseball, and 665 00:38:30,840 --> 00:38:33,719 Speaker 1: on the ball it says mistakes are the jewels. We 666 00:38:33,800 --> 00:38:36,680 Speaker 1: expect new people coming in and by the way, old 667 00:38:36,719 --> 00:38:38,919 Speaker 1: people that have been there at Bridgeway for some time 668 00:38:38,960 --> 00:38:41,960 Speaker 1: to make mistakes. If you're not making some mistakes, then 669 00:38:42,560 --> 00:38:44,640 Speaker 1: then you're not going to achieve the mission that we've 670 00:38:44,640 --> 00:38:48,320 Speaker 1: got in the world. That that's that's fascinating. Not to 671 00:38:48,440 --> 00:38:53,719 Speaker 1: confuse Bridgeway with Bridgewater. Yes, many years ago I had 672 00:38:53,800 --> 00:38:57,520 Speaker 1: read something that Dalhio had written, so actually I had 673 00:38:57,840 --> 00:39:02,120 Speaker 1: I was complaining about things in in the media. I 674 00:39:02,160 --> 00:39:05,839 Speaker 1: won't mention the outlet that were just wrong, and they 675 00:39:05,840 --> 00:39:08,400 Speaker 1: were consistently wrong, and every time I brought it to 676 00:39:08,440 --> 00:39:14,319 Speaker 1: their attention, they refuse to acknowledge. It very simply had 677 00:39:14,360 --> 00:39:19,480 Speaker 1: to do with um annual home monthly home sales. And 678 00:39:19,520 --> 00:39:23,000 Speaker 1: there's a pattern very clearly the due to weather or 679 00:39:23,000 --> 00:39:25,440 Speaker 1: whatever home sales start out pretty weak in the beginning 680 00:39:25,440 --> 00:39:28,040 Speaker 1: of the year, they start to the spring is where 681 00:39:28,040 --> 00:39:31,720 Speaker 1: it kicks up. And every year April is better than March, 682 00:39:31,840 --> 00:39:34,279 Speaker 1: June is better than April, August is better, you know, 683 00:39:34,320 --> 00:39:37,319 Speaker 1: peaks around July August, and then it fades and and 684 00:39:37,600 --> 00:39:40,759 Speaker 1: people were saying, oh, look, you can't look at it 685 00:39:40,880 --> 00:39:42,480 Speaker 1: month a month. You have to look at it July 686 00:39:43,040 --> 00:39:46,200 Speaker 1: oh nine to July eight, not oh, look, July is 687 00:39:46,239 --> 00:39:48,279 Speaker 1: better than June. And I couldn't get these people to 688 00:39:48,360 --> 00:39:52,040 Speaker 1: understand the math. And I was whining about it, and 689 00:39:52,040 --> 00:39:55,360 Speaker 1: and somebody emailed me and said, well, it's it's good 690 00:39:55,400 --> 00:39:58,719 Speaker 1: that you're bringing these errors to their attention. What are 691 00:39:58,719 --> 00:40:02,160 Speaker 1: you doing about your own mistakes? And I said, that's 692 00:40:02,200 --> 00:40:06,600 Speaker 1: a fair criticism. And every year I started publishing my 693 00:40:06,640 --> 00:40:10,720 Speaker 1: own mea culpers Here's what I got wrong, and here's 694 00:40:10,719 --> 00:40:12,560 Speaker 1: what I learned from it. What the person had sent 695 00:40:12,640 --> 00:40:15,920 Speaker 1: me was something that Dahlio had written about, which was 696 00:40:15,960 --> 00:40:19,800 Speaker 1: exactly what you just described, which is you have to 697 00:40:19,920 --> 00:40:23,480 Speaker 1: make mistakes and learn from them, otherwise you never improve. 698 00:40:23,560 --> 00:40:26,280 Speaker 1: We're all going to make mistakes, it's a given, yes, 699 00:40:26,520 --> 00:40:29,759 Speaker 1: But the lawyers give you grief about it. Well, not 700 00:40:30,280 --> 00:40:33,120 Speaker 1: in in fairness like our lawyers are at the the 701 00:40:33,200 --> 00:40:36,200 Speaker 1: high end, Like we're still doing it like without a conversation. Uh, 702 00:40:36,239 --> 00:40:40,279 Speaker 1: we're doing it. Um. But this is also human nature. 703 00:40:40,280 --> 00:40:43,000 Speaker 1: It's not just lawyers. I'm putting them on the hotspot. Uh. 704 00:40:43,040 --> 00:40:46,560 Speaker 1: There we all you know, we all tend towards being 705 00:40:46,600 --> 00:40:50,640 Speaker 1: defensive and like it hurts, so you walk away from 706 00:40:50,880 --> 00:40:53,200 Speaker 1: you know, the stuff that hurts. But if you want 707 00:40:53,239 --> 00:40:56,319 Speaker 1: to improve and grow and be really great, and I'm 708 00:40:56,360 --> 00:41:00,320 Speaker 1: an engineer, so I think of continual small improvements, Um, 709 00:41:00,440 --> 00:41:03,520 Speaker 1: then you've got that's that's like, that's your fadder. That's 710 00:41:03,520 --> 00:41:06,680 Speaker 1: where you can really learn from and grow. There's there's 711 00:41:06,680 --> 00:41:08,440 Speaker 1: one other principle that relates to this I just want 712 00:41:08,440 --> 00:41:10,880 Speaker 1: to mention, and that's diversity. So we all know you 713 00:41:10,880 --> 00:41:12,719 Speaker 1: don't want to hire a bunch of yes people, right, 714 00:41:13,960 --> 00:41:18,279 Speaker 1: but there's tremendous psychological pressure to hire people that look 715 00:41:18,680 --> 00:41:21,359 Speaker 1: and and feel and think just like you. And there's 716 00:41:21,400 --> 00:41:23,400 Speaker 1: all this you know with the media, there's all this 717 00:41:23,640 --> 00:41:27,080 Speaker 1: research and and and people are thinking about it with 718 00:41:27,080 --> 00:41:30,799 Speaker 1: with respective news stuff. That's what it's who you know, 719 00:41:30,880 --> 00:41:32,880 Speaker 1: and it's also who you feel most comfortable with. If 720 00:41:32,920 --> 00:41:35,920 Speaker 1: you're in finance, you want to associate with your people, 721 00:41:36,160 --> 00:41:38,360 Speaker 1: your stuff, with people whom you trust. Who do you trust? 722 00:41:38,800 --> 00:41:41,680 Speaker 1: Trust people that look just like you. That is a 723 00:41:41,719 --> 00:41:46,040 Speaker 1: formula for disaster. So under our servant Leadership program at Bridgeway, 724 00:41:46,280 --> 00:41:48,040 Speaker 1: part of what we're trying to do is hire people 725 00:41:48,280 --> 00:41:52,040 Speaker 1: intentionally that don't agree with us, people who have a 726 00:41:52,080 --> 00:41:54,960 Speaker 1: different view into things. The cool thing about that is, 727 00:41:55,160 --> 00:41:58,040 Speaker 1: like this is, you know, diversity of ideas and frame. 728 00:41:58,239 --> 00:42:01,680 Speaker 1: If you look at the what people look towards as 729 00:42:01,719 --> 00:42:07,000 Speaker 1: the physical diversity around gender, um, rays um, you know, 730 00:42:07,080 --> 00:42:09,759 Speaker 1: skin color, We've got more diversity there as well at 731 00:42:09,760 --> 00:42:12,720 Speaker 1: Bridgeway than the vast majority of our competitors. I'm proud 732 00:42:12,719 --> 00:42:14,680 Speaker 1: of that. It's not something we set out to do. 733 00:42:15,239 --> 00:42:19,520 Speaker 1: On my team of eight people at Bridgeway, I'm the 734 00:42:19,600 --> 00:42:25,600 Speaker 1: only uh male WASP on the team. And again there's 735 00:42:25,760 --> 00:42:28,640 Speaker 1: there's no rule that you know that that has to 736 00:42:28,680 --> 00:42:30,880 Speaker 1: be case. We're not you know, we don't have quotas 737 00:42:30,920 --> 00:42:32,920 Speaker 1: or anything like that, but we're looking for diversity of 738 00:42:33,000 --> 00:42:35,920 Speaker 1: viewpoint and opinion and people that don't agree with us. 739 00:42:36,360 --> 00:42:38,640 Speaker 1: And and I have some people just like do you 740 00:42:38,640 --> 00:42:41,080 Speaker 1: know that this other team member doesn't agree with you 741 00:42:41,120 --> 00:42:43,040 Speaker 1: on X Y is you know, like yes, and that's 742 00:42:43,080 --> 00:42:46,360 Speaker 1: a good thing. That's what. That's how you have different 743 00:42:46,400 --> 00:42:49,439 Speaker 1: ideas and helps you, uh get out of your own 744 00:42:49,480 --> 00:42:52,680 Speaker 1: silo and and moves you forward. Tell us about the 745 00:42:52,800 --> 00:42:59,960 Speaker 1: Jam accountability group. Okay, So, um, I have an amazing 746 00:43:00,200 --> 00:43:02,759 Speaker 1: support network in my life in general. So you can 747 00:43:02,800 --> 00:43:05,319 Speaker 1: start with my ninety four year old mom. I'm her 748 00:43:05,360 --> 00:43:09,719 Speaker 1: baby still at you know, age sixty one. Um, friends, Uh, 749 00:43:12,000 --> 00:43:14,360 Speaker 1: that is that is Uh, you have to work on 750 00:43:14,400 --> 00:43:16,840 Speaker 1: that because my father's my father passed away at nearly 751 00:43:16,880 --> 00:43:19,280 Speaker 1: my age. So you know, I try and lean towards 752 00:43:19,320 --> 00:43:23,479 Speaker 1: really taking care of myself. Um. But part of part 753 00:43:23,480 --> 00:43:26,360 Speaker 1: of a great support network for me over the last 754 00:43:26,520 --> 00:43:30,239 Speaker 1: eighteen years has been a group called Firewood. Uh. And 755 00:43:30,280 --> 00:43:33,319 Speaker 1: it's an accountability group. And and it started when a 756 00:43:33,360 --> 00:43:36,160 Speaker 1: friend of mine called me up and said, so I 757 00:43:36,200 --> 00:43:39,000 Speaker 1: want you to be on my board. And like, Charlie, 758 00:43:39,000 --> 00:43:40,960 Speaker 1: what board are you talking about? Like he worked for 759 00:43:41,000 --> 00:43:42,880 Speaker 1: ex son and he wasn't in a position to invite 760 00:43:42,880 --> 00:43:46,400 Speaker 1: me son at the time. Uh. And he said, well, no, 761 00:43:46,560 --> 00:43:49,040 Speaker 1: the board of directors of my life. And I said, well, 762 00:43:49,080 --> 00:43:51,359 Speaker 1: what's that? What does that look like? So he kind 763 00:43:51,360 --> 00:43:55,360 Speaker 1: of got me into the conversation. Um, if I examined 764 00:43:55,400 --> 00:43:57,760 Speaker 1: my life, I had a lot of areas of support, 765 00:43:58,040 --> 00:44:01,839 Speaker 1: very little accountability. So this group is one that still needs, 766 00:44:01,880 --> 00:44:05,359 Speaker 1: eighteen years later, um about once a month every three 767 00:44:05,440 --> 00:44:09,080 Speaker 1: four weeks, with the specific purpose of holding each other 768 00:44:09,120 --> 00:44:13,879 Speaker 1: accountable to what our life dreams and goals and milestones are. 769 00:44:14,440 --> 00:44:18,160 Speaker 1: So if you take on homework, people will suggest homework. 770 00:44:18,200 --> 00:44:20,600 Speaker 1: If you take that on which we document, you come 771 00:44:20,600 --> 00:44:23,880 Speaker 1: back the next meeting, you you better have done your 772 00:44:23,920 --> 00:44:26,200 Speaker 1: homework or you know, like you're gonna be actually held 773 00:44:26,239 --> 00:44:30,319 Speaker 1: accountable for that. Um. And I think it's just I 774 00:44:30,360 --> 00:44:31,920 Speaker 1: know I need that in my life, bottles. And I 775 00:44:32,080 --> 00:44:34,480 Speaker 1: don't know that everybody needs that. I think probably to do, 776 00:44:34,600 --> 00:44:36,560 Speaker 1: but I know that I need it in my life 777 00:44:36,560 --> 00:44:38,560 Speaker 1: to stay on track or I just I'm gonna get 778 00:44:38,560 --> 00:44:40,920 Speaker 1: off track or procrastinator, all the kinds of things that 779 00:44:41,000 --> 00:44:45,160 Speaker 1: come up that that's really fascinating. And and before I 780 00:44:45,200 --> 00:44:49,200 Speaker 1: get to my standard questions, I have two last things 781 00:44:49,280 --> 00:44:52,799 Speaker 1: I have to ask you about. One is how you 782 00:44:52,840 --> 00:44:57,200 Speaker 1: track your time, and the second is your trip to Africa. 783 00:44:57,360 --> 00:45:00,359 Speaker 1: So I'll let you pick, okay, whichever one you want. Well, 784 00:45:00,440 --> 00:45:03,279 Speaker 1: Tracking my time is something I do about every year 785 00:45:03,320 --> 00:45:06,440 Speaker 1: and a half uh cycle, just to see am I 786 00:45:06,480 --> 00:45:08,759 Speaker 1: am I spending the resource of my time? How I say? 787 00:45:09,040 --> 00:45:10,920 Speaker 1: Does it line up with my life goals? And when 788 00:45:10,920 --> 00:45:12,680 Speaker 1: I say it's most important? You can do the same thing, 789 00:45:12,680 --> 00:45:14,160 Speaker 1: by the way, with your check book if you you 790 00:45:14,200 --> 00:45:16,000 Speaker 1: know you want to, you want a litmus test of 791 00:45:16,120 --> 00:45:18,719 Speaker 1: are you actually living the life that you intend to? 792 00:45:18,840 --> 00:45:21,279 Speaker 1: And say you are? Those are two views in so 793 00:45:21,560 --> 00:45:23,920 Speaker 1: how I spend my time is is something i'm you know, 794 00:45:23,960 --> 00:45:27,200 Speaker 1: I'm a quant so but but but with my checkbook, 795 00:45:27,600 --> 00:45:29,880 Speaker 1: I could export it to Quicken or am X or 796 00:45:29,880 --> 00:45:32,279 Speaker 1: whatever and it will give me a breakdown. Y, you 797 00:45:32,360 --> 00:45:34,919 Speaker 1: spend this much on t n A and this much 798 00:45:35,000 --> 00:45:37,759 Speaker 1: on you know down the list. How do you physically 799 00:45:37,920 --> 00:45:41,680 Speaker 1: track your time? Yea, I wish they were a mint 800 00:45:41,760 --> 00:45:44,680 Speaker 1: dot com for you know, my time because it's a 801 00:45:44,719 --> 00:45:47,640 Speaker 1: real pain to do. I do it in a spreadsheet 802 00:45:47,719 --> 00:45:50,400 Speaker 1: like it's kind of fifteen. You update that every day 803 00:45:50,520 --> 00:45:53,200 Speaker 1: for for a three month period, so we have quarterly 804 00:45:53,520 --> 00:45:55,640 Speaker 1: for a three month period. Every year and a half 805 00:45:55,760 --> 00:45:58,680 Speaker 1: or so. I do that to get accounting of how 806 00:45:58,719 --> 00:46:00,440 Speaker 1: am I really spending my time and is it in 807 00:46:00,480 --> 00:46:02,480 Speaker 1: line with what I want and what can I learn 808 00:46:02,560 --> 00:46:04,400 Speaker 1: from that? I mean, it's like, what are the takeaway? 809 00:46:04,640 --> 00:46:06,680 Speaker 1: Do you find that? Oh gee, I'm spending a lot 810 00:46:06,680 --> 00:46:08,799 Speaker 1: of time doing this and I didn't realize it. Yes, 811 00:46:09,040 --> 00:46:12,200 Speaker 1: I would imagine if people actually did that, they would say, 812 00:46:12,280 --> 00:46:15,440 Speaker 1: I watch how much TV? I think it would be shocking. 813 00:46:15,680 --> 00:46:18,840 Speaker 1: I watched very little TV. And that's that's one reason. 814 00:46:19,200 --> 00:46:21,560 Speaker 1: You know, I taped some things, so I watched it 815 00:46:21,640 --> 00:46:24,319 Speaker 1: kind of on my schedule. Did the time tracking lead 816 00:46:24,360 --> 00:46:28,960 Speaker 1: to last TV? It reinforced it very strongly. Yes. And 817 00:46:28,960 --> 00:46:31,600 Speaker 1: then tell us tell us about the trip to Africa. 818 00:46:31,719 --> 00:46:34,239 Speaker 1: So this was in June of this year. Uh and 819 00:46:34,480 --> 00:46:37,000 Speaker 1: a dream we'd had for a while of taking seven 820 00:46:37,160 --> 00:46:41,200 Speaker 1: partners at Bridgeway. So this is out of thirty people, 821 00:46:41,400 --> 00:46:45,160 Speaker 1: we took seven of the members of our firm to 822 00:46:46,120 --> 00:46:52,280 Speaker 1: um Rwanda as a base and then Eastern Congo. Eastern Congo. Well, 823 00:46:52,560 --> 00:46:54,600 Speaker 1: let me back up a little bit. We give half 824 00:46:54,600 --> 00:47:00,000 Speaker 1: of our profits away. The core mission of Bridgeway is peacemaking, reckons, 825 00:47:00,000 --> 00:47:03,319 Speaker 1: afiliation and ending genocide. We have a focus area which 826 00:47:03,360 --> 00:47:06,440 Speaker 1: is sub Sahara Africa are least Our last conflict we 827 00:47:06,600 --> 00:47:10,040 Speaker 1: worked on was um the l r A, the Lord's 828 00:47:10,080 --> 00:47:14,800 Speaker 1: Resistance Army, which you may remember from the Cony video 829 00:47:14,960 --> 00:47:20,200 Speaker 1: and uh everything that came about from that. But this 830 00:47:20,239 --> 00:47:23,280 Speaker 1: was the longest running conflict in Africa, and we engaged 831 00:47:23,520 --> 00:47:25,360 Speaker 1: with partners on the ground in Africa to try and 832 00:47:25,400 --> 00:47:28,440 Speaker 1: reduce the violence there, which we got an independent assessment 833 00:47:28,520 --> 00:47:32,080 Speaker 1: that said, yes, between depending on how you measure it, 834 00:47:32,200 --> 00:47:37,280 Speaker 1: for six year period, UH, decrease the violence around this conflict. 835 00:47:37,320 --> 00:47:40,080 Speaker 1: So ahead, like you actually can make a difference, move 836 00:47:40,080 --> 00:47:43,520 Speaker 1: the needle on this stuff. Um. We're in Congo on 837 00:47:43,600 --> 00:47:48,000 Speaker 1: this last trip to just bring partners in to see 838 00:47:48,440 --> 00:47:51,600 Speaker 1: you know, the arian kinds of things and potential partners 839 00:47:51,600 --> 00:47:53,920 Speaker 1: were working with. This is the area of the highest 840 00:47:53,920 --> 00:47:56,320 Speaker 1: incidents of rape as a weapon of war in the world. 841 00:47:56,719 --> 00:47:59,160 Speaker 1: So that hits my radar screen. A life goal of 842 00:47:59,200 --> 00:48:02,400 Speaker 1: mine is ending on aside. This is a stepping stone 843 00:48:02,440 --> 00:48:06,359 Speaker 1: toward that, um and UH. And it was sharing that 844 00:48:06,920 --> 00:48:09,960 Speaker 1: Uh that was led not by me but by Shannon Davis, 845 00:48:09,960 --> 00:48:15,800 Speaker 1: are our head of our foundation. Is amazing, amazing, passionate, engaged, creative. 846 00:48:16,000 --> 00:48:20,000 Speaker 1: UM woman who's who's got our mission written all of 847 00:48:20,040 --> 00:48:24,759 Speaker 1: her heart and and and her actions. Wow, that that's 848 00:48:24,800 --> 00:48:30,839 Speaker 1: quite astonishing. Would you would you recommend people visit that 849 00:48:30,960 --> 00:48:33,759 Speaker 1: part of the world? What? What is that? Actually? That 850 00:48:33,840 --> 00:48:38,160 Speaker 1: experience actually like so, um, Rwanda is an easy place 851 00:48:38,200 --> 00:48:41,759 Speaker 1: to go. There's a genocide there, you know, in it's 852 00:48:41,760 --> 00:48:44,200 Speaker 1: been some time. What's happened in that country is inspiring 853 00:48:44,239 --> 00:48:47,520 Speaker 1: and amazing. Uh, So definitely recommend that. I wouldn't go 854 00:48:47,520 --> 00:48:49,839 Speaker 1: into the specific areas that we did unless you were 855 00:48:49,880 --> 00:48:52,040 Speaker 1: with people that really know what they're doing. But the 856 00:48:52,040 --> 00:48:55,000 Speaker 1: inspiration that comes from that, the coming back to the 857 00:48:55,080 --> 00:48:57,520 Speaker 1: US and knowing where you fit into the world is 858 00:48:57,560 --> 00:49:01,200 Speaker 1: worth It's it's just worth its weight in gold. Wow. 859 00:49:01,480 --> 00:49:05,560 Speaker 1: That that that's really um inspiring. Let's uh, let's jump 860 00:49:05,600 --> 00:49:08,560 Speaker 1: to our standard questions that we ask all our guests 861 00:49:08,600 --> 00:49:12,560 Speaker 1: in our last twenty minutes or so. UM, tell me 862 00:49:12,760 --> 00:49:17,320 Speaker 1: something important about your background that most people are unaware of. Okay, 863 00:49:17,360 --> 00:49:21,160 Speaker 1: my father was the president of an oil exploration firm. 864 00:49:21,160 --> 00:49:25,320 Speaker 1: From him, I learned, UH, risk management, because you don't 865 00:49:25,400 --> 00:49:29,279 Speaker 1: survive in the exploration business, especially when he was doing 866 00:49:29,320 --> 00:49:34,840 Speaker 1: it without a real strong controls around risk management. Also, 867 00:49:35,400 --> 00:49:38,200 Speaker 1: integrity is the number one business business value. I learned 868 00:49:38,200 --> 00:49:40,239 Speaker 1: that from him. Uh, And we spend that out in 869 00:49:40,280 --> 00:49:43,080 Speaker 1: a lot of different ways at Bridgeway from my mom. 870 00:49:44,040 --> 00:49:47,120 Speaker 1: My mom was a soldier in the War on Poverty 871 00:49:47,120 --> 00:49:49,279 Speaker 1: in the nineteen sixties. I was a young kid at 872 00:49:49,320 --> 00:49:51,040 Speaker 1: the time, and she kind of like I was her 873 00:49:51,080 --> 00:49:53,080 Speaker 1: fourth child. They were all in school, and she kind 874 00:49:53,080 --> 00:49:54,960 Speaker 1: of put me under her arm and and go out 875 00:49:55,040 --> 00:49:58,799 Speaker 1: doing volunteer work. Um. I remember a daycare center, you 876 00:49:58,800 --> 00:50:02,759 Speaker 1: know that I volunteered with along with her. She did 877 00:50:02,760 --> 00:50:08,280 Speaker 1: a number of things across um, racial, gender, other other 878 00:50:08,440 --> 00:50:12,560 Speaker 1: boundaries lines. So I learned from her, if something's wrong, 879 00:50:12,960 --> 00:50:14,920 Speaker 1: like you don't have to live with it, step across 880 00:50:14,960 --> 00:50:19,680 Speaker 1: that line, makes something happen, makes something happen, move the needle. Um. 881 00:50:19,840 --> 00:50:22,200 Speaker 1: She was a great model, is still at ninety four 882 00:50:22,239 --> 00:50:27,279 Speaker 1: an amazing model of that. Uh. Some early mentors tell 883 00:50:27,360 --> 00:50:30,200 Speaker 1: us about who your early mentors were. I have learned 884 00:50:30,280 --> 00:50:32,640 Speaker 1: something from every boss I've ever worked for. So the 885 00:50:32,719 --> 00:50:35,080 Speaker 1: very first boss I was a paper boy at age eleven. 886 00:50:35,120 --> 00:50:38,520 Speaker 1: But my first boss um was at Baskin Robbins, this 887 00:50:38,600 --> 00:50:42,239 Speaker 1: guy from Argentina who was just a great entrepreneur and 888 00:50:42,320 --> 00:50:45,160 Speaker 1: great with kids. Uh. And and what I learned from 889 00:50:45,239 --> 00:50:48,880 Speaker 1: him was getting the hard stuff on the table and 890 00:50:48,960 --> 00:50:52,239 Speaker 1: dealing with it in a constructive, not oppressive way. That's 891 00:50:52,239 --> 00:50:55,480 Speaker 1: the principle I've used everywhere the rest of my life, 892 00:50:55,520 --> 00:50:58,880 Speaker 1: and I'm thankful for him teaching me that. More recently, 893 00:50:58,920 --> 00:51:01,080 Speaker 1: I would say last night, I was at dinner with 894 00:51:01,200 --> 00:51:04,400 Speaker 1: Ruth Messenger, who is the UM. I'm a big believer 895 00:51:04,480 --> 00:51:09,800 Speaker 1: in mentoring, and she's been a mentor for some time. Uh. 896 00:51:09,800 --> 00:51:12,239 Speaker 1: She's fifteen years older than me, so she's like a 897 00:51:12,320 --> 00:51:15,680 Speaker 1: window into what I need to be paying attention to 898 00:51:15,880 --> 00:51:21,360 Speaker 1: in the decades head very bright, boots on the ground, committed, 899 00:51:22,200 --> 00:51:24,719 Speaker 1: believes things that can can change. And she was the 900 00:51:24,800 --> 00:51:27,560 Speaker 1: last head of the American Jewish World Service. And I've 901 00:51:27,640 --> 00:51:30,320 Speaker 1: loved studying how she does what she does and mixing 902 00:51:30,320 --> 00:51:33,520 Speaker 1: it up with her. So tell us about some investors 903 00:51:33,560 --> 00:51:37,759 Speaker 1: that impacted your approach. Who who's influenced you over the 904 00:51:37,840 --> 00:51:42,160 Speaker 1: years You've you've mentioned Eugene Fama, Yes, who who's affected 905 00:51:42,200 --> 00:51:45,240 Speaker 1: the way you look at at investing? So Eugene family 906 00:51:45,280 --> 00:51:47,720 Speaker 1: would be one. As in terms of a framework for risks. 907 00:51:48,040 --> 00:51:52,560 Speaker 1: Prior to that, Jack Bogel around costs um Um, I 908 00:51:52,640 --> 00:51:55,960 Speaker 1: love managing costs down uh, and he's a great model 909 00:51:56,000 --> 00:51:59,160 Speaker 1: for that. UM. Jeremy Stiegel stocks for the long run, 910 00:51:59,280 --> 00:52:03,080 Speaker 1: so staying in a diversified way uh in stocks as 911 00:52:03,239 --> 00:52:07,040 Speaker 1: as the growth engine over decades, not months and years. 912 00:52:07,680 --> 00:52:12,000 Speaker 1: And then probably um, Daniel Kahneman on the behavioral finance side, 913 00:52:12,000 --> 00:52:14,319 Speaker 1: I'd say he was the you know, one of the 914 00:52:14,320 --> 00:52:18,560 Speaker 1: fathers of behavioral finance. And that opened up my eyes. Um, 915 00:52:18,680 --> 00:52:23,680 Speaker 1: let's talk about books. This is everybody's favorite question. Uh fiction, 916 00:52:23,719 --> 00:52:27,319 Speaker 1: non fiction, classics, recent stuff. Tell us, tell us what 917 00:52:27,400 --> 00:52:30,239 Speaker 1: you're reading and enjoy it. Um. So I'll give you 918 00:52:30,280 --> 00:52:34,800 Speaker 1: three titles. One is the Bible, so great, uh, mapping 919 00:52:34,920 --> 00:52:37,799 Speaker 1: for life in general, but especially finance. There's a lot 920 00:52:37,880 --> 00:52:41,560 Speaker 1: written in the Bible about finance. The thing I mentioned about, 921 00:52:42,120 --> 00:52:45,160 Speaker 1: you know, borrowing, for example, is but that's tying, and 922 00:52:45,280 --> 00:52:50,680 Speaker 1: you're doing five x tie things, so you're over and above. Yeah, 923 00:52:50,680 --> 00:52:52,279 Speaker 1: I've got a friend who says tie thing is a 924 00:52:52,320 --> 00:52:55,719 Speaker 1: bad deal. Uh. Like, if if you're all in, you're 925 00:52:55,719 --> 00:52:58,440 Speaker 1: all in. That's a hundred percent. So whether you're spending it, 926 00:52:58,560 --> 00:53:01,759 Speaker 1: you know, on you know, uh something, you know, going 927 00:53:01,760 --> 00:53:03,759 Speaker 1: out for dinner tonight or not, you still need to 928 00:53:03,760 --> 00:53:05,839 Speaker 1: be all in. So I think that's an interesting way 929 00:53:05,840 --> 00:53:08,040 Speaker 1: of thinking about that issue. And then that's before we 930 00:53:08,080 --> 00:53:11,839 Speaker 1: get to the issue of the debt jubilee where there's 931 00:53:11,920 --> 00:53:14,759 Speaker 1: forgiveness of debt is at every seven seven years. Uh. 932 00:53:14,880 --> 00:53:19,359 Speaker 1: So that that's a fascinating uh. It is topic. It 933 00:53:19,520 --> 00:53:23,280 Speaker 1: is and we should think seriously about that. So maybe 934 00:53:23,400 --> 00:53:26,239 Speaker 1: maybe not literally because I think you know, our large 935 00:53:26,280 --> 00:53:28,560 Speaker 1: banks and small banks too might have a problem with 936 00:53:28,600 --> 00:53:31,680 Speaker 1: that bond hole, but not thinking about what underlies that 937 00:53:31,920 --> 00:53:36,680 Speaker 1: and showing up as generous and not um holding holding 938 00:53:36,719 --> 00:53:40,560 Speaker 1: something over other people in a way that's disempowering it. 939 00:53:40,640 --> 00:53:42,080 Speaker 1: We should spend a lot of time on that, and 940 00:53:42,120 --> 00:53:43,799 Speaker 1: you should do that if you're a bank in my 941 00:53:44,000 --> 00:53:47,479 Speaker 1: in my opinion, two other books titles Daring Greatly, which 942 00:53:47,520 --> 00:53:53,000 Speaker 1: is about shame and guilt. Daring Greatly, Yes, Burnet Brown's 943 00:53:53,360 --> 00:53:57,640 Speaker 1: book based on ten years of her research, which is fascinating, 944 00:53:57,800 --> 00:53:59,880 Speaker 1: like as a research guy at the research itself is 945 00:54:00,040 --> 00:54:03,160 Speaker 1: just fascinating. But the topic is about shame and guilt 946 00:54:03,200 --> 00:54:05,000 Speaker 1: in our culture and what you can do about it. 947 00:54:05,080 --> 00:54:07,719 Speaker 1: And I highly recommend the book. And the last one 948 00:54:07,880 --> 00:54:13,080 Speaker 1: would be, um, uh, The Honest Truth about Dishonesty. So 949 00:54:13,360 --> 00:54:17,319 Speaker 1: this is uh, this is a book that gets into 950 00:54:17,520 --> 00:54:21,120 Speaker 1: anybody that's in science or research should read some chapters 951 00:54:21,160 --> 00:54:23,040 Speaker 1: of this book that deal with that. We all think 952 00:54:23,320 --> 00:54:26,400 Speaker 1: that because we're doing numbers and statistics that were objective. 953 00:54:26,719 --> 00:54:31,000 Speaker 1: This book would say not so much. Your biases come out. 954 00:54:31,040 --> 00:54:33,960 Speaker 1: You're human, like we are just as human, and if 955 00:54:34,000 --> 00:54:36,360 Speaker 1: you think that you don't have that problem, it's going 956 00:54:36,400 --> 00:54:40,480 Speaker 1: to creep in more not less. So as a research team, 957 00:54:40,520 --> 00:54:42,120 Speaker 1: like we live and breathe this stuff is like, how 958 00:54:42,120 --> 00:54:45,880 Speaker 1: do we hold ourselves accountable to not letting our natural 959 00:54:45,960 --> 00:54:48,439 Speaker 1: biases come in? So we have a we have something 960 00:54:48,480 --> 00:54:51,759 Speaker 1: we call confessing our biases. So sometimes we'll come in 961 00:54:51,800 --> 00:54:54,080 Speaker 1: with an insight, but it starts with I need to confess, 962 00:54:54,320 --> 00:54:56,680 Speaker 1: you know, a bias. And it's like I'm a contrarian. 963 00:54:56,800 --> 00:54:59,600 Speaker 1: So like I would come was like, guys, I'm I 964 00:54:59,680 --> 00:55:01,880 Speaker 1: love you know, this is a contrarian situation. Of course 965 00:55:01,920 --> 00:55:03,960 Speaker 1: I'm gonna love it, right, That doesn't mean it's the 966 00:55:04,040 --> 00:55:07,600 Speaker 1: right thing to do. So since you've started managing money 967 00:55:07,640 --> 00:55:13,040 Speaker 1: on a quantitative basis, what has changed? Oh, so we're 968 00:55:13,080 --> 00:55:16,640 Speaker 1: talking about UH, you know, twenty four or thirty years, 969 00:55:16,640 --> 00:55:19,400 Speaker 1: depending on when you want to start counting. Bridgeways UH 970 00:55:19,400 --> 00:55:23,400 Speaker 1: celebrating its twenty fifth anniversary next year. In that time frame, 971 00:55:23,520 --> 00:55:29,120 Speaker 1: certainly UM passive UM and indexing has really taken off. 972 00:55:29,320 --> 00:55:33,400 Speaker 1: That has very significantly reduced costs. That's good, not bad 973 00:55:33,880 --> 00:55:37,799 Speaker 1: UM for investors. More attention to tax efficiency, which I 974 00:55:37,800 --> 00:55:41,600 Speaker 1: think and will continue to grow. Technology. So in this period, 975 00:55:41,680 --> 00:55:45,319 Speaker 1: the Internet came in, which just transformed research and how 976 00:55:45,360 --> 00:55:47,640 Speaker 1: you do it. It's been a really wonderful thing. Robo 977 00:55:47,719 --> 00:55:51,279 Speaker 1: advisors would be, you know, part of the technology part, 978 00:55:51,360 --> 00:55:53,120 Speaker 1: and there's some good things about that. There are also 979 00:55:53,160 --> 00:55:55,400 Speaker 1: some bad things about some of these technology things that 980 00:55:55,520 --> 00:55:57,680 Speaker 1: the top of the list would be if you make 981 00:55:57,680 --> 00:56:00,280 Speaker 1: it easier for somebody to day trade, that's how actually 982 00:56:00,280 --> 00:56:03,080 Speaker 1: a bad thing. I agree. I agree with with Jack 983 00:56:03,160 --> 00:56:05,800 Speaker 1: bogel Um on that point. We should be worried about 984 00:56:05,800 --> 00:56:08,239 Speaker 1: being able to day trade UM E T S and 985 00:56:08,239 --> 00:56:11,640 Speaker 1: the implications of that. So those are some of the 986 00:56:11,719 --> 00:56:15,440 Speaker 1: things that have changed in in my investing. So UM 987 00:56:15,480 --> 00:56:20,800 Speaker 1: along the lines of your annual fiscal disaster or annual 988 00:56:20,840 --> 00:56:24,880 Speaker 1: fiscal confession. Shouldn't say disaster, Uh, tell us about a 989 00:56:24,920 --> 00:56:27,920 Speaker 1: time you failed and what you learned from the experience. 990 00:56:29,400 --> 00:56:33,440 Speaker 1: Oh wow, so UM. You know, we've had a lot 991 00:56:33,480 --> 00:56:39,680 Speaker 1: of different categories. We've had compliance um uh failure at 992 00:56:39,760 --> 00:56:43,239 Speaker 1: least disappointment. Um to the to the tune that we 993 00:56:43,320 --> 00:56:47,320 Speaker 1: said we want to become a top quartile player in compliance, 994 00:56:47,320 --> 00:56:49,799 Speaker 1: and my compliance officer says, John, you can't say that 995 00:56:49,840 --> 00:56:52,640 Speaker 1: because like how do you measure that? And like, you know, 996 00:56:52,719 --> 00:56:55,000 Speaker 1: what's the accountability on that. That's a great point. That's 997 00:56:55,000 --> 00:56:57,719 Speaker 1: an example of somebody coming in with a different view 998 00:56:58,239 --> 00:57:00,000 Speaker 1: um on that. But we knew we had to up 999 00:57:00,040 --> 00:57:03,319 Speaker 1: our game. We spent a lot of resources to make 1000 00:57:03,400 --> 00:57:06,120 Speaker 1: that true. The source of some of that, if I 1001 00:57:06,360 --> 00:57:08,960 Speaker 1: hold a mirror up was I was really cheap in 1002 00:57:08,960 --> 00:57:12,000 Speaker 1: the early years of Bridgeway. Um. I didn't want to 1003 00:57:12,440 --> 00:57:16,040 Speaker 1: I didn't want to outsource anything that I didn't understand myself, 1004 00:57:16,080 --> 00:57:17,640 Speaker 1: and I was new to the industry. So we were 1005 00:57:17,680 --> 00:57:21,720 Speaker 1: on transfer agent, we were on pricing agent. We programmed 1006 00:57:21,720 --> 00:57:24,120 Speaker 1: our own software and stuff that people just don't do. 1007 00:57:24,640 --> 00:57:28,160 Speaker 1: Learned a lot out of that, probably held onto too long, 1008 00:57:28,800 --> 00:57:31,440 Speaker 1: uh low cost in favor of getting more help in 1009 00:57:31,520 --> 00:57:33,640 Speaker 1: so we've changed that. That's be an example that was 1010 00:57:33,720 --> 00:57:36,280 Speaker 1: from you know, the early years of Bridgeway that that's 1011 00:57:36,320 --> 00:57:40,800 Speaker 1: really interesting. So you mentioned um uh physical fitness. What 1012 00:57:40,800 --> 00:57:42,600 Speaker 1: do you do to stay fit? What do you do 1013 00:57:42,720 --> 00:57:47,320 Speaker 1: to stay mentally sharp outside of the office. So I 1014 00:57:47,440 --> 00:57:50,360 Speaker 1: ran four miles with our president this morning in Central Park. 1015 00:57:50,400 --> 00:57:53,760 Speaker 1: I'm visiting New York City today to be here with you, 1016 00:57:53,880 --> 00:57:56,560 Speaker 1: and that's one of my favorite places to run. So 1017 00:57:56,680 --> 00:57:59,360 Speaker 1: a typical week for me would be uh to two 1018 00:57:59,400 --> 00:58:01,600 Speaker 1: days running a short run in the long run. So 1019 00:58:01,640 --> 00:58:04,920 Speaker 1: I ran six miles last Sunday. Uh today, the four 1020 00:58:05,040 --> 00:58:10,160 Speaker 1: mile is the short run. That's that's my short Yeah. Three, 1021 00:58:10,640 --> 00:58:13,960 Speaker 1: keep going. Um. Actually ran my first marathon ever. I 1022 00:58:14,080 --> 00:58:16,800 Speaker 1: only run one last year. UM. That was a life 1023 00:58:16,800 --> 00:58:21,400 Speaker 1: goal that I set at Um. How was the experience? 1024 00:58:21,440 --> 00:58:24,560 Speaker 1: I have to ask, because I'm I always remind people, 1025 00:58:24,640 --> 00:58:27,400 Speaker 1: you know, the first guy who ran a marathon drops. 1026 00:58:27,800 --> 00:58:30,920 Speaker 1: That is true. That is absolutely true. A very different 1027 00:58:30,960 --> 00:58:35,880 Speaker 1: lesson from that than you did well. Training is key, Okay, 1028 00:58:35,960 --> 00:58:40,080 Speaker 1: So excellent training. Um and and and they're I mean 1029 00:58:40,120 --> 00:58:43,160 Speaker 1: they're great life lessons in that too, that to run 1030 00:58:43,160 --> 00:58:45,880 Speaker 1: a marathon successfully and do it well and not hurt yourself. 1031 00:58:46,120 --> 00:58:48,120 Speaker 1: If you can do that, if you have the discipline 1032 00:58:48,120 --> 00:58:51,240 Speaker 1: and you get the right like though, you can apply 1033 00:58:51,360 --> 00:58:55,440 Speaker 1: that to any career. UM. So I like that. Two 1034 00:58:55,520 --> 00:58:58,640 Speaker 1: days a week would be pilates and two weeks, two 1035 00:58:58,680 --> 00:59:02,680 Speaker 1: days a week would be UM weightlifting, and I usually 1036 00:59:02,680 --> 00:59:04,320 Speaker 1: try and mix it up with a swim. So I 1037 00:59:04,360 --> 00:59:06,400 Speaker 1: was going to say, it's always something different. Yeah, Like 1038 00:59:06,440 --> 00:59:10,200 Speaker 1: I like frustrating on that, UM, but I like research 1039 00:59:10,280 --> 00:59:13,120 Speaker 1: and so that's the source of some of that. And 1040 00:59:13,160 --> 00:59:15,680 Speaker 1: now and now our two favorite questions that I ask 1041 00:59:15,760 --> 00:59:20,360 Speaker 1: all our guests. Uh, So millennial or recent college grad 1042 00:59:20,520 --> 00:59:23,960 Speaker 1: comes to you and says, I'm interested in going into 1043 00:59:24,080 --> 00:59:27,400 Speaker 1: quantitative finance as a career, what sort of advice would 1044 00:59:27,400 --> 00:59:35,240 Speaker 1: you give them? Well, Uh, first of all, I'd say, um, 1045 00:59:35,280 --> 00:59:39,840 Speaker 1: it's a great industry, great opportunities. Um, people are shying 1046 00:59:39,880 --> 00:59:42,360 Speaker 1: away from it right now, which means the opportunities are bigger, 1047 00:59:42,720 --> 00:59:46,000 Speaker 1: extreme competition. So those would be those would be the 1048 00:59:46,720 --> 00:59:51,120 Speaker 1: things that I you know, uh, you know, overlay somebody 1049 00:59:51,160 --> 00:59:53,840 Speaker 1: that's thinking about getting in as as far as overall advice. 1050 00:59:53,840 --> 00:59:56,600 Speaker 1: And by the way, in my family of origin, advice 1051 00:59:56,680 --> 00:59:59,400 Speaker 1: is the language of love, like if we're not if 1052 00:59:59,440 --> 01:00:01,320 Speaker 1: you if a fan leamers not giving you advice, like 1053 01:00:01,360 --> 01:00:05,080 Speaker 1: it's something wrong. So I love advice. The bigger picture 1054 01:00:05,160 --> 01:00:09,440 Speaker 1: advice with millennial would be, UM, save aggressively, UM be 1055 01:00:09,600 --> 01:00:13,960 Speaker 1: generous with the results of that UM and have big 1056 01:00:14,000 --> 01:00:18,160 Speaker 1: life goals, pursue them relentlessly within the framework of a 1057 01:00:18,160 --> 01:00:22,360 Speaker 1: balanced life. And our final question, what is it that 1058 01:00:22,400 --> 01:00:26,320 Speaker 1: you know about investing today that you wish you knew 1059 01:00:26,640 --> 01:00:30,560 Speaker 1: thirty years ago? Definitely the behavior gap that we talked about, 1060 01:00:30,840 --> 01:00:33,880 Speaker 1: the cycle of people, you know, chasing hot returns and 1061 01:00:33,920 --> 01:00:37,440 Speaker 1: panicking on the downturn. UM. We're doing a better job 1062 01:00:37,840 --> 01:00:43,840 Speaker 1: with this, slowly, gradually. We have a partnership UM with 1063 01:00:44,600 --> 01:00:47,840 Speaker 1: two strategies with the BAM Alliance. I think they do 1064 01:00:48,000 --> 01:00:51,360 Speaker 1: a superior job of this, and so we're learning from them, 1065 01:00:51,400 --> 01:00:55,240 Speaker 1: but we've got to do a better job. So UM, 1066 01:00:55,280 --> 01:00:57,280 Speaker 1: I wish that I had known the dynamics of that 1067 01:00:57,320 --> 01:01:00,400 Speaker 1: thirty years ago, maybe we'd be farther along with you know, 1068 01:01:00,560 --> 01:01:04,320 Speaker 1: solution UH and a more effective one. We've been speaking 1069 01:01:04,360 --> 01:01:07,920 Speaker 1: with John Montgomery. He is the founder, chairman and chief 1070 01:01:07,960 --> 01:01:13,920 Speaker 1: investment officer at Bridgeway Capital Management. If you enjoy this conversation, 1071 01:01:14,280 --> 01:01:16,840 Speaker 1: look up or down an inch on Apple iTunes and 1072 01:01:16,840 --> 01:01:19,760 Speaker 1: you can see any of the other hundred and fifty 1073 01:01:19,920 --> 01:01:23,640 Speaker 1: or so such conversations that we've had over the previous 1074 01:01:23,680 --> 01:01:28,120 Speaker 1: three years. We appreciate and enjoy your comments, feedback and 1075 01:01:28,200 --> 01:01:34,040 Speaker 1: suggestions right to us at m IB podcast at Bloomberg 1076 01:01:34,120 --> 01:01:37,000 Speaker 1: dot net. I would be remiss if I did not 1077 01:01:37,200 --> 01:01:41,560 Speaker 1: thank my ACE team who helped put this podcast together. 1078 01:01:41,640 --> 01:01:47,280 Speaker 1: Each week, Medina Parwanna is our audio producer and engineer. 1079 01:01:47,960 --> 01:01:51,600 Speaker 1: Taylor Riggs is our booker slash producer. Michael Batnick is 1080 01:01:51,600 --> 01:01:55,240 Speaker 1: our head of research. I've Barry Ridhoults. You're listening to 1081 01:01:55,400 --> 01:02:03,200 Speaker 1: Masters in Business on Bloomberg Radio t T take TAMPED 1082 01:02:03,440 --> 01:02:04,120 Speaker 1: into the