Last week, I was up in Montreal for a keynote presentation to 750 Bank RIAs. Morgan Housel was the keynote the day before (tough act to follow!).

Today, I am speaking with an old friend, Paul Kedrosky, about all things technology on the pod. Paul is a fascinating guy with an interesting background and an unusual set of interests — Science nerd, VC, academic, writer, skier, and among the last of the landed gentry in America. Artificial Intelligence is certain to come up.

During the Q&A in Montreal, I was taken aback by how many questions there were about AI — not the usual “Is it a bubble” line of inquiry, but rather, what are the best use cases? Should AI be used to create content (No!), research (Yes!). There were so many legitimate questions about AI that I decided to dig a little further.

I will definitely be asking Paul about his views, but until then, I had a little chat about how to best use AI with Claude, see what AI itself had to say on the topic of using AI.

Most agentic generated content is pretty bad — it’s great for research, but using AI for any kind of writing, prose, or content creation is a terrible idea. The reason I am sharing Claude’s responses is that A) I found the answers very useful, and, 2) I edited it down to size to make it mostly readable. (I also moved the more pedantic answers to footnotes).

Here is my conversation with Claude about AI, edited for length; (underlining is my emphasis added).

Let’s go:

Barry: Let’s discuss YOU, Claude — What are your best strengths, what are your weaknesses? What do you do really well? What do you do really poorly?  How can I best use your strengths to make my work product better?  What else should I be doing with you to be better?

Claude: Good question to actually sit with rather than give you the brochure version. Let me be specific to the kind of work you do.

Where I’m genuinely strong

Transformation and synthesis. Hand me raw material — a Fidelity CSV, a 90-minute transcript, a stack of Instapaper saves, a messy first draft — and I’m fast and reliable at reshaping it into something structured and usable. Your morning reads digest, the transcript cleanups, the thank-you emails: that’s my sweet spot because the facts already exist and I’m just organizing and formatting them. Low risk, high leverage.

Sparring. I’m useful as an adversary against your own arguments. When you’re assembling something like the divestiture-vs-overtrading piece or a “Liberation Day” scorecard, I can argue the other side hard, find the weak joint in the thesis, surface the objection a sharp reader will raise. Most people underuse me here and use me as a stenographer instead.

First drafts at volume. Interview questions, outreach emails, outlines, and alternate framings. I’m a good 70%-draft machine when you’re the editor.1

Where I’m weak — and these matter for you specifically

I confabulate. This is the big one, given that you publish precisely-sourced work. I will produce a plausible-looking statistic, a clean quote, a specific citation — and it can be wrong while sounding completely authoritative. A DALBAR number, a date, a “Buffett said X.” Treat every figure, quote, and citation I generate as unverified until you’ve checked it or I’ve shown you a real source. When it matters, make me search and cite rather than recall, and have me run actual math in code rather than predicting the answer.

I’m sycophantic by default. I lean toward agreeing with you and telling you your idea is good. For someone who wants honest pushback, that’s a bug. You have to explicitly tell me to be blunt, or I’ll soften. If you ever feel like I’m flattering a draft, I probably am — call it out.

I drift toward generic when you don’t push. Left alone I’ll “average” toward the median answer. The dark editorial aesthetic, your voice, your register — I hold those when you give me the spec, but I don’t reach for them on my own. I over-hedge and over-format unless told otherwise, and on very long documents, I can quietly miss things.

 How to get more out of me

A few concrete shifts. Use me earlier — at the thinking stage, not just execution. Bring me a half-formed thesis and let me poke at it before you’ve committed. Set up reusable instructions for the recurring stuff (morning reads format, transcript speaker conventions, your house style) so you’re not re-specifying every time.

“Red-team” published arguments before they go out: paste the draft and say “find what’s wrong, where will a smart critic attack this.” And separate the two modes explicitly — “draft this” versus “verify this” — because I’m great at the first and need supervision on the second.

The one-line version: use me to transform, structure, and stress-test, and never to be the system of record for a fact. Want me to set up a couple of reusable prompts for your standing workflows?

Barry: Hold off on the reusable prompts layer for now, and stay with this line of discussion. What kind of new capabilities do you have coming online in the near future, and when? What should be thinking about in terms of best using your strengths?

Claude: Straight answer first: I can’t see Anthropic’s internal roadmap, so I won’t hand you a dated list of unreleased features — that’s precisely the confabulation trap I warned you about, and it’d be worse coming from me right after that warning. What I can do is tell you what’s actually shipped in the gap between my training cutoff and today, because a lot of it is directly relevant to you and you may not be using it yet. Some of it reads less like “near future” and more like “already here, you just haven’t turned it on.” 2

Now the honest caveat that should shape how you use all of this. Even the finance-tuned setup scored about 64% on a finance agent benchmark — a failure rate that, as one writer put it, would get a human analyst tossed, and Anthropic’s own framing is that users should stay firmly in the loop, reviewing and approving Claude’s work before it goes to a client or gets filed. So the trajectory isn’t “Claude replaces the verification step.” It’s “Claude does more of the assembly, and your judgment becomes the scarce, valuable input.” 3

The work that gets more valuable is the editorial judgment, the thesis, the voice, and the fact-checking — the parts that are distinctly Barry Ritholtz and can’t be benchmarked.

So rather than chasing each feature, I’d position for the trend: get the recurring workflows specified tightly enough that they survive being handed to a more autonomous agent, and keep your hand firmly on the verification gate. The tooling will keep getting better at the first half on its own.

Barry: OK, final question – this one is about Co-Work and Code:

I had you [Perplexity] create an interactive Drake Equation dashboard – it was very cool, but it did not rely on changing data.  I tried some other dashboard ideas, ran test runs; it was not quite ready for prime time.

What can you create that auto-updates based on (weekly, monthly, quarterly) economic and (daily, weekly, monthly) market data?

I want to create economic & market dashboards that show various data series at a glance; that get updated automatically; I want to embed it onto WordPress so anyone [with that link] can see it; and I want to set specific indicators that create alerts based on specific (non-public) parameters that I set…

Claude: This is the right question, and the answer explains why your Drake dashboard and the other test runs felt stuck. It wasn’t a polish problem — it was structural. An artifact (the thing I generate in chat) is a self-contained front-end: no backend, no scheduler, no safe place to store an API key, and only a flaky ability to call outside data sources from the browser. So it can look great but it has nothing feeding it and nothing waking it up to refresh.

What you’re describing isn’t a fancier artifact; it’s a small data pipeline plus a hosted page. The good news is that Claude Code and Cowork are built to create exactly that — the artifact was just the wrong container.

Here’s the architecture that does everything on your list, and the one design decision that matters most for you.

Split it into two halves: a public dashboard and a private alert engine — fed by the same pipeline.

The pipeline is a scheduled job that runs on a cron (say, every weekday after market close, plus a monthly run for the slow economic series). Each run it pulls fresh data, computes your indicators, writes out a small JSON (JavaScript Object Notation) snapshot, and checks your alert thresholds.

The key move: your non-public parameters live inside this job, server-side, where no one can see them. The public dashboard never contains your thresholds — it just reads the pre-computed JSON snapshot and draws charts. So anyone embedding or viewing the WordPress page sees the data at a glance, while your alert logic and secret levels stay completely private and fire only to you. That separation is the thing most people get wrong: if the thresholds were in the front-end, “view source” would expose them instantly.

Mapping that to your four requirements:

Auto-updating comes from the cron, not the page. Economic series (CPI, unemployment, yield curve, etc.) refresh on their own monthly/quarterly cadence; market series refresh daily. The dashboard is fast because the heavy lifting already happened — it just loads a baked JSON.

Data sources. FRED (the St. Louis Fed’s API) is the gold standard for economic series — free, deep, and importantly, redistributable, which matters since you’re publishing publicly. Market data is the part to be careful with: free daily-close sources exist, but real-time exchange data carries licensing restrictions on public redistribution. For a public embed I’d stick to daily closes and clearly-licensed series; that sidesteps a headache you don’t want as a registered firm. (Worth having Code verify the current terms of whatever market provider you pick, rather than trusting my recall on free-tier limits.)

WordPress embed is the easy part: the dashboard gets hosted as a static page somewhere, and you drop an iframe (or Custom HTML block) on your WordPress page pointing at it. It renders for everyone, and it updates whenever the cron republishes the JSON — you never touch WordPress again.

Alerts fire from the scheduled job to wherever you want them — email, SMS, a Slack/Discord webhook. Your parameters stay in the job’s secret config.

The honest part about what I can and can’t do. Code can write all of this: the fetch scripts, your indicator math, the alert engine, the cron configuration, and the front-end charts — and test it in its sandbox. What it can’t do is be the server that runs forever. The scheduled job has to live somewhere. For your situation the cleanest path that requires no server to babysit is: a GitHub repo + GitHub Actions (free cron) running the pipeline, the JSON snapshot published to a free static host (GitHub Pages or Cloudflare Pages), API keys stored as encrypted Actions secrets, and alerts sent via an email/webhook service. You own three things — the data-provider accounts, where it’s hosted, and the secret thresholds — and Code builds and wires up everything else.

That’s a real, finishable project, not a someday thing. A sensible first build is a working vertical slice: pick three or four FRED series and one market series, stand up the pipeline + one chart + one alert end to end, confirm it refreshes and embeds, then expand the series list and indicators once the plumbing is proven.

One decision drives the stack: do you want to run this entirely on free hosted infrastructure you basically never log into (the GitHub Actions + Pages route above), or do you already have a server / Vercel / Cloudflare setup you’d rather use? Tell me which, and I’ll have Code scaffold the slice — pipeline, chart, alert, and the WordPress iframe snippet — so you can see it update on its own before we build it out.

`

Footnotes:

1. Claude: Quantitative scaffolding and building things. The interactive React viz work — variance drain, the Marks paradox — plays to a real strength: I can turn a concept into a working, calibrated visual artifact in one pass.

2. Claude: “The other shift worth knowing: the current model, Opus 4.8, was tuned in a direction that’s relevant to my biggest weakness for you. Anthropic says early testers report it’s more likely to flag uncertainties about its work and less likely to make unsupported claims, and it added user control over how much effort Claude puts into a task. That doesn’t eliminate confabulation, but it’s moving the right way — and the effort control is useful when you want a fast reformat versus a careful analysis.”

3. Claude: “That’s the real answer to “what should I be thinking about.” The direction of travel is clearly toward agentic, tool-connected work that lives inside the apps you already use and runs longer chains autonomously. What that rewards is unglamorous and durable: clean, well-organized inputs; your house conventions written down once so any agent applies them consistently; and a verification discipline you trust. The work that gets automated is the assembly and formatting you’re already handing me.”

The post Claude: What Are You Good At? appeared first on The Big Picture.

In this ‘hybrid’ video-based article, Michael Kitces and John Bowen, CEO and founder of CEG Worldwide and CEG Insights (formerly Spectrem Group), map out the four stages that entrepreneurs pass through as they grow and scale their business – and the new kinds of knowledge expertise that advisors need to develop to best help their business owner clients overcome obstacles along the way.

The first stage (Foundation for Freedom), centers on moving from scarcity to structure. At this point, owners are building stability, generating income, and coordinating basic financial infrastructure. This is where most traditional advisory services fit comfortably, including investment management, retirement plans, tax coordination, and basic succession discussions.

The second stage (Energy for Expansion), begins when entrepreneurs start converting their expertise into scalable intellectual property. Instead of relying entirely on personal effort, they begin building systems, processes, training, and thought leadership that can grow independently of the founder’s direct involvement. However, many businesses become trapped by "founder dependency," where the owner remains indispensable to operations and growth, which creates both valuation limitations and operational bottlenecks. In these stages, advisors are largely focused on collaborative and coordinating services – such as ensuring CPAs, attorneys, and other specialist all work together to help the business owner achieve their goals, connecting the business owner to IP attorneys to understand how to turn their experiential knowledge into valuable intellectual property, and perhaps even some coaching nudges to the business owner themselves about how to evolve the business to be less dependent on them as a path to expanding enterprise value.

If entrepreneurs can mold a business to run independently of themselves, then they enter the scaling-focused stages. The third stage (Collaboration and Multiplication), is where business evolve into self-managing teams that can make complex decisions independent of the owner. From the advisor perspective, expertise needs shift significantly at this stage, as the business owner focuses more on how to ensure good governance of a business they may be less involved with day-to-day, the implications of sharing equity across key leaders in the business (as it dilutes the business owner’s own stake), and beginning to position the business for an eventual exit and liquidity event.

Finally, at the most mature fourth stage (Exponential Impact), entrepreneurs move beyond wealth accumulation toward significance and long-term influence. With their financial security firmly established and financial goals broadly achieved, the focus shifts toward family governance, strategic philanthropy, next-generation development, and perhaps how to create meaningful impact during their lifetime (rather than simply leaving a legacy after death). Many ultra-high-net-worth entrepreneurs are less concerned with maximizing investment returns (growth for what purpose at that point?) and more focused on defining purpose, stewarding family relationships, and aligning capital with personal values. This is where advisors increasingly function as strategic coordinators and personal CFOs, helping clients integrate financial, family, business, and philanthropic decisions into a coherent vision for the future.

The broader implication for advisors is that serving affluent entrepreneurs effectively requires a shift away from traditional expertise of investments, insurance, and retirement planning, into a more integrated advisory role that delves into valuable "non-traditional" advice domains from how to really boost enterprise value, to governance of their wealth and managing their equity cap table, and ultimately how to better align their wealth with their values and legacy (when all their other goals have been satisfied), while increasingly serving as orchestrators of expertise amongst increasingly specialized legal and tax experts.

Ultimately, there is a wealth of opportunities for advisors who work with business owners, particularly those who can emphasize their role as a thought partner, coach, and coordinator, by developing the unique expertise capabilities that successful entrepreneurs need. Especially for financial advisors who want to work with business owners of larger enterprises, where "traditional" financial planning expertise becomes less relevant, and the truly unique planning needs of business owners arise!

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On this special bonus episode — as Jalen Brunson and the New York Knicks take on Victory Wembanyama and the San Antonio Spurs in the NBA Finals — I speak with Joe McLean, managing partner of sports & entertainment at MAI Capital Management.

Known in NBA circles as being the “money whisperer”, Joe discusses how he pivoted from a playing career to managing money for high-profile celebrities and professional athletes.

A transcript of our conversation is available below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Masters in Business
Barry Ritholtz interviews Joe McLean, Managing Partner, MAI Capital Management  ·  Bloomberg Radio

00:00:16  Barry Ritholtz: This week on the podcast — what a fascinating conversation. Joe McLean, managing partner at MAI Capital, began his career as a professional and college basketball player before effectively becoming the money whisperer to pro athletes. He works with pretty much all major athletes across every sport: basketball, football, hockey, baseball, golf, NASCAR, you name it. Obviously, the average person listening to this doesn’t have a hundred-million-dollar contract, but a lot of the ideas, a lot of the rules, a lot of the ways of thinking about money with college athletes and professional athletes are surprisingly applicable to the average investor. The idea of saving a substantial percentage of your income in your first bucket — and once that’s covered, moving to a second bit of saving that you’re going to be able to live off in the future, that’s your growth and investing bucket — before you fund the entrepreneurial types of investment. I thought this conversation was fascinating, and I think you will too. With no further ado, my interview with MAI Capital’s Joe McLean. I’ve been looking forward to this for a while. I’ve got to start with your undergraduate years — four years at Arizona, Division One ball. What was the original career plan?

00:01:59  Joe McLean: A hundred percent to play professional basketball. From the time I was eight years old — Michael Jordan, Larry Bird posters on the wall. I remember when the ball was put in my hand. That’s all I wanted to do. I was super blessed. I grew up in Pittsburgh, Pennsylvania, and then my dad — T. Boone Pickens, in ’84, ’85 — he worked for Gulf Oil, and we either had to move to Houston or the San Francisco Bay Area. We chose the Bay Area, and it became Chevron. And I met a point guard named Jason Kidd, who was my high school point guard. So I was kind of blessed to be put in that position — the whole world would come watch him play. And I got seen by all the right people. My mom was the one who decided which college I was going to go to, because during the recruiting visit, Lute Olson and his wife, Bobbi, showed up, and my mom really connected with her. And she said, “That’s who you’re going to go play for. I want you to be in that environment.”

00:02:54  Barry Ritholtz: So we’ll get to Lute in a minute. Did you have height in high school? When did you shoot up?

00:03:00  Joe McLean: I did. I was always 6’3″, 6’4″, and then grew another two inches in college. But — full disclosure — I peaked around 19. I remember, I’m fast-forwarding here, but I was in an NBA pre-draft camp, and I was six-foot-six, I think it was. Ron Artest was right around the same height as me. And then we were standing in our underwear, and he extended his arms — I was in proportion, and he was not in proportion. I think he had a six-eleven wingspan. I was like, “I don’t know if I’m going to make it.”

00:03:32  Barry Ritholtz: So Lute Olson — Hall of Fame coach, multiple trips to the Final Four. You played all four years under him, averaging 10 points a game. Small forward — what was your position?

00:03:44  Joe McLean: Shooting guard, and I guarded the small forward and big-four positions. I had to learn very quickly how to hold onto a guard’s jersey, because everybody was getting much quicker, much faster than me.

00:03:55  Barry Ritholtz: And so you graduate college and you start playing pro in Europe. Where’d you play? What country?

00:04:02  Joe McLean: So you’d basically try out for an NBA team, then get cut, and then you had two decisions to make. One: go to the minor leagues, which is now the NBA G League. It was the CBA at the time. So you go to Bismarck, North Dakota. I lived there for a year, living in a Bismarck hotel and traveling by bus. And then I decided to go to Europe for the years after that. I played in 11 countries, because there are only two Americans per team, no binding contracts — you lose a couple games, they’ll rip up your contract and send you home. And so it’s a great way to see the world.

00:04:31  Barry Ritholtz: What countries did you play in?

00:04:32  Joe McLean: I played in Spain, Portugal, China, Australia, Cyprus. I moved to Ireland for a year to try to get dual citizenship, because then I wouldn’t be counted as one of those Americans. It’s the equivalent of probably Division Three basketball. I was sponsored by a pub, lived in a town called Ballina, which was 8,000 people, 84 pubs. We were sponsored by Longnecks. I made $300 a week, and I have family for life there. It was a great experience.

00:05:00  Barry Ritholtz: That sounds like a blast. So what was the moment when you realized, “Hey, maybe a pro career isn’t my future”? What was that come-to-Jesus moment?

00:05:11  Joe McLean: They were both on the court and off the court. The closest I ever got to the NBA was when they went on strike. The Sacramento Kings had the seventh pick in the draft. I lived in the Bay Area, and I knew they didn’t have any NBA players to work out their draft picks. So I called the scout and said, “Hey, I’ll bring my own lunch. You don’t have to pay me. I’ll just guard the guys you need to draft.” And I couldn’t believe it, but he said, “If you can be here next Tuesday, show up.” And so Tuesday turned into 22 straight days of workouts — I was literally working their draft picks out. They ended up taking Jason Williams. But I got to listen to everything they were looking for, and the process. And long story short, the 23rd day, nobody else was there but the coaches. And they said, “We’re working you out — today’s your day.” And I made it all the way through pre-draft, all the way through the final cut. I was getting on the bus to go to the very first NBA game, opening day, and I watched Oliver Miller walk past me in the locker room. And I was like, “Well, Oliver Miller’s not on our team.” And then I realized — no, he’s coming to take my spot. And so Rick Adelman looked at me, and his head went down, and I don’t even remember what he said. I just knew that it was over for me. That was as close as I was going to get — walking to the bus. And now I had to figure out what to do next.

00:06:32  Barry Ritholtz: So how do you get from working out with an NBA team to pivoting into finance? What was the factor that tipped you that way?

00:06:44  Joe McLean: I had no idea what to do. All my buddies at the time — this is 1999 — everyone I knew in the Bay Area was working for a dot-com company. Everything was dot-com at the time. So I did all my interviews, and I’d show up in a suit. I’d go to Oracle, I’d go to Pets.com — I think I did 50-plus interviews. And I’d show up in a suit, and everyone else was in flip-flops and t-shirts. And it’s like, this doesn’t feel right. I need structure. And so I started playing basketball for this club called the Olympic Club, and I met lawyers and accountants and financial-services people. And they pointed me in the direction to interview. I interviewed every financial-services company. A lot of the big ones — the Goldmans of the world — said, “Go get experience and come back.” And then I met an old former athlete who had had success at Franklin Templeton, and he said, “I’m going to give you a shot.” I’d had some experience investing in mutual funds with the money I made in Europe, but I didn’t really know what it was. And so I just said yes — because he looked like a coach to me. That was it. That was the only reason I got into financial services.

00:07:47  Barry Ritholtz: And how’d you do at Franklin Templeton? They’re a great shop — a trillion dollars. Jenny Johnson is the CEO.

00:07:54  Joe McLean: Honestly, the best company I’ve ever worked for. The transition for an athlete to do anything else is a very, very difficult thing, because the thing you have as an athlete is structure — you have a schedule, a sense of accountability, goals, a connection with a team. You have all of that. And the day you stop playing, you’re on an island. There is no schedule. There is no level of accountability. So what they gave me was — and I think you wrote about this in your first book — the first thing Jim Escobido told me, he was my manager at Franklin Templeton, he said, “You don’t know nothing about nothing. And the sooner you learn that, the sooner you’ll be curious and start having this level of intellectual curiosity.” I hold onto that every day. It’s one of the great gifts he gave me. And what I got to do at Franklin Templeton was spend six years in a car — I think I drove over 400,000 miles. As a wholesaler, all over the state of Pennsylvania, all over Arizona and Northern California — those were my regions — doing hundreds of rubber-chicken dinners. I wasn’t the advisor; I was working with the financial advisor. And I got to meet hundreds and hundreds of people going through different situations with their money. I learned from all these other people. It was an awesome experience.

00:09:14  Barry Ritholtz: So I want to roll back a moment. You described the structure of being an athlete, and you gave me six bullet points. They sound like they’d be useful for anything. Run through those bullet points again.

00:09:28  Joe McLean: So you have a sense of accountability. There’s a schedule, a structure. Every day you wake up knowing what the common goal is — both as an individual and the role you play. And there’s a level of expectation as to what you need to accomplish, not just in one day, but one month, six months down the line. You have the NCAA tournament, you have all these things going on that have longer-term goals, but you’ve got to have a day-to-day discipline to execute on that. When you transition, it’s all gone.

00:10:04  Barry Ritholtz: Well, that structure, that setup, sounds like it can be applied to any endeavor in life — any organization, especially where you’re working with other people.

00:10:15  Joe McLean: That’s right. And I see a little bit too much where younger people jump to become an entrepreneur. I get the premise — wanting to be an owner of everything you do, quickly. But there’s a level of foundation and humility that can be accomplished by going and seeking out another environment that provides those tools for you.

00:10:38  Barry Ritholtz: So you’re a former college player, a former almost-pro player. What did you learn shooting hoops that the CFP or CFA curriculum simply can’t teach?

00:10:54  Joe McLean: Perseverance. This is something I’m trying to teach my kids. I learned to fail and really enjoy it. For a while I was failing and not reflecting on why I failed. People use that term a lot — “failure’s a good thing.” It’s the best thing to have in my life. It’s not the failing part; it’s what you learn from failing that really is effective. And the idea that you’re willing to bet on yourself at all costs, no matter what. If you think about that as an athlete, the mindset is, “I’m willing to do whatever it takes. I’ll go broke to try to get this done.” I have been broke. “I’ll take as many risks as I possibly can take. I’ll fail, fail, fail.” Those are not necessarily great attributes as an investor, in terms of translating that mindset. So as an advisor, you have to appreciate where an athlete’s coming from, and actually make them aware of those traits — they’re great qualities to have success in your craft, but they may not be great qualities to have when you start thinking about financial advice and investing.

00:11:59  Barry Ritholtz: So let’s talk a little bit about athletes as clients. You somewhat famously won’t take on a new client if they don’t save at least 60% of their basketball earnings. I’m curious — how’d you come up with that rule? How many potential clients turn you down? How many clients do you have to turn down? Tell us a little bit about the genesis of that. It seems to make sense. What’s the average NBA career — seven years, something like that?

00:12:30  Joe McLean: A little bit less than that, probably.

00:12:31  Barry Ritholtz: All right, so it makes sense. Tell us where this rule came from.

00:12:36  Joe McLean: It came from learning from my early mistakes as an advisor. I was willing to take anybody as a client. That’s the one thing, if I looked back, I wouldn’t have done. But you’re building a business, you try to get revenue, and that happens — everybody does it. How I came up with the measurement was a young person saying, “I want to be a millionaire.” He had an NBA contract — it was a three-year deal. And I said, “All right, well, when do you want to be a millionaire? Because here’s the money you’re going to make, here’s the taxes you’re going to pay. You can actually make that choice as to when you want to log into your account and see a million dollars.” And he’s like, “Well, what do you mean?” I said, “Well, if you save 30%, it’s going to be May 1st of 2028 — that’s when you’re going to have a million dollars.” He goes, “Well, I don’t want to wait that long.” I said, “Okay. Well, what if you did 40%? What if you did 60%?” And so what I realized is that using fear is not a great motivator for young people to make decisions. Putting it around a milestone, or a level of respect that they want to attain, does. And so for me, that became the parameter: if you want to become a client, and we want a relationship built on mutual respect, then there are some things I’m going to require. And for me, it was 60 cents of every net dollar that they earn.

00:13:57  Barry Ritholtz: After tax, after agents, after all that stuff.

00:13:59  Joe McLean: Yeah. And then on the second deal, it goes to 70%. Third deal, it’s 80 to 85%. And what we realized is we had clients talking in the locker room about how much they’re saving. Eventually — it’s messy — but about how much they’re saving. And then we would show a scoreboard report: “Hey, so-and-so saved 92% last year; you saved 74.” And he’s like, “I don’t believe it.” And then they’re texting back and forth, and it begins this dialogue. And it was awesome. It sounds strenuous, and it’s easier said than done now, when you see the level of the contracts and how much money is going in and out of someone’s life on a daily basis.

00:14:35  Barry Ritholtz: This is the exact opposite of the 30 for 30, right — the Sports Illustrated story. Eighty percent of NFL players, 70% of NBA players, subsequently file bankruptcy. Crazy numbers. How significant is that in your mind? It sounds like that sort of fearful threat doesn’t really get the job done.

00:15:05  Joe McLean: It doesn’t. If I’m talking to a 19-, 20-year-old, and I say, “You know what, three years from now, if the next number-one draft pick walks into the locker room and they walk directly to your locker — because everybody knows that you handle your business on the court and you handle your business off the court, and you’re somebody who’s respected in both the business community and the community around the team you play in.” Because there are going to be pros in that locker room, and there are going to be knuckleheads. And if you don’t know who the knucklehead is, I promise, it’s probably you. So what we want to do is teach you the traits to become that person — where someone wants to walk directly to your locker and ask questions. That versus showing them statistics of going broke. Most young people are going to be like, “I’m one in a million. That’s not going to be me.” And the reason a lot of them do go broke still is — not many athletes retire with $10 million, $15 million, $20 million. But they have significant burn rates of three, four million dollars. And so do the math. In five years, it’s gone.

00:16:12  Barry Ritholtz: Divorces are expensive. Child support is expensive. There are a lot of friends with business plans — that could be an expensive can’t-miss. By the way, everybody in that locker room probably, statistically, is one in a million. How many people play in the NBA?

00:16:31  Joe McLean: Less than 400.

00:16:32  Barry Ritholtz: All right. Just 350 million people, almost by definition 350 people are one in a million. It’s kind of amazing. The other thing you have your athletes do is try to save two years of cash. That’s a quote of yours: “Athletes need two years of cash as a buffer.” How do you sell that idea to someone who just signed an eight-figure, multi-year deal?

00:16:59  Joe McLean: Well, you get a chance to show — especially in the early days — the rules evolve over time, once someone has shown their level of professionalism with their money. So early days, there’s that three-bucket strategy I’ve always put in place: that safety-and-security bucket you’re referencing. But that’s the first time someone’s learning what an NBA or NFL or MLB contract looks like. Like, “Here’s the deal I just signed — but what are all these red numbers that go through it? Who’s FICA?” and all these terms. And they see what a $10 million contract really is. It’s much less than —

00:17:35  Barry Ritholtz: Ten million.

00:17:36  Joe McLean: It’s much, much, much less. And then in the NBA there’s another tax — it’s like a jock tax — that they may or may not get back, based on basketball-related income, which is another 10% attached to these things.

00:17:45  Barry Ritholtz: What is the 10% jock tax?

00:17:47  Joe McLean: So there’s a tax — everybody in the NBA gets it; it’s up to 10% — and it’s related to the agreement the players have with the owners, that they have to get up to 49% of a number, of a revenue. And if the owners don’t get that number, then they get to dip into the cookie jar and take that basketball-related income and put it in their pocket. Most of the time, the players get 65% of that back. But in our budget, we budget as if you’re never going to get it back. So it’s a nice cherry on top at the end of the year. But when you think about paying taxes in every single state, and sometimes city, that they play in — whether it’s the New York Knicks or the Golden State Warriors, you’re paying a much higher level of tax. So going through that whole experience for the very first time is —

00:18:34  Barry Ritholtz: Well, the Toronto Raptors — even higher.

00:18:36  Joe McLean: Exactly. It’s startling. So it’s helping someone pre-experience what it’s going to look like and feel like to get paid for the next three years. Because we’ve seen the movie over and over. I’m just trying to show you the movie. Your story is going to be different from everybody else’s, but there’s going to be common ground. It’s just for you to pre-experience and understand it, and then to put your own goals and milestones on top of that.

00:19:00  Barry Ritholtz: Explain the three buckets. What are the three buckets you discuss?

00:19:03  Joe McLean: So there’s the safety-and-security bucket, and that typically is your cash to support at least 24 months. Because in the NFL, you may get paid just during the season; Major League Baseball, maybe six months; the NBA could be over a 12-month period. Everyone’s cash flow is different. So I want two years of seasonality to support your lifestyle inside the safety-and-security bucket. If you buy a home, it has to be necessary — a home where you want to live, not necessarily where you play. Quite often someone gets traded multiple times, they’ve bought homes in multiple cities, and now you’re trying to sell a house in Milwaukee when you’re playing in Dallas but you really live in Florida. So just put the house you want to live in long-term in the safety-and-security bucket. And typically we’ll buy that with no debt, because I don’t know when the next contract’s going to come once you’ve filled that bucket. The second bucket is the growth bucket. This is where you start to understand how money works for you. In theory, all I want young people to understand is: if you get 24 paychecks from the NBA over a 12-month period, our goal by the end of your contract is to find 24 other ways for you to get compensated. It could be in bonds, it could be dividends, it could be real estate over time. However, inside the growth bucket, for the first contract of their life, 85% of it has to be liquid. It has to be liquid. Because quite often, when I was researching young athletes, they were far too illiquid. They were investing in private deals. They didn’t know the value of it. It wasn’t supporting their lifestyle. And then all of a sudden they didn’t have the safety-and-security bucket, and they had to sell everything — and most of it wasn’t worth anything. So it’s no genius asset-allocation strategy from Yale that I came up with. That’s just life. And having someone prove to us over time that they know how to save and they’re responsible with money — so they can reserve the right for the third bucket, which is the dream-and-entrepreneurial bucket.

00:21:01  Barry Ritholtz: So what goes into that?

00:21:02  Joe McLean: That could be setting up a business. I throw venture capital and private equity over there — early-stage opportunities. It could be the second car — I don’t care what kind of car you get. I don’t care what kind of watch you buy — you just get one. If you want another great car, sell the other one and get the next one. But that extra bucket — it could be 5 to 10% of your life that sits over there. Now, when you put a safety-and-security bucket, a growth bucket, and a dream bucket in front of a young person, which one do you think they want to fill first?

00:21:41  Barry Ritholtz: Well, the dream bucket, of course.

00:21:42  Joe McLean: We all do, right?

00:21:43  Barry Ritholtz: That’s the fun one.

00:21:45  Joe McLean: So the discipline is, you’ve got to fill the first two before you reserve the right to be an entrepreneur or to fulfill that dream. Because part of what we talk about a lot is: live the dream that you’re playing right now. Don’t try to go out and establish all these other things and crafts. Focus on what you do well — because this, as you said, seven years or less, could be the greatest earning capacity in your entire life right now.

00:22:10  Barry Ritholtz: Really, really fascinating. Coming up, we continue our conversation with Joe McLean, discussing why he launched a boutique asset manager for athletes. I’m Barry Ritholtz, and you’re listening to Masters in Business on Bloomberg Radio.

00:22:41  Barry Ritholtz: My extra-special guest today is Joe McLean. He is known as the money whisperer to professional athletes. Let’s talk a little bit about how you got that title. You were a wholesaler for mutual funds at Franklin Templeton. What led you to launch a boutique asset-management shop catering to star and professional athletes?

00:23:04  Joe McLean: Well, I went on from wholesaling, and then I went to two other companies — Lord Abbett, and then AllianceBernstein. And AllianceBernstein at the time launched an Advisor Institute. There were 300 advisors at Bernstein who were bringing in a hundred-plus million in assets every year — a highly dedicated and focused team. So I went out and trained financial advisors on how to build a business and work with centers of influence. And I met another mentor in my life — a former minister who’d gotten a master’s in neuro-linguistic programming and understood how to communicate effectively with people. I spent two years on the road doing that, and then eventually became an advisor at Bernstein. A bunch of old teammates — I was less than a year into my financial-advisory career — came up to me when they were getting ready to retire. And they said, “I’ve been watching you. I think you’re in that money thing. Can you look at my stuff?”

00:24:05  Barry Ritholtz: That money thing.

00:24:06  Joe McLean: Yeah.

00:24:07  Barry Ritholtz: “You do that money thing,” right?

00:24:08  Joe McLean: That’s what they said. And these were 32-year-olds. Some had made over a hundred million dollars. I had not grown up with any wealth, but now I’m 15 years into the career and have learned from other families — and obviously the companies that taught me things, and being on the road — and I realized: no one has ever sat you down and walked through the level of planning that would be required for this level of wealth, to prepare you at age 32 to live off this money.

00:24:37  Barry Ritholtz: That’s astonishing.

00:24:38  Joe McLean: There was no class we ever took in college. And even if there was a class, you probably wouldn’t have paid that much attention to personal finance and investing. And sports and wealth was not something anybody was really interested in. I heard it from other firms who said, “I don’t want to get involved with athletes. It’s just babysitting.” Back then there were no sports-and-entertainment divisions at wealth-management firms. Nobody was involved. So I went to Bernstein and said, “This is it. This is where I want to be. I’m going to focus the whole rest of my life on this. I’m going to be a coach, but do it in finance.” And it was something they were open to, but not interested in — because it was way beyond investing. It was personal finance and cash flow and budgeting and creating a protected circle. Because there are so many things that could touch someone’s money. It could be the car guy, the shoe guy, the jeweler, the family — that all needed to be controlled, and put the scoreboard up financially as to what’s required to have success.

00:25:42  Barry Ritholtz: That sounds a lot like a traditional family office.

00:25:46  Joe McLean: I had no idea what a family office was at that time, but I was identifying that this was the need. So long story short, it couldn’t be done at a traditional wealth-management business. It had to be an RIA, at the time, for me. And so that was the move to start Intersect, which was heavily focused on personal finance and family office. And I was still learning the game, too. The contracts weren’t as big as they are today. But I remember being in the 2011 draft, and I think I was competing against two other financial advisors — maybe. Nobody was really interested in this industry.

00:26:25  Barry Ritholtz: That’s unbelievable to me. So at 11 people, you’re managing $1.7 billion for about 50 clients. How did that grow? And when did you start to hear from people thinking, “Hey, this might be a good tuck-in into a bigger shop”?

00:26:42  Joe McLean: That happened all in less than seven years. In sports, I realized a couple of things. One, I didn’t want a client base that was only athletes. You had to pass the test of a 50-year-old business owner who was going to ask more sophisticated questions, who was going to challenge you to make sure you created a process, a plan, and a portfolio sophisticated enough to support his or her needs. So this became a mutual-admiration club of entrepreneurs, business owners, and athletes. A baseball player wants to talk to an NBA player and a golfer, and so on. It was a great community built in there. And that’s how all these other sports came about. I was a classic case of high growth trying to keep up with operations. So I was constantly taking my own capital and reinvesting, trying to stay up with the support. And that’s when I had someone come up to me — I was trying to find an investor just to help me out, because I couldn’t support it myself. And that’s when I was introduced to MAI, which, unbeknownst to me, was a very quietly built family office for athletes, dating back to Arnold Palmer — Mark McCormack were the first owners and clients of the business.

00:27:59  Barry Ritholtz: Client-owners. That’s pretty savvy.

00:28:01  Joe McLean: Yeah. Mark McCormack was, for sure, the OG in the sports-agency world. His focus was to take an athlete to an entrepreneur, to an owner of everything they did. And famously, he got Arnold Palmer — Palmer did handshake deals on just about everything he ever did. He had a handshake deal with Wilson, and Mark saw the value of what Palmer was doing for that company and was able to renegotiate it. Most people don’t. Wilson was actually a meatpacking company way back when. A banker came in and saw that it was undervalued, because they weren’t utilizing the entire cow. And they started taking the hides and making footballs and basketballs. And they extracted extraordinary value out of that. It eventually became a sporting-goods and equipment company. So they were very savvy when they did that deal with Arnold Palmer, and McCormack came in and unlocked all kinds of value for Palmer. And so when you look at athletes now, they talk about becoming an owner of everything they do — this is something they did. This is 1973, ’74.

00:29:11  Barry Ritholtz: I kind of remember Arnold Palmer designing golf courses and putting his name on them and getting fairly well compensated for that. Am I recalling that correctly?

00:29:20  Joe McLean: He did that and a lot more — the royalty rights, the drink. And that umbrella — that iconic logo he has. If you’re in the golf world, you know that’s Arnold Palmer. He was the one who famously told every athlete, “If you’re going to put your signature on something, make sure people can recognize who you are.” And I know Peyton Manning and others have taken on that banner. He was a trailblazer, very early days. And his level of wealth was extraordinary — it would rival the likes of Stephen Curry and Kevin Durant as you see today.

00:29:55  Barry Ritholtz: And the other thing about golfers — the successful ones have a much longer career life, and then they start playing in the seniors for another 20 years.

00:30:05  Joe McLean: Yeah. There’s nothing like golf — it has a completely different level of financial planning, because there are no guaranteed contracts. If you win a tournament, yes, you may get a year or two of your tour card, but if you don’t, and you’re missing cuts, then there’s no money. It’s one of the most difficult sports to survive. The successful ones, obviously, as you said, could have a 30-, 40-, 50-year career.

00:30:30  Barry Ritholtz: But it’s a winner-take-all.

00:30:33  Joe McLean: It is. It’s very difficult.

00:30:33  Barry Ritholtz: So MAI acquires Intersect. After the acquisition, you go from founder-CEO to managing partner, running the multifamily office inside this larger platform. You spent a long time building up culture and trust. How do you maintain that when you’re tucked into a larger shop and a very different brand?

00:30:59  Joe McLean: The good thing was — and it took a long time for me to figure it out before I made a decision — the firm was a service-oriented business. It wasn’t a business that was providing services; it was service-oriented. That was very different for me, because I didn’t come in with any high level of business prowess. I was a service provider. I still am. I think there’s nothing beneath me in terms of what’s required to serve a client and the people around them. And they had the same mindset. It was actually, at the time, a loss leader for the IMG business. IMG would charge their 20, 30%, and they would have MAI — which was McCormack Advisors International, the acronym — as a service center to do your taxes, your bills, and build your portfolios. So they had the same mindset I had. But there was another level, as you know, of acquisitions and really growing. We had gone from $12 billion to $80-plus billion in assets. So it is difficult to maintain the culture. But it’s a very independent, fiduciary-minded world that was aligned with me. I think the evolution of where the advisors and the clients are going now is this level of partnership — because that’s what I was experiencing in my boutique. It’s not a client-advisor or advisor-client relationship; it’s a partnership. Young people don’t want to be told what to do. They want to be given information to make better decisions — but don’t tell me what to do. So I’ve learned a lot in that culture. That’s where, now, the term “family office” is everywhere. That’s how you’ve got to build it going forward.

00:32:34  Barry Ritholtz: So I love the distinction between simply managing money — this “money thing” your friend asked you about — versus managing wealth and all the related services. Is that effectively the evolution you’ve gone through, from Intersect to MAI?

00:32:55  Joe McLean: A little bit. I would say MAI and the rest of the industry are coming around to how we’ve serviced athletes — and not just because they were athletes, but because they were young people. The industry is trying to turn toward how to service the next generation of wealth, and this transfer of wealth that’s happening from the baby boomers. If you look at the history of advice, it was really built on the backs of the baby boomers. I always look at 1981 — I think there were six or 700 mutual funds to choose from. And all of a sudden it was this hockey stick. It just exploded. And what happened? The baby boomers were turning 35, which tends to be the age where you finally have some money to spend and invest. And then you look at this explosion, and the value proposition to that marketplace was simply access — access to the capital markets. So I always tell young people: if you ever watched The Pursuit of Happyness, the great movie — Will Smith cold-calling — he was just giving you access. And then it became about alpha, generating — “How is my black-box research better than this person’s?” And then it became about spending and income strategies in retirement — that was the third one, all satisfying to baby boomers. Now the value proposition has flipped. It’s access, not to the publics, but to the privates. And it’s spending and income, not in your retirement, but in your entire life — managing that lifestyle. These are things we’ve done from the very beginning, because there never would have been a dollar to invest if I didn’t control the cash flow.

00:34:27  Barry Ritholtz: Really, really fascinating. You talk about dealing with younger people, especially athletes — we’ll get to college athletes in a little bit. How do you get a young person to understand that owner mentality, both from a risk perspective and a compounding perspective — especially today, when they’re always connected, there’s so much going on, so many speculative distractions? How do you get them to think like an owner, and not like a simple player, day by day?

00:35:04  Joe McLean: Day by day, really.

00:35:08  Barry Ritholtz: It’s a long game.

00:35:09  Joe McLean: There’s no level of putting a Monte Carlo analysis in front of someone and showing them 20, 30, 40 years out what the compounding effect could be. It looks nice, but there are behaviors and discipline that have to be created day by day, month by month, over time. But if you gamify it, it works. That’s the aspect of putting the scoreboard up — are you winning or losing each month? And the one thing — if you look at contracts today in sports and how big they are — as you know, with anything, with great abundance typically comes less discipline. You see a lot of people with great talent, but they don’t necessarily work that hard. But if you work hard and you have talent — tough to beat. It’s almost impossible to beat. And so that became my investment philosophy, even with young people or old people. When you think about the laws of physics versus the laws of finance — think about this abundance. The laws of physics say, I’m trying to cross the creek, there’s a log I’m going to walk on. If I take my eye off that log, there’s instant feedback — I’m going to fall in the water. The laws of finance say, if I have an abundance of money going out of my life, and I take my eye off my money, nothing happens. There’s no immediate feedback. American Express doesn’t call and say, “Hey, you just spent $55,000 this month — slow down.” No — they’re giving you more benefits. The laws of finance give you no immediate feedback. So the philosophy has to be creating a standard of what you’re going to focus on in the future. It could be a month from now — let’s just win this month, and then let’s win the next six months. And all of a sudden, now we’re winning for years. But until you become aware of that, most people don’t have success with it.

00:37:12  Barry Ritholtz: Fascinating stuff. Coming up, we continue our conversation with Joe McLean, managing partner at MAI Capital, discussing what it’s like to advise athletes and entertainers on their finances. I’m Barry Ritholtz, and you’re listening to Masters in Business on Bloomberg Radio.

00:37:43  Barry Ritholtz: My extra-special guest is Joe McLean, the managing partner at MAI Capital, where he has helped build not only the firm’s family-office group but its sports-and-entertainment division, serving hundreds of professional athletes and entertainers. So that sounds like a very fascinating group of people to work with. I want to start by thinking about what’s going on at the college level: name, image, and likeness. This has become a giant business. Suddenly you have 17- and 18-year-old phenoms with potentially seven-figure contracts. What’s it like having a conversation with a suddenly wealthy 18-year-old?

00:38:36  Joe McLean: And by the way, it’s in high school now, too — people are getting sponsorships in high school. So it’s a —

00:38:42  Barry Ritholtz: A 16-year-old. Even worse.

00:38:45  Joe McLean: You know what’s interesting — I was blessed with four years of Coach Lute Olson at the University of Arizona, and an extraordinary network of alumni and teammates I got to know, or who were also coached by him. So I see the benefit of staying for four years — not jumping around school to school. At the same time, I’m trying not to sound like I’m 52 years old and say, “Back in the good old days, this is what we did,” because we weren’t getting contracts offered to us for $1.4 million. I just looked at — there are research services out there for each of these sports — I looked at one for a player who averaged 5.6 points a game this year. But they’re projected to have success, and they’re going to get $1.8 million next year to go play as a sophomore in college. And that’s extraordinary. So how do you pass up going to another school for those types of things? It’s really getting them to sit down and think about some things that are important besides money: their college experience, who’s the coach you’re going to be playing for, does that match the style you think you could have success in? Then, outside of that, the financial advice that’s required — “Hey, you’re now a 1099 contractor. There are no taxes taken out of these deals.” So you can’t just spend a hundred percent of it — you owe money to the government. And that becomes the whole lesson of gross versus net, and setting up some success. The good news is they’re learning these life lessons before they become a pro. Because what we also remind them is that every NBA, NFL scout is watching how you’re reacting to this money. If you get a million dollars and you go buy a Ferrari — which happens — they’re going to put that on their board: this is someone who may not be responsible when we give them $10 million. So they’re getting a window into the human being, as to how they may react once they turn pro. These are all conversations we’re having much, much earlier. But I think it could be a good thing long-term. I know, as a college sports fan — everybody says, “I don’t like these portals,” and I agree with them. But as a young person with opportunities, they’re going to be smarter, they’re going to want to learn faster, and there will be more successful outcomes than less.

00:41:08  Barry Ritholtz: That’s really fascinating. The obvious things that are potential minefields — they seem to be getting good advice and avoiding them. And it sounds like a lot of the college athletes getting big paydays are making better decisions than poor ones. Is that your experience?

00:41:30  Joe McLean: I think so. And by the way, I think 90% of these NILs are probably a hundred thousand dollars or less. They’re much smaller deals — by the hundreds. It’s reminding them — if they don’t have a base around them, that professional locker room we talk about — first and foremost, the number-one priority is to be a great teammate. Because we’ve seen the scenarios where the quarterback makes $2 million and is disrespectful in the locker room, and now all of a sudden nobody’s blocking for you. That will happen.

00:42:06  Barry Ritholtz: We saw it in the Super Bowl this year.

00:42:07  Joe McLean: Exactly. So if you don’t think through those types of things and be aware of it — maybe you want to contribute to that community and create a donor-advised fund with some of this money, and give it away, and bring awareness to what your brand is. Because your brand really is not what your social followers are. It’s being a great teammate, a great human being, responsible. You can have all these extraordinary experiences, say, in the NCAA tournament, but if you’re a knucklehead off the court or off the field, there are going to be consequences.

00:42:42  Barry Ritholtz: So let’s now move into the pros. But we’re not talking about 52-year-olds in basketball — you’re 23, 24, 25, early in your career. I’m curious about a couple of things. The first: you have a day like last week, where the market’s melting down. A 25-year-old guy in the first year of his second contract calls up and says, “Hey, are we okay?” How do you manage clients who are perhaps a little freaked out by the news flow?

00:43:16  Joe McLean: Over time, for me, the benefit has been introducing them to other people besides myself — first and foremost, other professionals in the markets and other asset classes, who they can get on the phone with and understand what the facts of the case are versus the noise around it. And typically every scoreboard we have is projected out through their entire contract. So what are the things we can control versus the things we can’t control? I always go back to that. Yes, the market’s down — let’s say it’s down 10%. What are the things we can control right now? We can control our spending, our decision-making, and our attitude. So that may be an opportunity — let’s look at our spending; maybe we dial it back so we want to invest more over time. It’s opportunistic. These are all very rational things that, as you know, most humans become very irrational about. And the more I can get someone to talk about their emotions, the more they move to a rational state. So it’s just talking out loud — let’s talk through this. A lot of these athletes, over the last couple of years, really haven’t been through a major market.

00:44:23  Barry Ritholtz: Fifteen years of bull market.

00:44:25  Joe McLean: When it’s been really good. I remember, early days, this happened, and I had one player liquidate all their 529 plans because the market was down 15% — and that was, obviously, one of the mistakes, the consequences of that. But if you don’t go through it… I was a benefactor of losing all my hard-earned money in Europe in 2000. I was investing in mutual funds at $10 that went to a hundred dollars in these biotech funds, and then March of 2000, everything went to zero. So it was a lesson I learned early — not to have concentrated all in one asset class. So most of the clients are fairly diversified.

00:45:11  Barry Ritholtz: So let’s hold the 23-, 24-year-old aside and talk about a 25-, 26-year-old with a max contract — their second contract. You don’t think of a 26-year-old as a potential family-office client, but at that level of income, that level of wealth, it kind of makes sense. Is this the right model for those athletes, for those professionals?

00:45:41  Joe McLean: A hundred percent. So if you think about what you’re describing — a 25-, 26-year-old on a max contract is probably making over $40 million a year. Let’s talk through a couple of things that are happening. It’s a guaranteed contract if you’re in basketball or baseball, even hockey to that extent — but it’s not guaranteed for death.

00:46:04  Barry Ritholtz: But it is for injury.

00:46:05  Joe McLean: It is for injury, but not for death. So there’s life-insurance planning involved, where both the team is trying to get coverage on that person — for their first $30 million — and then you’re trying to get coverage. And if you have big endorsements, the Coca-Colas and Gatorades are all trying to get coverage on you as well, to protect theirs. So there’s a level of sophistication they’ve got to start thinking through from a risk-management standpoint. Again, back to the three buckets — they still remain for the rest of their life, so you’ve got to keep filling them. But now it gets complicated. What’s the goal here with this money? Is it just to save it and sit on it? Or now they’re getting access to really interesting opportunities — they want to maybe own a team someday. So this is the —

00:46:55  Barry Ritholtz: Third bucket.

00:46:55  Joe McLean: Right. This is the entrepreneurial one, where you’ve got to keep filling the first two and always know what it costs to be you. That’s always January 1st — did you know what it costs to be you? And how do we make it cost a little less to be you, if we can be smart with some of the savings in all areas? So what do we want it to cost to be you when this contract’s over? Again, back to that burn rate — how much you’re going to spend in retirement, because I’m assuming you’re never getting another deal. So is it $2 million a year? Is it a million and a half? What’s the number we think you could live comfortably on? And obviously, when you’re 35 years old, this money has to last much, much longer. So just going through that level of planning, and giving them information so they can make better choices. But that is when this entrepreneurial bucket really kicks in. They’ve established a brand as a great player — performance is the number-one factor of their success financially — however, now there’s an opportunity to develop something that could be sustainable for 30, 40 years as an entrepreneur. And that’s where we start identifying what philosophy they want to have in that sector.

00:48:02  Barry Ritholtz: So you mentioned death or injury. I’m curious about your take on the most — or the least — appreciated risks on a modern team roster. Is it injuries? Is it lifestyle creep? Is it that entourage that could be a bad influence? “Deal flow’s in the DMs” is a line I saw that cracked me up. What do you think is just bad mojo that potentially derails a client?

00:48:35  Joe McLean: Well, a couple of things. You mentioned risk and injury — you cannot avoid this. There is a way to protect yourself over time. At this point, at this level of wealth, at the size of these contracts, you have to have your own doctors, your own trainers. You have to get information that comes directly to you, not through the team to you.

00:48:55  Barry Ritholtz: So we’re talking nutritionists, trainers, physical therapists, massage therapists — straight down the line.

00:49:02  Joe McLean: And they all have to report to the client, not to the team. The team has these people, and they’re great people, but they work for the team. We’ve had situations where clients got injections, and it killed cartilage in their hip, and it eroded over time. And all of a sudden they’re in a situation where they may not get the next deal. So at a max contract, someone’s going to be spending somewhere between $400,000 and a million dollars a year into their body.

00:49:32  Barry Ritholtz: Wow, that’s unbelievable.

00:49:33  Joe McLean: Yeah. And if you think about the benefit of that — players are playing to 35, 40 and beyond.

00:49:40  Barry Ritholtz: I look at Tom Brady — no business playing into his forties, and playing fairly well. That has to be the result of all that self-investment.

00:49:50  Joe McLean: No doubt. There’s a track record there that others can turn to — LeBron James being one of them. They see the value in that investment, and they also see the risk of not investing in it. I’ve had these discussions on the first contract, when I look at — because I see the personal P&L on everybody when we’re paying all their bills — and I could see, “Are we really still going to McDonald’s? You’re crushing fast food constantly.”

00:50:19  Barry Ritholtz: But at 23, aren’t you kind of immortal? How do you get someone who’s been the biggest, fastest, strongest guy everywhere he went to realize, “Hey, this is a rusty bag of bolts if you don’t take care of it”? How do you get a 22-year-old to understand you’re not immortal?

00:50:38  Joe McLean: You show them that if you’re in the NBA, and you’re a draft pick today, and you get to your fourth contract — assuming a 5% growth rate of the salary cap — you’ll have grossed a billion dollars in contract value.

00:50:54  Barry Ritholtz: Get out of here. That’s unbelievable.

00:50:56  Joe McLean: A billion dollars. Yeah. So what are the things you can do now to be around in your fourth deal? It obviously extends beyond being a good player.

00:51:05  Barry Ritholtz: That’s four-year deals or longer?

00:51:08  Joe McLean: Between three and four-year deals. So if you’re 21, by the time you’re 31, 33, depending on your contract cycle, you could have grossed a billion dollars. That’s where the Cooper Flaggs of the world are trending toward — Jalen Rose, Jayson Tatum — that’s where they’re trending.

00:51:26  Barry Ritholtz: Wow. I was courtside for the Lakers game against the Knicks last year. And what is LeBron — 38? He was, last year. He’s amazing — just a force of nature. And that doesn’t happen by dumb luck. That looks like a lot of work.

00:51:48  Joe McLean: My legs were tired in the fourth quarter when I was 21 years old.

00:51:52  Barry Ritholtz: It’s extraordinary what he was doing. He was faster than everybody out there, other than maybe one of the point guards. And he’s a monster — when he’s in the paint, you are not stepping in front, you’re not taking that charge. You’d wake up next Tuesday.

00:52:06  Joe McLean: The old-school guards, back in the day, would play their way into shape the first 20 games — because, lord knows what they did all summer. Athletes’ summers now are just as physical and difficult as the seasons, in terms of preparation.

00:52:21  Barry Ritholtz: That’s fascinating. There’s a quote of yours I really like: “The number-one trait of a great advisor is being willing to get fired.” Give us an example of what leads someone to get fired, when you’re delivering the cold, hard truth.

00:52:40  Joe McLean: Let me give you one where I almost got fired first. This was one of the most important clients in the history of my career. And I thought I was doing the right things — and I still, today, think I was, but I was doing it the wrong way. This was a situation where there were a bunch of knuckleheads surrounding the client. They were going to really affect that person’s brand off the court or field. And it was really starting to irritate me. So I decided to take it into my own hands and address it personally with them, with the friends and with the family members. I got into everyone’s face, and I was ready to take them down. Because when I look at doing trust planning for a client, I know who they love — that’s who’s in the trust, literally — and who we’re going to take care of financially, and the ones that are outside the circle. Most of them were outside the circle, and they were really affecting this individual. So I was going to try to take them out — but do it verbally. And so I addressed it, and all of a sudden I got called to a meeting with the client. And they came at me and said, “Don’t you ever come at my friends. If this ever happens again, we’re never going to work together.” And for me, this was the first time we were having some conflict, and I was ready for it. I was excited to have this conversation — like, let’s get real about what’s happening. And even when you don’t know it’s happening, the person was shutting down more and more. They weren’t ready for conflict. So if you’re going to say a great advisor is willing to get fired, you also have to prepare your clients for conflict — healthy conflict. I realized I never prepared to have this conversation with someone where we’re going to be brutally honest with each other. So the two traits I found you have to have to have great professional conflict: you have to have mutual respect, and you have to have compromise, and you have to have these conversations in advance. So now I have them in advance: “Hey, there are going to be times when we disagree, and I’m never going to blow smoke. You’ve got tons of yes-people in your life. But I’m never going to disrespect you, so don’t disrespect me. And at some point I’m going to win, and sometimes you’re going to win, in terms of a level of compromise.” If I’d had that, I think this would have gone better. It did not — it went really bad. We were able to repair it over time. And I’ve had situations, unfortunately, where maybe I didn’t get the client early enough to create behaviors — gambling, mental health, all these aspects that are all over life and in the world. They’re all over sports, too. And there are just some people you can’t save. So those are some unfortunate situations where we did have to fire somebody.

00:55:37  Barry Ritholtz: So that raises a really interesting question. Everybody walks around with these devices, and these devices are everything from social media — which can be a minefield — to all the gambling apps. And even if you’re not touching DraftKings, between Kalshi and Polymarket, or Robinhood, you could speculate, gamble, just go down a rabbit hole. For someone with a lot of cash burning a hole in their pocket, this always-connected, always-on world could be really dangerous. What sort of advice are you giving clients who have these seven- and eight-figure contracts?

00:56:22  Joe McLean: Those are the ones where you use a little bit of fear, and start sharing some stories that have happened to others — potentially getting blackballed. Even investing in or betting on your own sport — just getting anywhere near attached to it — is something that could affect the growing wealth you could create over time. There’s a level where you can scare them with that. And for all of us — gambling and sports, and the amount of revenue — I don’t think it’s a great thing. It really isn’t.

00:56:55  Barry Ritholtz: No.

00:56:55  Joe McLean: It’s pretty awful. You have a whole generation of young, mostly males, that have become gambling problems, addicted to it.

00:57:00  Barry Ritholtz: Does fear really work in that — “Hey, you’re risking a billion dollars against fooling around with 10 or 20 thousand dollars”? Why? It doesn’t make any sense.

00:57:15  Joe McLean: The scarier ones are in Vegas. When you go to Vegas, or some of the other casinos, you learn for the very first time what a marker is. What Vegas created with markers is — there’s no exchange of money. You just sign your name. And inside that contract, it also says they can reserve the right to go into your bank account and take the funds if you don’t pay up. So as you can imagine, when there’s no exchange of funds and you just sign your name — that’s a rabbit hole you can go down. That’s disastrous.

00:57:48  Barry Ritholtz: There have been studies that people who spend cash versus credit cards — with a credit card you’re just swiping or tapping, it doesn’t feel like you’re spending money. When you’re counting out hundreds to buy a watch, or whatever, I can imagine the marker in Vegas has to be really dangerous.

00:58:05  Joe McLean: Yeah. Even to that point, we’ve had clients where we’ve decided to have them write every check — pay every single bill, so they feel it. So you send a checkbook — here it is. Now you have to sign it. You see exactly how much you’re paying for each of these transactions. It works.

00:58:21  Barry Ritholtz: I would imagine that’s effective. But that raises a really interesting question. The economics of being an elite athlete — you go back to the sixties and seventies, the top of the team roster really wasn’t making a lot of money. Now, across the whole industry, it’s big bucks, and the top is crazy big bucks. How has this changed the way you think about asset-allocation planning — looking at everything from safe assets, dividends, and bonds, to speculative venture capital and privates? How has the world of athletic finances changed over the course of your career?

00:59:04  Joe McLean: The first thing that’s changed the most is you have to be sophisticated from day one. If you think about when I was getting into the business, in 2009 and ’10, these contracts didn’t exist. I knew enough to get clients into mutual funds and get them to save. These contracts are very big, and they’re early, and they’re coming fast. So from a level of planning, and understanding how to build this — one of our lessons is, the next generation is watching. What are the decisions we can make now that set you up, not just for yourself but for the future? We’re not talking about going broke anymore. This is hundred-year money. So that level of estate planning exists for a 22- or 23-year-old now, which we never had before. I don’t think the asset allocation needs to change — it’s just that the entrepreneurial bucket will evolve over time. Getting someone with that founder mentality — I don’t know about you, but I love being a founder. Being a CEO is not as fun. I like having them say, “Be the CEO of your money.” Like, I want you to be the founder of your money. We don’t want the “shirtsleeves to shirtsleeves” metaphor that everybody talks about. Let’s think about that entrepreneurial bucket and where you think you could have great impact. Some of them may say, “I just want to be a coach. I just want to coach my high school team.” And I think that’s great.

01:00:31  Barry Ritholtz: Come out of the NBA to be a high school coach.

01:00:34  Joe McLean: Correct. And I think that would be an extraordinary gift back to the universe — as to your mindset and what you believe in and the give-back. It’s important to have something to fill your time. So having more meetings with people who are either executives or other coaches — whatever your aspect is — you have to start thinking, beginning with the end in mind. By the time you’re 25 years old, even though you may play until you’re 40, you can fall into that and make that transition — back to what we started with: the schedule, the predictability, the accountability. You have that professional locker room in life, established for that third bucket.

01:01:13  Barry Ritholtz: So I’m seeing more and more athletes getting involved across different sports. Michael Jordan now owns — or is an investor in — a NASCAR team, and we see other athletes buying British soccer teams. How do you think about cross-pollination from one sport to another?

01:01:37  Joe McLean: I think the common ground is just: be wary of your time. It’s very easy to look on social media and see someone owns three or four different teams — they own SailGP, they have a Formula One race team, they’re all limited partners in these things. It looks great. But just think about how you want to spend your time in retirement. Do you want to be spread out all over the world, having access to these things? Yes. But at the same time, you have an obligation to fulfill your time in these things. So part of it is: how do we simplify your life? I’m reading, now for the second time — and I’m still not good at it — a book called Essentialism. That’s the disciplined pursuit of less. I have a ton of user error in my life, where I help clients say no, but I say yes too much to doing other things. So we have to remind them: yes, you have a ton of access, but let’s be most careful of your time, and where you want to spend it. There are opportunities to own things, but to spread yourself out and be all over the world in these soccer teams — it sounds interesting, but I don’t think it’s effective.

01:02:58  Barry Ritholtz: So what do you think athlete investors are either not thinking about, or not talking about? What’s a blind spot that would be really useful for them to better understand, to have greater awareness of?

01:03:12  Joe McLean: Let me overgeneralize what’s happening in sports. We went from spending money on materialistic things to overinvesting in private things. It’s great that we’re talking about how much we’re saving, but it’s also, “I invested in this deal, and this deal, and this deal.” And as you know, no one really understands risk until they’re taking too much. At that point, you truly start evaluating what that means. So I don’t know if everybody understands yet, as an investor, that all these things we’re investing in privately — you don’t know how much it’s worth. That’s a significant blind spot for many — back to those mental traits we all have as athletes, that we’re willing to bet on ourselves, that there’s nothing we’re not willing to take a risk on. That’s not the trait you want as an investor. Again, it’s reminding them that we don’t need to take this type of risk. Some clients’ growth buckets were just in muni bonds for 10 years, until they produced enough income to support their lifestyle. But it’s a significant blind spot right now — nobody really knows what some of these things are worth. But it looks good on paper.

01:04:27  Barry Ritholtz: Yeah, to say the very least. I have to bring up your podcast, The Pro’s Pro. Your first guest was Eli Manning — is that right? What is this podcast thing? What motivated you to go that way?

01:04:41  Joe McLean: It’s this new thing. It’s just starting — it just came out now.

01:04:44  Barry Ritholtz: And what do you want to accomplish by sitting down with people like Eli Manning?

01:04:48  Joe McLean: For me, I was just hoping it’s a gift to the next generation that’s seeking information — and getting some quality information. We see now, in the NIL world, where a young person will come to me and say, “Hey, I play at Oregon, but I’m going to set up my LLC in Texas, because I have an aunt there, and I read this thing on Instagram where I could not pay any state income taxes.” There’s information out there, and it’s just not right. So this whole idea of wanting each of these clients to be the person someone walks to in their locker room and asks a bunch of questions of — the pro — I just want to interview a lot of these successful athletes that have been through it. Eli’s an example: he had to come into New York and lead a city, and understand the most important things to build trust quickly with his teammates and his coaches. There are all these built-in athletic things that are important. And then he came into an extraordinary amount of wealth, and he had to manage it. And for him, now it’s learning how to give money away most effectively. So the more I can extract information from people that have been there and done that, and share that with everybody — it’s a testament to what these individuals have done, but at the same time, we can all learn from them as well.

01:06:06  Barry Ritholtz: Creating a permanent record is so important, because the half-life of financial literacy is so short. I’ve had the same conversation every three years — “Didn’t we talk about this in 2023?” “Yeah, but I kind of forgot.” So, I only have you for a few more minutes — let’s jump to our favorite questions. I ask all of my guests, starting with: you referred to a few people, but let’s put them in one place. Who are your mentors, who helped shape your career?

01:06:41  Joe McLean: My mom, for sure. She did whatever it took to raise three boys, and then put me in the right situation to have an opportunity to be around Lute Olson. One of the great gifts Coach Olson gave us was that he made us do public speaking at school. We had to do it in sixth, seventh, and eighth grade. And then sophomore year, you start working your way into high school, and by senior year you had to speak at a high school graduation. He brought in people to teach you how to communicate effectively. I had no idea the power of that over time — once you get into the work world, and the level of confidence it gives you, while always having a high level of humility. That was a great gift, outside of all the basketball stuff, and always being prepared. Jim Escobido was the example at Franklin Templeton, who told me, “You don’t know nothing about nothing,” which was great. And then, as I began to understand the mindset, having someone like Ken Haman, who retaught me Maslow’s hierarchy of human needs — this level of safety and security that so many humans are stuck in. If we can give them a reason to say no to a lot of things, and the power of a plan, to get them to some level of connection, whether it’s human or professional — that was a great gift he gave me. But I’ve found, over time, that it’s less just mentors and more finding ambassadors for you. I see it with my kids — I have a daughter who didn’t necessarily have great confidence athletically, and then someone just took extra time to say, “You know, if you did this, this, and this, I think you could be exceptional.” And then they work with you. It’s just finding more ambassadors. That’s what I’m trying to do as an advisor — to be an ambassador on behalf of more clients. It’s super powerful. It’s not necessarily a mentor relationship, but I think the greatest gift you can give somebody else is your belief in them, even when they don’t believe in themselves. That’s the power of being an ambassador. I highly recommend it for as many people as possible.

01:08:52  Barry Ritholtz: Let’s talk about books. What are you reading right now? What are some of your favorites? You mentioned a book earlier.

01:08:58  Joe McLean: Greg McKeown — I think it’s Essentialism. That’s a great — that is the disciplined pursuit of less, and getting rid of some of the inefficiencies in everybody’s life. And you could end up doing more. My favorite book is always the one — for me, it’s whatever got you reading. I didn’t read in college. I did what I had to do to get good grades and stay eligible. And my first book ever read was John Grisham, The Firm. For me, it got me excited to want to turn the page. And now I read as often and as much as I possibly can. I just can’t get enough of it. But I always say, for those that aren’t reading: just go read anything that excites you. It could be a magazine, it could be a comic strip — but whatever gets you excited to start reading, start.

01:09:50  Barry Ritholtz: Let’s talk about streaming. What are you either watching or listening to? What keeps you occupied when you’re traveling around the country visiting various athletes?

01:10:00  Joe McLean: Binging constantly on everything — Netflix. I just watched Madison, which was great. So sad. I like a good cry. I cry more on airplanes than anywhere else.

01:10:14  Barry Ritholtz: If you watched Madison, I’m assuming you saw Landman, right?

01:10:18  Joe McLean: For sure. Yeah.

01:10:18  Barry Ritholtz: Anything Taylor Sheridan does — he’s extraordinary.

01:10:20  Joe McLean: I don’t know when he sleeps.

01:10:21  Barry Ritholtz: And he’s got another — there’s a new show coming out this month. I’m just astonished how productive he is. Give us another — what else are you watching?

01:10:36  Joe McLean: Oh my God, I can’t even remember the one I’m watching with my wife. We always have rules where we have to watch them together — we can’t binge outside. There’s one where they’re dating, and the age is like a 20-year difference. I can’t remember it. I became dumber every 20 minutes that I watched it. I rewatch West Wing, John Adams, and Band of Brothers probably twice a year. I’m in a loop.

01:11:03  Barry Ritholtz: It’s funny — I don’t remember what I was doing when West Wing was on, but it wasn’t watching TV, and it’s on my list of things to go back and watch. During the pandemic, we watched Mad Men, which I had never seen. It’s a really amazing show. Final two questions. What sort of advice would you give to a recent college grad interested in either a career as a professional athlete, or working with professional athletes in a financial capacity?

01:11:38  Joe McLean: It does help to come with a sports background — however, it’s nowhere near the most important trait. The more you can bring interesting experiences and knowledge to sports, the better. That was the example of Moneyball — a bunch of statistical nerds brought data to help drive more opportunities in sports and be more effective. So you can bring an outside perspective. However, whether it’s getting into sports or anywhere else, come in with this service mindset of “nothing is beneath you.” I had a situation one time where an honor student came in — as an early job with us — and said, “Hey, I’ve been paying bills and bookkeeping for clients for the last six months, and I was an honor student at such-and-such college. This is beneath me.” And I said, “Well, last week I was cleaning gutters at a client’s house, because it was the first time them being a homeowner, and we’re trying to teach them how to manage a home. Nothing’s beneath you.” So if you just come in built to serve, with that service mindset, you’re going to be successful at anything you do.

01:12:39  Barry Ritholtz: I love that answer. And our final question: what do you know about the world of investing and wealth management today that might have been useful 25 years ago, when you were first getting started?

01:12:52  Joe McLean: I would have listened to what Sir John Templeton, at Franklin Templeton, was giving us in some of these quotes. Like, “The four worst words in investing are: this time it’s different.” And, “Bull markets are born on pessimism, they grow on skepticism, they mature on optimism, and they die on euphoria.” I would have listened, because nothing’s changed. It’s taken me a long time to not have any FOMO when it comes to investing — but I’m there. I would have listened to a lot of his traits and quotes from back then, because obviously he had lived them before me. I just wish I would have listened in the early days.

01:13:28  Barry Ritholtz: Joe, really fascinating stuff. Thank you for being so generous with your time. We have been speaking with Joe McLean. He is managing partner at MAI Capital Management. If you enjoy this conversation, well, check out any of the previous 600 or so we’ve done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, Apple Podcasts, or wherever you get your favorite podcasts from. I would be remiss if I didn’t thank the crack team that helps put these conversations together each week. My audio engineer is Steve Gonzalez. Anna Luke is my producer. Sean Russo is my researcher. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

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The post MiB: Joe McLean, MAI Capital appeared first on The Big Picture.

The transcript from this week’s MiB: Beating the S&P For Generations with Chris Davis of Davis Funds, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

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Masters in Business  · Bloomberg Radio
Barry Ritholtz in conversation with Chris Davis, Chairman & Portfolio Manager, Davis Advisors

[00:00:02] Announcer: Bloomberg Audio Studios, podcasts, radio News. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

[00:00:17] Barry Ritholtz: This week on the podcast. Strap yourself in for another banger. Chris Davis chews up the scenery. He is the portfolio manager of Davis Advisors. They’ve been kicking the S&P’s butt for the past, I don’t know, since 1969. $20 billion in client assets. Fascinating conversation. Charlie Munger was his mentor. He sits on the board of Koch and on Berkshire Hathaway. I thought this conversation was spectacular. I think you will also, with no further ado, my sit down with Chris Davis.

[00:00:53] Chris Davis: It’s so always good to be with you. Thank you so much.

[00:00:56] Barry Ritholtz: So before we get into your career — master’s degree with honors from the University of St. Andrews in Scotland — like how did that come about?

[00:01:08] Chris Davis: Well, one of the things that confuses people is I actually don’t have an undergraduate degree. I only have the master’s degree. Wait, how — I sort of skipped that middle step.

[00:01:18] Barry Ritholtz: So did you go to an undergraduate college?

[00:01:21] Chris Davis: Well, what happened is I went to St. Andrews. I had originally only intended to go for a year. I wanted to be a veterinarian. That’s a long side story. And I had worked at the Bronx Zoo. I had worked at the —

[00:01:33] Barry Ritholtz: Wait, wait, wait —

[00:01:33] Chris Davis: Humane Society.

[00:01:34] Barry Ritholtz: So the original plan wasn’t “dad’s a fund manager, grandfather’s a fund manager, I guess I’m gonna go into the family business.” That was not the —

[00:01:44] Chris Davis: Plan. Definitely not. But I give both of them credit. They felt that all of their kids should be financially literate. And so every kid worked for my father or for my grandfather at some point and learned, because they just felt like, look, you’ll have money over time. It’s not taught in schools, just the basic fundamentals of investing. And God help you, if you turn on the TV, you’re gonna get a totally distorted view of what investing is.

[00:02:15] Barry Ritholtz: Fire hose of nonsense.

[00:02:17] Chris Davis: Exactly. And so we all had this grounding. But for example, my smartest sibling without question is my younger sister, but she’s a small town doctor. But boy, does she understand investing. She’s very thoughtful in how she’s managed her financial affairs. So we owed that route, but we all thought we were going different paths. She was interested in medicine. I was interested in veterinary medicine. And so I was gonna go to Cornell, and I was very young for my high school class, and I was very late hitting puberty. I mean, I was five feet tall my senior year in high school. That’s when I broke five feet. So you can imagine what this looked like, but my scores and grades were okay. And so Cornell took me into their pre-vet program, but the woman that ran it said, look, this is a seven year program, it’s intense. Why don’t you take a year off, like a gap year? So I proposed that to my father. He said, we don’t do that in our family. You could go study, but there’s no year off, like to go ski or find yourself.

[00:03:27] Barry Ritholtz: Did you skip a grade, or — like me — were you born in October, November, December, so you’re young relative to the rest of —

[00:03:33] Chris Davis: No, I had skipped a grade sort of early because, bizarrely — nobody in my family believes this now — but I didn’t talk until quite late. So they had sort of, and then when I started talking, they jumped me ahead —

[00:03:47] Barry Ritholtz: Making up for —

[00:03:48] Chris Davis: Exactly. It never stopped since then. But anyway, so I had this year, and it was the first year that the University of St. Andrews was interested in taking direct applications from students where they dropped the requirement to have A levels or O levels, the British entry exams, mostly because they wanted the Yankee dollar. Of course, you’ve gotta remember Thatcher had just become prime minister. She was slashing the public support of the Scottish universities. So I applied. There were, I think, eight of us Americans that came in that first year. And they had a program where after two years you could apply into the honors program, which would allow you to concentrate on just one subject. And I ended up picking two. But needless to say —

[00:04:41] Barry Ritholtz: What were the —

[00:04:42] Chris Davis: Two? It was philosophy and theology.

[00:04:44] Barry Ritholtz: Very —

[00:04:45] Chris Davis: Interesting. I picked them my freshman year thinking, well, when I go back to Cornell, I’m gonna be filled up with organic chemistry and biology and anatomy and so on. So I may as well pick things that I’ll never get to study again. So I picked things like medieval history, philosophy, theology, and —

[00:05:03] Barry Ritholtz: I love that. That’s something I always, in hindsight, wish I did. I started out physics and math and switched to political science and philosophy. So I got to study some stuff that was fun. But medieval history sounds like that would be a delightful semester.

[00:05:22] Chris Davis: You used the perfect word — fun. I mean, I became a good student in high school. I wasn’t a good student before. In fact, recently I found my eighth grade final report card. I went to a school here in New York, and it was a pretty strict, wear-a-uniform sort of boys school. And the headmaster would review each report card before it went to the parents and then make a comment on the bottom. And the headmaster’s comment on my final elementary school report card was: “Yet another semester of squandered potential.”

[00:05:57] Barry Ritholtz: Not living up to his potential. That’s —

[00:06:00] Chris Davis: Oh my god, my —

[00:06:00] Barry Ritholtz: That’s a classic.

[00:06:01] Chris Davis: My children found that — my mother gave it to my children, which was a big problem. You can imagine. But anyway, so I thought I’ll just be in Scotland for a year. I picked subjects I would never study again. They were so fun. It was just —

[00:06:15] Barry Ritholtz: Especially in Scotland, studying medieval history.

[00:06:18] Chris Davis: A medieval university, where Hume had been a professor. I mean, it was just amazing. And of course it’s also a Presbyterian seminary — St. Mary’s, which is one of the colleges there. So I thought, well — and it wasn’t that I was a deeply faithful sort of person. I more thought of theology from the point of view of: people organize their lives around religion. People die for it. I should study this. But there was also a secondary reason I was interested, which is, if you look at communities that have a religious institution at their center — whether they’re rural, urban, suburban — almost all outcomes are better. Intact families, crime rates, graduation rates, all of these sorts of statistics tend to go better. So to me, I was lucky that I never had one of those childhoods where it was beaten into me or something. So it was more this curiosity about how it seemed to serve communities to have a shared value system. Anyway, I picked those subjects, I applied into this honors program, so I was able to get the master’s at the end, but there was no undergraduate degree along the way.

[00:07:34] Barry Ritholtz: And there was no going back to Cornell to become a vet. Although the ardor for that faded.

[00:07:40] Chris Davis: Although because I deferred my admission freshman year, I still get mailings from their alumni department because I matriculated, but then deferred. And I’d like to think the development department has nothing to do with them sending me these mailings. But I lived on a sheep farm in Scotland, and of course that was when I realized I was confusing loving animals with wanting to be a vet. And those are very different things.

[00:08:06] Barry Ritholtz: Yeah. Very much so. We used to foster dogs and get them adopted. And anytime I meet someone who’s like, “oh, I really don’t care for dogs,” it’s like —

[00:08:19] Chris Davis: Oh, that’s a big X. Done. We weren’t allowed to have dogs when I was a kid, but I grew up right in the city, on East 84th Street. But my parents, from the time I was in maybe third grade or so — probably eight or nine years old, something like that — they said I could walk dogs, I could be a dog walker, provided I didn’t cross any streets. So I’d put up a notice in the elevator in our building if anybody needed their dog walked. And then I would just walk the dogs around the block before school and after school. I can still remember the name of every dog I walked. Which is amazing. And I loved it. And of course it actually became seed capital, which is unexpected. But the reason was, I could probably charge 50 cents a walk back then. So it was nothing. But I got to be with dogs and I enjoyed it. It was like a paper route.

[00:09:11] Barry Ritholtz: And you’re running a small business. I had a paper route, and it was just so formative.

[00:09:16] Chris Davis: So formative. And this was like a paper route for city kids, because you couldn’t have a paper route in New York. But then an amazing thing happened. New York City, around — it’d have to be around 1977 or ’78 — passed the pooper scooper —

[00:09:32] Barry Ritholtz: Law, I remember.

[00:09:33] Chris Davis: And everything changed, because people had these dogs and nobody even knew what to do. Nobody had ever imagined cleaning up after a dog. There were all sorts of inventions —

[00:09:47] Barry Ritholtz: Just the bag. It’s not that complicated.

[00:09:49] Chris Davis: But people didn’t — people were so grossed out, they had to carry shovels with them.

[00:09:52] Barry Ritholtz: You change the diaper on the baby — this is just processed food. There’s no big deal.

[00:09:58] Chris Davis: Well, for me, it meant that my rates could go from 50 cents to $5, and people were glad to pay it. And instead of one or two dogs, I had four or five. It was real money. Because what it meant was I was suddenly making $50 a week in —

[00:10:16] Barry Ritholtz: As a 10-year-old. That’s good.

[00:10:17] Chris Davis: That’s good. And so you start thinking about — holy cow, I’m making $250 a month, I’m making thousands of dollars a year. And it was just fantastic. So I’ve loved dogs ever since.

[00:10:32] Barry Ritholtz: So let’s talk a little bit about the early days of the career. You start as an accountant at State Street Bank and ultimately end up as an unglamorous research analyst at Tanaka Capital Management. These are very much bottom rung on the Wall Street ladder. What’d you learn in those days?

[00:10:53] Chris Davis: Well, it wasn’t really my first job. My first job was, I became a pastoral assistant at the American Cathedral in Paris. So I moved from rural Scotland to Paris. Well, that was like landing in Oz. Honest to God, my eyes lit up. But again, in the same way that living on the sheep farm convinced me I was confusing loving animals with wanting to be a vet, working for the American Cathedral convinced me I was confusing loving people with wanting to be a priest or something. So I moved from there to Boston and I thought about teaching. I actually even applied to the CIA, because I was very interested in research and international affairs. I’d lived abroad five years then. And I thought it would be an amazing thing to be the greatest expert on, let’s say, Czechoslovakia — to learn the language, the history, the people, the economics, the business, the military, the topography. And so I didn’t wanna be a spy, but I wanted to be an analyst. And the CIA wisely turned me down, having briefly had a stint in the Workers’ Revolutionary Party. And —

[00:12:09] Barry Ritholtz: So they looked at your history and said, this guy’s —

[00:12:12] Chris Davis: They were like, this needs to ripen a little more.

[00:12:15] Barry Ritholtz: We don’t know if you have the ethical malleability that we’re looking for.

[00:12:19] Chris Davis: But so I started thinking about the summers that I had spent working with my dad and my grandfather, both of whom loved their jobs. They loved investing, they loved their career. And of course that was infectious. Even as kids, I thought the idea of investing was so interesting, because they didn’t highlight the math to begin with. They highlighted the stories, the people, the ideas. But I realized that even though I’d had this study of the idea of businesses being made up of people and ideas, I had no grounding in the rigor of it. And so what I like to say is, my father and grandfather let us live in a foreign country — like live in France for some time, hear French spoken, see this new culture — before we had to learn the grammar and read the textbooks and so on. So they got the order right for setting the hook of curiosity. But I knew enough to know that I couldn’t go into investing without a real grounding. And of course, a bank is perfect. I interviewed a lot of places. George Putnam himself turned me down for a job at Putnam. So I had a lot of rejects before. And State Street Bank had a program for entry level accountants. They had a wonderful training program. I had an operation center in Quincy, Massachusetts, and I would take the red line down there, and I could do my day job, but they would also pay for any schooling you wanted. They had something called the State Street Institute, and you could take courses in anything to do with economics, accounting, business. And — you took advantage of that? — I took advantage of that, although I will say I was fooled by one course. They had a course in their catalog that was called “The Rules of Rhythmic Touch.” Now I —

[00:14:28] Barry Ritholtz: Thought that sounds like massage. That —

[00:14:30] Chris Davis: Sounds pretty good, right? I circled that one in the little course catalog. It was only a two-night course, and I showed up, and it was how to use a 10-key punch tape calculator without looking at your hands. So when you’re summing up a column — a skill for an accountant. It’s the rules of rhythmic touch. And I would say, if you put one on this table now, I would bet you a large sum of money I could run a column of numbers faster than you.

[00:15:01] Barry Ritholtz: I’m gonna defer on that one.

[00:15:03] Chris Davis: So that’s how I got the grounding there. Graham Tanaka was somebody I had met during my summer jobs. He was a very talented analyst at Fiduciary Trust. He’d been at JP Morgan before, and we’d stayed in touch. And I learned that he was hanging out his own shingle and starting his own firm. He’s Japanese American, really a very driven, talented guy. And he said he wanted an apprentice — I would be his first hire and we would go from there. And that was a terrific experience.

[00:15:44] Barry Ritholtz: How long did you stay at Tanaka?

[00:15:46] Chris Davis: I stayed there about two years. Because what happened after the first stretch is, my grandfather, who I was close with — when I went to work for Tanaka, my grandfather opened up an account at Tanaka, because he had big investments in Japanese firms. He had a lot of admiration for Japanese culture and values. And he admired — this is —

[00:16:13] Barry Ritholtz: Late seventies, early eighties.

[00:16:15] Chris Davis: This was late eighties now. So we’re probably in ’89, something like ’88. But Graham was a growth investor primarily in the US, and he just happened to have Japanese heritage. So my grandfather opened an account, and as the time there progressed, my grandfather was worried about his health failing. He loved the business, and he wanted to die at his desk. And so he started asking if I would come in on the weekends and go through his accounts with him. And Graham, of course, was so respectful of that. So it was a very gradual transition out. There wasn’t an end date of my time with Graham so much as there was a start date of my time working with my dad and grandfather.

[00:17:04] Barry Ritholtz: So your father launched Davis Advisors in 1969. And your grandfather was still running his Davis investing shop in parallel. Did they ever end up merging? What happened when you decided, all right, it’s time?

[00:17:25] Chris Davis: Well, my father was my grandfather’s only son. And as often happens, they had a very complicated relationship, I’m sure. And so they never worked together. My father grew up with this famous name, because the numbers were right in the beginning. It was a hundred thousand dollars that he borrowed from his wife’s family. It was 800 million when he died. And it was 2.2 billion when his wife died. And she was the successor trustee. And then it all went to charity after that. He didn’t believe in inheritance, but it was in trust for her. And she lived to be 106. Although, I will tell you, I managed her account, and in 2008, of course, I had to go see her. And we had a lot of financial stocks, and we had a really bad mark at the bottom, probably down 40 or 50%. And I went to see her in Florida, and I said, grand, I just want you to know the businesses are sound, we took some body blows, but in the long run it’s going to be fine. And she said, “You idiot, I’m 98 years old. What do I care?” She said, “I don’t buy green bananas. And you’re telling me I’m down 50%? Go get back to work.” So she teased me, because of course she lived long enough to see it all come back. And she would always tease me about not buying green bananas, and my telling her she just had to have a little bit of a longer term perspective. But anyway, my grandfather built his firm, which was called Shelby Cullom Davis & Company. My father built his, which in the beginning was called Davis, Palmer and Biggs. And then the New York Venture Fund was a fund managed by Davis, Palmer and Biggs. And when I was working at Tanaka, I went to a meeting — it was Chubb Insurance, an analyst day sort of thing. And there weren’t that many analysts then, so it was held around a big boardroom table. And the CEO was Dean O’Hare. And I looked around the table, and both my father and grandfather were at the same meeting by chance. And I thought, this seems a little nuts. And so I spoke to them both, because I was very close with them both. One of the things my father was very clear on is, he wanted out at age 60. He said, hard stop. And here was my grandfather at the time, and he was probably in his late eighties, early eighties then. And he said, I wanna die at my desk. I mean, he was the one that called investing “the best game in town.” He would say, this is the best game in town. He loved his firm — and now his firm, most of it was his own capital. So in a way he was just managing his own, but he loved being in the flow. In a way, my grandfather loved being a great man. He had served as an ambassador. He was a co-founder of the Heritage Foundation, chairman for a long time, had very conservative political views — although that was a slightly different organization, very different 25 years ago than it is now. But he was a passionate Reagan Republican, sort of a Hoover Institute Republican. And his namesake, Shelby Cullom, was a Republican senator and governor under Lincoln. So it was in him deep. And so he loved the game, and it wouldn’t have occurred to him to stop working. My father loved investing, but he did not like the responsibility of the business. He didn’t like boards and clients and employees. That was not his thing. He was a much more — wonderful human being, but very different than my grandfather. So he wanted out before he turned 60, my grandfather wanted to die at his desk. And I thought, well, here I am. I don’t know what I am at the time, 26 or something. And I was like, here’s a great idea: why don’t we merge the companies, and then I’ll come in, and I’ll learn from both of you. And I was an S&L and a banking analyst then. And of course this was going right into the teeth of the S&L crisis. So it was an exciting time to invest. And then we’ll figure out a way for the three of us to do this.

[00:22:15] Barry Ritholtz: And how long did it take for that to all come together?

[00:22:18] Chris Davis: My father turned 60 in 1997, 1998, somewhere like that. And my grandfather died —

[00:22:29] Barry Ritholtz: He’s 86, 88 —

[00:22:32] Chris Davis: Something like that. Don’t quiz me. My grandfather died in, let’s see, 1994. So I’d have to say he was 86 or 87 when he died. And so, in a way, the timing all sort of overlapped beautifully. My grandfather worked almost to the end. My father helped coach me through that transition, and then he walked out the door in 1998. And that was that. He’s been an incredible mentor. He’s always available to talk, but as he said, I’m here to give you advice, I’m not giving any orders. And he didn’t sit on our boards. He just walked out, and just like my grandfather, started giving his money away. He created and oversees the largest international scholarship program on Earth.

[00:23:34] Barry Ritholtz: And I know there’s a foundation. I haven’t read the book, but there’s John Rothchild, who was, I think, Peter Lynch’s co-author. He’s a lovely man. “The Davis Dynasty.” How odd is it to have — hey, the story, the game isn’t over, and you are writing this book. How odd is it to be part of a book like that?

[00:24:02] Chris Davis: Well, first, it’s probably a book read by dozens of people nationwide. Because remember, it is the riveting biography of the Dean of Insurance Stocks. So that’s a pretty narrow pool. Not —

[00:24:15] Barry Ritholtz: Not a hot seller, you’re saying.

[00:24:17] Chris Davis: And I do think I experienced the writing of that book as sort of terrifying.

[00:24:28] Barry Ritholtz: A lot to live up to. It was a lot —

[00:24:30] Chris Davis: Your dad and your grandfather. It was a lot to live up to. Sure. And I will say it’s something that I’m just profoundly grateful to my dad for — well, really to both of them. But my dad is a very humble person. And in that book, it is 90% about my grandfather, and my dad was sort of what I would call a quiet doer. He loved investing, he loved research, but he was very low profile. And so his view was very much that, despite the graphic title, this is really a book about his father. And I think that’s true. In fact, at our firm, we made slimmed-down versions of that book and called it “The Davis Discipline” instead, which was much more consistent with our view of life. Because “dynasty” implies dynastic wealth, it implies inheritance —

[00:25:32] Barry Ritholtz: And there’s no inheritance.

[00:25:33] Chris Davis: There’s none of that. Which —

[00:25:35] Barry Ritholtz: I would imagine people would be surprised to learn.

[00:25:39] Chris Davis: Yeah. And it’s funny, it’s not something I’m quite as fanatic about.

[00:25:46] Barry Ritholtz: Well, Warren Buffett is a big believer in — hey, you should give your kids enough. I know I’m gonna mangle this — give them enough money so they could do anything, but not so much money that they can do nothing.

[00:26:00] Chris Davis: You didn’t mangle it. You stuck the landing. That is exactly the right philosophy. And I would say my father and grandfather sort of believed that. I mean, I have siblings that were helped out. And I had an aunt that my grandfather left some money to, to ensure that she and her kids would be all right and so on. So it wasn’t ruthless. But I think it came from a place of compassion — this view that there’s something dignified about earning your way in the world. And, well, look, Barry, if you look at the greater world, there’s a lot of fear. And fear can be a motivator. But God, is it a weight. People live one operation away from bankruptcy, a layoff away from being foreclosed on. If you as a parent can put a safety net there, if our society doesn’t — if you as a parent can do that for your kids, and my grandfather did that, and my father did that — there was, I don’t think we ever grew up with a feeling that there wasn’t a safety net. And so the freedom from that fear is a huge gift you give your kids. It was a huge gift that was given to me. And that’s what gives you the confidence to be able to try anything. Because you’re not worried — especially when you start having kids and you think, my God, I can’t take this risk, I can’t leave State Street. It never occurred to me that I couldn’t leave. But I think their view was, the fortunate thing was both my dad and my grandfather were very frugal. So we didn’t live in hardship, but we certainly didn’t go to Southampton and Palm Beach and Aspen. They had a very puritanical sense of that. We went out to Fire Island, and we had a house on stilts — I still have a house out there, and it’s in a swamp. It’s one storm away from the end, and there’s no cars. You take a little ferry out there. I always think of it as the anti-Hamptons.

[00:27:30] Barry Ritholtz: Oh, very much is.

[00:28:00] Chris Davis: And that’s what I love. My parents had a place in Maine, but it was not a fancy deal. Like a little cabin. Not Kennebunkport. Well, they had a nice house, but it wasn’t a Newport mansion. And they had it because — they used to call them, in the twenties, people like my grandparents were called “rustics.” Isn’t that a funny word? It was people that were wealthy, but would go and live very simply in the summer. It’s very much a Scandinavian ethic. And I think it developed especially in the late 19th century — there was a movement called the Chautauqua movement, that I’m still a supporter of, which basically said: as the bourgeoisie and wealth were being created, there was this one branch of wealth creators that decided they wanted to be English aristocrats. And they built mansions in Newport, and they had yachts. And then there was another branch that said, that’s not the American way. Rockefeller in many ways embodied a certain amount of that sense of stewardship. Some were even more extreme in terms of restraint. But the Chautauqua movement sprung up — they created these places, there’s still one left, it’s in upstate New York, where you would go with your family for self-improvement. And you would live simply, and there would be lectures. You would improve your mind, you’d improve your soul, you’d improve your health. And you’d bring your kids. There would be a sort of day camp for the kids, and there’d be church on Sunday. But it was a non-denominational church that was about service. And then there were lectures. It’s where Salman Rushdie was stabbed, if you remember, a couple of years ago. He was in Chautauqua, lecturing at this place that still exists, and people go for a week or two weeks every year. So the place I go on Fire Island was part of that Chautauqua movement. But the ethos of it, I think, is something my parents and grandparents really subscribed to.

[00:30:49] Barry Ritholtz: Really, really fascinating. Coming up, we continue our conversation with Chris Davis, chairman and portfolio manager at Davis Advisors, discussing how he developed his philosophy and investment process at Davis. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. — I am Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. Chris Davis is my extra special guest. He is the chairman of Davis Advisors. In 2005, he was named Morningstar’s Portfolio Manager of the Year. He helps to oversee $20 billion in client assets, a healthy chunk of which is he and his colleagues. We briefly mentioned Buffett earlier — later on I get to ask people who their mentors were, but I have to bring this to this part of the conversation. Warren Buffett and Charlie Munger were your mentors? Is this remotely true? It just seems insane.

[00:32:13] Chris Davis: Oh, it started in — I wanna say it was 1990. So —

[00:32:23] Barry Ritholtz: He’s already a well-known investing rockstar at that point.

[00:32:28] Chris Davis: The way it really started was with Charlie. I met Charlie long before Warren. The reason was, I was trying to sell a business. My grandfather, as I started going through his accounts and going in there on the weekends — he had a business called securities lending. And I don’t know how well you know that business —

[00:32:48] Barry Ritholtz: Anytime you’re gonna short a stock, you gotta borrow it from somebody, and that’s gonna cost you a little —

[00:32:52] Chris Davis: It’s gonna cost you a little margin. So my grandfather’s view was, he had a portfolio of appreciated stocks that he was never gonna sell. And he said, if somebody wants to short the stock and pay me to borrow it, fine. And the number one borrowed stock in those days was Berkshire — Berkshire Hathaway, of course, because you couldn’t borrow it anywhere, because everybody had the certificates. They weren’t —

[00:33:17] Barry Ritholtz: Literally had the paper certs.

[00:33:19] Chris Davis: Yeah. There was very little Berkshire that was in street name. It was in individual people, and therefore you couldn’t borrow it.

[00:33:25] Barry Ritholtz: It was locked away and safe.

[00:33:27] Chris Davis: So he had a big holding, and he had a broker dealer — Shelby Cullom Davis was a registered broker dealer. And so he could lend out the shares and make a couple hundred basis points a year extra return on top of the Berkshire return. So that’s how he started in the securities lending business. But gradually, the guy who was doing it for him and administering it said, well, we can also help — we’ve got all these people that wanna short all sorts of different securities, and we can act as what was called a broker finder. We’ll go out and find the securities for these people to short, and we’ll make a little spread as they go through. Well, this business grew and grew and grew, and soon there were 17 employees in the securities lending business. And it was a big operation. And my grandfather by then was probably in his eighties and was nervous, because as I went through the list of counterparties with him, there were firms we had never heard of. There was this one called LTCM. And I said, what is this LTCM? We’ve got, like, $500, $800 million lent out to them. “Oh, that’s Long-Term Capital Management.” So we talked about it. He said, yeah, I think we gotta get rid of this thing.

[00:34:58] Barry Ritholtz: So wait, did he hold on to that business, or did they spin it —

[00:35:01] Chris Davis: So I said to him, we gotta get rid of this thing. And he said, fine, well, see if you can find somebody to take it over, because we do have 17 employees, and they made their careers here. We’re not gonna fire everybody. And so we started calling around, and I thought, what characteristics do we need? We need a lot of excess capital, ideally an appreciated portfolio of securities, a sort of AAA type balance sheet, and somebody that can understand it. So I thought, well, Berkshire. So a wonderful friend in those days named Bob Lenzner, who was a reporter at Forbes —

[00:35:42] Barry Ritholtz: I recall — I had lunch with him at, I wanna say, the Harvard Club. I think he was an alum. Is that right?

[00:35:49] Chris Davis: Could have been his kids. Our kids were —

[00:35:51] Barry Ritholtz: I could be wrong, but —

[00:35:52] Chris Davis: Our kids were in the same elementary school. And I got to know him just watching basketball games with third graders or something. And he mentioned casually in conversation that he had met this brilliant guy, Charlie Munger. And I said, well, I know who Charlie is, but I’m dying to meet him. And so Bob arranged for us to have breakfast. Charlie was in New York, and I went down — it was at the Millennium Hotel down by the World Trade Center. And I sat down and introduced myself: Mr. Munger, pleased to meet you, I’m Chris Davis. And I said, I’m working with my grandfather at Shelby Cullom Davis & Company, and have I got a business for you. And I pitched our securities lending business, and Charlie put up his hand after about four minutes, and he said, “I have no intention of buying a business run by seven guys named Vinny and Barry.” It was the perfect description. I mean, we had Vinny, Tony, Mikey, Nicky. And so we did end up finding a buyer eventually, just not Berkshire. And it wasn’t really a buyer — we just did a sort of earn-out. We just wanted everybody to have jobs. And so they all got a job at a broker dealer.

[00:37:14] Barry Ritholtz: So beyond the pitch to Munger, how did your relationship —

[00:37:17] Chris Davis: Go? Well, so the pitch ended in four and a half minutes. And so I said, well, I’m sorry I wasted your time. And I got up to leave, and he said, where are you going? And I said, well — just don’t leave, I’m only just getting to know you. I’m not interested in your business, but tell me about you. And we got talking about a few things. But what really happened was, I started listening. And as you can tell, I like to talk — around Charlie, I just listened as much as I could. And we sat at that table till lunchtime. And Charlie said, I have to go to a lunch, but if you find yourself in Los Angeles, give me a call and I’ll make time for you. And so, of course, I started going to Los Angeles pretty regularly. And so that was a huge gift in my life. It was a gift professionally, but thank God it was a gift personally. He helped me through some hard times in my personal life. He was just a wonderful mentor in every dimension.

[00:38:23] Barry Ritholtz: So there are a lot of things that all of us have learned from Warren and Charlie — through the letters, through the annual meetings, through all sorts of stuff. I’m curious, what did you learn from Charlie that none of us can find in the public materials?

[00:38:46] Chris Davis: Well —

[00:38:48] Barry Ritholtz: Good question.

[00:38:49] Chris Davis: Right. I think, most deeply, I learned about integrity in the traditional sense, meaning wholeness. Charlie was a whole person. The alignment — what he thought, what he said, what he did — they were all the same thing. His sense of his own code of being was so disciplined, but was filled with this — his reputation as a curmudgeon may have been cultivated. I never saw it. He was a truth speaker, but he was also, in a very profound way, a very loving person — very cheerful, very committed, profoundly loyal. So I used to joke that if I did a Venn diagram of the things I admire about my father and the things I admire about Charlie Munger, there’s surprisingly little overlap. They were both frugal. But Charlie was an incredibly broad thinker. My father was just single-minded about investing. Charlie was curious about everything. Charlie was very committed to relationship, continuity, breadth. My father is very specialized, very narrow. My father is incredibly physically fit and remains, to this day, very vigorous. Charlie was willfully sedentary. My father is very nomadic. And Charlie went to the same island in Minnesota and lived in the same house his whole life. He was very much a creature of habit. And so they were very different that way.

[00:40:46] Barry Ritholtz: Just imagine if Charlie exercised, how much longer he could have lived.

[00:40:50] Chris Davis: I don’t know, 99 and three quarters is pretty good. That’s one of the things he said — he said, I’m not sure I see the alignment.

[00:40:58] Barry Ritholtz: So let’s talk a little bit about the returns and about the philosophy. Back of the envelope, I calculated Davis Advisors has been compounding shareholder wealth at greater than 10% annually since 1969. Does that sound remotely accurate?

[00:41:17] Chris Davis: That sounds right. We’re still ahead of the market from the beginning.

[00:41:21] Barry Ritholtz: Starting out in 1969 — early days of a horrific bear market. You have managed money through — well, you were in grad school, but your dad — during the ’87 crash, you’re involved during the dot-com implosion, during the financial crisis, during the pandemic. I mean, you have seen lots and lots of cycles across all of these decades and all of these different environments. What key investment principles stand out as absolutely core, non-negotiable — this is the heart of what we do?

[00:41:58] Chris Davis: Well, the entire investment process boils down to these two questions: what sort of businesses do we wanna own, and how much do we pay for them? I should say, before I go on, that the interplay between those two is part of the nuance of investing. You may own a slightly lower quality business because the price is so extreme. But the characteristics that we look for in every business have to do with durability. Because we buy businesses thinking our goal is to own them forever. Our goal is for the return to be driven by the earnings yield on the business over time, not by some change in the valuation and finding an exit strategy. And so those characteristics are exactly the characteristics you would look for if I said, you’ve gotta put a business away for your kids or your grandkids. So the nature of the business, the returns on capital, the competitive moats, the nature of the balance sheet, the risk — and very importantly, the character of the people running it. We spend a lot of time on management evaluation. In this land of AI — I just came back from the Markel annual meeting — character will not show up efficiently, I don’t think, in the AI world. And boy does it matter when you think about navigating an unpredictable future — just that ability to be resilient, to adapt, but always to be investing the money as if it’s your own. And there are CEOs that do that. So that’s the nature of the business. And then the valuation discipline is the securities analysis part of what we do. If the first part is business research, then this is the securities analysis. It’s adjusting the income statement — that’s where the accounting training comes in. It’s understanding the incremental returns on capital, and it’s adjusting the balance sheet, every account on the balance sheet, because of course GAAP earnings is a convention, but it may or may not reflect reality. So you put those two things together and we build an IRR, an internal rate of return forecast. We work on this concept of owner earnings in each business. And then we focus on the quality and the durability of the business.

[00:44:26] Barry Ritholtz: I can’t help but point out that you talk about buying or owning businesses, not buying stocks. That seems to be a very fundamental distinction compared to most fund managers.

[00:44:42] Chris Davis: It’s so profoundly important. We view ourselves as business owners. We view the management as our partners in most cases. We view the signs of short-termism as dangerous. It’s one of the reasons we feel that the activist movement has completely lost the thread and should be greatly resisted — whereas it was very useful when it started. We could talk about that later. But absolutely, we’re owning businesses, and we’re trying to own businesses that are compounding machines. I watched what it meant for my grandfather to own businesses for 20, 30, 40 years. I look at our own portfolio. I look at companies like American Express or Wells Fargo or JP Morgan in the financial world. I look more recently at companies like Amazon, Texas Instruments. You look at what a business can compound over 20, 30 years. I mentioned Markel — when I first met the now-CEO of Markel, we met in Omaha at the Orpheum Theater at a Berkshire annual meeting in, like, 1990. The stock was at like 19 or 20, and it’s at 2000 now. And by the way, they have an activist idiotically saying they should split up the company. The company’s doing fine. It’s a company that is being built to last. And the idea of getting a quick sugar fix — because you can sell some part to private equity at a premium — that doesn’t serve capitalism, and it really won’t serve the long-term shareholders of that business.

[00:46:17] Barry Ritholtz: You mentioned a number of financials in that list. I’m kind of curious, because financials have had some pretty good years. They’ve had some pretty rough years. Obviously the financial crisis was devastating. Although my pet theory about JP Morgan Chase is, when they had their subprime problem, it predated everybody by five years. And there was still a bid when they had to get out. So they got a little lucky. And they happen to have a particularly talented CEO. But this concentration of financials — I’m curious what led to it. And I’m curious about the relationship between what some people describe as high conviction investing and concentration in a particular sector like financials.

[00:47:11] Chris Davis: Well, I think high conviction investing is exactly the right description. And if we end up with a focus on a particular sector, it’s not necessarily because of a view of the sector — it’s because of the individual companies. Financials is one of the most misleading sectors there is. Because to me, what creates correlation risk is when businesses are tied to the same macroeconomic variables. Financials is a massively broad category. There are financials that have risk if the wind blows in certain parts of the world; there are financials that have risk if interest rates change; financials that have risks that have to do with recession, some to capital markets — they’re all different. And I’ll give you a really powerful example. I started our financial fund, I don’t know, in something like 1990. That fund from then to today has outperformed the S&P 500. And it has outperformed the S&P 500 quite meaningfully when you compound it out. At the time we started it, I didn’t even know there was a financials index. But it was founded with this belief — and my grandfather of course specialized in financials, I started as a financials analyst — he had a phrase that he loved, which is, in financials you can find growth stocks in disguise. And he said the reason is that you have industries that are huge, where companies can grow for a long period of time by simply growing. Just this year, Progressive finally passed State Farm. Progressive has probably compounded in the high teens for 30 years. And it just became maybe the largest insurance company in personal auto. So these massive industries where you can compound for a long time without outgrowing your sector. Second advantage: the business model doesn’t really go obsolete. Making a spread on money is about the oldest business there is — maybe the second oldest.

[00:49:14] Barry Ritholtz: Thank you.

[00:49:16] Chris Davis: What else? It’s an industry where you have huge dispersion of outcomes, but relatively homogenous valuations. So — I mentioned Progressive. You have companies that have grown. Capital One — you look at Capital One’s growth record from 1987 to today, and yet it’s trading at nine or 10 times earnings, because it’s a financial. I’m like, it looks like a growth stock to me. It’s still run by the founder. It’s a fintech company, it’s a data science company. It’s in the top 10 of all holders of AI and machine learning patents. But it trades at 9.8 times earnings and 1.2 times book value, with a mid-teens return on equity. It seems just nuts to me, but whatever, we love it. So that’s the idea of growth stocks in disguise. And the last advantage of financials is that culture is a defining and sustainable difference.

[00:50:12] Barry Ritholtz: This is a theme I have heard from so many really savvy executors — CEOs as well as investors. How do you, as an investor, wrap your arms around culture? It feels like you almost have to be in it to see it. Is it something that, as an outside investor, you get access to? How do you identify quality culture?

[00:50:39] Chris Davis: Well, it’s a perfect question, but I’ll give you the punchline for the differentiation. Last year, our financial fund, which is 95% in large cap financials, outperformed the S&P financials index and the XLF, the largest financials ETF, by 1200 basis points.

[00:51:01] Barry Ritholtz: Touché, right?

[00:51:02] Chris Davis: It was a great year for us. But the point is, they’re in large cap financials, we’re in large cap financials. How can you get such dispersion? But the same is —

[00:51:13] Barry Ritholtz: So because they own everything, and you own the better companies.

[00:51:16] Chris Davis: Well, they’re very concentrated — they’re concentrated in the mega cap banks by and large, and Visa and MasterCard. But we’re fairly concentrated too. We only have 20, 25 names. And 20 or 25 names are probably 80% of the index.

[00:51:33] Barry Ritholtz: Does the gap come from the stock selection or the screening out of what you don’t like?

[00:51:40] Chris Davis: Well, it really goes back to the culture question. So to bring it full circle — within financials, we are looking for the companies that we feel can be compounding machines. And we’re looking for the companies where their culture creates a durable advantage. The reason culture can create an advantage in financials is because, in most cases, your cost of goods sold is an estimate. And if you have an aggressive management, they can use accounting to front-load earnings that you’ll pay the piper for — three, five, excuse me, 10 years from now. So they can look good for a long time. Whereas if you do the opposite, if you have a good culture, you’re understating the near term, but you’re building cushion for the long term. And so when the times go rough, when the tide goes out and you see who’s swimming without a bathing suit, that’s where the culture really matters. Now, you mentioned all the crises that I’ve seen over my career. I’ve seen a lot of these management teams and these companies go through crises, and you see who’s wearing a bathing suit. So we just went through an interest rate crisis, right?

[00:52:55] Barry Ritholtz: 2022, 500 basis points.

[00:52:57] Chris Davis: And we used to get questions from clients all the time: why don’t you own First Republic? In October, my colleague Pierce Crosby wrote a research report — just internal, just for himself — saying he’s just startled by the amount of risk Silicon Valley and First Republic are taking. He said it’s sort of amazing. Look at the duration on their assets. They’re assuming their liabilities, their deposits, are gonna be with them for 8, 10, 12 years, and that they’re uncorrelated. So we used to get questions, why don’t you own them? They’ve had such great growth records. And our view was, well, it’s been a mistake not to own them in the sense that they’ve outperformed, but we are not gonna own the companies that are optimized to the upcycle. And that’s a different culture. They had a growth culture, but it blew them up. And so we instead looked at companies like — well, JP Morgan was an outstanding example. Wells Fargo, Capital One — where they didn’t reach for the easy money of taking that extra risk on the interest rates. They could have. Jamie Dimon stood up at an analyst meeting and said, I could add a billion or $2 billion to my profits with a phone call, and I’m not gonna do it —

[00:54:13] Barry Ritholtz: Because of the risk.

[00:54:14] Chris Davis: Because of the risk. He said, I could put out my money for five, seven years, and he didn’t do it. So you could see that. So some of it’s quantitative. You identify culture by accounting choices. Look at how accident year reserves develop at insurance companies. Look at how credit losses develop. Look at the duration in the asset portfolio of a bank. Look at the mark-to-market risks that an investment bank is taking, and so on. So you can identify culture quantitatively in financials — that’s a big advantage. But then the next part is qualitative. And there, I think Warren put it best: in a complex financial, the CEO has to be the chief risk officer. You can have somebody with that title, but if the CEO doesn’t understand the nature and the complexity of the risks, they should not be the CEO of a financial company.

[00:55:03] Barry Ritholtz: So not only am I hearing a lot of Warren’s voice in things you say, I’m also hearing a lot of similar companies — Coca-Cola, Amex, Wells Fargo. Coincidence?

[00:55:18] Chris Davis: Well, it would be strange if we ended up different. Of course, I always like it when we owned it first. So for example, we were, I think, the largest shareholder of General Re before Berkshire bought it. And by the way, our research was not so good on that one.

[00:56:00] Barry Ritholtz: Oh, really? Not his favorite pick, over the —

[00:56:01] Chris Davis: As you saw subsequently, Gen Re did not perform very well for many years. And I think Warren would say — I think he has said publicly, I won’t put words in his mouth — I’ll put it this way: well, I’ll tell you what. Charlie came to visit us, and we have a wall of mistakes where we frame the stock certificate —

[00:56:08] Barry Ritholtz: A good temple of — yes, is that what that is?

[00:56:10] Chris Davis: And Charlie was looking through it, and he said, where the hell’s your Gen Re? And I said, Gen Re wasn’t a mistake. We got Berkshire stock for Gen Re. That was fantastic.

[00:56:21] Barry Ritholtz: Did you have anything to do with the transaction? Or they just went out and bought it? And you happen to be a big holder?

[00:56:26] Chris Davis: No. We were big GEICO shareholders, so — no, it was, and we overlapped in Amex, but no, I mean, we’re much more diversified. We never owned Apple. There’s huge differences. I mean, starting with the fact that Warren has outperformed all investment advisors for 50 years. But you’d be crazy not to study when Warren owns something, or to study Berkshire itself.

[00:57:00] Barry Ritholtz: That makes a lot of sense. There’s another distinction between the two of you. You say that you are neither deep value nor go-go growth. So what does that leave you? Growth at a reasonable price, somewhere, something adjacent —

[00:57:20] Chris Davis: We love growth at a reasonable price. Because what are the other —

[00:57:23] Barry Ritholtz: Who doesn’t want growth —

[00:57:23] Chris Davis: Growth at unreasonable prices, that turns —

[00:57:26] Barry Ritholtz: Out, or unreasonable —

[00:57:27] Chris Davis: Non-growth at silly prices.

[00:57:28] Barry Ritholtz: Yeah. Growth at a —

[00:57:29] Chris Davis: Reasonable price. I think what we would say is, it’s obvious to us that growth is a component of value, right?

[00:57:36] Barry Ritholtz: Growth is a component of value. So take —

[00:57:39] Chris Davis: A company that grows profitably is more valuable than one that doesn’t grow, right? Think of the business. A business that grows profitably is more valuable. A business that can redeploy its capital at high incremental rates of return is way more valuable than one that can’t, or one that’s capital intensive and shrinking and so on. So growth is a component of value. And the difference between us and a typical growth manager is, we tend to believe more deeply, based on experience, that high rates of growth attract competition. Competition lowers returns. And so we believe in capitalism, and we believe that growth is hard, and maintaining growth is hard. So we tend to be more skeptical than the average go-go growth investor, but we tend to be more open to paying a fair price for a company that can grow profitably than the typical value investor. So much of our research is about the durability of the growth, the competitive advantages that a business has. So our portfolio currently trades in aggregate — if you took all of our companies — at something like 14 times earnings. The market as a whole is at 20 or 21. The value index is at 19 times. And yet we have a portfolio of companies that has grown their earnings over the last five years something like 14% a year. So we feel we have what my dad used to call the value investor’s dream.

[00:59:21] Barry Ritholtz: Low cost, fast growth.

[00:59:22] Chris Davis: Low valuation, and durable, sustainable growth.

[00:59:26] Barry Ritholtz: Really, really fascinating. So before we jump too deep into the current state of affairs, I have to ask you about a quote of yours that I really like: “As human beings, we don’t welcome fear and panic, but as investors, we welcome the bargain prices that those emotions tend to produce.” Discuss.

[00:59:50] Chris Davis: Well, obviously the market is, of course, a voting machine in the short term — it reflects psychology — and in the long term, a weighing machine. And that —

[01:00:01] Barry Ritholtz: Hold on. That’s a great quote. I’m gonna write that down.

[01:00:06] Chris Davis: And so psychology helps shape prices. And what we find is that there’s always risk. What varies is people’s perception of it. And I think today we’re in a time when people are underestimating risks, and therefore prices are generally high. It’s one of the reasons I find it so amazing that our portfolio is trading at 14 times earnings. The market scares me at 21, 22 times earnings, but our portfolio feels like it’s below long-time averages. So I feel this disconnect where I’m simultaneously pessimistic about the market because of the euphoria — there’s no skepticism, there’s no fear in prices — and at the same time, feel very comfortable with our portfolio.

[01:01:03] Barry Ritholtz: So let me push back a little bit, just to hear your reaction. We keep hearing artificial intelligence and Nvidia and all the semis being compared to the dot-com era. And every time I hear that — aside from the fact that many of those companies, forget profits, didn’t even have revenues, and this is a giant-revenue, giant-profit era. Markets today are trading at 20, 22 times. We finished the nineties at 32 times. Theoretically, there’s a ton of upside from here, especially if earnings growth continues. Is it the contrarian take that, hey, this market could go another five or 10 years before things get really stupid?

[01:01:54] Chris Davis: Well, what I’d say is, as I look out there, I see two types of end investor. One is this sort of belief that we’re on a plateau of permanent prosperity. This time is different —

[01:02:07] Barry Ritholtz: A permanently high plateau. Yes.

[01:02:10] Chris Davis: Yes. And they are all in on the momentum trade, which has worked so well. Now, I believe that momentum investing, even though it’s worked so well, to me is crazy, because it’s not common sense.

[01:02:30] Barry Ritholtz: It works until it stops.

[01:02:32] Chris Davis: It works until it stops. And when it stops, you really feel foolish that the fact that you were paying an ever higher price, you thought, was a good thing.

[01:02:40] Barry Ritholtz: Why does price matter? If it’s going up, buy it; if it stops going up, sell.

[01:02:45] Chris Davis: Exactly. And so that’s one group of investors, and they’re taking a lot of risk, because they tend to be in the highest multiple parts of the market, and the parts of the market where there is the most presumption that high margins and high growth rates are sustainable — and the data is over. I think fewer than 3% of companies can maintain a growth rate in revenue of 20% for more than a decade. Like, fewer than 3%.

[01:03:17] Barry Ritholtz: I mean, that’s a huge growth rate for a long —

[01:03:19] Chris Davis: Period of time. And there are a lot of valuations today that have that baked in. You get these analyst reports, and there’s even fewer — less than, I think it’s five-tenths of 1%, but you could check me, it might be three-tenths — but it’s a fraction of a percent that are able to maintain 50% margins for more than a decade. Those are very high margins. But again, they’re in a lot of models right now. So I think there’s risk on that. Now, the other side of people taking risk are the ones that are huddled in cash saying it’s the end of the world. Everything that’s happening — AI’s gonna swallow our children, the world is falling apart, everything that’s happening in Washington — and they’re sitting in cash, which —

[01:04:05] Barry Ritholtz: Is risky as well.

[01:04:06] Chris Davis: Really risky. I mean, just since 2000, the purchasing power of a dollar is down something like 55%. In my grandmother’s lifetime, I think the purchasing power of a dollar fell like 94, 95%.

[01:04:21] Barry Ritholtz: They’re taking — what is it, $7 over 90 years.

[01:04:24] Chris Davis: Right. So I think these huge crowded sides of the market — the people sitting in cash, and the people assuming the extreme growth — are both taking a lot of risk.

[01:04:34] Barry Ritholtz: That’s a terrible barbell you’ve just described. The extremes are either inflation’s gonna kill them, or speculation is gonna get them.

[01:04:42] Chris Davis: Yeah. And where we land in the middle is with this idea that there are durable, overlooked businesses right now. As I say, we have a portfolio of 25 companies trading at an aggregate of 14 and a half times. By the way, that includes owning some Amazon, it includes owning some Google, but also owning some Capital One, owning some Tyson Foods, some MGM —

[01:05:09] Barry Ritholtz: Which portfolio is this?

[01:05:10] Chris Davis: This is our flagship portfolio. So this is the Davis New York Venture Fund. But really, the way people are finding us increasingly — 10 years ago, Barry, we launched our ETFs. We were alone for nine years. We are the only true active manager running a value ETF. I think our value ETF, which is called DUSA, is the number one active-for-passive value ETF for three years. But nobody really cares. That’s all right.

[01:05:40] Barry Ritholtz: Although the past year or two we have seen a lot of flows — hey, most of the money is going to the passive indexes, but the third or quarter that’s not going there is going active.

[01:05:54] Chris Davis: Exactly. So they’re finding our way. And I’m proud that we are so early. I don’t mind being early. But what I’d say is, the optimistic case you lay out — I think the three elements of change in the civilization that are increasing risk today are: we certainly have a change in the monetary world order. You and I had spent our entire careers in a world of falling interest rates approaching zero, falling inflation, all of the things that fed into that — low wage pressure, de-unionization, globalization. All of that has stunningly and permanently, I believe, come to an end. We are in a state where we are printing so much money relative to what the interest rates are. I think there’s a lot of risk, but certainly we’re not going back to zero, probably, ever again. That was a once-in-history phenomenon, free money. The second big change is geopolitics. There’s no question that for our entire career, we were in a world of globalization. We were in a world of functional peace. We were in a world of stability. We were in a world where the wall fell and markets doubled. All of those things have also absolutely come to an end, and that increases risk. So those first two things increase risk. And what’s the third? AI. There’s this massive technological change that increases risk — it increases the risk of all different types of businesses, and it increases opportunity, but it increases risk. So when you have three fundamental shifts going on, all of which have unpredictable outcomes, and yet you have valuations — not at all-time highs, but elevated — certainly relative to the direction of travel of interest rates over time, then I’d say, I like where we are: with our 14 yield, solid growth rate in the business, durability, AI as a lens, globalization as a lens, inflation as a lens. Put those things together, we sit with 25 companies with these great characteristics, in our ETF or in our funds or SMA, or however the advisor finds us.

[01:08:13] Barry Ritholtz: Really interesting. Coming up, we continue our conversation with Chris Davis, portfolio manager at Davis Advisors, discussing the current market environment. I’m Barry Ritholtz, you are listening to Masters in Business on Bloomberg Radio. — I am Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. Chris Davis is my extra special guest. He is the chairman and portfolio manager of Davis Advisors. So I’m glad you mentioned artificial intelligence as one of those three big shifts that are taking place. How do you, as an analyst and a fund manager, separate what is a transformative technology — and potentially a transformative source of value creation — from just the rampant speculative excess that rears its head on a regular basis?

[01:09:27] Chris Davis: Well, what we’re seeing is Amara’s Law in full bloom. And Amara’s Law states that transformative technologies are overestimated in the short term and underestimated in the long term. We’re in the overestimation, hype phase. And what I would say we do is, we recognize it as a transformative technology — that is absolutely a baseline assumption. Our other baseline assumption at this stage is that we don’t see it as winner-take-all. So we see it a little bit more like railroads, or the telephone, or electricity, where the users maybe end up making more money than the builders. And so we’ll talk about hedging that bet, but we do think it increases the risk environment. It increases the risk of obsolescence in certain businesses. So we start with this idea that it’s real. Then what we do is, as we do our research, we found every company we look at falls into one of five categories. There’s the emerging winners — that’s where all the heat is, all the speculation. And there’s real danger. You and I started very early talking about Cisco. Remember, the three obvious winners of the internet were AOL, Yahoo, and Cisco. Two don’t exist, and one’s a fraction of what it was. And so picking the emerging winners in the early hype phase is risky. But we’d say, if you wanna look in that space, focus on the businesses that have a real shot at being emerging winners but do not have to constantly raise capital — have proven business models, proven leaders, and businesses that are accretive by the investments that they’re making, so that they earn more money by making these investments, even if it takes longer than —

[01:11:11] Barry Ritholtz: So not the hyperscalers.

[01:11:13] Chris Davis: Not the hyperscalers. So for us, that’s where we’ve sat with a little bit of Google. We still have Meta and Amazon. We’ve trimmed the first two because they were huge holdings for us — we bought them when they were so out of favor. But if you’re gonna play in the emerging winners — that’s the first. The second category is, okay, who are the enablers of this technology? That’s the picks-and-shovels mindset. They’re the ones that are gonna benefit from the spending wave, but will not be penalized if the return on the spending is very low.

[01:11:45] Barry Ritholtz: Semiconductors.

[01:11:46] Chris Davis: So yeah, I would say there, for us, it’s been analog chips — Texas Instruments. It’s been semiconductor capital equipment. We are a big shareholder of Samsung, which did nothing, nothing, nothing, and then exploded fourfold in a year.

[01:12:00] Barry Ritholtz: They’re driving the entire inquiry of returns.

[01:12:05] Chris Davis: It’s amazing. So, but again, we viewed those as enablers. But in enablers, I would also include things like natural gas and copper. They are big, big beneficiaries. So we own Coterra, which is now Devon, ConocoPhillips, Tourmaline — our focus is on natural gas and copper. So those are the enablers. Then the users, who are gonna be the beneficiaries. Well, you’ve gotta think — financials is a great example. Anything where you have a big amount of laptop class workers. It’s what Elon called the laptop class. It’s likely that AI will do to the laptop class what globalization did to blue collar workers.

[01:12:49] Barry Ritholtz: Meaning very much hollow it out.

[01:12:51] Chris Davis: Hollow it out. The best will still have work, the best will be more valuable, they’ll be more productive. But there’s gonna be a lot of unemployed second-year lawyers and things like that. And so healthcare — claims processing, compliance functions, things like that. So there we focus on the banks that have the scale, the tech stack, and the management to do it. So Capital One, number one. I’d keep Wells Fargo on that list. I think US Bank crosses that chasm. So those, but also —

[01:13:25] Barry Ritholtz: JP Morgan Chase is part of the group.

[01:13:26] Chris Davis: JP Morgan Chase has done such a great job, but the valuation has gotten —

[01:13:30] Barry Ritholtz: So high. And how do you put the Amexes and the MasterCard, Visas of the world?

[01:13:33] Chris Davis: We don’t own Visa or MasterCard. And we have a very small position in Amex. And essentially the reason is, we just think that is an area where there is a big spread. They may be on the other side, but boy, there are a lot of people — especially merchants — that would like to figure out some way to bypass that.

[01:13:52] Barry Ritholtz: That 3% is a big number.

[01:13:55] Chris Davis: A big number.

[01:13:56] Barry Ritholtz: This is the first time in my lifetime I have started noticing cash and credit card prices on restaurant menus. This was never a thing before.

[01:14:06] Chris Davis: No, and you really see it when you travel. And again, those are so highly valued — at 30 times earnings for Visa. It just seems to us there’s too much risk there. I’ll own the Capital One at nine times. So those are the users. Then the next category is what Jeff Bezos — we call them the indifferent, or the protected. Jeff Bezos, when he said, people ask me what’s gonna change; they all ask me — what’s not gonna change? That’s a very important question. So there, Tyson Foods. Chicken’s not gonna change, right?

[01:14:38] Barry Ritholtz: And wait — chickens aren’t gonna lose their jobs to AI.

[01:14:40] Chris Davis: Chickens are in good shape. But here you have to be careful, because you don’t have high growth rates, so you don’t wanna overpay, and they’re cyclical businesses, so you don’t wanna pay at the top of a cycle. So Tyson, I think, has a low multiple on cyclically depressed earnings. What else? MGM — I think owning 50% of the Las Vegas strip, 20 or 30% of Macau, and a hundred percent of the only legal gambling in Japan, in Osaka, when it opens in 2029 — that’s very valuable. I don’t think that gets disintermediated by AI. So call those the protected, the what-won’t-change. The last category is the Walking Dead. And there, you mentioned Visa and MasterCard — I don’t know, title insurance, I don’t know. There are all sorts of things where it is really amazing how much money is made for something that you should be able to get around. We’ve seen some of the pressure in the SaaS companies. And so that’s the lens that we look at for all of our companies. We put them through this lens of this fast-changing world. We wanna stay nimble. And Barry, one of the things I think is really important is, I think this is a world where taking liquidity risk is really dangerous, because there’s so much flux. So I think that’s some of the pressure we’re seeing in private equity, private credit. People are saying, why did I lock up my money for —

[01:15:59] Barry Ritholtz: Seven years?

[01:16:00] Chris Davis: For seven years? If you’re lucky. It’s gonna be longer, I think. So I think the wheels are coming off that. And indexes — remember Kodak? You ready for a number? 10 million digital cameras had been sold when Kodak was still in the top third of the S&P 500. That’s amazing.

[01:16:18] Barry Ritholtz: Isn’t —

[01:16:18] Chris Davis: That amazing? It’s like, 10 million people knew they would never buy a roll of film again. It was dead. And so the advantage — when Japan peaked in the eighties, every active manager in international investing who was underweight Japan outperformed for the next 10 years just by saying, oh, Japan’s going down, I’m out. And so the index got killed, because it had to sort of go down with the ship. So I think nimbleness, liquidity, flexibility, and this sort of research lens are gonna actually become more valuable. So I think we could see some of the time-tested things that worked in the last decade — dividend darlings, momentum, private equity, indexing — I think all of those things could be challenged given this fast-changing world.

[01:17:05] Barry Ritholtz: I’m glad you brought up a few things there, because when you look at some of the fallout from low-cost indexing — the Vanguard effect, BlackRock, whatever you wanna call it — they have all put the fund industry under a lot of pressure. There’s fee compression. There’s been a move to not just indexing, but to ETFs generally. So when your own business — you’re looking at businesses with moats, businesses with defendable processes, and a good culture. You are running a business with a lot of employees and a lot of clients. How do you respond to this external pressure? How do you manage, not the investments, but the business of investing, when it’s just becoming more competitive and more challenging than ever?

[01:17:58] Chris Davis: Well, we’re lucky, because, one, we charge low fees. If you charge two and 20 —

[01:18:09] Barry Ritholtz: If only I could.

[01:18:10] Chris Davis: I know, I know —

[01:18:11] Barry Ritholtz: I mean, intellectually, I have a problem with that. But part of me is like, nice work if you can get it.

[01:18:18] Chris Davis: I know. I spoke to a guy that charged two and 20 years ago, and I said, why two and 20? What’s the business model? He said, I can’t get three and 30. So that’s hilarious. We’ve always just run with this idea — Charlie once said to me, Charlie Munger: what’s wrong with giving people a bargain?

[01:18:36] Barry Ritholtz: Or at least a fair price.

[01:18:37] Chris Davis: And it makes it easier for you to outperform over time. So, one, I feel — two, we’re a frugal place. I work with seven colleagues. We’ve been together on average 20 years, 25 years average experience. And we would do this with no outside money, because of the inside money. So we run it with what I would call a real family office mindset, with our own money alongside, in a very low cost operation. And the last thing, Barry, is, we are in a lasting game. What I can tell you is, if 90% of the market was passive, the remaining 10% of active would make a fortune.

[01:19:19] Barry Ritholtz: I’ve said that exact thing. If indexing is taking over, doesn’t that create all sorts of inefficiencies for a savvy active manager?

[01:19:29] Chris Davis: Absolutely. And I don’t think it’s a coincidence that we started outperforming. I mean, we’ve outperformed the value index for all periods, but we lagged the S&P in this momentum market — and that changed about four years ago, and nobody’s talking about it.

[01:19:45] Barry Ritholtz: Coming out of the pandemic.

[01:19:46] Chris Davis: Basically, yeah, we’ve been grinding an advantage over the S&P for the last three, three and a half years. And this is with less than half the weight in technology that the index has. So we are underweight the hottest sector, but yet we’ve been grinding out an advantage for three or four years. Why? And I think it’s just because there’s way more money indexed than is thought of. There’s way more money in momentum than is thought, and when I say there’s more in indexing, it’s because there’s so much closet indexing. So I don’t think it’s impossible that we’re already at 70% functionally indexed. Really? So that will really help us. So we’re in a lasting game, we’ve got the balance sheet to do it, and we’re gonna be on the other side.

[01:20:33] Barry Ritholtz: That’s really fascinating. You mentioned you guys would just do this without outside money, but let’s put some flesh on those bones. Davis Advisors, the company, the family foundation, you and your partners, the employees — you collectively have more than a few billion dollars in the funds. So you are not only aligned with your clients. I almost feel like “skin in the game” has become a cliche. But the question I want to ask is, being invested that way alongside the clients, how does that affect your decision-making process? And what does that do when you are going through one of those periodic crises that we’ve seen so much over the past 25 years — dot-coms, GFC, pandemic? How does having skin in the game affect your decisions?

[01:21:29] Chris Davis: Well, I think it makes us much more rational and much more long term. I once had a colleague that we had to part ways with, because he said that he was so unimpressed by things like momentum, even if they worked. He said, look, if I had a blind monkey in my office pointing to the newspaper every day at a stock, and every single day whatever stock it pointed to went up — he said, you could watch that monkey for six months, you could watch it for a year, you could watch it for two years, and you still wouldn’t invest with the monkey. And I said, of course I wouldn’t. It’s a blind monkey. This is my money, this is my client’s life savings. You think I’m gonna say, oh, the blind monkey pointed at the paper? So when we are in an environment where the market is on a tear and people are saying, oh, you’re dinosaurs — we’re able to hold our discipline. In 2007, our financial fund had lagged most other financial funds, because we were underweighted in real estate, and we didn’t own any Fannie, we didn’t own any Freddie, we didn’t own any Countrywide, we didn’t own Bear Stearns, we didn’t own WaMu. And people would say, what, you’re like a dinosaur? And it’s because it’s our money. And so we don’t mind if it takes a while for that weighing machine to work. We look at every year — did the companies get stronger? Did they get heavier, did they get more valuable? And if so, we view our research as working. And sometimes the stocks don’t go up, sometimes they do, but we’re focused on the businesses.

[01:23:07] Barry Ritholtz: On the process, and not just what’s going up that day. The blind monkey reminds me of a fascinating quote from Ken French of Dartmouth. Michael Mauboussin has written a lot about the separation between skill and luck. And French, of Fama-French, had said, it’s very challenging to tell the difference between skill and luck with fund managers. And to really have a data set where you can make an informed decision takes about 20 years. So if you’re gonna wait for that blind monkey, you gotta wait 20 years. And you’re starting out with a blind monkey. I think we have to assume that it’s luck and not skill.

[01:23:51] Chris Davis: Well, and look, Barry, your clients come to you — you could say it’s because of your performance, and performance matters. But —

[01:24:00] Barry Ritholtz: I don’t think my clients come to —

[01:24:01] Chris Davis: Well, what I was gonna say is, what really matters is trust, right? And conviction. And so one of the things — we have clients that say, hey, you went through a period of underperformance, you were out of sync with the market, we weren’t worried. You were building wealth for us every year. We don’t care, oh, this index went here, or the index went there. We’re with you because we have conviction that you’ll get us to our retirement, you’ll get us to our kids’ college funding, you’ll help us achieve our goals. And maintaining that is something you do with your own money. You don’t chase the hot dot. But if you are an investment manager and all of your value comes from the assets under management, you have to chase the hot dot. So trust is an undervalued part of the promise and the value that an investment manager can give to their clients. If your clients trust you, they will get a better return even if you underperform an index — if their trust is able to keep them invested through the ups and downs.

[01:25:02] Barry Ritholtz: Really, really fascinating. All right, last question before I get to my favorites that I ask all my guests. What do you think investors are not generally talking about, thinking about, but perhaps should be? Could be a topic, a geography, an asset class. What important issue is kind of getting overlooked these days?

[01:25:27] Chris Davis: Well, I think these three big transitions in the economy are going to turn a lot of what’s become conventional wisdom about investing upside down for a while. So I think — what hasn’t worked? Active management hasn’t worked. Value, price discipline hasn’t worked. What has worked? Oh, alternatives, illiquidity, that’s been great. What has worked that I think is dangerous? Dividend aristocrats.

[01:26:07] Barry Ritholtz: You think dividend aristocrats are dangerous because —

[01:26:10] Chris Davis: Because they’re looking in the rearview mirror, and they’re not factoring in these big three changes that we talked about.

[01:26:17] Barry Ritholtz: Well, isn’t that the problem with all models?

[01:26:20] Chris Davis: Kodak was a dividend aristocrat. Xerox was a dividend aristocrat. Polaroid was a dividend aristocrat. And that’s fine, unless there is systemic change. And when you have a big change like you had coming out of the seventies, and the change into the eighties, nineties — you have these big changes, and then everything that worked, everything that helped you survive the crash and the depression — in 1948 you could say, I’m not greedy, I just wanna own bonds, stocks are too dangerous — and you are wiped out in a generation, and bonds became certificates of confiscation. So I think people are underestimating how much these conventional strategies — alternatives, the backward-looking models, including even momentum, indexing versus active. And I would even maybe add international. International had underperformed for so long, and —

[01:27:18] Barry Ritholtz: Just the past two years starting to look pretty good.

[01:27:20] Chris Davis: Just starting to look pretty good.

[01:27:22] Barry Ritholtz: And so you like international?

[01:27:23] Chris Davis: I like international. We run an international ETF, DINT, and it’s just like us, it’s all stock picking. It’s run by my partner Danton. In our family, we always keep probably 15, 20% of assets in international. And that looked really stupid until two years ago, and it’s looking a little better. So I think those conventional things are likely to turn upside down.

[01:27:47] Barry Ritholtz: What’s the old joke? Being diversified means there’s always something to apologize for in your portfolio. That’s so true. All right, so let me jump to my favorite questions I ask all my guests, even though I would love to stay here and keep you chatting for another three hours. I know you have places to go and people to see. The first question I always ask — I kind of know the answer, but I’m gonna give you another swing at it. Who were your mentors who helped shape your career? And I kind of see four people already.

[01:28:22] Chris Davis: Well, you certainly got my dad, my grandfather, and Charlie. I think if I was gonna add another one, I would add Tom Gayner, the CEO of Markel. I just think — that sort of principled stewardship leadership, that servant leadership, a company that is built with an enormous durability and culture of stewardship in mind. We’ve served on boards together. He’s helped me through difficult times. I’ve done my best to help him through difficult times. It’s a great thing to go through life surrounded by people you admire. And of course, I get to work with people I admire. And that’s a big plus.

[01:29:00] Barry Ritholtz: Really, really interesting. Let’s talk about — I know you’re a fellow reader. What are some of your favorite books? What are you reading currently?

[01:29:10] Chris Davis: Well, I have too many favorite books to list, but I’ll give you three. I was, by the —

[01:29:14] Barry Ritholtz: By the way, people always tell me, oh, that’s my favorite question. I’m always looking for something new.

[01:29:18] Chris Davis: Well, I’ll give you the most recent one I read that I think is a good antidote to the AI phenomenon, or the AI hysteria, or the AI obsession — that’s a better word. It’s a book called “Alchemy.” The author is Rory Sutherland. I think that’s a very useful book to read right now.

[01:29:40] Barry Ritholtz: On marketing and advertising.

[01:29:43] Chris Davis: It’s really on the ways in which we maybe fetishize, if I said that right, rationality. When you look at human behavior, it’s very irrational, but it’s often irrational in predictable ways. And the more we say “what’s the rational solution to a problem” and expect people to obey that, the more we’re gonna keep getting crazy outcomes. People react to placebos, but we don’t study placebos. That’s the example he gives that I love: if you wanted to create a really spectacular competitor to Coca-Cola and you hired McKinsey, they would say, well, you should make something that tastes good, sell it a little cheaper, and make it ubiquitous. What you wouldn’t say is, make it more expensive, make it taste bad, and put it in a smaller can. And that’s Red Bull. And so there’s a lot to study in a case like that — how has that worked so well? So I think “Alchemy” is a useful one. Now, I think everybody should read, and then have their kids read, Morgan Housel’s two best books, which should be read as a single book: “The Psychology of Money” and “The Art of Spending.” They go together. I said, one is like the sequel to The Godfather — it’s Godfather Two. It’s not a different movie, it’s just —

[01:31:07] Barry Ritholtz: Continuation.

[01:31:09] Chris Davis: The culmination, in a way. And you —

[01:31:11] Barry Ritholtz: Could skip three.

[01:31:12] Chris Davis: Okay, that’s a —

[01:31:13] Barry Ritholtz: My father — three just doesn’t —

[01:31:15] Chris Davis: I agree. Not as good as the first two. I agree, I agree. And then for a third book — just the one that immediately comes to mind at the moment is “Americana.” It’s a book by — there are two books by the same name, I know, because Charlie had told me —

[01:31:34] Barry Ritholtz: 400 years —

[01:31:35] Chris Davis: Of American capitalism.

[01:31:36] Barry Ritholtz: I love that book. I had him on the podcast years ago.

[01:31:39] Chris Davis: Bhu Srinivasan. Yeah.

[01:31:40] Barry Ritholtz: Yes. Spectacular.

[01:31:41] Chris Davis: Spectacular. And it’s just really —

[01:31:43] Barry Ritholtz: I think people are just so unaware of the history of American capitalism. And that book just does a fantastic job laying out the success.

[01:31:54] Chris Davis: And it will help you as an investor if you think in chapters of that book. If you think about, okay, AI is unfolding — he talks about the interstate highways being built. Well, when the interstate highways were built, who made money? McDonald’s, Wendy’s. The railroads were built — who made money? It wasn’t the railroads. It was the factories, the ability to distribute. And who were the dead men walking? When the car was developed, there were 3,000 car companies. There were 371 publicly traded internet companies. That’s why picking the emerging winners in the early stages is tricky. Always hard. But think of the chapter, think of that whole arc — that’s a terrific book.

[01:32:42] Barry Ritholtz: What are you streaming these days? What’s keeping you entertained — Netflix, podcasts, whatever?

[01:32:48] Chris Davis: Well, anybody who knows me — I watch almost nothing. And I particularly don’t watch sports. I don’t know a lot about sports, with one exception. I love ice hockey. And I love ice hockey in part because we had a lot of family history. My mom’s family helped start the NHL and founded the Boston Bruins.

[01:33:13] Barry Ritholtz: Wait, what? Your mom’s family helped start —

[01:33:15] Chris Davis: The NHL, and founded the Bruins. And we owned the Bruins through my childhood. Can you imagine? My father, who’s probably been to eight hockey games in his life, has his name carved on the Stanley Cup twice, because Shelby Davis was the treasurer of the Boston Bruins. And so they won the cup twice. He got his day with the cup. But one of the things I love about it is that my grandfather, in explaining his love for it to me, said: every sport handicaps the athletes — you can’t use your hands, you can’t use your feet, you have to dribble, whatever it is. He said, hockey accentuates every human ability.

[01:34:01] Barry Ritholtz: Between the skates and the stick —

[01:34:02] Chris Davis: The skates, the stick, the pads, the oval rink, the ice. I mean, it’s just an amazing accelerator of human ability. And I guess the reason I think of it right at this moment — of course, we’re moving into the Stanley Cup playoffs, you were in the last two rounds — but it’s also because I think there’s a way to look at AI as accentuating human ability.

[01:34:26] Barry Ritholtz: It’s an accelerator, for sure.

[01:34:28] Chris Davis: It’s an accelerator. And what that could mean for healthcare — for healthcare inflation going negative. I mean, there are all sorts of —

[01:34:35] Barry Ritholtz: We’re already finding so many new molecules. If anything’s going to find a cure to a lot of cancers, it’s gonna be this.

[01:34:44] Chris Davis: And again, we have to recognize that, of course, like every technology, there are going to be negatives. There are gonna be delays. And as people get disillusioned, we could get a big swing the other way. So, equanimity. But again, going back to “Americana” and tying it to ice hockey — think of those long chapters.

[01:35:03] Barry Ritholtz: All right, our final two questions. What sort of advice would you give to a recent college grad interested in a career in investing?

[01:35:12] Chris Davis: Well, I would say learn everything you can about business, and ideally work in business. I met a guy down at Markel — they had their reunion just yesterday, I just flew back from Richmond yesterday. Their reunion is a great event. I recommend everybody go — just buy a share of Markel, go to the reunion. You’ll see something a lot like Berkshire. I love the value system there. But I met a guy who was an engineer at Altria, which is headquartered in Richmond. He owned a lot of Altria, he owned a lot of PMI, but he started investing for himself about 20, 25 years ago. He showed me his portfolio, including his cost basis. He’s built a wonderful record as an investor. And so, I don’t love all these kids going to Goldman Sachs and to private equity. I think private equity — it was a wonderful business to begin with, and I think it has absolutely lost the thread.

[01:36:16] Barry Ritholtz: And the size. It’s just ramped up and —

[01:36:18] Chris Davis: Got so big, and they’re all selling to themselves. And they’re trying to get the widows and orphans in there so that they can unload, have some final sale — just like they did with MLPs and the oil and gas partnerships in the eighties. And I really hate it. There are people within the world of private equity that I admire, that have built stunning records, but most of what’s happening at this scale is just stealing money from pension plans —

[01:36:49] Barry Ritholtz: 401(k)s, endowments —

[01:36:50] Chris Davis: 401(k)s, and it’s going into penthouses and Ferraris. Where are the customers’ yachts? Look at the returns over the last 10 years of the average state pension plan. Then look at the breakdown of assets, and you realize that all of the drag on their returns is alternatives.

[01:37:08] Barry Ritholtz: Amazing. Final question. What do you know about the world of investing today that might have been useful back in the late eighties, early nineties, when you were first getting started?

[01:37:21] Chris Davis: Every investor, if they’re honest, will say that their biggest mistakes were what they sold. And so I would say that I’ve always put all my money in the funds, and I think that’s the right alignment. But I realize now, which I didn’t realize then, that there are some real differences — which is that, in the funds, we have to really think about diversification. If each time I bought a stock in the funds I had bought it in my own name, instead of putting my money in the funds and buying, I probably would’ve just left it alone for the last 30 years, and it would’ve done very well. So — I first bought Amazon in 2002.

[01:38:05] Barry Ritholtz: Good timing.

[01:38:06] Chris Davis: Yeah. But I sold it in 2004.

[01:38:08] Barry Ritholtz: Bad sale.

[01:38:09] Chris Davis: Thank you.

[01:38:10] Barry Ritholtz: I could tell you the same story with —

[01:38:12] Chris Davis: Apple.

[01:38:13] Barry Ritholtz: It was $15, with 13 in cash. Tripled my money. I was a genius. That was like 10,000% ago.

[01:38:21] Chris Davis: I know. We did the same thing in Apple. We viewed it as a real estate play. We said, if you mark the real estate to market and add it to the cash, it was free. It was an 80-cent dollar. And then when it went to $2, we were like, whoa, too rich for our blood. So I do think that I’m trying to really learn and think about how I can improve results over the next 20 years by being more willing to hold. And what does that mean in terms of position size? What does it mean in terms of volatility? What does it mean in terms of client expectation? Would I feel the same if a client has $25,000 with us as I would if it was just my own money? Because I can absorb a bigger loss, and I can absorb more volatility. So that’s something I’m still trying to process. But God, I love the business. And, like my grandfather, if I could die at my desk at a very old age — I do have the best job on earth. I get to study success. I get to work with people I admire. I go and visit companies to focus on that elusive idea of culture. I get to meet the incredible people that have built our society, that have built businesses. And we have a country that loves to tear down the heroes. We admire the guy on the way up, but once they succeed, we somehow decide they’re a villain. I don’t think that’s constructive. I think it’s a strange thing for us to admire athletes and not admire Jeff Bezos for what he created and how it has served all of us every day. We all use Amazon and it serves us. Every day we delight in seeing our kids on Instagram or using Google Maps. And the idea that we continue to vilify our heroes, instead of judging people by their biggest accomplishment, not their weakest moment.

[01:40:15] Barry Ritholtz: Chris, thank you so much for being so generous with your time. This has been absolutely delightful. We have been speaking with Chris Davis. He is the chairman and portfolio manager at Davis Advisors. If you enjoy this conversation, well, check out any of the 641 we’ve done over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you get your favorite podcast. I would be remiss if I didn’t thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

~~~

The post Transcript: Chris Davis of Davis Funds appeared first on The Big Picture.

In this guest post, financial advisor (and former Board of Directors member of both the FPA and the CFP Board) Dan Moisand discusses why membership associations are still as important as they ever were, and arguably even more so in the case of financial planning, where our recognized status as a profession is still developing in the eyes of the public, which can require a strong membership association to build credibility.

Notably, in recent years the CFP Board has done much to advance recognition of financial planning as a profession. It requires education on an increasingly comprehensive body of financial planning knowledge, administers a robust comprehensive exam, and has repeatedly lifted its code of ethics and standards of conduct to be increasingly fiduciary in its requirements to serve clients' best interests at all times. While also supporting and better recognizing financial planners who take the time to engage in pro bono financial planning services for those who cannot afford the services.

Yet the reality is that CFP Board's scope is limited, where organizations like the Financial Planning Association can have impact. While CFP Board may be helping to drive the profession, the FPA supports the professional in areas that CFP Board is not well suited, from Continuing Education (through new FPA's Competency Model) to Practice Management (with FPA's professionally-diverse community of advisors) to Advocacy (where FPA can uniquely advocate on behalf of professionals, even sometimes including against the CFP Board).

As Moisand ultimately notes, the FPA does still have work to do, to turn around a nearly 20-year steady decline in membership, and the organization is still in the midst of trying to revamp everything from its MediaSource tools (for consumer media leads) to PlannerSearch (for consumers seeking a financial planner) to its series of four national conferences. Still, while other specialized membership organizations are growing, the unique benefits from advocacy to community amongst a diverse group of business models arguably means those who wish to see the profession advance as a whole should consider belonging to their more specialized membership groups and the FPA.

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My guest on today's podcast is David Mozeika. David is the founder of TOMORO, an RIA based in Red Bank, New Jersey, that oversees $350 million in assets under management for 600 client households.

What's unique about David, though, is how he approaches financial planning from a cash flow perspective, treating income as an asset to be distributed based on a client's goals.

In this episode, we talk in-depth about how David treats cash flow planning not as a budgeting exercise but rather as an opportunity to default clients into saving rather than spending, how David uses what he calls a "cash flow reservoir" to hold client income, with a portion of the reservoir transferred to the client's checking account for spending (frequently leading to greater savings than transferring extra cash from the checking account to savings or investment vehicles), and how David's approach helps clients reduce their "unconscious spending" (such as on subscriptions that they might not use often) and supercharge their savings.

We also talk about David's four-part "financial positioning" process (which includes protection, growth, estate planning, and cash flow) and the milestones he wants to hit when meeting with prospects, how David treats meetings with ongoing clients as a forward-looking "calibration" process based on changes in their financial situation, and how David puts an emphasis on "defense" in the planning process, digging deep into clients' insurance policies to ensure their coverage is commensurate with the growing wealth they achieve over time.

And be certain to listen to the end, where David shares how he created his own software solution to run his "income under management" cash flow planning system (and began to offer it to other advisors), why David made the transition to the RIA model after building a successful career within the insurance channel, and how David has ultimately found success by leaning into his unique talents to solve other people's challenges.

So, whether you're interested in learning about an alternative approach to client cash flow management, the potential benefits of sending client income to a "reservoir" rather than their checking account, or how to leverage ‘defensive' strategies to improve client outcomes, then we hope you enjoy this episode of the Financial Advisor Success podcast, with David Mozeika.

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This week, I sit down with Chris Davis, Chairman and Portfolio Manager at Davis Funds. They discuss his approach to managing risk and the key elements changing the economy. We also discuss Chris’s mentors including Charlie Munger, and how he settled into the family business.

A list of his current reading and favorite books is here; A transcript of our conversation will be available here shortly.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our BONUS Masters in Business Monday with Joe McLean, Managing Partner at MAI Capital Management, where he leads firm’s Sports & Entertainment division, serving 100s of pro athletes/entertainers across NBA, NFL, MLB, PGA + NASCAR. His path to finance runs directly through the locker room as a 4-year NCAA Division 1 player at U of Arizona. Dubbed the athlete’s “Money Whisperer” by the New York Times, he is known for his non-negotiable 60% savings mandate for clients.

Current Reading/Favorite Books

The post MiB: Beating the S&P For Generations with Chris Davis of Davis Funds appeared first on The Big Picture.

Of all the dumb things Wall Street is infamous for, perhaps none is sillier than the all too regular forecasting game. Quarterly earnings, Non-farm payrolls, annual S&P predictions, oil prices, inflation rates, FOMC cuts — it’s a never-ending parade of predictions, forecasts, and guestimates, most of which are wildly, often laughably wrong.

Guessing the revenues and profits of any company is tough enough; it becomes even more difficult for any company with only a few years of history.

Allow me to present to you Exhibit A in whatever subsequent litigation arises, via the WSJ:

“SpaceX’s revenue could reach $3.4 trillion in 2040, according to a Morgan Stanley analysis shared with top investors Thursday, according to people familiar with the matter.

Morgan Stanley told investors the rocket maker’s adjusted earnings before interest, taxes, depreciation and amortization in 2040 could top $2.7 trillion, the people said.”

I find it hilarious that anyone imagines they forecast revenues and/or profits a decade and a half into the future, let alone $3.4 trillion. Hey, you gotta move some shares, and this seems to be one way to accomplish that.

Just recall whatever you were thinking back in 2012 about 2026 (or the early 2010s about the mid 2020s)  — was Artificial Intelligence the top of your list? Intel finally rallying after the US government took a 10% stakle in it? Korea up 4X? GameStop / meme-stock short squeeze? Silicon Valley Bank / digital bank run? 500 basis point rate hikes in 2022? Did you anticipate the pandemic, the rise of EVs, the invasion of Ukraine, or either Trump elections? January 6, or October 7? A treatment/cure for Pancreatic Cancer?

The world is composed of countless co-variables — not only things we cannot predict, but also secondary effects and unforeseen consequences that are even more impossible to forecast — the further out you look, the number of possible outcomes increases exponentially.

So much happens over the course of a year that it makes forecasting challenging; 10-15 years into the future is utterly laughable.

Look, I get it, analysts’ jobs are hard enough as is, and many of them are justifiably terrified about being replaced by Claude.

Still, f*ckery tomfoolery like this does not give one confidence in this IPO process…

Previously:
Is SpaceX IPO Breaking Capitalism? (May 13, 2026)

“Nobody Knows Anything,” Wall Street Strategist Edition (January 2, 2025)

Nobody Knows Anything (May 5, 2016)

The Folly of Forecasting (June 7, 2005)

Nobody Knows Anything (Archive)

See also:
SpaceX won’t make the S&P 500 (FT, June 5, 2026)

Source:
Morgan Stanley Sees SpaceX’s Revenue Reaching $3.4 Trillion in 2040
By Corrie Driebusch
WSJ, June 5, 2026

The post Nobody Knows Anything, SpaceX IPO edition appeared first on The Big Picture.

Also in industry news this week:

• A report finds that while overall financial advisor client satisfaction is high, relatively lower levels of client engagement and willingness to make referrals suggest some firms might have room to grow not only by evaluating their client value propositions, but also by forging closer client relationships
• The compliance deadline for affected smaller RIAs subject to amendments made under Reg S-P hit this week, as some firms appear to face challenges securing assurances from third-party vendors that they are properly protecting client information and will be able to meet the notification deadline when a data breach occurs

From there, we have several articles on retirement planning:

• Four risks to retirement security, including those that can be mitigated through portfolio-based strategies (e.g., longevity and market risk) as well as those (including mortality and decision risk) that require different types of solutions from the advisory toolkit
• Why the relationship between retirement date and lifespan can be particularly hard to disentangle
• Three questions advisors can consider to gauge a client's retirement risk, from the composition of their spending to the percentage of their portfolio that is inflation-adjusted

We also have a number of articles on client communication:

• Why clients sometimes put off implementing the 'perfect' financial plan and the strategies advisors can use to encourage action
• While asking questions early on in the relationship is natural, clients might be more willing to open up if they feel like they aren't being judged based on the response
• A three-part framework that can take clients from being merely satisfied to actively engaged with the planning process

We wrap up with three final articles, all about kindness:

• The difference between being "nice" and "kind" and when each might (or might not) be appropriate
• Experimental research suggests that those engaging in generous or kind acts might underestimate the ultimate impact they're able to make
• How the ability to stand up for one's interests is a valuable complement to kindness in personal and professional interactions

Enjoy the 'light' reading!

Read More...

At The Money: Grab Your Summer Rental Soon!! (June 3, 2026)

It’s not too late to get your summer rental! But many of the prime locations have already been snapped up. If you want to get to the lake, beach, or mountains, you’d better hurry!

Full transcript below.

~~~

About this week’s guest:

Jonathan Miller is a partner at Street Matrix, founder and President of Miller Samuel. His weekly Housing Notes are read widely throughout the Real Estate industry.

For more info, see:

Miller Samuel Bio

LinkedIn

Twitter

Previously:
At The Money: Buying a Vacation Home (June 19, 2025)

At the Money: The Best Way to Buy a House Right Now (November 15, 2023)

~~~

Find all of the previous At the Money episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg.

And find the entire musical playlist of all the songs I have used on At the Money on Spotify

TRANSCRIPT:

At the Money — Summer Rentals
Barry Ritholtz with Jonathan Miller

Intro:
I’m gonna soak up the sun
I’m gonna tell everyone to lighten up
I’m gonna tell ’em that I’ve got no one to blame

Barry Ritholtz: Memorial Day weekend has come and gone, but if you’re thinking about getting a place for the summer, you better get a move on it. There’s still inventory around, but a lot of the prime spots, they’re already spoken for. I’m Barry Ritholtz, and on today’s At the Money, we’re going to talk about summer beach rentals. Renting, buying, what’s hot, what’s not.

To help us unpack all of this and what it means for your tan lines, let’s bring in Jonathan Miller. He’s the director of markets for Street Matrix and co-founder of Miller Samuel. His market reports cover all sorts of summer and beach-related areas, including the Hamptons, the North Fork, the Jersey Shore, all along the rest of the country that has an active vacation property.

So, Jonathan, before we get into the details, let’s start really broad. What does the summer rental market tell us about the broader real estate market?

Jonathan Miller: Well, I think it’s a matter of consumption spending. When the economy’s doing well, they see beach rentals as another commodity that they can buy. I grew up in Rehoboth Beach, Delaware, which was the Hamptons of Washington, DC. It was nicknamed the Summer Capital. And the hotel occupancy—my dad had a hotel there—you could see it fluctuate depending on how well the economy was doing in DC itself. It was quite direct.

Barry Ritholtz: Around here, the Hamptons gets all the attention, and obviously there’s a lot of celebrity and a lot of media out there. But what do you see in other markets like the Berkshires, the Great Lakes, Mountain destinations, Cape Cod? What else is interesting?

Jonathan Miller: So the way I think of it is that, just in the real estate or the housing market itself, there’s this sort of bias towards the higher end. I don’t mean the very, very top of the market. But the more affluent somebody is, the more likely they are to go to one of these vacation spots.

With rising interest rates, that’s making home ownership for primary residences more expensive. That’s reducing traffic to locations that are more dependent on working- and middle-class consumers.

I look at it as there’s been this sort of change in the way consumers are thinking about summer rentals. And a broker, a friend of mine out in the Hamptons, gave me a name for it. It’s called Amazonified—

Barry Ritholtz: Appified?

Jonathan Miller: Amazonfied, which is people are more inclined… Hey, listen, you run out of mouthwash, you just open your phone and you order it, right? You want a summer rental, you just open your iPhone and you start looking at it. And there’s an understanding that you can get it at the last minute.

When my parents used to have a home on Shelter Island in the Hamptons, basically if you weren’t rented for the season by February, then it was kind of a failure, or it was an underwhelming performance. Now it’s last minute. And so one piece of evidence of this was that there was a noticeable uptick in traffic after Memorial Day, which would historically be when the market’s over. And there’s also a lot of thought that that’s going to be the same story after July 4th, which is the last marker for the beginning of the rental season. I think coming out of the pandemic, the orientation towards last minute is a structural change that’s going to be with us indefinitely.

Barry Ritholtz: It’s funny you say that. My experience with Fire Island during grad school was you would put together a share house in October. Like, February is way late. Like October, November for the following Memorial Day.

And I look at a website like Out East—4,500 Hamptons rentals available, including 1,077 in East Hampton, 889 in Southampton, active listings still available for June, July, August through Labor Day, short-term or full season.

This isn’t so much an economic indicator as it is just an app-ified world. We’re just used to everything on demand. Order a movie on demand, order toothpaste on demand, order a summer beach house on demand?

Jonathan Miller: I think that’s the way to think of it. And what’s interesting is, on one hand there’s inventory available, a fair amount of inventory. Part of that is because during the pandemic we had rental property that had annually been traditional rental property. That was all purchased, and so now we have a new universe of renters that are effectively early or recent home buyers. And so we have a whole new market developing.

But I do think there’s going to be absorption of a lot of inventory over the next, call it, month. But the way to think about the market is rents are still on the high side, but not at record levels. Rents are returning to pre-pandemic levels.

I don’t know if we could call it normalizing. You know, the old joke—what does normal mean anymore? But it doesn’t seem to be the frenetic or frenzied environment that it’s been. I don’t know if you could use the word deals, really, but it’s certainly an expensive market still.

Barry Ritholtz: So I know what a data wonk you are. How do you think about summer rentals? Are these luxury goods, housing substitutes, or even a leading economic indicator?

Jonathan Miller: So I see this as just another form of consumption, a luxury good. I don’t see it as an economic indicator, because where the demand is emanating from is probably already the economic indicator to focus on. This is just an extension of it, as opposed to its own independent thing telegraphing where the economy’s going.

A lot of the Hamptons, or East End, demand has been possible from a pretty good bonus season the last couple of years. Compensation is certainly elevated. But even with that, it’s showing that it’s not sold out, or rented out.

I think it’s a combination of people waiting till the last minute and the market not being as intense or frenzied as we’ve been used to over the last two or three years. It’s not a weak market. It’s more normalizing, I think, is a fair description.

Barry Ritholtz: I think of the overall consumer economy as very much K-shaped. There’s the upper—pick a number, 1, 10, 15%—and then there’s everybody else. It’s really bifurcated. Are we seeing something similar? Strong luxury demand, perhaps some softness in the middle or bottom of the rental market?

Jonathan Miller: Absolutely. I think that’s a very fair description of what rental markets are generally looking like. They’re an extension of the primary markets, and the primary markets are generally—call it the upper half is faring better than the lower half—only because of less reliance on interest rates, and also maybe more dependence on the performance of the financial markets.

Barry Ritholtz: So all right, we’re spending a lot of time talking about Wall Street bonuses and the Hamptons. What about the rest of the country? What about mountain destinations, the Sun Belt, California, lake communities? There’s so much more to a holiday or vacation property beyond the East End of Long Island.

Jonathan Miller: Yeah, although if you’re in Long Island and are on the East End, I think that’s all you see.

That’s all that matters, at least when I was out there a couple weeks ago. I think with all the uncertainty in the economy, economic uncertainty, it’s a little surprising to see normalized second-home market activity, but it’s really skewing, again, like the Hamptons. I don’t think the Hamptons is performing any differently than most second-home markets. I remember during the housing bubble build-up, it seemed like everybody I knew had a modest-priced second home in New Hampshire or Vermont. And they would go there on weekends, spend their summers there.

I don’t think you’re seeing as much of that as you have in the past, because a lot of that is mortgage-rate sensitive. I think you’re seeing, whatever region of the country, this sort of—I don’t know if I’d call it bias, but you’re seeing activity skewing a little bit higher than the middle of the market.

Barry Ritholtz: So what does that mean for different regions? Let’s talk about the Berkshires, or I know people who were in Texas, New Mexico, Arizona, where it’s so hot in the summer they like to go to San Diego, La Jolla, Southern California, where it’s 75-80 and sunny during the day and 65 and delightful at night. What are you seeing in other regions?

Jonathan Miller: I don’t mean to be a broken record, but I’m seeing something very similar. It’s this idea that consumers are going to the traditional second-home locations that are linked to their markets—like you were describing, people leaving Texas in the summer. We’re seeing all that. It’s confusing in a way, because we’re getting so much bad take about what’s going on in the economy, inflation, and yet we’re still seeing this activity.

What’s a little different about it is that across the US it’s not really frenzied at all. It’s just active. Pricing is not as high as it’s been, but you still see a fair amount of activity. It’s just not some sort of insane frenzy that we’ve been going through for the last three or four years.

Barry Ritholtz: You mentioned mortgage rates earlier. I’m curious—obviously mortgage rates have an impact on price, and vice versa, but what does that mean for renters? Especially in a market where so many of the buyers seem to be straight-up cash buyers.

Jonathan Miller: The higher the interest rates, the higher the rent, is the way I look at it. And the reason for that is you have people that are on the fence about buying a second home. But they’re concerned about whether they’re going to get their price, so they’re renting it out, maybe to the same people every season, and that reduces inventory, which puts at least stabilizing or higher price pressure on rents. So I don’t see this as… When rates rise, I think that’s just going to make it more difficult, whether to purchase a second home or to rent one, because it just pushes everything up.

Barry Ritholtz: So I’m curious. You’re implying that people who might be buyers one day are sort of putting a toe in the water with renting. Is this a fairly common process? People rent, they like an area, and then they buy over there. Is that fair?

Jonathan Miller: Yes, I think that’s fair. The idea is that you test out the market for a summer, or for a month, or for a couple of weeks and see if you really like it, versus just driving there or flying there for the weekend.

And that is the nature of second-home markets. They move a lot slower. The second-home market for California is Idaho, Wyoming. You don’t just go there for the weekend—You’re going to test it out, maybe take a year or two. We see that all the time—friends of mine that have rented for a few years.

My parents went through this with their rental property in Shelter Island. After a couple seasons, the tenants that they loved ended up buying the house down the street, just because they loved the area.

Barry Ritholtz: So one of the things I’m astonished about—and again, my frame of reference is the Hamptons, where our vacation property is—but I am seeing an astounding amount of construction. Any house that’s sold is either, if it’s turnkey, it sells quickly, and if it’s not, it’s knocked down and a 7,000-foot behemoth gets put up in its place. West Hampton, Sag Harbor, East Hampton, Sagaponack—wherever I go out there, it’s shocking, the degree of construction. Every builder, every contractor seems to be fully booked.

What is driving this? Is this specific to the New York bonus season, Wall Street bonuses? Or are you seeing this around the country in other ritzy vacation areas?

Jonathan Miller: We are seeing this around the country. I think the easiest cause and effect is the Wall Street compensation picture of the last couple of years that’s really driving it.

Having been out to the Hamptons a couple times in the recent month or two—they call it the trade parade, right? All the trades coming in early in the morning and then leaving before rush hour.

Barry Ritholtz: By trades you mean, you mean plumbers, electricians, tilers…

Jonathan Miller: And it’s just the traffic— yeah, electricians, roofers, builders. It’s unbelievable.

So residents there plan their day around when they can leave and come back, because—as they call it, the Trade Parade—is so incredible. And the challenge is that those workers really are stuck in two- or three-hour traffic jams, which is a real challenge. But there’s so much demand for their services, and they can’t afford to live there, so they’re coming from a good distance away.

Barry Ritholtz: Well, that’s why they start at 7:00 and leave at 3:00. That makes a lot of sense.

We’ve seen the real estate market sort of normalizing after COVID. Certainly the reactions are less frenzied than they were during the pandemic. Has COVID permanently reset prices and house-buyer behavior and even expectations?

What’s the lasting impact of the pandemic on the summer vacation market?

Jonathan Miller: So I think structurally, COVID has changed—and probably extended—the use of second homes, because of things like Zoom. But it’s also become a little less predictable because of, as I mentioned earlier, the Amazonification of demand. Everything is sort of last minute, as opposed to relying on tried-and-true forecasting patterns.

But it’s a market that is going to be tested. The weaker the economy, the weaker the demand for second-home markets. But they don’t flip on and off. There’s still a base level of demand. The problem is that the demand is coming from a skewed portion of the population—upper half versus lower half is the way I prefer to think of it—and that creates a sort of void in the demand needed for more modest-priced second-home housing.

Barry Ritholtz: You know, we talk about the Hamptons as a second-home vacation market. There’s a $2.5 million rental there for the season, which I find astounding. But if you can’t afford that, maybe you pay a million and a quarter for the month of July, or a million for August. Now, to be fair, that $2.5 million rental does come with both a chef and maid service. So you get a lot of services for your money.

Jonathan Miller: Yes.

Barry Ritholtz: And I am not joking, because I have—like you, I am a Zillow lurker, and I look at all this crazy stuff.

Jonathan Miller: Yeah.

Barry Ritholtz: So to sum up: all right, you missed Memorial Day, but there’s still a lot of summer left. And if you’re thinking about a house on the lake, a house up in the mountains, maybe by the beach, there’s still some inventory left—but you better get a move on it, and you better start working on that tan. Please use SPF. I’m Barry Ritholtz. You’ve been listening to Bloomberg’s At the Money.

~~~

Find our entire music playlist for At the Money on Spotify.

The post At The Money: Grab Your Summer Rental Soon Now! appeared first on The Big Picture.

I keep hearing comments and concerns about these markets in the media. Since my wife is tired of me yelling at the television (“No! That’s wrong!”) you are the lucky recipients of my ire.

Here are five things I have been thinking about regarding markets, the economy, and investments – from the most bullish to the least – that are too easily misunderstood:

1) Profits: If I can only look at one data point to gauge the overall direction of equity markets, it would be profits. And, corporate profits have been on a tear the past few years.

To be sure, the hyperscalers’ artificial intelligence buildout and massive CapEx are significant factors. But we have also seen good profits in sectors ranging from Communication Services, Health Care, Financials, Consumer Discretionary, and Materials — all are having strong quarters; (unsurprisingly, Consumer Discretionary is the least consistent).

And these are not just one-time blips; we have enjoyed the rare combination of record profits and record profit growth rates. If you want to understand what has been driving equity prices, look no further than this powerful one-two punch.

At the same time, high(ish) valuations have become a little cheaper, as multiples have compressed. This is very powerful…

2) All-Time Highs: The data is unequivocal. Investing at all-time highs yields better returns than at all other dates. I have been saying this for years, so rather than repeat myself, I will let Sam Ro give you the details:

“Just because major market drawdowns are often preceded by record highs doesn’t mean all-time highs are often followed by major market drawdowns. Hopefully, this is obvious. The stock market would not have trended higher for decades if this were not true. Eyeball any long-term chart of the stock market, and you’ll see all-time highs followed by new all-time highs.”

There were over 493 new all-time highs from 1983 to 2000. Except for the very last one, every single one of these was bullish.

If you want to make a bet against 500 to 1 odds, well, that’s your call. I am on the other side of that trade.

3) Sentiment: Another intriguing issue that keeps coming up is record lows in U Mich Sentiment. Many find this deeply concerning.

But here is the thing: Your individual sentiment is based on what you experience personally – in BeFi terms, the “Availability Heuristic” of what is in your personal economy. But that is not what drives markets. We discussed this in terms of the pandemic and, more recently, how we can have all-time highs in equities with all-time lows in consumer sentiment.

Most of the time, Sentiment measures do not provide a very clear signal. The contrarian in me looks at record low sentiment measures as a potentially bullish indicator…

4) K-Shaped Economy: Here is the disappointing, grim reality: Throughout most of human history, it has been a very “Winner takes all (or most)” kind of economic system.

The challenge is in having the top 10% of the economic strata driving half of the economic activity. This may not be a sustainable situation — economically or politically.

There were hopes that the industrial revolution, unionization, and the general rise in entrepreneurship might push back against that reality. But it is looking more and more like the Roaring 1920s, the 1980s bull market, the post-GFC bailouts were the norm, not the exception.

I grew up in the post-war era, and I took it for granted that it was the norm. I am starting to suspect exactly how aberrational that period was. It is looking more and more like the entire post-war period – the rise of the middle class, the build-out in the USA of suburbia, interstate highways, the electronics industry, semiconductors, manufacturing, civilian aviation, etc. – was a historical aberration.

I hope this is incorrect, but fear it is not…

Iran War / Oil / Inflation: Venezuela was fast and easy; Cuba is likely a bit more difficult. But Iran has its own strategic, tactical, and military assets; it is its own player in the Middle East. Oh, and they have been supplying drones to Russia (!) for its war against Ukraine.

I have no idea how the Dunning-Kruger War will ultimately play out in terms of energy prices and/or inflation, but it appears not to have been well thought out in advance.

The good news is regional wars generally don’t impact stock prices much; the bad news is this is the one with the potential for causing exactly that kind of mischief…

~~~

Generally speaking, I am bullish on US equities and even more bullish on overseas bourses. There are signs of froth and foolishness, none of which rise to systematic problems.

Am I happy about the excesses surrounding the SpaceX IPO? Absolutely not. The index gaming from Nasdaq and S&P is deeply problematic and disappointing. But it does not read to me as a market killer.

If you have learned anything from this market over the past 15 years, it is that it deserves the benefit of the doubt. The economy has been cooling, but not outright decelerating. Housing is a mess, still working off the excesses of the GFC. College grads seem to be having a hard time finding jobs.

It’s not perfect out there. But until we see deeper signs of deterioration and further economic weakening, I remain constructive…

Previously:
All Time Highs (SP500) versus All Time Lows (Consumer Sentiment) (April 24, 2026)

Maybe Mr. Market Is Rational After All… (August 7, 2020)

The K-Shaped Recovery (September 4, 2020)

No, Market Highs Are Not a Bad Sign (March 5, 2014)

The Bifurcated Recovery in Jobs (November 12, 2013)

The post 5 Things I Am Thinking About appeared first on The Big Picture.

In this guest post, Dr. Meghaan Lurtz, a leading expert on the psychology of financial planning and Professor of Practice at Kansas State University, discusses how in reality clients coming back with AI-informed questions may not be a signal that technology is undermining financial advisors, and instead indicates that clients are more proactively engaging with their financial advisor in what could become a boon to advisor-client engagement!

When advisors have had years and decades of experience as being "the authority" on financial planning issues that their clients ask questions about, it's only natural to feel challenged when comes begin to double-check what their advisors have said using AI. Yet the reality is that clients who don't understand their financial planning recommendations aren't going to implement… and in the past, clients who didn't understand had little way to learn more, and may not have even known what questions they should be asking to better engage in the process. Whereas now, when clients leverage AI for themselves in a planning engagement, it creates a form of 'hybrid' model that makes it easier for them to engage proactively with their advisor!

After all, if clients really want to circumvent an advisor's advice, they can already do so; they simply go open the trading account, or buy the crypto, or purchase the boat, and don't bring it up to the advisor they already knew would likely tell them not to. The mere fact that clients choose to bring questions back from their AI output and ask "What do you think about this?" means there is a desire to take the conversation with their advisor even deeper. In turn, this means that advisors who invite clients further into the (AI-prompted) conversation create more opportunity for clients to be heard, which further increases the likelihood they'll follow through!

Advisors who want to lean in further and turn client AI-prompted challenges into more constructive conversations can use a four-part framework: first thank the client (I'm really glad you brought this up. This is exactly the kind of conversation I want us to be having), then listen ("What was it about this idea that got you excited? What's the part that feels right to you?") before offering to share perspective ("I appreciate you sharing all of that. Can I offer some additional context that might be helpful as you think this through?"), which opens the door to better understand ("I can see why that strategy looks attractive. Here's the piece I'd want us to stress-test before making a move — what do you think?"), to finally co-create a new future with the client ("This was a great conversation. Keep bringing me what you're finding — this is how we make the plan better together.").

Ultimately, though, the key point is to recognize that clients who bring questions that seemingly are "challenging" their advisor are probably not doing so because they're unhappy or don't value their advisor; it's a pathway for clients to engage with their advisor more deeply, with greater confidence, because the AI may have helped them better get up to speed on what questions to ask, what conversations to have, and in the process may better surface the values and goals that are really most important to them. Which isn't unique to financial advisors; when a patient tells their doctor, "I looked up my symptoms on WebMD," a good doctor doesn't say, "Stop Googling things." A good doctor says, "Tell me what you found and what concerned you", and the patient leaves that appointment feeling heard. The same door of opportunity is now opening for financial advisors, too!

Read More...

My guest on today's podcast is Mary Chapman. Mary is the chief operating officer of Cummings Wealth Management Group, a hybrid advisory firm based in Charleston, South Carolina, that oversees $500 million in assets under management for 260 client households.

What's unique about Mary, though, is how she has applied lessons from her research into "steward leadership" to build communications mechanisms, processes, and expectations to help her firm continue to thrive as it transitioned into a hybrid work environment.

In this episode, we talk in-depth about how Mary leverages the steward leadership approach to set high and specific recommendations for team members (for example, picking up the phone after the second ring so they can see who is calling on caller ID), how Mary finds that "clarity is kindness" when it comes to communicating these expectations (both up front when interviewing new employees and during regular evaluations after they join the firm), and how Mary created processes and workflows in her firm's CRM that create accountability for employees while allowing for the flexibility benefits remote work can offer (without her having to micromanage them).

We also talk about how Mary's firm operates a time- and location-hybrid model that has client-facing team members spend more time in the office while allowing the firm to tap into talent nationwide for back-office employees, how Mary's firm concentrates in-person client meetings into two months during the year (allowing for greater location flexibility for virtual meetings during the rest of the year), and how Mary's firm encourages employees to completely check out from work when on PTO (both to allow them to relax and recharge as well as to ensure that clients feel like they're getting the firm's full attention when they reach out).

And be certain to listen to the end, where Mary shares the importance of knowledge-sharing in a hybrid or virtual work environment (which highlights the value of accurate record-keeping in the firm's CRM system), why Mary and her firm seek "work-life integration" rather than "work-life balance" (emphasizing the importance of being 100% focused on the task at hand, whether it's work or time with family), and how Mary has ultimately found success by leaning into her unique strengths and applying them in roles throughout her firm.

So, whether you're interested in learning about leadership best practices for hybrid and virtual teams, why "clarity is kindness" when it comes to communicating expectations, or fostering an environment of "work-life integration", then we hope you enjoy this episode of the Financial Advisor Success podcast, with Mary Chapman.

Read More...

The transcript from this week’s, MiB: Remembering Jonathan Clements with Jason Zweig and William Bernstein, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

~~~

Masters in Business: Remembering Jonathan Clements
with Jason Zweig and Bill Bernstein

Barry Ritholtz  (00:00:16):  This weekend on the podcast, I get to sit down with Jason Zweig and William Bernstein, remembering their friend Jonathan Clements. Jonathan was a Wall Street Journal personal finance columnist and author for almost 20 years. He’s beloved by people in the industry. In many ways, Jonathan has done as much as anybody to push the idea of indexing—at least anybody since Jack Bogle. I thought this conversation, despite the fact that we know Jonathan received a terminal diagnosis and we already know how it ended, was interesting, uplifting, and fascinating. I think you will too. With no further ado, my remembrance of Jonathan Clements with Jason Zweig and William Bernstein.

Jason Zweig  (00:01:05):  Thanks, Barry. Glad to be here.

Barry Ritholtz  (00:01:07):  So let’s start at the beginning. I want to talk a little bit about who Jonathan was. We’ll talk about his two most recent books, including the one coming out in May of 2026. But how did each of you meet Jonathan? What were your early impressions of him like? Let’s start with you, Jason.

Jason Zweig  (00:01:25):  You want me to go first? So Jonathan and I met the third week of March in 1987 when I joined Forbes Magazine. He was already there, and we almost instantly became good friends. I’d say we probably went out to lunch at least twice a week for the next four years—certainly every Wednesday, fish cakes and spaghetti at the New Courtney on 14th Street in Manhattan, which I want to say was $4.95.

Barry Ritholtz  (00:02:06):  The Forbes office was right over there—was it 18th and Fifth?

Jason Zweig  (00:02:11):  Fifth, yeah.

Barry Ritholtz  (00:02:12):  All the Berger eggs were there. The whole building was kind of uniquely—

Jason Zweig  (00:02:16):  Situated. Fifth Avenue and 12th Street. Very close. And Jonathan had a really unusual sparkle. He always had a twinkle in his eye. He thought almost everything was funny—because, of course, almost everything is funny if you think about it the right way. He might be writing about some con artist who was stealing people’s money, or some mutual fund that was overcharging people, but he always found the humor in the situation. I loved that about him. We were friends from that moment on, ever since.

Barry Ritholtz  (00:03:07):  Bill, how’d you meet Jonathan?

Bill Bernstein  (00:03:09):  I met him a little later. It wasn’t until about the mid-nineties, when I was still practicing medicine and finding my feet in finance. I was starting to write, and I did what any aspiring financial writer does, which is you start chatting up financial journalists. He responded, and he started quoting me in the Journal. For many years I was just a source, until maybe the late aughts or early 2010s. Then we became personal friends after that. And he did think everything was funny. He just had such a pleasing personality—a high hedonic set point. He was always in a good mood, and he always thought everything was funny, which is a fabulous combination. The other personal characteristic that powered his career, I think, was that he was willing to talk about the hard things in his life: his struggles with money, his divorces, and of course, in the end, his impending demise. It was those three things together that really made him such a unique financial journalist and human being.

Barry Ritholtz  (00:04:28):  When I was preparing for this, I learned a lot of things I was wholly unaware of, including a quote from you, Bill: that you owe your entire career in investments to Jonathan’s work. You have to explain how a neurologist in North Bend, Oregon ended up having a career change thanks to a personal finance journalist.

Bill Bernstein  (00:04:53):  Well, I happened to live in a country that doesn’t have a functioning social safety net. So I realized I was going to have to invest on my own if I wanted to survive my retirement financially. I approached it the way I thought anybody with scientific training would: I read the peer-reviewed literature, the basic textbooks, and then I collected data and built models. When I was done with all that, I actually had something that was useful to small investors—and in a couple of instances, even to professional investors. So I started writing about it. The internet came to my community about that time, and I put my material on the web, and Jonathan picked it up. He started quoting me in the Wall Street Journal, and that opened the door to getting my books published, and also to a financial advisory business. Like a lot of things in a complex life, it was just serendipity—one thing leading to another.

Barry Ritholtz  (00:05:56):  Really interesting. Jason, you’re with Jonathan at Forbes, and then together at the Wall Street Journal. I’m struck by 1987—not only the year of the great crash, but long before indexing was the dominant intellectual framework, certainly in terms of money flows into mutual funds and ETFs. What was it about Jonathan’s writing that seemed to reshape a lot of the conversation about investing?

Jason Zweig  (00:06:35):  I don’t think this is an exaggeration: more than any other individual except Jack Bogle, Jonathan put index funds front and center for American investors. He realized very early on that active management, in the aggregate, was not earning its keep—it was charging more than it could possibly deliver for clients. Jonathan realized there’s an alternative, and he was going to keep telling people that’s what they should do. He must have written two or three hundred columns telling people to buy index funds. A lot of his readers, particularly professional readers, hated that, because he was essentially saying, don’t hire them—hire Vanguard, or State Street, or BlackRock.

Barry Ritholtz  (00:07:48):  BlackRock. The thing about the big three—the three biggest mutual fund and ETF companies today—is they really derive the lion’s share of their assets from index. Certainly half at BlackRock, and probably over half at Vanguard.

Jason Zweig  (00:08:04):  And the math is not hard to do. Investors have saved hundreds of billions of dollars in superfluous management fees by moving from active to passive investing. Jonathan deserves a lot of credit for that. I can attest, coming to it two or three years behind him, to the amount of hate mail and hate phone calls I used to get. It’s not easy to tell people they should not have a right to make as good a living as they have been. They don’t like hearing that. But if it’s in the best interest of the larger part of your audience, that’s the message you have to deliver. That’s the choice Jonathan made, really before any other investing or personal finance journalist in the country. And once he made that choice, he would not be moved.

Barry Ritholtz  (00:09:13):  Go ahead, Bill.

Bill Bernstein  (00:09:15):  Fortune favors the prepared. What prepared Jonathan for that was that from about 1990 to 1994, he covered mutual fund managers. And boy, that’s an awful sandbox to have to play in. How do you get into that sandbox? You take a lot of risk and you get lucky, and going forward the track record is not so good. He saw that often enough that it drove him to the conclusion Jason was just talking about.

Barry Ritholtz  (00:09:46):  I think it was Professor French at Dartmouth, of Fama-French fame, who said it takes about 20 years to figure out if a fund manager is skillful or lucky. Two or three years of returns certainly doesn’t tell us anything.

Bill Bernstein  (00:10:01):  Here’s one example that stays in my memory: if you have a hedge fund manager who can beat the market by 5% per year, and the standard deviation of stocks is 20% per year, when you grind through the statistics, it takes 64 years to get statistical significance.

Barry Ritholtz  (00:10:20):  Wow, that’s quite amazing. He called his own advocacy for index funds an obsession that some readers found irritating. When I read that line, I thought of your quote: your job is to write the same column week after week after week, but in a way that neither your readers nor your editors figure out. So how do you continually write about indexing if your readers find it irritating?

Bill Bernstein  (00:10:49):  I think Jonathan arrived at the same place I did. Even though he was slightly younger than me, he was a couple of years ahead of me, because he started on this topic earlier. But we both ended up in the same place: you keep your message consistent, but you frame it, you tell it, you ornament it in different ways every single time. Jonathan was an unparalleled master at writing what some people disparagingly call listicles. He’d come up with 25 funny things active managers say to justify their underperformance, run through all these bullet points, each one very funny, and then at the end he’d say, and that’s why I think you should put all your money in index funds.

Barry Ritholtz  (00:12:01):  I wonder how many of those lines came from angry emails from fund managers.

Bill Bernstein  (00:12:06):  Probably a lot of them.

Barry Ritholtz  (00:12:08):  So one of his core principles is that successful investing should be comprehensively, almost aggressively boring—which is kind of ironic, since both asset management and financial journalism are unusually noisy, FOMO-based industries. So how do you make a message stick as an island of rationality in a sea of noise and emotionally driven stimulus?

Bill Bernstein  (00:12:45):  That’s a tough one. You become what Jason has become a master of, which is saying the same thing in so many different ways that your editors and your readers don’t notice you’re saying the same thing over and over again.

Barry Ritholtz  (00:13:04):  No doubt about that.

Jason Zweig  (00:13:05):  And Barry, sorry—if I can jump in. I think one thing that’s underappreciated about somebody like Jonathan is the amount of integrity and courage it takes to stick to a simple message. The job of an investigative journalist is to get people who don’t want to talk to you to tell you things they don’t want you to know. The job of a mainstream journalist is to tell your readers things they need to know, whether they want to hear them or not. That’s what Jonathan was brilliant at.

Barry Ritholtz  (00:13:51):  And again, the word integrity comes up so many times when you talk about Jonathan. Here he is working in a sandbox—active fund managers—that’s how he’s paying his mortgage, and he wakes up one morning and says, this is intellectually dishonest. I’ve got to find some other message. Very few journalists make that choice. They just keep plugging away and don’t question what they’re doing. Really interesting. We’re talking about investing and money, but Clements emphasized this wasn’t about getting rich—it was about building a good life. So when do you think his thinking shifted from simply building a portfolio to something more philosophical?

Bill Bernstein  (00:14:43):  I think that happened in the early 2000s, when all of us—maybe all four of us—started to come across the wellbeing research that academic neuropsychologists were doing on what makes people happy. Money is a very small part of that. That’s what Jonathan made into his mission in financial journalism: exploring the connection between money and happiness. That’s not something many financial journalists venture into.

Barry Ritholtz  (00:15:20):  I know more money when you’re broke is better than less money, but it plateaus. Holding steady for things like divorce and illness, it plateaus surprisingly rapidly. So let’s channel Jonathan for a moment. What is the purpose of money, and how does it help one live a rich, fulfilling life?

Jason Zweig  (00:15:47):  Jonathan really explored that research into hedonic psychology, particularly the implications of: does money buy happiness? How can you use money to achieve happiness? There’s an enormous, voluminous amount of research on this in very obscure academic journals, and when Jonathan started working on it, very few non-academics were even aware it existed. There’s a handful of takeaways from that work. One is that possessions don’t generally make people happy. There are exceptions, but as a general rule, the bigger house, the fancier car, the painting on the wall, the bigger couch generally don’t move people’s happiness as much as they expect. That gap—between what you spend and the happiness you expect to get from the spending—is what causes the disappointment people feel. Everyone listening has had a similar experience. You’ve been in a starter house, you see a new house you love, you talk about it with your significant other, you agree to take the plunge. You buy the house, you move in, and you’re thrilled. Then a year later you look around and the paint is chipping and there are rats in the attic, and it’s mo’ money, mo’ problems, right? The next level beyond that observation is that you want to use your money to create experiences with people you love—shared experiences, memories. So you spend money on things you can do with friends and family: joint vacations, commemorative events, family reunions. And then there’s the final level that Jonathan explored more and more in the later years of his life, especially after his terminal diagnosis: using money to create meaning. Finding something bigger than yourself that you can support or strengthen—giving to a cause you care about, supporting a nonprofit, volunteering. All of those can move the needle much more than buying a new table or some other possession you’ve had your eye on.

Bill Bernstein  (00:19:21):  And the thing about Jonathan was, he lived that ethic every day of his life. He didn’t make a lot of money as a financial journalist. I think he worked a couple of years at Citicorp and made a pretty decent salary, but his lifetime earnings were not that high. And yet he amassed a significant amount of assets by hammering away at being frugal—amassing enough financial capital so that he didn’t have to depend on his human capital, as he put it. I never saw him so happy as when he showed up at our place in Portland, having spent $2 to take the MAX train in from the airport. Jason just explained very nicely the three levels he climbed. I think there was yet another level on top of that, which is to have enough assets so that you don’t have to worry about assets. The ultimate purpose of money, for Jonathan, was not having to worry about money.

Barry Ritholtz  (00:20:26):  Right. He said something—and I may be lifting this from the headline of one of his early diagnosis articles—which was, dying is easy, but estate planning and taking care of your loved ones after you’re gone is hard. That struck me as such a quirky, matter-of-fact observation about something we’re all going to face eventually. He just had to face it a little earlier, and with a sense of humor. The old joke is dying is easy, comedy is hard. No—estate planning and taking care of your loved ones, that’s what’s hard.

Bill Bernstein  (00:21:05):  If there’s one thing Jonathan didn’t believe, it’s that he who dies with the most toys wins.

Barry Ritholtz  (00:21:12):  Coming up, we continue our conversation with William Bernstein and Jason Zweig, remembering Jonathan Clements and discussing his most recent book, The Best of Jonathan Clements. I’m Barry Ritholtz, and you’re listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio, in an extra special edition of the show. This week is all about remembering Jonathan Clements, the Wall Street Journal personal finance columnist and author. My special guests are William Bernstein and Jason Zweig, who have known and worked with Jonathan for many decades. So let me pull on one thread: the idea of delayed gratification. I already know what your answer’s going to be, but I have to pose the question. Here’s somebody diligent about saving, diligent about postponing gratification, and then unfortunately he doesn’t get the full fruits to enjoy it. Give us your explanation as to how and why he was perfectly fine with that.

Jason Zweig  (00:22:37):  I talked a lot with Jonathan the last year of his life. He called me maybe two or three weeks after he got word of his terminal diagnosis. The thing that struck me, Barry, was that, having been his friend for decades, I could instantly tell none of this was an act. Most of us, if we got a terminal diagnosis—particularly one like Jonathan’s, where he was given originally five to twelve months—would put on a brave face. We’d be faking it for our friends and family. But Jonathan, from the very beginning, was totally at peace with it. I can’t tell you I can fully explain that. I think he meant what he said: that he felt he had lived the best life he could have, and he had done everything he wanted. He’d accomplished most of what he wanted to achieve, and he was okay with news that would absolutely devastate most people.

Bill Bernstein  (00:24:15):  Neuropsychologists use a personality scale—a five-item scale. One of the items is neuroticism, which is basically how much you focus on the problems in your life. He had a very high hedonic setpoint; he was in a good mood most of the time. So his neuroticism score, as far as I could tell, was zero. He dealt with his own mortality as well as he could, with a sense of humor. My gosh—he joked to everybody about what a great marketing strategy a terminal diagnosis was if you’re trying to flog a book.

Barry Ritholtz  (00:24:54):  Don’t recommend it. You only get to use it once. But only someone with a sense of humor can say that. So let’s talk about the book, The Best Of. How did it come together? Whose idea was it? What was it like working on a project with Jonathan under his awareness of his terminal diagnosis?

Bill Bernstein  (00:25:17):  Whose idea was it? I was going to look at you and ask. I think it was Jonathan’s idea, actually. He just decided he wanted to put together a compilation. His main goal was to raise funds for a charitable purpose, which took us a while to evolve. That was the project.

Barry Ritholtz  (00:25:44):  Let me just interrupt you. The Jonathan Clements Getting Going on Savings Initiative—funding Roth IRA contributions for young adults from low-income households. That sounds less like a book and more like a policy intervention.

Bill Bernstein  (00:26:00):  Yeah. It turned out that translating that idea into something practical was harder than anybody had realized. But it seemed like a good idea at the time. So Jason and I and Jonathan put together a list of his columns—I think it was Jonathan who basically gave us the list, and Jason helped me organize it. We self-published it through Amazon, and it has raised a substantial amount of money for the initiative, which we eventually arrived at—I don’t know if we want to talk about that just yet.

Barry Ritholtz  (00:26:38):  Sure, we can talk about it. How much money did it raise, and did anyone have targets in mind? Was this all upside surprise?

Bill Bernstein  (00:26:47):  On the order of about $60,000, which is a substantial amount of money. We actually raised a lot more through the Bogle Center—through personal donations that came into the John C. Bogle Center for Financial Literacy. That money is going into a research project. Jason, I can never remember what J-PAL stands for. That’s the research group doing this.

Jason Zweig  (00:27:19):  So J-PAL is a behavioral economics research institute based at MIT in Boston. It’s run partly by Esther Duflo, who shared a Nobel Prize in economics in, I want to say, 2023. J-PAL does all kinds of interventions based on behavioral economics research, trying to encourage people from low-income households around the world to form more constructive savings habits, to borrow more prudently, to become long-term investors. We partnered with them because we really felt that getting Jonathan’s vision from an idea into an actual program was beyond us. We needed help. J-PAL works with academics at universities all around the world. Between Boston University, the University of Chicago, and Northeastern, we were able to round up some great economists and researchers to make the program a reality. Last summer, it was piloted with high school kids in Boston from poor families who were randomly selected to get money to open a Roth IRA. We’re testing whether particular kinds of messaging or other techniques can not only encourage them to invest, but turn them into investors by changing their behavior over the long term. It’s still very early. We don’t know whether it’ll work, but we hope it will. And even if it fails, we’re pretty confident we’ll learn some useful things about how to encourage good long-term investing behavior.

Bill Bernstein  (00:30:00):  It turns out it’s really hard to give away money to kids for a Roth IRA.

Barry Ritholtz  (00:30:07):  This is before we passed—I don’t know if you want to call them baby bonds or Trump accounts—that thousand-dollar initial tax-deferred account.

Bill Bernstein  (00:30:17):  Correct. Predates that.

Barry Ritholtz  (00:30:18):  And by the way, that dates back to—I’m drawing a blank on his name—a VC out in California who first proposed it.

Jason Zweig  (00:30:28):  Mike Bell.

Barry Ritholtz  (00:30:29):  Who first proposed this a decade ago and was slogging away trying to get it accepted. So those are the proceeds. Let’s talk about the book itself. Sixty columns out of over a thousand—that has to be a tough list. Did anything on it surprise you or make you scratch your head? How do you think of the arc, now that you guys helped structure and organize it—which really is half the battle? Once you have it structured, it becomes a whole lot easier.

Bill Bernstein  (00:31:00):  I don’t think Jonathan had an organizing principle. I think he just went through his thousand and nine columns—actually more than that—and picked out his favorites. Then it fell to the three of us to organize the book, which took some work. They were organized according to the things Jonathan wrote about: the principles of indexing, the importance of saving, how to calculate how much money you need, and then all the behavioral issues we talked about. I think we came up with seven or eight basic chapter headings.

Jason Zweig  (00:31:44):  Jonathan also did something else that was unusual and frankly risky: he wrote really often about his family and their issues with money. I don’t think Hannah and Henry would mind my saying this—he sort of used his kids as guinea pigs to test out how you motivate children to save, how you get them to become long-term investors. We did not do this in my household. On the one hand, I’m glad we didn’t, because I think it can make your kids a little crazy if you turn them into lab rats. On the other hand, his kids probably have healthier finances than my kids do.

Bill Bernstein  (00:32:42):  And a healthier financial outlook too. I’m about a decade older than Jonathan was—more than that—and so are my kids; they’re considerably older than his, because I had my kids later than he did. A couple of the tricks he came up with, I just thought, God, I wish I’d thought of that. When your kid asks for a soda—the $4 soda at the restaurant—it’s, I’ll give you a buck if you take the water. I’d probably be a couple grand richer if I’d thought of that one first.

Barry Ritholtz  (00:33:18):  That’s a great parenting hack. Share some others. What other financial tricks was he using that ended up having a good impact on the children, either of you?

Bill Bernstein  (00:33:30):  Well, the bank of mom and dad—he closed that. Instead of opening your wallet for the endless supply of fives and tens and twenties whenever they wanted something, at age 11 or 12 he gave them ATM cards that he’d load up at the beginning of the month. When the money was gone, the money was gone.

Barry Ritholtz  (00:33:51):  Until the next month.

Bill Bernstein  (00:33:52):  And that’s a great trick.

Barry Ritholtz  (00:33:55):  I’ve got to imagine a lot of parents are listening and saying, closing the bank of mom and dad—what happens when they burn through the ATM in week one? Now you have three weeks of whining. How do you manage around that?

Bill Bernstein  (00:34:08):  That’s tough. That’s tough nuggies.

Barry Ritholtz  (00:34:10):  You just ignore the whining. Plan better next month and we won’t be having this conversation. That’s really pretty amazing. So it appears to me that Jonathan spent a big part of his career—and I always hate this word—democratizing good financial advice. It sounds like this initiative is the culmination of all of that, and maybe further, because he’s trying to reach people who are normally completely ignored by the wealth management and mutual fund world.

Bill Bernstein  (00:34:48):  Yeah. Part of the problem we have is the behavioral problem of getting people to save. Hopefully this initiative, this research project, will shed a little light on that, and help people save for their own retirement, both through employer plans and on their own.

Barry Ritholtz  (00:35:13):  So let’s talk a little about the behavior gap. Both of you have written about this, and Jonathan wrote extensively about it. Essentially it’s the difference between what people know they should do and what they end up doing despite knowing it. How do we contextualize this behavior gap from Jonathan’s perspective?

Bill Bernstein  (00:35:40):  I think Jonathan did something really important. There was a firm, which I won’t name, that in the nineties used to say the behavior gap was 7 or 8% a year for people who didn’t use stockbrokers to buy their mutual funds. In other words, if you were willing to pay an upfront sales charge to buy a mutual fund, you’d end up earning a much higher return than somebody who didn’t go through a stockbroker.

Barry Ritholtz  (00:36:18):  Does the math bear that out?

Bill Bernstein  (00:36:19):  The math does not bear that out. No. The behavior gap is real, but it’s nowhere near that big.

Barry Ritholtz  (00:36:30):  Two to 3%, something along those lines.

Bill Bernstein  (00:36:33):  Probably a little smaller.

Barry Ritholtz  (00:36:34):  I remember a Vanguard study that specifically said, for people who have behavior issues, it’s worth paying half a percent or 1% to somebody if it prevents them from making 3 or 4% in errors. I’m talking my book; they were talking their book. How do you perceive the ability for someone to talk an investor off the ledge, when every instinct in their body says, no, no, we want to sell now—because in March ’09 or March 2020, this is going to get much worse than it is right now?

Bill Bernstein  (00:37:13):  That’s a completely separate issue from what we’re talking about. What we’re talking about is, what is the gap? And the answer is, it’s not 7 or 8%, it’s closer to 1% or 1.5%—which is less than the cost of engaging conventional advice, certainly through a full-service financial institution. The other issue you’re asking about is how you prevent people from jumping off the ledge. The answer is that’s very hard to do, because you have to impart a sense of financial history to people, which is something maybe one out of 50 investors takes seriously.

Barry Ritholtz  (00:37:56):  That low—the numbers are that low? I’m thinking about your quote about managing your own limbic system. If you can’t do that, you’re going to die poor. Tell us how all these columns and the book from Jonathan address that.

Bill Bernstein  (00:38:09):  The limbic system, very crudely, is system one. It’s the fast-moving system that engages when we hear the hiss of the snake, or see the yellow and black stripes in our peripheral vision on the African savanna. We overcome it with system two, our thinking part of the brain, the neocortex. And the neocortex has to learn something about financial history. Good luck with that.

Barry Ritholtz  (00:38:37):  Good luck not only teaching it, but it seems the half-life of financial literacy is really short. Even if you teach people, you’ve got to keep drumming it in, because events move so fast people forget pretty quickly.

Bill Bernstein  (00:38:53):  People do learn when they get hit over the head by a two-by-four, which they did in ’08, ’09, and in 2000. Einstein is supposed to have said the most powerful force in the universe is compound interest—which of course he never said. But the most powerful force in the financial universe is amnesia. People forget.

Barry Ritholtz  (00:39:14):  What’s the Galbraith quote? The one thing we learn about financial history is that no one learns from financial history. So it’s really true. Let’s talk about this book, starting with: who gets a terminal diagnosis and says, I know, I’ll write a book? Every one of us at this table has written more than one book, and I think we’d all admit they’re kind of a slog. Where did this come from? What was the motivation?

Jason Zweig  (00:39:48):  Jonathan never told me he was doing it. I don’t know if he told you, Bill—he didn’t. I only found out about it several months after he died. I think it was part of how he coped with knowing his time was limited. He just wanted to make the most of the time he had left—he spent a large part of every day with family and friends, creating new memories that the people who remained behind, when he was gone, would be able to cherish. But he also spent part of every day doing what he liked best, which was writing.

Bill Bernstein  (00:40:39):  Yeah. If you asked Jonathan who he was and what he did, he’d say, first of all, it’s about my family, and secondly, who I am is a writer. He could no sooner stop writing than he could stop breathing.

Barry Ritholtz  (00:40:59):  So the book, Money and Me, combines a lot of writing he did at HumbleDollar, as well as some fairly personal reflections on his diagnosis. Is this book very different in tone, goals, and ambitions from his earlier writings?

Bill Bernstein  (00:41:19):  It’s a biography. An autobiography.

Jason Zweig  (00:41:22):  It’s a biography. But, having not read it yet, I suspect it’s a biography with a lot of insightful lessons learned along the way.

Bill Bernstein  (00:41:33):  We covered a lot of those in the first segment: what’s money for? What’s life all about? What’s the meaning of life? That’s what he wanted to approach. He wanted to put a coda on his life, and I think that’s what the book was for.

Jason Zweig  (00:41:52):  A coda, yeah. I’ve been thinking a lot about this, because I mention Jonathan and the writing he did at the end of his life in a book of my own that I’ve just finished. The way I came out was that I think Jonathan took heart from giving heart. He gave heart to so many people in the last year of his life by writing incredibly candidly about what it’s like to know you’re dying. What do you have to do before you’re done? How do you accomplish everything you want to achieve in the very limited time left to you, while retaining your dignity, while spending time with the people you love? How do you set those priorities and put it all in context? Jonathan got not hundreds but thousands of emails and letters from people who were dying, people taking care of loved ones who were dying, people whose loved ones had died, people afraid of death, people who’d gotten a terminal diagnosis and then gone into remission or been cured. Over and over, it was an incredible outpouring of gratitude and love. The thing I think is the biggest tribute to Jonathan is that, in the writing I did about him in the last year of his life—in my column and in the newsletter I do for the Wall Street Journal—I easily got three or four hundred emails myself. And the single most common thing readers said about Jonathan was, he was my friend. They said that even though none of them had ever met him. And it was true, because he really cared about the average person. He loved his readers, even the ones he’d never met. He understood that when you’re an individual investor, you’re just a little piece of plankton in a sea of sharks and barracuda, at the bottom of the food chain. Jonathan was their advocate. And when he got that terminal diagnosis, he realized he could be an advocate for an entirely new group of people: those who’ve been touched by terminal illness.

Bill Bernstein  (00:45:07):  He had an ability almost no journalist has, which is that you read him and you say, this man knows my life. Even before he got his terminal diagnosis—he quits Citicorp around 2014 and says, well, what am I going to do? I’m going to give back. So he founds HumbleDollar, which continues publishing even after he’s gone. He created something that was very useful while he was publishing it and is still providing a service. His life was service more than anything else.

Barry Ritholtz  (00:45:53):  Coming up, we continue our conversation with William Bernstein and Jason Zweig, discussing Jonathan Clements’s forthcoming book, Money and Me. I’m Barry Ritholtz, and you’re listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My extra special guests today are Jason Zweig and William Bernstein. We’re remembering Jonathan Clements, the HumbleDollar and Wall Street Journal personal finance columnist. He has a new book coming out posthumously, Money and Me. So let’s talk a little about service—not just to his readers, but to his family. If you preach delayed gratification and then realize that window is only small, you then want some of that gratification. When I interviewed him after his diagnosis, he was planning a number of events, travel, and other things with his family. Tell us about what he got to do in the last year of his life that he might otherwise have postponed until years later.

Jason Zweig  (00:47:26):  Obviously we should be respectful of Jonathan’s privacy, but I think I can share most of this.

Barry Ritholtz  (00:47:35):  He did discuss a lot of it, and I’m assuming some of it’s in the book, so I’m not asking for secrets. Tell us what he was public about.

Jason Zweig  (00:47:42):  His son was planning to get engaged, and got engaged and got married, and Jonathan and his wife Elaine got to travel to London for the wedding. Jonathan himself accelerated his own engagement and marriage to Elaine. He organized those things knowing they were important to him and his family. He also went on a bunch of trips with his mom and his siblings. He had to cancel a couple of trips because at various points he was too sick to travel, but his siblings and kids would meet in Philadelphia, and other places—they just maximized the amount of time they spent together, with family and with friends. I visited him twice. Another mutual friend of ours from our days at Forbes went with me on one of those visits.

Barry Ritholtz  (00:49:07):  Was this to London?

Jason Zweig  (00:49:08):  No, to Philadelphia. Philadelphia’s great—don’t get me wrong, I love Philly—but London is more fun, maybe, for an American. The thing I’d point out, because I saw it firsthand, is that this may not sound like a big deal to most people listening—oh yeah, your time is limited, so speed stuff up and make it happen. Making it happen isn’t as easy as it sounds. You’re getting chemo, you’re getting radiation therapy, you’re getting surgical cement squirted into your spine, you’re getting cut open for this thing or that thing, your hair is falling out, walking is difficult. And through all of that, Jonathan was like, yeah, come on, come next Tuesday, I’ve got nothing but time.

Barry Ritholtz  (00:50:26):  Nothing but time—when we all have limited time, and he knows pretty realistically how short his is. It sounds like this could be a morbid or depressing category, but knowing how he discussed things after his diagnosis, I have a sneaking suspicion the book is more uplifting than depressing. Tell us about the tone he takes in what most of us would think of as really difficult circumstances.

Bill Bernstein  (00:51:06):  Most of the book doesn’t cover his terminal illness—that’s maybe 10 or 15% of it. He does a beautiful job of describing just what Jason did: his journey through the relationship between money and happiness, and how he arrived at the place he did. The thing that struck me when I would visit him or talk to him on the phone—and in the practice of medicine I spent a lot of time talking to dying patients—was that he was just the easiest person to talk to. You’d get off the phone with him, you’d come away from a visit, and you’d feel uplifted. I can tell you that’s not true most of the time.

Barry Ritholtz  (00:52:00):  And does that translate into the book?

Jason Zweig  (00:52:03):  Yes. What I’d jump in with, Barry, is that—it may sound like a strange word, but the word I’d use is joy. Jonathan talked and wrote about dying from the most positive perspective you could possibly imagine. It’s as if he really felt he had lived the life he wanted to live, and above all he wanted to go out on a high note, and bring everybody along with him.

Barry Ritholtz  (00:52:51):  That was his great gift and his great endowment. We talked a bit about hedonic setpoint—he just wasn’t a glass-half-full kind of guy. He was a glass-seven-eighths-full kind of guy.

Bill Bernstein  (00:53:01):  Just that headline—I don’t remember if it was the Journal or the Times piece—dying is easy, planning for death is hard—is filled with that mischievous sense of humor about something everybody else takes very seriously. When confronted with it, it’s like, you’ve got no choice but to laugh and plow ahead. That seems to be what he did.

Jason Zweig  (00:53:24):  One of the lines he used that I’ll never forget—it was maybe the second-to-last phone conversation I had with him—he said, when I got my original diagnosis, they told me I had five to twelve months to live. I may not be remembering correctly; I think at the time we were talking it was maybe 13 months prior. And he said, so I’m already playing in overtime. I burst out laughing, just the way you did. My friend is dying and I’m laughing—but I’m laughing with him.

Barry Ritholtz  (00:54:12):  As he cracks jokes about it.

Jason Zweig  (00:54:13):  Yes. And it wasn’t like—if that had been me, I might’ve been joking to cover my fear. He was joking because he thought it was funny.

Barry Ritholtz  (00:54:28):  So there’s a line from Howard Marks that I suspect reflects a lot of what’s in this book, and I’m curious about your thoughts: what we get when we don’t get what we want. In the overlap between happiness and money—that Venn diagram, which I suspect has less overlap than most people realize until they get an experience that might not be what they wanted—how has Jonathan’s perspective changed about money, happiness, and the purpose of living a rich life?

Bill Bernstein  (00:55:19):  I think he started out as a young man, the way he describes in the book, with a conventional view of money: that money is to buy things and help you get by in life. When he started his career in journalism, he had credit card debt and student debt, and probably all he was thinking about was getting out from under that. Unlike most people, he evolved beyond that very quickly to the higher uses of money we’ve been talking about.

Barry Ritholtz  (00:56:00):  Anything to add to that?

Jason Zweig  (00:56:02):  The thing I’d add, Barry, is that it takes a lot, after all the years I’ve been doing financial journalism, to get me to feel I’ve really learned something important—because I’ve seen most of it. I really learned from Jonathan that how you live under the ordinary conditions of daily life is one thing, but how you live when you’ve got a death sentence is something else. He really shows that you can still celebrate, and you should, and you should figure out how to comfort the people who love you in a way that will always console them after you’re gone. The book really shows that, of course, we’re all afraid of dying, but we’re probably afraid of it for the wrong reasons. What Jonathan really showed is that the thing you should be afraid of about dying is going out the wrong way—not giving the people who will live after you the positive things you can give them as gifts. And that’s what he did.

Bill Bernstein  (00:57:56):  Yeah. The other thing he was aware of is that he realized he was a very positive person, dealing with his terminal illness as well as any person could. And he was much more acutely aware of how much harder it was for the people around him. He talked about that a lot—how hard it was, particularly on his kids.

Barry Ritholtz  (00:58:18):  That makes perfect sense. So, last question. If Jonathan were here, what do you think he’d want the takeaway to be from the book about the relationship between money and a life well lived?

Bill Bernstein  (00:58:34):  He would tell you to figure out who the heck you are and what you really enjoy doing. And that’s what the money is for.

Barry Ritholtz  (00:58:45):  Sounds wise. Jason, you want—

Jason Zweig  (00:58:48):  I have nothing to add.

Barry Ritholtz  (00:58:50):  Did we miss anything? Is there something I haven’t brought up? I don’t want this to be a morbid conversation. We’re all solemn, but I know each of you have a long and positive relationship with Jonathan, so I don’t want this to come across as morbid—just because it involves death doesn’t mean it’s sad. What else do you want listeners to take away from Jonathan’s life, his work, his books? People should be aware this isn’t a downbeat book. It isn’t depressing. We’re being respectful, but at the same time, he was a happy, joyful person.

Jason Zweig  (00:59:39):  We don’t want to get into anything morbid, but—when I was in college, my dad died, when I was 22. The thing he was most worried about as he lay dying—he died of lung cancer—he kept saying to me, I don’t want you to remember me like this, as a sick person. And I kept saying, I’m not going to remember you like this. I couldn’t know that was true, but it was—I don’t remember my dad as a sick person. I remember him as this incredibly vital, physically strong, mentally agile, impressive person. And what I’ll always remember about Jonathan is that every time I think of him, I hear him laughing. That’s the first thing that comes into my head. He didn’t just laugh, he cackled, and his laughter was contagious. It never stopped. The last conversation I had with him, he was laughing at himself, at how dying was such a weird thing—and that if people only knew what it was like, they…

Barry Ritholtz  (01:01:07):  They wouldn’t fear it.

Jason Zweig  (01:01:09):  They wouldn’t—yeah.

Barry Ritholtz  (01:01:09):  Well, they would fear it less. Well, gentlemen, I really appreciate you guys coming in to talk about the life and times of Jonathan Clements. It was an absolutely unique life—one that left behind a tremendous legacy for all of his friends and family, but also his readers. The ability to touch tens of thousands of people in a very positive way is a very rare thing. I hope people appreciate the conversation not as a morbid remembrance, but as a hopeful and uplifting one, for somebody who left a very positive mark behind. Thank you, gentlemen, for being so generous with your time. We’ve been speaking with Jason Zweig and William Bernstein, remembering the life, times, and writings of Jonathan Clements, in anticipation of his final book, Money and Me, coming out May 26th, 2026. I’d be remiss if I didn’t thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer, Sean Russo is my researcher, Anna Luke is my podcast producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

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The post Transcript: Remembering Jonathan Clements with Jason Zweig and William Bernstein appeared first on The Big Picture.

This month's edition kicks off with the news that Altruist is planning to launch a corporate RIA for advisors who want some level of compliance and technology support while remaining functionally independent – which is a first for a major RIA custodian that isn't in the business of actually being an RIA, but may make sense given that the economics of RIA custody are so favorable compared to technology and services that the corporate RIA doesn't actually have to be that profitable as long as it can draw a significant amount of advisors (and their client assets) onto Altruist's custody platform?

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

• Flourish has debuted a platform where advisory clients can compare and obtain mortgages – and by eliminating some layers of costs, is actually able to offer better interest rates than can normally be found on the retail market, creating an opportunity for advisors to add tangible value for clients in a planning area they don't often focus on
• TaxStatus has announced a new embedded tax planning function, powered Advice.ai, which generates planning recommendations based on the client's tax data piped directly from the IRS – marking one of TaxStatus's first ventures into forward-looking planning (ironically at the same time as many similar features are rising up to compete with the longtime market leader Holistiplan)
• RISR, which makes software for advisors who work with business owner clients to help them grow and protect the value of their business, has released a new AI document analysis tool to expedite review of business tax forms and buy-sell agreements – showing how the use cases for AI document analysis are starting to trickle down from broad-based applications like review of personal tax returns and investment statements into more niche client types

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

• A new survey of high-net-worth investors suggests that although clients feel neutral to positive about whether or not their advisors use AI in general, they are more wary about specific use cases that get in the way of the client-advisor relationship (such as AI-generated recommendations and client communication), and strongly disapprove of advisors not disclosing their use of AI
• Despite many claims that expanded access to inexpensive 'vibe coding' tools will collapse the AdvisorTech landscape as advisors drop their software subscriptions in favor of custom homemade solutions, the reality is that the number of technology options is increasing even faster than before – because in reality, advisors don't want to build their own software, but the lower bar to building and developing technology means that a greater number of narrower-purpose point solutions are starting to emerge, solving problems for advisors that previously didn't have a large enough market to support a dedicated tech solution

And be certain to read to the end, where we have provided an update to our popular "Financial AdvisorTech Solutions Map" (and also added the changes to our AdvisorTech Directory) as well!

*To submit a request for inclusion or updates on the Financial Advisor FinTech Solutions Map and AdvisorTech Directory, please share information on the solution at the AdvisorTech Map submission form.

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This week, I sit down with Jason Zweig and William Bernstein. We discuss “Money and Me” the last book of author and journalist Jonathan Clements. Jason and Bill also examine Clements’s approach to personal finance and its impact on financial journalism.

They recall how each of them met Jonathan, and how he impacted the entire financial community.

A list of Jonathan’s books is here; A transcript of our conversation is available here next week.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Chris Davis, Chairman and Portfolio Manager of Davis Funds. The firm oversees $20 billion in client assets, with Davis (and colleagues) co-investing $2 billion in their own mineus alongside shareholders. Davis was named Morningstar’s Portfolio Manager of the Year; he also sits on the boards of Berkshire Hathaway and Coca-Cola.

Jonathan Clements’ Books

The post MiB: Remembering Jonathan Clements with Jason Zweig and William Bernstein appeared first on The Big Picture.

Also in industry news this week:

• A survey identifies several factors driving differences in RIA employee compensation (and how much each contributes), including geographic region, years of experience, and business development responsibilities
• Data from Fidelity showed a 41% increase in the number of Roth conversions being made by investors on its platform during the first quarter (perhaps spurred on by the market decline that occurred in March)

From there, we have several articles on tax planning:

• How advisors can work with clients to assess the role of private company equity in their compensation package and proactively make decisions on how to handle it (which could ultimately result in significant tax savings)
• Key planning moves for when a client experiences a liquidity event, from allocating newly freed-up cash to planning for a potentially larger tax bill
• While putting early-stage growth company stock in a Roth IRA might seem like an attractive option, advisors can play a valuable role in ensuring clients don't run afoul of "Prohibited Transaction" rules

We also have a number of articles on cash flow planning:

• Different ways parents can support their children facing increasing housing costs, from contributing a down payment 'match' to making an intra-family loan
• Why the decisions of whether and how to support adult child's housing costs goes beyond financial considerations to include family dynamics and the child's sense of independence
• Five tax-friendly strategies parents could consider when helping a child buy a home

We wrap up with three final articles, all about writing:

• What one author learned from writing 500 blog posts, with the importance of consistency topping the list
• Six tips for becoming a better writer, including the benefits of reading extensively and the importance of clarity
• How financial advisors can leverage their day-to-day experiences (and the common questions clients ask) to produce valuable written content

Enjoy the 'light' reading!

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Doing the tour to promote How NOT to Invest (paperback out now!) I got lots of interesting questions — about the book, my writing process, my investing philosophy, and my career.

The one (really two) questions that I was not prepared for had to do with the podcast:

“Who was your favorite guest(s) on MiB?” and/or “What was your favorite episode?”

These are actually two different questions — who I enjoyed meeting/chatting with is a different issue from which episode was the most informative and interesting conversation.

I would spout off an answer from the most fun recent episode I could recall off the top of my mind.  But I really should have a better answer than that . . .  so I sat down and thought about it, combining the two questions into one. The result was a list of 25ish shows (out of ~650) that were both memorable, informative, surprising, and fun.

All of these were fun, and have an interesting story around them — either how the guest joined me, or what else was going on that made these unique or special, presented in no particular order:

Bill Gross, PIMCO
Danny Kahneman, BeFi (Nobel)
Cliff Asness, AQR
Howard Marks, Oaktree
Ray Dalio, Bridewater

Jim Chanos, Kynikos (Short seller)
Michael Lewis Author
Jack Bogle, Vanguard
Bill McNabb, Vanguard
David Rubenstein, Carlyle

Marc Andreesen, A26Z
Richard Barton (Microsoft/Expedia/Zillow/Glassdoor)
Bill Gurley, Benchmark
Liz Ann Sonders, Schwab
Jenny Johnson, Franklyn Templeton
Toto Wolff, F1 Mercedes

David Einhorn, Greenlight
Brooke Lampey, Sotheby’s
Joel Tillinghast, Fidelity
Will Danoff, Fidelity
Ken Feinberg, Special Master

Scott Galloway, NYU
Richard Thaler BeFi (Nobel)
Bill Sharpe  (Nobel)
Eugene Fama  (Nobel)
David Risher (CEO Lyft)
Lawrence Juber, Guitarist
John Pizzarelli, Guitarist

You should definitely check out any of these you may have missed…

The post Masters in Business Top 25 appeared first on The Big Picture.

In this guest post, Dr. Jay Zigmont, founder of Childfree Wealth and Childfree Trust, explores how the unique circumstances of Childfree clients turn traditional estate (and long-term care) planning upside down, to the point that relying on traditional estate documents and their standard provisions can actually cause outright harm to the Childfree client's planning goals.

The starting point is to recognize that for Childfree clients who don't have children, 'just' coming up with someone to serve as attorney-in-fact, executor, and/or trustee, can be a remarkably difficult decision. In the event of having no "obvious" choices in their immediate family, many will defer planning altogether, resulting in a stalled estate plan. In other cases, they may choose a more distant relative, not recognizing the problematic conflicts of interest that arise when their financial and medical decision-maker is also the one who will inherit all the dollars not used (and therefore have a direct incentive to minimize how much of the individual's own money is spent on their care, increasing the risk of elder financial abuse).

In addition, because the focus of estate planning for Childfree clients is disproportionately focused on enjoying and utilizing their money while they are still alive (as there are no children to prioritize for an inheritance), traditional estate planning clauses like limiting distributions for HEMS (Health, Education, Maintenance, and Support) are unnecessarily limiting to trustees of Childfree clients' trusts. Instead, "Exhaustion for Care" provisions (that explicitly grant permission to the trustee to use most or all of the trust funds for the grantor's care while still alive) become crucial to ensure trustees really can  safely use the Childfree clients' funds for their needs. And long-term care insurance also becomes a more integral part of the plan, when there are no children (or often any other immediate family members) to provide care.

Fortunately, though, there are a growing range of options for Childfree clients to find proxies who can serve to fulfill their key roles (without putting advisors themselves into the awkward position of serving as trustee and making end-of-life decisions about their own clients). Some states like California and Arizona have state-licensed fiduciaries. Many advisors have local bank and trust companies that are willing to serve (albeit not always for the unique pet, exhaustion-for-care, and other circumstances of Childfree clients). And Zigmont himself created a service called "Childfree Trust" to help solve for the gap for Childfree clients in states that don't have effective local solutions.

Ultimately, the key point is to recognize that the traditional estate planning approach just doesn't work for Childfree clients. Not simply because they don't necessarily have children as immediate heirs that they wish to preserve for and pass on assets to, but because the lack of children often means a lack of caretakers (in the event of long-term care needs), and potentially paralyzing uncertainty about who to name into key attorney-in-fact, executor, and trustee roles, while traditional estate planning documents include terms that can outright limit trustees from fully utilizing a Childfree client's assets for their actual care. As a result, planning for Childfree clients requires a more tailored approach to the unique challenges and goals when serving such clientele.

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In this 191st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how to engage both partners of the relationship – and if it is necessary at all on a regular basis. As a starting point, the term "disengaged spouse" itself carries an implicit judgment – suggesting that one partner’s lack of enthusiasm for financial planning is a problem to be solved rather than a preference to be respected. In practice, many so-called disengaged spouses are not irresponsible or uninformed; they are simply disinterested in the mechanics of financial planning and comfortable delegating that responsibility to their partner and planner. Just as couples commonly divide responsibilities around parenting, home maintenance, or career management, financial oversight may simply be another area where one partner takes the lead. And while advisors often interpret limited meeting participation as a risk factor, some clients may feel relieved when they are not pressured to attend recurring planning meetings that they find tedious, stressful, or inconsistent with how they naturally process information.

At the same time, recognizing a spouse’s disinterest does not eliminate the need for inclusion altogether. Effective planning still requires understanding both partners’ values, priorities, fears, and goals – especially during the initial planning process when foundational decisions are being made. The distinction is that involvement does not necessarily require identical participation styles. Rather than insisting every spouse attend every review meeting, advisors may instead look for more flexible and personalized ways to help each person feel heard and understood. For some clients, this may involve periodic vision-oriented conversations rather than technical review meetings. For others, it may mean informal check-in calls, written reflections, or even voice memos shared before a meeting. The goal is not mandatory attendance, but meaningful input.

Two conditions become especially important when one partner intentionally delegates financial responsibilities to the other. First, the disinterested spouse must genuinely feel heard and understood. Advisors and the more financially engaged partner need to actively create space for that person to express concerns, priorities, and preferences in whatever format is most comfortable. Even if they are not participating in every meeting, they still need confidence that their perspective is represented in the planning process. Second, the disinterested spouse must also accept responsibility for the delegation itself. If they choose not to participate deeply in ongoing decisions, they must still support the outcomes collectively rather than distancing themselves from decisions after the fact. Delegation can work effectively, but only when paired with trust, communication, and shared ownership of the results.

Ultimately, the most effective planning relationships may come not from forcing identical engagement, but from recognizing the diverse ways couples collaborate, communicate, and delegate — and adapting the planning process to support clients where they are most comfortable and best able to thrive.

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My guest on today's podcast is Patrick Lonergan. Patrick is the founder of Vital Wealth, an RIA based in Clinton, Iowa, that generates $2.5 million in annual advisory fee revenue for approximately 100 client households.

What's unique about Patrick, though, is how his firm is able to charge its business-owner clients annual consulting fees north of $70,000 by offering tax planning strategies that frequently save them hundreds of thousands of dollars.

In this episode, we talk in-depth about how Patrick is able to offer his clients significant hard-dollar tax savings by first taking advantage of what he calls "level one" administrative and bookkeeping opportunities (such as maximizing the QBI deduction or choosing an optimal business structure), how Patrick then moves on to "level two" opportunities where some investment is required on the part of the client (for example, creating and contributing to defined-contribution and defined-benefit retirement savings plans), and how Patrick also considers "level three" strategies that combine sections of the tax code to create tax efficiencies (for instance, by compliantly setting up a micro-captive insurance company).

We also talk about how the tax savings strategies Patrick puts to use are particularly valuable for entrepreneurs who can reinvest in their business (potentially generating profits that exceed any deferred tax burden), how Patrick assesses tax planning opportunities with an eye towards cash flow management for his clients to ensure both their personal and business spending needs are still being met, and how Patrick’s clients have become prolific sources of referrals given their ability to easily explain the hard-dollar value his firm offers to fellow entrepreneurs.

And be certain to listen to the end, where Patrick shares how he transitioned from being an entrepreneur himself in the real estate business to entering the financial advice industry in the insurance channel to eventually going independent and starting his own RIA, how Patrick has handled transitioning legacy clients who live in his small town but who aren’t good fits for his current service offering, and how Patrick has found that persistence and "showing up" every day, even during tough times, has contributed to his success as a business owner.

So, whether you’re interested in learning about a tax-savings framework for entrepreneur clients, charging a premium fee in return for offering significant hard-dollar tax savings opportunities, or the value of cash flow management for entrepreneur clients, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Patrick Lonergan.

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The transcript from this week’s MiB: Vimal Kapur, Chairman and CEO of Honeywell, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

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Barry Ritholtz with Vimal Kapur, CEO & Chairman, Honeywell
Episode aired May 21, 2026 — Bloomberg Radio

Barry Ritholtz  [00:00:16] This week on the podcast. Yet another extra special guest, Vimal Kapur is CEO and chairman of Honeywell. He’s worked there for the past 37 years and not only has he been overseeing a fascinating transition, Honeywell is in the midst of breaking itself up into three distinct parts. I thought this conversation was fascinating and I think you will also, with no further ado, my conversation with Honeywell’s Vimal. Kapur.

Vimal Kapur  [00:00:49] Pleasure Barry. Thanks for hosting me.

Barry Ritholtz  [00:00:50] Well, my pleasure to have you here. It’s not very often we get a member of the Dow Industrials as part of our guests. Let, let’s start out a little bit with your background. You received a degree in electronics engineering from the Thapar Institute of Engineering in India. What was the original career plan?

Vimal Kapur  [00:01:13] Original career plan was to work and get a job. That was a career plan? Yeah, that was a career plan. And then, you know, first I did two small stints of a job and then I joined Honeywell in early 89. It was a new company in India, so set up. So I ended up joining a startup ’cause it was set up as a joint venture between two large companies. There’s a large Indian company called Tata Group. They jointly

Barry Ritholtz  [00:01:38] Automobiles, everything. Tata

Vimal Kapur  [00:01:39] Is enormous now, everything. Correct. So they invested in this venture. It’s a big Honeywell with a lot of tech. And then they create this joint venture in which you show up and it’s basically creating something from scratch. We had no revenue when I started. Our revenue was 0.00. So you learn how to build a company, how you scale, you wear multiple hats like in a startup, you don’t have a very defined role. So I think that early experience of high flexibility and you know, growing through a very high base in a short period of time, that laid some very strong foundations. You know,

Barry Ritholtz  [00:02:14] For me, so in the United States out in Silicon Valley, we notice a lot of these startups where they end up certainly isn’t where they began. There’s a usually a pivot or three or four. What was the original idea in the joint venture and what did that eventually turn into?

Vimal Kapur  [00:02:32] They turned into what it was planned for because Honeywell did not have its automation business footprint in India at that time. So you’re talking 40 years back. So they partnered with a local company to scale the business. They already had those products and capabilities in us and they were trying to get into Asia and they formed partnerships in few countries, India being one of them. And the strategy was to penetrate the local market, develop the local capability, and we were able to do that quite well. So it’s, it’s not that we have to change our product strategy, but we have to run, learn as we go through. We had intense local competition. How do you beat that? How do we create our own, you know, our own revenue stream there. So it was a very successful story. So,

Barry Ritholtz  [00:03:14] So you come up through the operating side, not so much the, you know, Harvard Business School, Davos theory side. How much of an advantage has that been as your career clicked through all these different divisions?

Vimal Kapur  [00:03:29] I mean, I think it’s a advantage to, in a way, to work in a practical business because you have to deal with actual problems which the business deal with. And having worked in different businesses gave me an opportunity to deal with a different customer situation, different end markets, operational issue, commercial issue, product development, issue, supply chain. So I would say, I mean, there’s no replacement of formal education. One, I’m not suggesting that having a higher degrees is a disadvantage, but I would say that it is equal amount of advantage to get practical experience. And I was benefiting from variety of experiences I got in my long career in Honeywell. And

Barry Ritholtz  [00:04:08] You ran three very different businesses before becoming CEO, process solutions, building technologies, performance materials. Tell us, I mean those names seem sort of ambiguous, right? Tell us a little bit about what each of those three divisions did. Yeah,

Vimal Kapur  [00:04:26] So process, solution business is, you know, it provides automation system in the energy sector. So energy sector, think about it, refining, petrochemical, plants, other oil and gas facilities, pipeline terminals, even I would say facilities like, which may paper metals and mining. So these facilities are very complex in terms of their operating procedures and if they’re not automated, it’s nearly impossible to run them. So this business provides a sophisticated automation system to these large companies. So think about Exxon and Shell and BP as kind of a typical customer or Aramco in Middle East and ADNOC. So this serving these customer, this business was very global or is very global. Even today the business still is very successful. And I became CEO in 2014 of this business. And oil downturn happened within six months. How I becoming the leader of the business. So you learn through tough experiences. Oil price was from whatever, 140, $150 to like a big nose dive. And we did a lot of work in the downturn. Learned a lot. But primarily your question, this business is all about sophisticated automation in complex facilities. And then I moved to the building automation business where we still do automation, but now in this case buildings of different type hospitals, airports, schools, university campuses, data centers. And there the business model was very different. Now you serve multiple building through variety of channel partners across the world. And so our strength comes through product innovation. Our strength comes through channel management. Very different business model compared to what I did in, you know, in my in my process automation days and,

Barry Ritholtz  [00:06:22] And then

Vimal Kapur  [00:06:23] Performance material, performance material and technology. Very interesting business, they build technology, they build energy infrastructure. So if you wanna build a, if you are a refiner, you buy crude, which we all hear a lot about today due to, you know, ongoing Iran conflict. You don’t sell crude, you sell product, you sell gasoline, you sell diesel, you sell jet fuel. So they have options to make multiple products. And as the input changes or the market needs changes, they need to decide what are the options they have to build different offering from their perspective. This business provides technology to energy company to build energy infrastructure ’cause it’s a molecule transformation, converting one molecule to another molecule that’s a heavy technology involved behind it. So performance material and technology provides technology to the customer to build tech, you know, energy infrastructure. So very high technology or research oriented business. You have a lot of chemical engineers who are gonna invent the next best technology and you provide their technology to some very large companies. And that was fascinating to lead that business to see that cycle elimination and work in that business. So yeah, very diverse experiences in variety of sectors, different business models, which I’m benefiting today because now I have experience of dealing with different markets and different situations. And that practical experience helps you a lot as you really get into your CEO job.

Barry Ritholtz  [00:07:56] So in 2022 you were named chief operating officer, we were just coming out of the pandemic. What was that environment like? How did you take your experience at these three prior divisions where you were either president or president and CEO, how, how did that affect running operations?

Vimal Kapur  [00:08:16] I mean, I think at that time the biggest challenge that time actually was the chip shortages and how do we really redesign our products because chips are simply not available. So we really had to learn how do we redesign our products in a much shorter period of time. So think about if we design a product in one year, we had to do that in two months because there’s no other option if we don’t do that, we can’t have an alternative source of the supply and we can’t our product. So I used a lot of experiences on dealing with such different scenario in mild jobs and we were able to successfully, you know, deal with that. That was also a job. I also got exposure to the businesses of Honeywell, which I hadn’t done before. Aerospace being the biggest one. So that got added into my responsibility. So there was a lot of learning there on how that industry works, which is totally different from everything else I had done.

Barry Ritholtz  [00:09:11] Is there a throughput through materials, processes, technologies and aerospace? Or are these all completely different animals,

Vimal Kapur  [00:09:20] Different animals in the sense of the end markets they serve? Right, there are some commonality of the business models and you know, there are, there are, there’s a common denominator, but there are differences which really led me to think about whether we are good to be one company or multiple companies when I started as a CEO and part of it was the differences between them, but part of it was opportunities which is ahead of us that how these businesses independently could shape or scale much differently versus when we are together, which, which led us to do a lot of work to think about optionality and pros and cons of each option and which led us to make a decision that we are better off to split into three companies

Barry Ritholtz  [00:10:04] And we’re gonna spend some time delving into those three companies and the thinking behind it. Before we get to that, I wanted to ask you a couple of more general questions about the firm. You’ve been there so long since, since the 1980s. I’m curious, how has the culture of Honeywell changed? It’s almost 40 years, three and a half decades. Is it still essentially the same company or has everything cha like so many other companies? Yeah, I,

Vimal Kapur  [00:10:38] It evolved a lot. I would say, you know, we, there was a big change movement in early 2000 when Honeywell and AlliedSignal merged together.

Barry Ritholtz  [00:10:47] I recall.

Vimal Kapur  [00:10:48] Yep. So little bit of fun fact, AlliedSignal acquired Honeywell and changed its name to Honeywell, which doesn’t happen. The acquirer keeps name because they figured Honeywell brand was so powerful, it was more impactful. So they changed their own name. So that was a big moment, your question on cultural assimilation of two large companies, it was kind of merger of equals and it did go through its own motion of ups and downs. And that’s when Dave Cote came in as chairman and CEO of Honeywell. And Dave did a great job to rebuild the Honeywell culture, which was much more one company mindset. We are not two companies, we are one company. We are gonna put work towards one stock, one Honeywell mindset, put a lot of operational culture in the organization. So that was one phase of, you know, under, under his leadership. Then my predecessor Darius Adamczyk, he became CEO in 2017. He further enhanced our operational excellence skill. He invested a lot of effort to build more digital backbone of the companies, simplifying Honeywell in terms of internal systems we have, Darius was very passionate about digital on how to mine data and create more capability for our customers. So he created a culture of more operational excellence, more operational rigor, while Dave was much more focused on one Honeywell mindset, culture integration, not multiple companies. And as my tenure comes in over the last now two plus years, we are now pivoting from the more growth oriented company. And the reason that’s important is that over a period of time, our margin rates have grown up and we were sub 10% margin company in 2005, 2006, last date was 23%. So our earnings growth is gonna come more from the top line growth versus margin expansion. Not that we want to mar do margin expansion, but we can’t get from another 15%. There’s no headroom. So growth culture is important, which means we have to be more externally focused now. We need to understand our markets, need to understand our customers, what’s changing, need to understand our competition. So our company, even though name preserves itself as a heritage and, but it has been constantly evolving itself and that’s one of the reason this company has survived hundred in 20 years because it has courage to reinvent itself versus being inward looking and always saying that, okay, we are what we are and we are not gonna change.

Barry Ritholtz  [00:13:16] Hmm. Really, really interesting. So I used to hear people talk about automation pretty regularly as just the process of moving more and more things to machines. We kind of hear people using the phrase artificial intelligence and AI the same way kind of bluntly. I’m curious from the Honeywell perspective when it comes to automation and ai, what are the customers buying? Is it productivity gains? Is it safety improvements, is it cheaper labor or a substitute for labor? What, what is the key selling point for your customers? So

Vimal Kapur  [00:13:55] I would say the, we have to go back to where the automation industry started from to better appreciate how will AI impact automation offerings or automation products. Go back to mid seventies when this industry got created somewhere in mid 75 timeframe when computing was invented, chips were invented. There came the need to say the word has a lot of these expensive assets. Those assets are now running very efficiently. So can we move from the older technologies, which were kind of World War I and World War II era to more modern digital technologies. And the way automation system was created was that you sense a set of properties and how a particular equipment or a machine or a processor is running and then you have a software program running in a computer which is going to make sure that it gets back to the desired condition, what it wants it to be. So it’s a logic based predefined system. And the assumption was most of the time this will work in a normal situation when exception occur, human will take a call. So automation systems were always designed with a human in the loop. And human was supposed to take care of change in input condition, change in output conditions, maintain the equipment, take care of maintenance requirement down the line. Now you fast forward 50 years before AI and data science came in, the people who are running these equipment or automation system or different facilities in different environment, think of a pharma manufacturing facility or a data center. They acquired a knowledge on exceptions which were occurring in those operating conditions. But when they retire or they move on, their knowledge went along with them. So when the next set of people came in, they kind of have the same learning cycle. Maybe some of it was captured in some documents, some manuals, but not a lot. So what AI is solving for is our systems have no intelligence layer on top of the core automation layer so that when the next human being comes in, they’re not starting from scratch, they have an advantage of all the learning over the last 25 years all built in. So they get to say, when this condition occurred, nine out of 10 times this was done. It always worked. So you as a human being can say, okay, I think I will choose this. Logic makes, so humans still needs to make a decision. So I think it’s a changing the human and making them more capable at the heart of it. And the reason it becomes even more compelling now is the shortage of skills which are happening in the industrial sector for performing these kind of tasks. So I would say it’s a perfect convergence of the situation that more capability is coming into our system because of availability of data science. And at the same time situation requires this capability to be there because less people are available to do this work and that’s gonna create more capability in automation system. So automation system remains, intelligence layer is on top of it. So it makes a automation system better in terms of what it can do by preserving its capability.

Barry Ritholtz  [00:17:10] Coming up we continue our conversation with Vimal Kapur, CEO of Honeywell discussing turning Honeywell into three standalone companies. I’m Barry Ritholtz, you are listening to Masters in Business on Bloomberg Radio. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Vimal Kapur. He is CEO and chairman of Honeywell International. He’s been with the firm for 37 years. Honeywell is a highly regarded automation and industrial company. So let’s start out with plans to break the firm up. You have three distinct entities, Honeywell Automation, Honeywell Aerospace, and then Solstice Advanced Materials. So let, let’s talk about that split that sounds fairly natural breakup based on industry. Tell us a little bit about the thinking behind that.

Vimal Kapur  [00:18:26] The thinking behind that was when I started as a CEO, my incoming thesis was that we have to simplify this company. It’s performed extremely well, great return to shareholder, great service to our customer, but what will we do for the next 25 to 30 years? Are we set up for that? And my thesis was that we need to simplify this into few things where we have a scale. But I started the job in middle of 23 as a CEO of the company. Two things happened in the year of 23, which is good to kind of reflect back just three years back. That was the first year when aerospace cycle really became very strong. It was the year one where everybody said, oh, this industry is growing a lot, let’s pay more attention to it. And this was also the first year when something called AI was talked, right? So if we were sitting here three years back, we wouldn’t be talking ai. So it’s that recent phenomena. So the question we had to really ask ourself that if we have to simplify as a company and these two external drivers are occurring simultaneously, a huge demand in our largest business, which is aerospace automation, which is core to Honeywell, is going to probably redefine itself with ai. Should we do it as one company or should we do it as a, in a different construct? And that question get into a problem solving by early 24 to say, let’s look at all the scenarios, what’s possibilities, what others are doing. And as we did the work over 2024, we got more and more conviction. It’s better to separate automation and aerospace into two separate companies. But we ended up making three decisions because specialty chemical is extremely good business, which neither fitted in any one of these two. And we said it’s compelling to also spin that off as a separate company. So rather than, you know, two said, we ended up becoming three. So they became a standalone business in October of last year, doing extremely well since we spun it off now for six months. Very proud of the management team and the board, which is running this company. Aerospace will become a standalone company in about six to eight weeks from now. Six weeks actually as we speak today. 29 June is a date, and date is formed. We quite committed to that and it’s gonna be leader in segment in aerospace and KO will be a pay automation company, which will be probably one of the largest, if not the largest automation company in the world.

Barry Ritholtz  [00:20:51] Hmm. So advanced materials, does that include building technologies? And

Vimal Kapur  [00:20:57] It’s a pure play chemicals business, just

Barry Ritholtz  [00:20:59] Straight up

Vimal Kapur  [00:20:59] Chemical chemicals business. They make refrigerant, which goes into your car, which goes into your home. They have some other technologies which are related to chemicals that business is doing extremely well as a standalone company. The automation, which you mentioned building automation or automation of industrial facilities, that’s part of the remaining Honeywell, which is Honeywell Automation. Now we will not be called Honeywell Automation. We are using as, just as a equal descriptor on what the business will be. We will reimagine our name as we go by in a couple of weeks from now and we’ll reveal that name what it should be. But for sake of simplicity, the chemicals business, an aerospace business and an automation business and,

Barry Ritholtz  [00:21:39] And performance materials and technology is,

Vimal Kapur  [00:21:42] So part of it became into advanced material, advanced material solstice and then part of it is retained within Honeywell. So it’s split into kind of two.

Barry Ritholtz  [00:21:51] ’cause this is really, everybody thinks of these very broadly, but there are some really narrow specific use cases for different correct groups. So I was trying to figure out what would align with what.

Vimal Kapur  [00:22:05] So think about automation business serves three large end markets. All types of buildings, all types of energy facilities and all types of industrial facilities. That’s what we have kept in the automation. And we also are conscious that we should not make automation business serving so many segments that it’s becomes confusing again, right? So we wanna narrow down to a few very large and impactful segments. This market size is about $200 billion. We will be just shy of 20 billion of revenue. So we have a lot of runway to think about creatively what more we can do, how do we grow more. So we are not shortage of runway. Secularly automation is a naturally high growth, you know, segment because it’s something which is so basic to existence of an industrial facility or on an asset. And then when you add the AI story coming on top of it’s gonna have increasingly more growth, momentum. So all sent, all things being said. Yeah, it’s very well positioned for a compelling future.

Barry Ritholtz  [00:23:05] And what does the aerospace group do? Not, unlike ge you’re not making aircraft engines,

Vimal Kapur  [00:23:11] Right? So we do make aircraft engine for the business jet. So more mid-size,

Barry Ritholtz  [00:23:15] The smaller engines,

Vimal Kapur  [00:23:16] Smaller engine, the business jet engines we make, we don’t make the big engines, but we are a systems company. We make different component from the nose to tail of the plane. So our components are right in the cockpit. Our components, we make radars, we make navigation system, we make brakes for the plane, we make environmental controls in the plane. So we are a systems company, we make engines, we make apus. So our, our approach is system designed for a new platform. So every platform comes in and it could be a commercial plan, could be a business, it could be a defense platform. We will pitch in different components and systems of Honeywell. Customers will select many of them, some of them then that will become part of that c you know, that fleet for decades and decades. So it’s a multi-product business, not constrained to one particular product line. And the business model is more powerful because it’s a systems approach and not a component approach. So you’re right in the heart of the systems, you understand how the whole mechanics work and really add more value for our customers.

Barry Ritholtz  [00:24:23] So over the past, let’s call it 10 years, there have been a number of activist investors like Elliot management that, not just Honeywell, but lots and lots of other large conglomerates, they often agitate for share buybacks or increased dividends or sometimes just break the company into pieces. You seem to have landed pretty much in a, in a similar space as some of these activists. First, were they at all influential in your thinking or was this something that, hey, these are such different businesses, there’s no longer scale advantages of having them under one roof?

Vimal Kapur  [00:25:04] I would say the situation in our case was a bit unique because we started doing work to investigate our future optionality early 2024 and did a lot of work and actually even announced the separation of chemicals business in October. Elliot wrote a letter which was in public domain and I got to see it at the same time. And every everybody else saw it to say we should further split aerospace and rest of Honeywell too. That was their argument. There’s a more value to be created. The good news was that we already had done the work and we were convinced that’s the right thing to do, but we had not announced anything. So we treated them as another shareholder who has a point of view and we have to articulate our strategy. So there was strong convergence on the thinking and I think we worked with them very collaboratively on, you know, path forward. And I would say that there’s a lot being said on activist shareholder, but my experience is that they are, they are like any other shareholder who have a logical argument. If you have a counterpoint, you should support this with the facts and data or if you support their point, then you have to execute it. And in that case it just becomes much more of not what to do but how to do it. So our conversation with Elliot, like any other shareholder was this is a situation, here are the paths, this is how we are thinking about it. And we benefited from their expertise in capital markets, how the shareholders will react. And definitely that helped us to shape our decision in terms of, in a certain way, which was very constructive.

Barry Ritholtz  [00:26:38] Hmm, really, really interesting. So we seem to go through these long phases where conglomerates kind of become in style. They become favored. You oversaw $14 billion in m and a, which sounds like a lot of money, but we know really isn’t, you know, that’s not a, that’s not a mega buying spray. And for a long, for the longest time it seemed like there was a financial advantage to being a conglomerate. At what point does that structure stop being an advantage? What does it, what does being part throwing all these different pieces under one roof, what does that prevent the company from doing?

Vimal Kapur  [00:27:21] I think every business model has an era. So I think we have to go back to what created this era of conglomerate or larger companies. The, it really started from the, when the word was started becoming more globalized, after 2000, China came into WTO, the word became more global and there was much more global trade, which became the norm on how companies were growing. So all US companies started growing globally, but at the same time they were able to drive a lot of productivity by taking manufacturing into Asia. A lot of, you know, manpower, productivity by doing work in different virtual way with a lot of IT skills coming in. So there was a case to make bigger companies bigger because they had the unique know-how to drive a lot of productivity and scale at a global scale because they were already present there. And that cycle persisted for almost 15 years till the time that value was captured. And that value capture became generally known. Therefore the question started asking to say is creating this complex company worth it or simplification or a sector focus is a better way to do it. So I think there was a reason that proposition really worked well and created a lot of value. Take a case of Honeywell, our shareholder value creation from a time of 2000 to 2000 17, 18, 1 of the best in class and the entire s and p. So it’s not that anything was wrong, we created tremendous shareholder value. But now this point of saturation comes in and then it really brings you to the point of specialization if the markets have scale and you can preserve scale while you’re a specialist. That’s best of the both words. And that’s what we are, we are doing now to create a scale aerospace company, a scale automation company. We are still very global. We still have very mature processes, but at the same time we are focused on singular segment. So I guess like in everything else you learn through cycles and this cycle is all about having the mix of scale and specialization. This will persist until something else comes in now where there’s a case to do something else and I feel good about where we are in our position and this is gonna create much more shareholder value.

Barry Ritholtz  [00:29:36] So 20 years before you started talking about breaking into three pieces, your fellow Dow component, general Electric went through the same process, arguably with not a whole lot of success, they started out fairly richly valued, there wasn’t a whole lot of room to grow. And I’m curious, when you’re thinking about breaking into three, are you looking at other companies like General Electric and saying what can we learn from what they did right, what they got wrong, what, what missteps they made? I

Vimal Kapur  [00:30:11] Think the situation for each company is very different because separation cannot create value alone by itself. You have to be convicted that the standalone asset has enough growth, potential and invest and asset base which is gonna grow, which is gonna create value. So I think comparing example you gave versus Honeywell is absolutely very different portfolio. Apples

Barry Ritholtz  [00:30:34] And oranges,

Vimal Kapur  [00:30:34] Very, very different. I mean, so I would say that our drivers were more around what I talked about, our stock price were more static. We were more, we did not destroy any shareholder value. So our question was how do we create more shareholder value with external factors coming in? Growth of aerospace, growth of AI is that inflection point for us to make a different decision. So we did it more from a point of strength versus we have some crisis coming in. So sometime you use your point of strength to make the right decisions and we did it fast and we did it right. I think every other company we came from a different circumstances, but the decision on the outward looked very similar. They looked like they all did the same thing, but they all came from very different backgrounds and you know, different set of assets. When, when we started looking at it, some people believed that we got influenced by success of ge. I want to remind that GE success came post our decision. That was a process which was occurring. So yeah, you have, that’s a data point to say they’re also doing it. But some of the success we have observed some outstanding work by the GE leadership team that really started happening 24, 25 timeframe. We were far along the way in our own analysis by that time. So I think those are kind parallel things happening. So there’s no one thing you can attribute to say that this thing influenced it. It’s a combination of the reason which all come together and that’s what really brings us to where we are today.

Barry Ritholtz  [00:32:05] I like this phrase in your thesis of the current transition from automation to autonomy with artificial intelligence as the dividing line. How far along that process are we as a country are the industrial sector and Honeywell.

Vimal Kapur  [00:32:27] So let’s say that we as a country have an advantage of being the leader in the space of cloud and data science and companies like Honeywell has responsibility to take the knowhow which the tech sector is creating, be it Microsoft, be it Google, be it Nvidia and all the, you know, very capable tech companies. How do we bring that capability into our sector? Because our customer is not gonna go and they’re not looking to buy a cloud capability or they’re not looking to buy a AI LLM, they wanna solve a problem, they wanna run a business, they wanna run an operation, they wanna have more uptime, they wanna have more, you know, profitability. So our job is to take our system to what I mentioned to you before and add this intelligence layer and what this intelligence layer is all about, taking capability from the tech companies. Take large language models from the likes of Google and Nvidia, use the cloud power which is there from Amazon and Microsoft, but really build a purpose-built offering from an industrial sector. And as we are doing that, we are able to create the agentic models for our customers and that’s what they buy from us. The underlying plumbing, what we have, they don’t wanna know it, they don’t wanna know how this is built, say, so you’re automating this piece of my work. That’s great so I’m gonna get more productivity for that, how much I should pay you for it, right? So I would say we are in the state that this is no more a hypothesis. We are in the, not in the early innings, but we are in the stage of deployment of these capabilities across different customer base. The why it is not taken up at scale is because our customers have to go through a significant change management in their organization. ’cause fundamentally the roles of people are changing. Some roles require skills which are less important today and some more new skills are required and they can’t do that overnight just because I created a new set of technology, they have to absorb it, they have to ingest it. But we have some fabulous examples on customer using in scale in different sectors like university systems, quick service restaurants, people are using some of our technologies at a very large scale in refineries, et cetera. So I would say that if I’m sitting with you it 12 months back, I would’ve said very modest deployment sitting today, I would say I’m very excited on what opportunity we see a year from now. I would argue that the penetration will go up, substantially up because it’s a real economic value creation from what we are really profiting and we as a country are leading because we have the core components of this technology and now we have to, you know, take this capability across the world and our customers excited. They really like what we are doing.

Barry Ritholtz  [00:35:16] Earlier you mentioned restaurant automation. What does Honeywell do for either fast food service or casual dining?

Vimal Kapur  [00:35:26] So think about it. I mean when you look at a small fast food dining restaurant, there’s not much automation in that. But it consumes energy for sure. I mean let’s take a typical McDonald’s restaurant as just as an example. There’s a kitchen there, there’s a fryer, there’s a refrigeration. It’s just keeping a lot of products there. There’s of course lights going on. These assets were never thought as a way to improve energy efficiencies by companies like us. We say we should automate a large hospital. It’s massive. There’s a lot of opportunity there, a large building. These assets were never paid attention by us because there was no technology available. But when the cloud technology came in, we are able to connect these assets flawlessly, you know, in a matter of hours. And then you’re able to use a lot of AI based rule set to understand what should be the energy consumption actual versus what it is today. And give that tools to the owner to say, you know, an example, we connected a quick service chain in uk, I think something like 500 plus of their restaurants into a single operating system and they’re observing 30 to 40% energy reduction. Wow. Like anything else, the good old management principle, what you inspect is what you get. Once these were thinking running off my own, nobody paid attention even though their desire to do something, there was no mechanism. So we created an easy mechanism to make this available to the customer. So all of a sudden they’re able to generate a lot more productivity without adding too much of cost. And that’s a part of the new tools which is coming in, which was not possible. And that gives me a lot of excitement that this is gonna be much more level of, you know, productivity efficiency, which is less talked about. You know, whenever there’s AI dialogue, it’s about jobs, it’s gonna cut jobs. Nobody talks about economic value creation. It is doing a real value for our customer base, making people more productive. That’s the story of the industrial side, which is probably requires more, more amplification.

Barry Ritholtz  [00:37:26] So what’s the Peter Drucker quote? You can’t manage what you can’t measure. So forget 500 restaurants. What is Starbucks? 30,000, McDonald’s 40,000.

Vimal Kapur  [00:37:36] This applies to all of these kind of assets and many people have done this work. So it’s not that we have created some new invention. Some of them have done this kind of discovery, but this effort was not very standardized. It’s like a custom made thing somebody will do because you are a big company, you can afford it. But when you do it a large scale, there are hundreds of these chains, there are hundreds of retail stores. We’re also doing similar work, one of the big retail store chains, very similar example. So these distributed assets are becoming a way of capturing value at one end of the equation. On the other end of the equation, when you have retirees coming and our customers are worried about knowledge going out of the door, they’re looking at a mechanism of knowledge capture so they can perform their task. That’s also penetrating very rapidly. So scenarios are different. Some scenarios are looking at, I never paid attention and now I can do it. Some are saying I have less people do something about it and but the capability is fundamentally the same, it’s the same capability which solves both the problem

Barry Ritholtz  [00:38:39] Coming up. We continue our conversation with Vimal Kapur, CEO and Chairman of Honeywell discussing the state of automated technology today. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Vimal Kapur. He is CEO and chairman at Honeywell. The company he has worked at for the past 37 years since starting there as an engineer. So I’m curious as to how some technologies seem to just take forever to find their way into the real world. You know, if you travel around the world, I remember the first time I saw one of the point of sale handheld units in a restaurant in Europe, I don’t know, maybe it was 15 years ago. And I was astonished, wait, I don’t have to request a check. They come then they have to give ’em the key, the card, they go away like we’ll take a check. They come by. It’s, it seems to have taken a decade to make its way here. What are some of the impediments to some of this, some of the cutting edge technologies that’s obviously using a bunch of tech that already existed. Is this a problem getting adaptation even though it was clearly more productive, more efficient, faster turn of tables? Like I was astonished how long it took. So I for the United States to implement That’s

Vimal Kapur  [00:40:26] Fair. I think there’s a scenario in your example because it’s a technology displacement of some old method versus a more new method. But the reason I believe more bullish about it is that we are solving a known problem. And the known problem is word has less people to do a lot of work around skilled labor in the industrial world. That’s a real problem. So our solution is not trying to find a problem, we are finding we are giving a solution to a known problem. Adoption rates are lower because of the change management issue. But this is a change management of the order of 18 months, 24 months, 30 months. Not a decade. Not a decade, right. So I remain very optimistic given my, you know, experience in these sectors. The adoption rates here are gonna be much more quicker because the problem is real. We are not inventing the problem. This problem exists for a, and by the way, this problem is everywhere in the world. This is not a US problem. Only skilled labor, skilled labor. Europe has more population shrinkage than us go to Japan and Korea, they have the same problem. China, China as well. China has population shrinkage, right? So this is a universal issue. This is not invented here. Now we get excited on the job displacement happening with robots and humanoids. That’s a small portion of a manufacturing industry that probably is also displacing some tasks which humans are not willing to do. Like lifting boxes, right? Yeah. I mean okay it’s not very interesting. But then there are other jobs with other sectors which we address where a physical AI or intelligence layer is gonna create a tremendous amount of economic value. So

Barry Ritholtz  [00:42:05] I keep hearing people compare that intelligence layer of artificial intelligence to the internet. I’m wondering, and you seem very bullish and excited about everything AI can do, is there a better comparison? Is the industrial revolution a better framework for thinking about the impact of AI over the next 10, 50, a hundred years? I think the

Vimal Kapur  [00:42:31] AI impact will be different in each sector. And I think if we make it too broad brush, we are losing the bigger picture. But when we are making it specific to a segment, then you’re being more precise to say in context of the end markets we serve the industrial sector, I talked about examples there. It’s all about the skill shortage issue, which is very different from if we are using AI for better search engine, if I may, using AI for, you know, making a summary of our talk, which somebody can do in, that’s a very different use case. And one can argue is it gonna add productivity or not or is it gonna take away jobs? That’s a different scenario from simply not having people to do work. Very different scenario. And I think that makes our case more compelling. The adoption rates are driven by a near real, real need versus we are trying to create a need which is unknown and that’s not being talked a lot more, a lot more dialogue is around job displacement. But those are more in the jobs which could be automated like finance function or HR function. Maybe to a certain degree it’s true, but not to the point. My personal view is that it’s gonna have the amount of impact which is being talked about.

Barry Ritholtz  [00:43:43] So let’s talk about some of the challenges of this technology layer and some of the black hats out there. When Mythos came out, I would imagine a company like Honeywell set up and took notice the idea of AI taking over industrial controllers, power water, air conditioning, all that stuff has to be thought of as a genuine threat. Nobody wants rogue thermostats or what have you. How do you look at the threat from a, a powerful entity like Mythos and how much of an arms race are we in to harden all of our, you know, soft underbelly?

Vimal Kapur  [00:44:27] So I think we have to appreciate the fact that where we are deploying ai, it is substantially different from what we are generally talking about in broader public domain. If you think of applying AI in an industrial system, let’s take a case of a hospital and I want to apply AI into automation system to make it more efficient. The data of that is not in public domain. The data is in Honeywell system or it’s one of our competitors system. So you cannot go to internet and train anything ’cause there’s nothing to train on. So that makes data friction as a big problem in industrial sector, which in a way becomes a protection layer for us. But that doesn’t

Barry Ritholtz  [00:45:07] Mean, so the friction becomes a protection layer, but

Vimal Kapur  [00:45:09] It doesn’t mean we should not do anything about it, right? It’s to say, oh, I’m protected. It means we should take it seriously to think of potential threats coming in because if the data friction is removed, which is hard to do, but it humans are very intelligent. So we have worked very hard to remove the data friction and also use our domain knowledge because interestingly you cannot solve a horizontal problem in industrial domain. What I mean by that is you do not have a software application like a CRM system or an HR system. The problems of each sectors are very different. If you’re a refinery, you’re trying to produce more jet fuel and more diesel. If you are a life sensors manufacturing facility, you’re trying to produce drug with minimal quality giveaway. But if you’re a data center, you want more uptime, your problems are so different. So we can’t create a magic AI application and sell to everybody. We have to be purposeful that where do we use our data and what problem we solve, which only come from years of experience. So those two really become in a way a constraint for a generic company to come in because the data friction and lack of understanding of domain, which means companies like us, which possess both have to solve this problem. And that’s why we are very bullish about it, to say we are gonna do it. We are gonna take all the capabilities from tech companies and build new set of capabilities to take our industry from a pure play automation to more towards autonomy. And autonomy doesn’t mean humans will disappear, humans will become more empowered, human will become more capable. And to the extent there’s some skill shortages, it’ll address that point.

Barry Ritholtz  [00:46:48] So let’s talk a little bit about how tumultuous the past 12 months have been in terms of geopolitics. We not only have the war in the Ukraine, but now in Iran we had the on again off again on again and most recently off again tariffs. How does this affect how a company like Honeywell thinks about reshoring and bringing manufacturing back to the United States thinks about supply chain issues? How do you plan in such a tumultuous environment? Well,

Vimal Kapur  [00:47:21] It’s definitely a challenge for companies to have more stability is what companies want. So I would say that companies like us have very mature processes to deal with it. So every time this issue occurs, we have some sort of disturbance for, depends, four weeks, eight weeks, 20 weeks, who knows depending on the situation. So we have learned how to deal with it, but it doesn’t come without a cost. You lose some growth in that window, you may have to incur extra costs like it happened in case of tariff because when tariff got announced, we have no choice but to pay it. Right? Right. Now whether we can recover it or not as a subsequent decision,

Barry Ritholtz  [00:47:57] Are you one of the many companies that have filed litigation to get, get refunds?

Vimal Kapur  [00:48:01] We did not file any litigation.

Barry Ritholtz  [00:48:03] How big of a hit was

Vimal Kapur  [00:48:05] Tax. It was not big for us. We were mostly down to the second part of your question. We have been doing manufacturing local for local for multiple years. So we made for us in US made for Europe in Europe, made for China. In China. So we don’t move a lot of stuff around. However, what we cannot control is the global nature of the components we buy. Right? If I have

Barry Ritholtz  [00:48:26] To buy everything in the supply chain and raw materials. Correct.

Vimal Kapur  [00:48:29] Because we can’t make everything. So if it, if a component is made in Korea, like batteries, we have to buy it from there. And if a component is made in China or somewhere else, we have to buy it from there. So that impact is certainly not under our coverage because we don’t have an endless capacity to invest in everything. But our core manufacturing, we have 150 factories, you know, and they’re well dis the world distributed around the world and they’re well distributed across the world. I mean, so we are so we don’t have this foundational challenge of reshoring, but we certainly have to deal with changing environment in which we have to think about more local supply based development aligned to what the expectations are at this point of time. Huh.

Barry Ritholtz  [00:49:15] So we’ve noticed that defense budgets really around the world, not just here in the United States, ha have been rising and there certainly has been fairly robust demand for aerospace. There’s a big upgrade cycle just kind of starting. A lot of the fleets are pretty old. How do you look at this in terms of risk and opportunity? How are you thinking about defense and aerospace?

Vimal Kapur  [00:49:38] The defense is a big opportunity for our aerospace business. That’s about 40% of the aerospace business. Wow. So it’s certainly the current changes in geopolitical environment and government spending more money is only positive. So it’s gonna become a even more growth driver for the business compared to what it had. So when we started this thesis two and a half years back, we did not predict this level of demand in the defense. But now that’s really a reality. Whether it’s in us, whether it’s some of our US allies, there’s a lot more growth opportunity across the board for different products and services we provide.

Barry Ritholtz  [00:50:14] And then there’s been some debate about the future of technology and industry. China seems to be running away in a couple of areas like energy transition and robotics. From where you sit, is the lead gonna pass back and forth or is there a clear winner and that’s a potential problem for the United States, both strategically and economically? I think

Vimal Kapur  [00:50:40] We have to look at what’s, look ahead, what’s this trying to look back and be, you know, skeptical about it. I will look ahead the problems, which the word HA is in ahead of us. We clearly know the US lead in ai. So how do we protect the lead? We clearly have a lead in quantum, which is one of the businesses we own that. How do we really keep that scale?

Barry Ritholtz  [00:51:01] You do, I didn’t realize what, what does Honeywell do on the quantum space? So

Vimal Kapur  [00:51:05] We own a business called Quantum in which Honeywell has a majority stake. We spun it off a separate company in 2021.

Barry Ritholtz  [00:51:11] Oh, okay. All

Vimal Kapur  [00:51:12] Right. So it’s not, it’s Honeywell investments in that company versus it’s not part of Honeywell.

Barry Ritholtz  [00:51:17] I recall, yeah, I crawl that way back when. That’s right. Really 2021. Really fascinating.

Vimal Kapur  [00:51:22] Correct. So there are technologies in which us have an advantage, us have to rebuild its supply base for some of the critical sectors like semiconductor, like pharmaceutical, which are mission critical. And I think that’s underway. But we need to have patients that those things take years to happen. There’s not a switch to say, right, we wanna do it. And those things show up, they can take 5, 7, 10 years. Hmm. So I think it’s heading in the right direction. We as a country has all the capabilities. We have the capital, we have the knowhow, but we have to refurbish some of our skills, which we lost over a couple of years in few portions of industrial sector. But let’s not forget, we have very, very capable companies which created the same sector all over the world, right? So those have not gone away.

Barry Ritholtz  [00:52:06] So reassuring is not as challenging as a lot of people make out. It is

Vimal Kapur  [00:52:10] More thoughtful in terms of which, how do you prioritize all things being equals Reassuring is the right thing to do, but my personal view is we should pick up the top five and say, okay, here are the five we wanna go. Really go after and make it successful. ’cause try to do everything is gonna be just extremely difficult in order of prioritization.

Barry Ritholtz  [00:52:28] So final question before I get to our, our speed round. What do you think when, when it comes to automation and artificial intelligence, what do you think business people and investors for that matter really are misunderstanding? What, what little nugget that you’ve experienced would give them a little more insight into what the future looks like? I think

Vimal Kapur  [00:52:49] The point we discussed earlier that the automation gets heavily enabled by AI and really create the intelligence layer and that opportunity to create sales is being underestimated. I think this opportunity is real because of the skill shortage, because of the knowledge gap, which has I got created over a period of time. So I truly believe that’s something which needs more, more conversation and more emphasis.

Barry Ritholtz  [00:53:15] So. So I only have you for another three minutes, so let me click through these questions really quickly. Starting with, tell us about your mentors who helped shape your career.

Vimal Kapur  [00:53:26] My early managers, I mean, I was lucky to have some very good managers who taught me different things, you know, not to be fearful about whom you’re talking to. How do you think about value propositions? How to think global scale. So I think in Honeywell you’re blessed to have some very strong leaders in different part of my career and in the first 15, 20 years, which really shape you because if you, what shapes you as the first 15 ish years of your life? ’cause once those value system is built in your brain, you kind of live with that. And I was benefiting from some very powerful ventures in different parts of the company. Let,

Barry Ritholtz  [00:54:01] Let’s talk about books. What are some of your favorites? What are you reading recently?

Vimal Kapur  [00:54:05] So books I read variety, both from leadership to sector specific. The recent one of the book I’m reading is the Price from Daniel Yergin. If anybody is interested about oil economy, please do read it. Six months back I started reading Chip War. So some of the sector specific things, but also read about leadership of some of the people I admire. Dave Cote, who was chair C of Honeywell for a long time. He has some very fascinating book. “Winning Now, Winning Later” in the, joined our board recently. She has some fascinating leadership books. So I read some of them, I read a lot of books on China. I think it’s underestimated the scale of that economy. So I think we just need to, there’s a book called Words View, China’s View of the Word, very interesting book. It’s like we have a view about China, what about their view? Have we ever asked them the question, why do you, what do you do? So I kind of have very diverse the reading habits of, you know, waiting from my business specific to leadership to some of the country’s specifics. Yeah, toggled around a lot on that. And,

Barry Ritholtz  [00:55:11] And our final two questions. What sort of advice would you give to a recent college graduate interest in the career in either engineering or management?

Vimal Kapur  [00:55:22] I mean, both are fascinating career. I would say engineering is a career which gives you a lot of options. So do pursue that because it gives you a wide variety of choices. Management is something that people should do who have more willingness to take a risk and have courage to make decisions. Because in the end, at some point in your career, you will have to do both. And if you think that’s not your sphere, that’s something you’re not good at it. I would rather argue than you choose something you’re really good at versus otherwise you’re going to get saturated at some point. But management is an excellent carrier by itself. So both are, both are excellent.

Barry Ritholtz  [00:56:00] And our final question, what do you know about the world of automation, engineering and artificial technology today that might’ve been useful 37 years ago when you first started at Honeywell?

Vimal Kapur  [00:56:14] I don’t know. I think I’m always excited about learning new technology all the time. You know, I’m still very curious to read things, how they work. I think I will say that staying curious is very important for us as a human being. We should never be satisfied on what we know. We should always ask the question, what we do not know. Whether it is about a technology or a business process or for that matter, any fact of life and more you are curious, more successful you are because you’re open-minded and you’re always willing to learn. And that has been my principle all my life. Always learn something new about anything. And you feel very fulfilled.

Barry Ritholtz  [00:56:52] Huh? Really, really terrific. Vimal, thank you so much for being, thank you very much. So generous with your time. We have been speaking with Vimal Kapur, CEO, and Chairman of Honeywell. If you enjoy this conversation, well be sure and check out any of the previous 637 we’ve done over the past 12 and a half years. You can find those at Bloomberg, iTunes, Spotify, YouTube, or wherever you find your favorite podcasts. I would be remiss if I didn’t thank the correct team that helps put these conversations together amongst the many people who helped me. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

 ~~~

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Carell tells graduates to be kind, avoid envy and to listen to those around them.

The post Steve Carell, Northwestern Class of 2025 Commencement appeared first on The Big Picture.

• Memorial Day. Eric Paliwoda was a big dude. Probably six-foot-six. Those big, meaty hands that would swallow your own in a tight handshake. His jaw stuck out, exaggerated by a lip full of dip. He was raised in Connecticut, but seemingly emerged from a Nebraska cornfield, ready for war.A short, ten-year-old Memorial Day piece worth pulling up again for the weekend. Quiet, well-said, no flag-waving. (STSW)

• The Legend of Chief Shannon Kent: On the late Navy cryptologist and Senior Chief — a profile of a remarkable career and the quiet community that knew her. Memorial-weekend reading. (Coffee or Die) see also Fullbore Friday: The secrets we keep. Every Naval officer should know his name, but few do. He was born in 1925, and he is still with us. What a story. Imagine you are just your standard-issue U.S. Navy fleet Lieutenant in your late 20s. You missed the big war, but you are ear deep in the next one, the Korean War. You know, on paper at least, you are flying a plane outclassed by your opponent. Doesn’t matter. Then one day you find yourself facing not just a better aircraft—but outnumbered by them. To make it even worse, you find out after the merge that you are not facing the JV team, but the varsity. (CDR Salamander)

• A Suicide. He’d been on five or six deployments, defusing bombs in Iraq and Afghanistan over the previous decade-plus, and was a few years away from retirement. He knew his trade and trained his soldiers hard for our upcoming deployment, which would include missions of varying lengths in Syria, Saudi Arabia, Egypt, Jordan, Tajikistan, and elsewhere. But he was also loud and gregarious and flirtatious, and the special waggishness that comes from a youth spent in combat could be mistaken for frivolity. A Memorial Day weekend essay on veteran suicide that does the rare thing of being specific instead of statistical. Hard to read; worth reading. (Colossus)

• Marine who crawled under bridge to plant explosives approved for Medal of Honor: Marine Capt. John Ripley hung demolition charges beneath a key bridge, swinging hand-over-hand for three hours while under fire. Task & Purpose on the Medal of Honor for the 1972 Đông Hà bridge demolition. The story has been told for fifty years; the medal took as long. (Task and Purpose)

• Chasing the Man Who Stole the Gods: How investigators tracked down a former child soldier whose thefts drove a global art conspiracy. (Businessweek)

• Experience: we found a baby on the subway — now he’s our 26-year-old son: A short first-person Guardian piece that has no business being as moving as it is. Read it in two minutes and feel slightly better about people. (The Guardian)

• They knew they were dying soon, so they threw a party: Living funerals — where people near the end of life plan and attend their own memorials — are becoming increasingly popular. A WaPo feature on the rise of “living funerals” — people with terminal diagnoses gathering loved ones while they can still enjoy it. Gentle, surprisingly upbeat, and worth the read. (Washington Post)

• We need better stories about the future.: Mayer argues the doom-loop dominating tech discourse is itself a self-fulfilling prophecy. Imagination is a strategic resource we keep underinvesting in. (Ashley Mayer)

• Inside Israel’s High-Tech Campaign to Kill or Capture Every Oct. 7 Attacker: A WSJ deep-dive on the intelligence and targeting infrastructure Israel has built to systematically pursue every individual identified from October 7. Disturbing in its precision regardless of where you sit on the conflict. One by one, militants who videotaped their exploits that day have been identified and killed, in a measure of Israel’s surveillance acumen and desire for retribution (Wall Street Journal) see also The Challenge for American Jews: The Atlantic on the political and identity crosswinds American Jews are navigating right now — Israel, the Trump-era right, and a left that has moved on key questions. A thoughtful piece even if you disagree with the framing. Progressive alliances are weakening, political identities are shifting, and emotional ties to Israel are being strained. What now? (The Atlantic)

• Miles Davis: A Visual Dictionary: Fast cars, huge shades and, surprisingly, any old trumpet: These are the things that made Miles Miles. Miles Davis, the jazz legend and style innovator who would have turned 100 this month, remains for many people the pre-eminent avatar of cool. And while Davis’s greatest legacy is musical, he also cut a distinctive image over the course of his five-decade career. (Davis died of pneumonia in 1991, at 65.) His style shifted alongside his sound, but he had his touchstones — face-obscuring sunglasses and ticket-magnet sports cars among them. (New York Times)

Video of the day: World War II told in 20 Episodes with Tom Hanks

Be sure to check out our Masters in Business interview this weekend with Vimal Kapur, CEO and Chairman of DJIA component Honeywell International. The firm is in the midst of dividing into three companies: Honeywell Automation, Honeywell Aerospace, and Solstice Advanced Materials. The firm has fully integrated AI as the intelligence layer in all of its automation processes and products.

The great digital media valuation collapse

Source: Axios

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The starting point of an effective PTO policy is a consistent structure. Advisory firms generally structure PTO using one of three approaches: separate leave, single-bank, or unlimited PTO. Traditional separate leave systems divide vacation and sick days into distinct categories (e.g., 15 vacation days and 5 sick days). Single-bank PTO combines all paid leave into one flexible bucket, allowing employees to allocate time according to their own needs. By contrast, unlimited PTO policies put no putative restrictions on the amount of time off available for any purpose – which while theoretically offering maximum flexibility for employees and reducing the administrative burden of tracking PTO accrual, often ends up resulting in employees taking less time off than under traditional plans due to the social stigma of taking the 'most' time off. To that end, although every system has its administrative benefits and burdens, the success of a firm's PTO policy depends less on the number of nominal days off it offers and more on whether employees can realistically use them without damaging their own career growth or creating more operational strain for themselves or their teammates.

Small advisory firms often struggle most with this challenge because employees typically wear multiple hats, and there may be little redundancy across roles. Research shows that advisors in very small teams frequently report greater difficulty taking time off than solo advisors or members of larger firms because there are too few people available to provide meaningful coverage. Which suggests that effectively implementing a PTO policy requires firms to build operational redundancy through cross-training, clear documentation of responsibilities, and managing each team member's workload to accommodate for the possibility of backing up other employees' work. Teams may also need to clarify which operational tasks must continue during absences (e.g., trading and rebalancing and handling client questions and requests) and ensure that more than one person understands each essential workflow to ensure that the firm can stay running smoothly during any team member's time off. All of which can help make sure that employees feel comfortable using the PTO they have available (and actually being fully 'off' from work while on PTO) without worrying about falling behind or burdening coworkers with extra work.

To enact this in real time, firms may choose to put together a piecemeal cross-training plan, training employees on different processes on a weekly or monthly cadence to ensure everyone remains up-to-date on the work they might be expected to cover. From there, every period of PTO becomes an opportunity to ensure that everyone fully understands each other's work – and as the team iterates and builds confidence in covering each others' roles, taking time off can become easier and easier over time. And for certain tasks requiring more specialization, advisory firms may also consider bringing in fractional help to ensure they can genuinely disconnect.

Ultimately, firms that encourage employees to take meaningful breaks, establish realistic workload expectations, and invest in cross-training and redundancy are better positioned to maintain both employee wellbeing and a consistent quality of client service. And importantly, firm owners must model these behaviors themselves. Advisors who encourage employees to take time off while never disconnecting themselves may unintentionally signal that true rest is incompatible with professional success. But when advisory firms thoughtfully design PTO systems that balance flexibility, accountability, and operational resilience – for both leaders and employees – they create healthier teams, stronger firm cultures, and ultimately more sustainable businesses that better serve both employees and clients alike!

Read More...

This week, I speak with Vimal Kapur, Chairman and CEO of Honeywell. He began his career as an engineer with the company in India 37 years ago, and rose through the firm across multiple product groups and divisions.

Kapur explains the logic behind splitting the company into three separate entities. He is (obviously) bullish on the future of automation and AI. We also break down what he expects from AI in the future.

A list of his favorite books is here; A transcript of our conversation is available here tomorrow.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our special Masters in Business next week, Remembering Jonathan Clements with Bill Bernstein and Jason Zweig. The two recall Clements’ impact on the investor community; they discuss his posthumous book, “Money and Me.”

Current Reading/Favorite Books

The post MiB: Vimal Kapur, Chairman and CEO of Honeywell appeared first on The Big Picture.

Also in industry news this week:

• Single Americans are largely financially confident, according to a recent survey, but appear to have planning gaps when it comes to insurance coverages and estate planning documents that are particularly important for unmarried individuals
• Donors appear to have primarily altruistic motivations for their giving and want to get into the details of how their gifts are being used, according to a recent survey, suggesting that advisors could provide a deeper level of support for charitably minded clients by going beyond the tax implications of different giving methods and helping clients maximize the impact of the gifts they make

From there, we have several articles on retirement planning:

• How knowing whether a client worries more about outliving their assets or about underspending in retirement can help advisors match them with an appropriate income generation strategy
• How uncovering values and goals can encourage hesitant retired clients who can afford to spend more on what's most important to them
• Why uncertain "healthspans" mean that some clients might treat retirement more as a sprint rather than as a marathon (and prefer to front-load their spending)

We also have a number of articles on practice management:

• How financial advisory firms can create cash compensation structures that scale as the firm grows
• Why incentive compensation structures sometimes come with unintended consequences that could reduce trust between a firm and its employees
• Four features that make up successful advisory firm compensation plans, from creating opportunities for advancement to offering benefits that match employees' needs

We wrap up with three final articles, all about AI and the future of work:

• How advisors can respond effectively when a client consults an AI chatbot with financial planning questions (and brings the output to their next meeting)
• Why AI might not lead to a job 'apocalypse', and how those working in human-centric fields could thrive into the future
• While AI tools have made it easier than ever to discover information, the reduced friction involved in learning and training could ultimately prove detrimental to individuals' expertise (and job security) as well as organizations' institutional knowledge

Enjoy the 'light' reading!

Read More...

At The Money: Blurring the Lines Between Public and Private Investments with Dave Nadig, ETF.com (May 20, 2026)

There used to be a clear distinction between public and private companies. Firms would take years or even decades to grow, build their revenue and profits, and eventually tap the public markets to go national or even global. This is no longer how it works.

Full transcript below.

~~~

About this week’s guest:

Dave Nadig is President and Director of Research at ETF.com, and he shares with us how investors should navigate all of these new products. Dave helped design and market some of the first exchange-traded funds. He is the author of  “A Comprehensive Guide to Exchange-Traded Funds” for the CFA Institute.

For more info, see:

LinkedIn

Twitter

Substack

~~~

Find all of the previous At the Money episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg. And find the entire musical playlist of all the songs I have used on At the Money on Spotify

TRANSCRIPT:

Barry: There used to be a clear distinction between public and private companies. Firms would take years or even decades to grow, build their revenues and profits, and eventually tap the public markets to go national or even global. That doesn’t seem to happen anymore as endless amounts of capital slosh through the system. More and more companies are staying private, but there’s a group of private investors that are accessing public capital through various wrappers, including ETFs.

To help us unpack all of this and what it means for your portfolio, let’s bring in Dave Nadig. He’s president and director of research at etf.com, and he shares with us how investors should navigate these public-private hybrids. Dave is also the author of the book A Comprehensive Guide to Exchange Traded Funds. So Dave, there was once a very bright line between public and private markets. Has that line disappeared, or has it simply moved into wrappers that investors don’t fully grok?

Dave: I think it’s more the latter. The rules haven’t really changed — that’s important to point out here. It’s not like we passed a law that said everybody can get in. What’s changed is that there’s a willingness by the issuers of product to get a lot more aggressive in what they’re positioning as retail-appropriate vehicles. So there’s not a new wrapper here. What there are are new ways of stretching the edges of wrappers that had been around for almost a hundred years at this point.

Barry: So let’s put some numbers on that. Since 2010, private credit has raised something like $1.8 trillion. Every major firm — Blackstone, Apollo, KKR, Ares, Blue Owl — is building retail channels. There were 314 interval funds and tender offer funds with $277 billion in assets as of January of this year, 2026. A lot of chatter that private is going after the 401(k) market next. What does all this capital mean to investors?

Dave: You know, the thing investors need to realize is that if you are the one being offered a product, you need to ask yourself why. If somebody’s coming to you and saying, “I want to give you access to private credit or private equity,” it’s very smart to say, who is selling this to me, and why are they selling it to me now? And unfortunately the real answer here is — look, we’re in this incredible bull market, let’s just be really honest. Things have been going up for a very, very long time.

And because of that, there is a lot of money looking for exits. At the end of every cycle in my career, it is retail that is looked at to be the exit. Whether that’s buying Beanie Babies, used cars, or stocks, it doesn’t really matter. At the end of the day, the retail investor is the one that the quote-unquote smart money, the big institutional money, is looking to unload their positions onto.

So it’s not surprising to me that we’re seeing a lot of discussion around quote-unquote democratizing private investing — whether it’s venture capital or private credit, it doesn’t really matter. It’s all the same thing. We just have to accept that we are going to be marketed these products, and for the most part, I think investors are not well served by them. But that’s worth poking at.

Barry: So we should all take some advice from that great alternatives investor, Groucho Marx: I don’t want to be a member of any club that would have me.

Dave: Exactly.

Barry: So let’s talk a little bit about how this used to look. In the old days, historically, companies would go public to raise growth capital. Today it seems like a lot of the best-known private firms can stay private indefinitely, and those that do go public seem just to be reaching for liquidity for insiders. Is that what’s happening with these various ’40 Act funds in all sorts of new wrappers?

Dave: Yeah, there are two things going on here. On the one hand, eventually these private companies go public, and there’s a lot of effort to get investors involved in those IPOs. That’s the end state of what we’re talking about. I want to focus a little bit more on the beginning state, which is how the actual money in private equity gets there.

Historically, how that money ends up in a private company is pretty simple. There’s some pool of assets — generally an LLC or a limited partnership — and it collects a billion dollars of money from a bunch of rich people, endowments, institutions, and financial advisors. That money goes into a pool, which then makes a bunch of small investments in, say, 15 different startups in Silicon Valley. The idea is that one of those hits big, and then the payout from that is either that company gets bought or it goes IPO, and all the investors in that limited partnership get a big check.

That’s the structure. How that little pool of private money gets managed can really vary. It’s very common for it to be literally a limited partnership. But the problem with that is you can only get so many investors into it.

When you want to get a lot of investors, you have to go to some sort of regulated vehicle, and then you end up in usually a closed-end fund of some kind — whether it’s a traded closed-end fund, a non-traded closed-end fund, an interval fund, or a tender offer fund. They’re all versions of the same thing. They’re funds that are roach motels: money goes in, money never comes out.

Barry: Define those various things. What’s the difference between a tender offer fund, a closed-end fund, an interval fund — for people who may not be hip to all these different acronyms? Go through the whole list.

Dave: So really the main structure is the closed-end fund, or the CEF, which is part of the ’40 Act — just like an open-ended fund, which is an ETF or a mutual fund. Same rules, same laws, very similar structures at the very high level. The biggest difference is a closed-end fund is basically subscribed to once, like an IPO. You go out, you say, “I want to raise a billion dollars.” You see if you can get a bunch of people to give you that billion dollars.

Now that is a closed pool of money. And whether or not money ever comes out of that pool again depends on how the rules are written for that fund. In the most investor-friendly version, it tends to be a traded closed-end fund, meaning you can go to the NYSE and get a bid for it, and it may be trading at a discount or not. That’s the version that, for instance, Pershing Square just launched. Pershing Square just filed PSUS, which is a fairly traditional closed-end fund. They raised a bunch of money.

Now it trades in the open market, and much to Bill Ackman’s dismay, it’s trading at a 20% discount to what it’s actually worth. That’s pretty common in closed-end funds, because there’s no liquidity. You can only buy it or sell it from other people who happen to want it or own it.

Barry: And to clarify, PSUS — are the holdings private or public, or both?

Dave: At the moment that’s really going to be public equities. I think what people are trying to buy there is Bill Ackman’s high concentration, use of some leverage to get better exposure, special-situations kind of investing. That was a specific offering that he’s tried — I think this is his third tilt at this windmill — and finally got this one to close, albeit not with the pricing he probably would’ve hoped for. But that’s actually a pretty traditional closed-end fund.

You raise a bunch of money, you trade it back and forth with your friends, maybe it throws off dividends, maybe it throws off a capital gain someday if they have a big win. But you’re never expecting to get your money out. You can do the exact same thing and not have it ever be traded — and that’s a non-traded private equity fund.

That’s a pretty common thing. BREIT, a really well-known REIT fund, is one of those non-traded closed-end funds, and we’ve had a bunch of those launched recently also really targeting private equity. So that’s another very common version of it.

Barry: And full disclosure — what I’m about to talk about is something I own. Boaz Weinstein has an ETF, CEFS, that looks for closed-end funds that are trading at a discount to NAV. He buys them and then either agitates for the manager to buy back enough stock so it’s trading at NAV, or to break it up and just sell all the pieces and return the money or give the stock back to the investors. Why do so many of these closed-end funds trade at such a discount that activists are haranguing management for what essentially is a dollar trading at 75 cents?

Dave: Well, the discount comes because of what you just said. There’s no liquidity in it. There’s no way to ever extract real value from the fund. It’s permanent capital, largely from the perspective of the issuer.

That’s why the issuer loves it. They’re just like, “I have a $2 billion portfolio. I never have to worry about providing liquidity. I’m fine.” So if it trades at a discount, that manager really doesn’t care. They’re still getting paid based on NAV — often paid on NAV that’s been goosed by a bunch of leverage.

So they still get paid. The end investor is the one sitting here going, “Why am I sitting here at a discount?” So arb-ing out of the discount is a classic tale. People have been doing that since the sixties.

Barry: But that’s a —

Dave: — story for closed-end funds.

Barry: Right? With ETFs, the arb means there’s no discount, because you could always buy it, open the wrapper, and sell the stock. So it just seems weird that closed-end funds don’t have the same response to arb.

Dave: It’s like an appendix on regulatory structure, right? It’s this vestigial piece of flesh that’s attached to the ’40 Act. And that’s why, as you mentioned at the top of the show, there are only a couple hundred of these things. Generally people only use the closed-end fund structure when they have one of a couple of problems to solve.

One is they’re buying stuff they literally can’t sell. So in the case of USVC — the one that AngelList’s Naval just launched, I’m still trying to get my money into — the whole idea there is that buying stakes in SpaceX and private companies like that, you can’t just liquidate. They need to be able to close the liquidity gate. That’s usually reason number one.

Reason number two is usually leverage. If you’re trying to do some sort of levering up bonds to try to get 15% returns out of them — those kinds of portable alpha strategies, or risk parity strategies where you really need to be able to go long and short and get lots of leverage — you can do that in the closed-end fund structure where you can’t in a traditional mutual fund or ETF. So it does solve a problem.

The issue is, it’s very rarely a problem the normal investor has.

Barry: So you mentioned PSUS, and I remember that fee was not five bips. What was the fee on PSUS?

Dave: I think it’s 2% out of the gate.

Barry: Oh, that’s a chunk of cash. But no 20 — it’s not a two-and-twenty hedge fund. It’s just a two.

Dave: Yes, exactly.

Barry: And what about products like USVC? By the way, I love that these all have the name “US” in them. I guess the plan is they’ll do an overseas version one day as well.

Dave: Look, all of these funds are generally pretty expensive. Something like USPE, which is the one that’s come from Tap — that’s basically just going to buy a bunch of private stuff that they get access to — is charging 2%, but what they’re buying is other funds. So you get a lot of acquired fund expenses. It’s not uncommon to see these expenses creep up toward 3 or 4% when you start rolling all this stuff together.

Barry: Because it’s fees on fees?

Dave: It’s fees on fees. I should point out, though, that USVC is the one that made a big splash lately because they’re basically saying the limit’s $500 — get your money in now. They’re structuring that as a bit more of an interval fund, where once a quarter they’re saying, “We’ll give 5% liquidity to people who want to get out.” That’s, again, a fairly common structure, although none of those things are written in stone. They can say they’re going to do that and then not do it, and there’s no recourse.

Barry: And USVC does not trade on any —

Dave: It won’t trade anywhere. It’s non-traded. So the only way you’ll ever get your money out of it is either they make a distribution because something big happened in the fund, or you sign up for one of these quarterly windows where you can get 5% of your money out.

Barry: So some of these are private and hold non-liquid assets. Some of these are public and hold public assets. Are there public versions of these that hold private assets?

Dave: Well, the equivalent to that would be something like USPE, which is the one coming from Tap. The idea there is that it’ll be trading on the exchange — no, it’s not an ETF, it’s still a closed-end fund, but it’ll be a traded closed-end fund. So it’ll have its big discounts.

The other version of this is you can take an ETF and use the 15% illiquid bucket that all mutual funds are technically allowed to have, and you can try to use that aggressively. There are ETFs doing that. XOVR is the big one — it has a 15% SpaceX chunk in it. Ron Baron’s fund, BRONB, has a big chunk of SpaceX in it right now. So there are more ETFs and mutual funds trying to do that, but it’s obviously fraught with peril. You don’t want to go too far down that road and then have a giant pile of redemptions you can’t meet.

Barry: So here’s the obvious question. USPE — or even better, Pershing Square PSUS with Bill Ackman — these funds convinced savvy institutional investors and others to put a bunch of money in. They launched at a couple of billion dollars. “Wait, I could buy me some Bill Ackman at a 20% discount.” How come more people don’t see this and say, “Oh, I get to buy a premier hedge fund manager at a discount to NAV”? What’s the disconnect? Why haven’t people themselves just said, “I want some of this”? Is the expectation that, hey, if you want to be in Pershing Square, that’s where all the good stuff has taken place, but the PSUS closed-end fund isn’t going to have the same juice?

Dave: Interestingly, part of the reason Ackman had such a hard time getting this capital raise done over the years was exactly that argument. People were like, “I want to be part of the management company. I don’t want to own this garbage fund.” So what they actually floated was the combo platter, where for every — I think it’s every four or five shares of the fund you get one share of —

Barry: One —

Dave: — of the management company, the big GP, the main vehicle.

Barry: So you’re both an LP and a GP. If this was a hedge fund, you’d be an LP and a GP at the same time. Which is a very clever way to do it. How much of the overall GP did Ackman allow outsiders to buy? Or is it just built into the fund?

Dave: It’s built into the structure of the fund. I don’t know exactly —

Barry: Because you’re not getting 20% of the GP.

Dave: Well, you’re certainly not getting a hundred percent of it.

Barry: You’re getting one out of — well, if you’re buying it, you’re only getting one out of five shares or whatever it is. But he could say, “Oh, we’re going to have a hundred million shares and I’m going to put a million into this,” or whatever the float is.

Dave: Right. This is part of the problem with these kinds of funds. You ask why people aren’t storming the gates to try to get into this thing — well, you don’t know that much about it. You’re not getting regular reporting; it’s not super transparent. You don’t really know what the marks are. Obviously if they’re only holding public securities, you can impute the marks yourself, that’s fine. But on anything that’s private, you’re just kind of guessing and taking their word for it.

So yeah, it’s trading at a 20% discount to what you think it’s worth. But is that really even what it’s worth? And how do you value the GP component of this in that 20% discount? So I think the combo platter of lack of transparency and lack of liquidity is enough to scare most rational investors out of something like this.

Barry: So those are the downsides. There obviously has to be an upside. If someone like Bill Ackman is saying, “I have an idea,” and $2 billion worth of smart money theoretically threw some cash into that — what’s the upside?

Dave: The upside is Bill Ackman could be right. He runs high-concentration, somewhat levered portfolios of, I don’t know, a dozen stocks. That’s a high-conviction bet. If he gets those dozen stocks right, he could absolutely blow away the market. I’ve fully acknowledged that there are investors out there —

Barry: And his track record over the years is not bad. Lights out, right?

Dave: Exactly.

Barry: Not necessarily consistent, but mostly pretty good years and a handful of spectacular ones.

Dave: Some flashes of genius, right? So that’s why people are buying into these things — because they believe, in this case for Pershing Square, in Ackman and his prowess and his access to insight, quote-unquote, that other people aren’t getting. In the case of something like USVC, I think what they’re counting on is, “Oh, those are the AngelList guys. They’re getting to see all of this deal flow from Silicon Valley way before everybody else. USVC is going to get these nice little slugs of whatever the next SpaceX or the next big IPO is way before anybody else.”

That’s not insane. I mean, I have some private investments of my own. I’ve chosen to be much more careful and pick exactly what I want to do, but I’m not going to sit here and tell people private investing is a terrible idea. Lots of people have made lots of money doing it. So that’s the allure: hey, USVC — once they finally let people’s money in and start investing, maybe they will in fact carry the whole tailwind of everything going on in Silicon Valley venture, and your $500 becomes $5,000. It’s not impossible.

Barry: Here’s the math on private investing that I think a lot of people overlook. The median fund does okay — doesn’t do great. You’re better off in the S&P. It’s expensive and illiquid versus the S&P. But a top-decile fund does really well — diversified, non-correlated, and very often outperforms the index. The problem is, unless you get into that — I’ll be generous and say top-quartile — fund, the juice isn’t worth the squeeze. I love that expression. So given all of that, how do you think regulators should be treating this private exposure in these various public wrappers?

Dave: So my two big issues are liquidity and transparency. I think we should enforce the liquidity rules. Which means that if you’re sticking something in like an ETF, you should not be able to violate the 15% — if you cannot trade it and get a price on it intraday, it is not liquid, and you should not count it as liquid. So step one: we should actually enforce those liquidity rules.

Barry: Intraday meaning once a day, or anytime throughout the day?

Dave: Well, you’ve got to at least be able to do it once a day. And I would argue, holding an intraday-priced vehicle, you should probably be holding most of your assets in intraday-priced securities.

Barry: 85%.

Dave: 85%, right? So that seems pretty rational. That’s the liquidity side of it.

And then the transparency side. Look, the problem in private equity and private credit — as everybody who’s played in any of this knows — is that the marks don’t matter. We’ve all seen those pitch books that say, “Look, you should invest in privates. They’re so stable, they hardly ever go up or down.”

Barry: I love — Cliff Asness calls that “volatility laundering.” It’s a perfect phrase.

Dave: Right. So you’re taking what would obviously be wildly volatile assets, you’re marking them once a quarter, and you’re marking them based on a lower-vol metric — on what their comps did. So of course those are ridiculous and stupid marks. That would be the next thing I would focus on: independent valuation agents for anything that is going to touch the public hand. If you’re going to touch the 1940 Act, we should have independent verification, and we should at least publish valuation rules. That’s the other big one — they don’t tell you how they value any of these things. The board values whether or not your private thing is worth X or Y. I don’t like that. I would like to know the rules. Why do you think SpaceX is worth $185 instead of $500?

Barry: Really fascinating. Last question: five years from now, how do you think this public-private distinction — these public wrappers around private investments — I love the phrase “liquid alts.” It kind of reminds me of the George Carlin word routine: jumbo shrimp —

Dave: Military intelligence.

Barry: Right, exactly. That’s the exact routine. Listen, either it’s private and illiquid, or public and liquid. But private and liquid doesn’t really — at that point it might as well be public. It doesn’t make any sense. How do you think this distinction is going to show up in the minds of investors and/or regulators?

Dave: I don’t want to be Doomberg about this, but I feel fairly confident suggesting we’re going to have some event in the next couple of years that is going to pull the scales off our eyes around —

Barry: Haven’t we kind of had those sort of events already this year? We’ve had a bunch of privates kind of —

Dave: Oh no, very, very thin — like Blue Owl closing your BDC for redemptions. That’s course of business.

Barry: You’re talking not quite GFC, but in the same neighborhood?

Dave: Yeah, I think we’re going to have a few funds really have to either close — whether it’s a high-profile private equity fund unwinding, whether it’s some of the private credit stuff really coming home to roost. Initially it looks like we may have dodged some of that, like the private credit stuff. There was a lot of concern that that was going to blow up the world. We seem to be being a little more rational about that. On the private equity side, I think most of the money going into private equity is pretty high risk-tolerance money anyway. So until we actually cross that Rubicon of shoving this stuff in 401(k)s — which I think is still going to be a while out, I don’t think that’s happening tomorrow.

Barry: Good. I hope that’s very far out.

Dave: So I think we’ll have some high-profile blowups, but I think they will be good for investors in the sense that they will wake us up and we’ll be more skeptical — which is what’s happened with private credit. There’s not billions and billions and billions of dollars chasing private credit from retail right now. That’s a good thing. I think we dodged a bullet.

Barry: Well, there certainly were billions of dollars chasing it in ’24 and ’25. So to wrap up: for those of you interested in everything from liquid alts to interval funds to M&A funds to what have you — you have to be aware of the downside risks. These things tend to be expensive. They often trade at a discount, assuming they trade at all. They are not especially transparent. There is a lot of good faith in relying on management to tell you what these things are worth.

~~~

Find our entire music playlist for At the Money on Spotify.

The post At the Money: Blurring the Lines Between Public & Private Investments appeared first on The Big Picture.

The paperback of “How NOT to Invest” drops this month; to celebrate, I present this excerpt from the book about a BW story that was published exactly 25 years ago!

This short, Apple-related excerpt from the book was a fun chapter to write… Enjoy!

“Sorry, Steve: Here’s Why Apple Stores Won’t Work”

“Few outsiders think new stores, no matter how well-conceived, will get Apple back on the hot-growth path… Maybe it’s time Steve Jobs stopped thinking quite so differently.”
—BusinessWeek, May 21, 2001

A year after Fortune’s Cisco debacle, BusinessWeek1 published a story on Apple’s foray into retail stores. Not just BusinessWeek, but many naysayers laughed off the inevitable failure of Apple’s push into retail.2 Numerous armchair pontificators freely shared their uninformed opinions as to why this concept was destined to fail. “I give [Apple] two years before they’re turning out the lights on a very painful and expensive mistake,” predicted retail consultant David Goldstein.3

After all, established consumer electronics chains were all in decline, and the writing was on the wall. Gateway would soon close its retail stores (2004), and not long after, CompUSA would shutter its physical locations (2007).

Investors should always be on the alert for structural errors in media stories: Authors operating outside of their expertise; people unaware of recent developments; extrapolators extending present trends far into the future. It is an excellent reminder of exactly the kinds of errors investors should avoid. A fallible human being publishing their uninformed opinion in print should never be the basis for making any intelligent investment decision.

There are many genuinely revolutionary products and services that when they come along, change everything. Pick your favorite: the iPod and iPhone, Tesla Model S, Netflix streaming, Amazon Prime, AI, perhaps even Bitcoin. Radical products break the mold; their difference and unfamiliarity challenge us. We (mostly) cannot foretell the impact of true innovation. Then once it’s a wild success, we have a hard time recalling how life was before that product existed.

The Apple Store was clearly one of those game-changers: By 2020, Apple had opened over 500 stores in 25 countries. They are among top-tier retailers, and the fastest ever to reach a billion dollars per year in sales. They did more in sales per square foot in 2012 than any other retailer.4 By 2017, they were generating $5,546 per square foot in revenues, twice the dollar amount of Tiffany’s, their closest competitor.5 Apple no longer breaks out the specifics of its stores in its quarterly reports, but estimates of store revenue is about $2.4 billion per month.

That guy who wrote, “Sorry, Steve: Here’s Why Apple Stores Won’t Work,” I wonder what the rest of his portfolio looks like…

Finance seems to encourage this kind of future forecasting. We are bad at this, because we often lack awareness of what we do and do not know about the limits of our expertise; we do not truly understand the present, let alone the future. We often wishfully predict what we want to be true, rather than what will come to be.

We look at the Dunning-Kruger effect later, but the key takeaway is most of us are not very good at metacognition—estimating our own skillsets.

Learning what we do and don’t know—working within our capabilities— that’s challenging enough, without other people’s bad forecasts in our heads…6

Footnotes:
1. Cliff Edwards, “Commentary: Sorry, Steve: Here’s Why Apple Stores Won’t Work,” BusinessWeek (May 21, 2001).

2. Nearly a decade and a half later, those naysayers were recounted here: Ana Swanson, “How the Apple store took over the world,” The Washington Post ( July 21, 2015).

3. Jerry Useem, “Apple: America’s best retailer,” Fortune (March 8 2007).

4. Seth Fiegerman, “Apple Has Twice the Sales Per Square Foot of Any Other U.S. Retailer,” Mashable (November 13, 2012).

5. Chance Miller, “Apple again found to be the world’s top retailer in sales per square foot,” 9TO5Mac ( July 29, 2017). See also: Marianne Wilson, “The most profitable retailers in sales per square foot are….” Chain Store Age (CSA) ( July 31, 2017).

6. If you think the Apple Store cover story was bad, just wait until you see what the media had to say about BlackBerry…

The paperback of “How NOT to Invest” is out this week at Amazon, Barnes & Noble, Books-AMillion, Bookshop, Hudson, or wherever you buy your favorite books!

If you want to learn more about how the book was made, any related media appearances or background, get unique bonus material, or just ask a question, you can sign up here: HNTI at RitholtzWealth dot com.

The post Why the Apple Store Will Fail… appeared first on The Big Picture.

Amid this backdrop, the SEC is considering a pair of changes that would change the regulatory landscape for many RIAs.

First, the SEC has issued a proposed amendment that would change the definition of a "small entity" RIA for purposes of the Regulatory Flexibility Act of 1980 (which is designed to prevent rules and regulations from creating an undue regulatory burden on small businesses) from $25M of AUM to $1B of AUM (while also considering using a revenue- or employee headcount-based threshold in lieu of an AUM-based threshold). A new threshold of $1B of AUM would increase the number of SEC-registered RIAs that qualify as "small entities" from just 3% today up to 75% (though those 75% would still only account for 3% of all RIA-managed assets given the concentration of assets in a few mega-firms!). And so if the proposed amendment is adopted (as appears likely, given fairly broad support expressed during the proposal's comment period), the pace of SEC rulemaking would likely slow down as it would have to more carefully consider and weigh the potential impact of proposed new rules on a drastically increased number of "small entities" it oversees – likely providing a level of future regulatory relief for relatively smaller RIAs who don't have the revenue to support hiring dedicated compliance staff to handle increased regulatory obligations.

A separate (and not yet officially proposed) change that was nevertheless hinted at by Acting SEC Commissioner Mark Uyeda in public comments last year would also increase the regulatory AUM threshold for firms to register with the SEC from the current $100M to perhaps $1B, which would have the result of shifting thousands of currently SEC-registered firms (back) to state registration (likely with many firms needing to register in multiple states given the broader geographic distribution of clients for most firms, especially in the post-COVID virtual-meeting era). While such a change would reduce the number of RIAs under SEC oversight (potentially allowing it to focus on the largest RIAs representing the greatest systemic risk for consumers, and better aligning the number of firms the SEC must oversee with its Congressionally-limited budget), it could also significantly increase the compliance burden on many RIAs that would be forced to grapple with the complexity of multi-state registration, particularly when those states' laws and regulations don't fully line up with each other. Which could cause larger state-registered firms to flock to affiliate with SEC-registered corporate RIA platforms that could take certain compliance obligations off of their plates (or simply render them eligible for Federal rather than state registration), opting to sacrifice some of their independence to remain SEC-registered rather than struggle with increased compliance burdens under state registration.

Ultimately, the key point is that in the 15+ years since the SEC last updated its registration threshold (and nearly 30 years since the "small entity" threshold's last update), there have been enough changes in the RIA landscape – both in terms of average firm size and the number of states in which firms do business in the virtual meeting and niche client marketing era – that it makes sense to rethink how to divide between state and SEC registration. Because ironically, while most RIAs truly are "small" businesses that in aggregate comprise only a small fraction of industry AUM, it's perhaps those firms (with less capacity for handling compliance burdens) that would benefit most from following a single uniform SEC standard rather than a maze of often-conflicting state-level regulations, as well as from slower pace of rulemaking that would likely result from the proposed higher "small entity" AUM threshold. So if the SEC does eventually end up raising its registration threshold, we may expect to see a bigger push for states to further standardize their securities regulations to reduce the compliance burden on state-registered firms – or else see a flood of small- and mid-sized advisory firms affiliate with corporate RIAs to avoid state-level regulation altogether!

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The transcript from this week’s, MiB: Shelia Bair, former FDIC Chair, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

~~~

Masters in Business — Sheila Bair

Hosted by Barry Ritholtz · Bloomberg Radio · May 15, 2026

00:00:02  Announcer: Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Riol on Bloomberg Radio

00:00:16  Barry Ritholtz: This week on the podcast, another Extra, extra special guest, Sheila Bear, former FDIC, chairperson author. What a fascinating career. She was right in the thick of it through the financial crisis, butting Heads with Tim Geithner and, and working with Hank Paulson. She really has done more than just about anyone in the country to help shore up the financial system, the banking system, and to drive us all towards a better degree of financial education through her work, not only at the FDIC, but at Treasury and through all the books she’s written for children and young adults about finance.

00:01:02  I, I thought this was fascinating, and I think you will also, with no further ado, my conversation with Sheila Bear.

00:01:11  Sheila Bair: Thank you for having me.

00:01:12  Barry Ritholtz: So I want to start with a little bit of background from you. You get a bachelor’s in philosophy from the University of Kansas and then go to law school at the same school, university of Kansas, right. Where you got a jd. Yeah.

00:01:28  What was the career plan? Were you, did you want to be a lawyer or what were you thinking?

00:01:31  Sheila Bair: Well, I’m a native Kansan, grew up in southeast Kansas. Traditional Kansas Republican family, the whole, we were all J Hawks and dad went to medical school. KU mom went to nursing school. My sister was a physical therapist.

00:01:44  I was a, I didn’t choose a medical profession, but did choose ku. So it’s a good school. It was an affordable school, and I really didn’t know what I wanted to do. I was interested in philosophy.

00:01:55  I took a lot of courses in English and economics too, but majored in philosophy and realized pretty much as soon as I graduated, I wasn’t gonna get a very good job with that degree. So, well, you

00:02:07  Barry Ritholtz: Could always teach philosophy.

00:02:08  Sheila Bair: I could do that, but I would have to get a PhD in and probably go to school longer than I wanted to do, do that. So I decided to go to law school, which was a, you know, philosophy is a good major if you’re gonna go into law school, because both disciplines are about logical thinking analysis, you know, good writing skills. And so actually the philosophy major was, was good preparation for law school.

00:02:30  Barry Ritholtz: Yeah, yeah. Say, say the very least. So, so your career spans from government and academia and finance really at the highest levels across all three. Yeah.

00:02:42  What’s the through line? Connecting, connecting each of these worlds? Yeah. Government regulation, academia, and finance.

00:02:51  Sheila Bair: Yeah. Well, I have been, I’ve had a, I’ve done a lot of different things in my career and I, young people, I tell them, don’t try to pre-program your career career and don’t mean narrow minded about opportunities. And a lot of people stay in the same job for 30, 40, 50 years. I respect that.

00:03:05  That’s fine. That was never for me. I’m always looking for new things. But I guess my, my first entree to the big leagues released, adjacent to the big leagues, was when I worked for Bob Dahl as his council first in the Senate Judiciary Committee, where I actually, I staffed him on the Voting Rights Act, compromise to Title two, the Voting Rights Act, which is pretty much just eviscerated by the Supreme Court, which was, which was very, you know, that was my first big project for him.

00:03:31  So that, that’s, that hurts. But anyway, so I, and then I went with, to the leaders when became majority leader, I went to the Majority Leader’s office with them and handled a broader range of issues. But that’s, that’s really, and then I was on his 88 presidential campaign, actually, which obviously started in 1987. Those campaigns start a good year before the primaries began, and that’s where I started off as a civil rights lawyer and did civil rights issues and other things for him.

00:03:59  But we had the 1987 market crash in, during that time we were, I was working for his presidential campaign became a big issue. I had to take a crash course and stock markets. And that’s when I was first exposed to finance and found that I was really interested in it.

00:04:13  Barry Ritholtz: Huh. Really interesting. Is it, and I wanna focus on, on some of your writing, because you are, you’ve written for very different age groups, demographics, right? So, bull by the horns, obviously for adults about the G ffc.

00:04:28  But the Money Tales book series is aimed at kids, right? And then the new book is really aimed at, at teenagers, people starting out, right? How different is it communicating? Yeah.

00:04:45  Somewhat complex ideas to each, or is it the same? Is it just making it understandable or is it a different approach for each group?

00:04:51  Sheila Bair: It’s, no, it, it’s a bit of a different approach. I think, you know, that the fact that I didn’t really start in findings, that I segued into it working for the stock exchange than later many other senior level jobs. I had to start from scratch when I was learning it, and I had to learn it fast. And so, but I think my own experience helped me really break down and understand and understand how to approach understanding finance.

00:05:16  And one of the big issues is the terminology, the jargon that we use in, in the financial industry. And that can be very confusing and intimidating. And I think sometimes weaponized, frankly, by people who are trying to sell a product or service. So, but yeah, I mean, I think my early need to really start from scratch and learn, it helped me later break down and explain things.

00:05:37  And then I think also my philosophy major, the, the logical thinking, you know, breaking things down into their component parts, understanding the causal connections, kinda laying it out, the analysis out for people in an understandable way is something that I’ve always tried hard to do and have refined over the years. So, but yeah, the, my, you know, bull by the horns was definitely, it was written for a general population, but it talks a lot about securitization and, and topics that make, might make some people’s eyes glaze over. But for industry professionals, I think it was of interest. But my children’s books, and actually I, I wrote another book for teens called Bullies of Wall Street, which was a book about the, the financial crisis for teenagers.

00:06:20  And then I have, golly, since 2006, I’ve been on, you know, as a sideline writing picture books for children. And that those are really fun. ’cause those are fictionalized stories. I use rhyming verses.

00:06:32  They’re just fun. You can be creative. ’cause they’re really about basic concepts, you know, compounding interest risk, capital formation. Those are things that really you can’t explain at a very ba basic level for kids.

00:06:46  Ponzi schemes is one of ’em. Asset bubbles is one, I, I wrote one, it’s called Daisy Bubble. It’s kind of riff on the Tula bubble that occurred in Hollywood hundreds of years ago. And I, I was concerned that kids were not gonna get this.

00:06:59  And that’s one of my more popular books, especially with the boys. There’s a character named Sly Seal that’s manipulating the daisy market. And, and, you know, I make that very transparent in the book. And they, they enjoy that.

00:07:10  Barry Ritholtz: That’s very, that’s very funny. My, my favorite part of Bull by the Horns is just the really vivid detail you go into in with the clashes with Tim Geman. Oh, yeah. And Hank Paulson, if you could go back in time and magically change any decision that was made during the GFC, what, what was the wrong decision and how would you fix it?

00:07:38  Sheila Bair: You mean during the crisis or in the lead up to the

00:07:39  Barry Ritholtz: Crisis? Either or. What, what do you think, what do you think the big is? Excuse me.

00:07:45  It’s never one thing, but if, if, so let, let’s, since I mentioned Guyer Paulson, what of their decisions do you think was most problematic that you would’ve liked to reverse?

00:07:57  Sheila Bair: Yeah. Well, I think there should have been more accountability. I, I do think there should have been more accountability, I

00:08:02  Barry Ritholtz: Think, meaning Bankers Wall Street, that helped create

00:08:05  Sheila Bair: The crisis. Yes. We should have let at least provided more financial penalties, even if we weren’t gonna send people to jail. I think the bailouts could have been less generous.

00:08:14  I am still outraged that we let them pay bonuses at the end of 2009. So I think that was, you know, after giving ’em all this capital and then once they, you know, got the benefit of all these other programs and, you know, re stabilize themselves to enable ’em to pay that capital back so they could pay bonuses at the end of 2009 when the rest of the country was reeling in a recession. No, I think we could have been a lot tougher. So, but, you know, these things are all compromises.

00:08:40  And actually it was more with Tim Geer than Hank Pauls. And Hank and I could usually come to a common ground, and we did on issues where we started with different, different viewpoints. But yeah, I mean, I think there is a perception of some that they were kind of, the Wall Street was the center of the universe and the heartthrob of the economy, and we needed to take gender living care with it and all of that. And we need to do something.

00:09:04  I’m not suggesting we shouldn’t have provided some stabilization measures, but we didn’t have to. I think we really went overboard. And, and I do regret that, and I think people are still mad about it. I think a lot of the polarization that we have today stems from the, the perception on Main Street that not only did we bail these guys out, but we bailed them out very generously.

00:09:21  Barry Ritholtz: I, I, I couldn’t agree more. Let, let me shock listeners by saying, I think President Trump got something right, almost accidentally by taking a piece of a company like Intel. My, my big complaint during the bailouts were, Hey, if you’re gonna give these publicly traded companies a bailout and not send them to bankruptcy court, well great. Take 40% of the company Yeah.

00:09:49  And promise to sell it back to the public markets within a decade. Right. And it would’ve cut the cost of bailouts substantially and would’ve hurt existing shareholders and management who made a Yeah. Who helped create the whole disaster.

00:10:06  That’s

00:10:07  Sheila Bair: Exactly right. Yeah. No, I think that was, there was, we did a little bit of that, but not enough, because I think there was just a visceral reaction against being too tough. So

00:10:18  Barry Ritholtz: When the alternative is that those, that Hansen building down town with the tall columns and the judge who basically says, okay, you’re now in receivership. Yeah, yeah. Like, when you look at

00:10:30  Sheila Bair: The next,

00:10:31  Barry Ritholtz: I know the next best alternative is your toast. Oh, okay, we’ll give up 40% at a substantial Exactly. Discount and stay live to fight another day.

00:10:39  Sheila Bair: I, I couldn’t agree more. We were, they were looking, their baseline was what, you know, how these companies that operated before they got into trouble. And my baseline was, you know, bankruptcy was the alternative. We did, but it was uneven too.

00:10:51  So we put Fannie and Freddie into conservatorship. Right. And maybe they should have been put in bankruptcy too, but they were the, the, the statute provided for conservatorship where they still, you know, language still. So they, they got punished pretty well, and they didn’t, you know, we were still getting, well now they’re, they’re allowed to keep their capital, to build a capital base.

00:11:08  But the government’s made quite a bit of money since then from that a IG poor a IG, you know, they were, it’s my, they were effectively put conservatorship by the Fed and, and finally emerged from that. But, you know, there was an unevenness too with the way some of those entities were treated versus, for instance, a Citi group, which Right. You know, what else can we do to help you Citi group? I was, it was

00:11:30  Barry Ritholtz: For the third time. Fourth time. Yeah. Third times.

00:11:32  Yeah. Yeah. They’re like every generation, they’re back. They’re back with their hat in hands.

00:11:36  And they, again, we need a few billion. Right.

00:11:40  Sheila Bair: I’m, I’m, I’m rooting for, but you know, historically you knows that he is gonna be back.

00:11:44  Barry Ritholtz: So, so I, I’m kind of fascinated by, over the course of your car career, you have spanned three distinct cycles of deregulation. Right. So we had Graham Leach Bliley. Right.

00:12:00  Which certainly was a major factor, right. That led to the GFC. Yes. It was, we have the entire Dodd-Frank deregulation of, of the decade, the past decade, and then everything that’s Yeah.

00:12:19  Like all the carve outs and, and then most recently Yeah. Reducing the amount of net cap in reserve that Yeah. Banks have to hold that.

00:12:27  Sheila Bair: Yeah. That’s, that’s ongoing.

00:12:30  Barry Ritholtz: So, so why do we keep having these crises? Yeah. Is it structural? Is it the American political system?

00:12:35  Yeah. It seems like we’re constantly repeating these cycles over and over.

00:12:38  Sheila Bair: Yeah. Yeah. Well, we are, and deregulation was a big part of the crisis. Nobody wants to say that.

00:12:44  Or just lack of regulation. The Fed and Bernanke and Greensman of both said this. The Fed had the authority to write lending standards, mortgage lending standards for the entire industry. Problem is, most of these mortgages are being originated by non-banks.

00:12:57  Right. The banks were funding it. Right. But they were providing the, the conduit funding to get ’em obs securitizations.

00:13:02  But the Fed had the power to, to stop that and just flat out fu Oh, we don’t wanna constrain credit. If I hear that once, I think those are, you know, Warren Buffet once said the most dangerous wor words in, in finance. Everybody else is doing it. I think it’s, we’re gonna expand access to credit.

00:13:16  I swear to God, because it is used as an excuse for so many terrible, terrible, did decisions.

00:13:21  Barry Ritholtz: Didn’t Greenspan say, we don’t wanna stifle innovation in the finance markets.

00:13:26  Sheila Bair: Well, that’s, those are the interest words too, right. I don’t wanna stifle innovation either, but it’s just used as an excuse. Oh. You know, like we got, we gotta reduce capital to get more lending out there.

00:13:36  Right. When I think, I would argue there’s too much lending out there already. We’re seeing all the cockroaches screwing out now. So, so yeah.

00:13:42  So it was, and derivatives that you said, Graham Leach Bly, they broke down the, it created these two big to fail institutions. It all got bailed out, but also derivatives, their basically decision was that nobody needs to regulate derivatives markets. The, the theory was, well, the big banks were dealers, the derivatives dealers, they’re regulated by the bank regulators. So we don’t need market regulation.

00:14:01  And that did not turn out so well because the thing about the mortgage crisis was there were hundreds of billions of, of, of mortgages going bad. But there were trillions and trillions of financial engineering on top of how those mortgages would, would perform. And that’s really what got us at the end of the day. Yeah.

00:14:20  There were a lot of mortgages that never should have been made, but the system could have absorbed those underlying losses. It was, it was the derivatives on top of that that really brought things down suddenly.

00:14:30  Barry Ritholtz: So, so let’s talk a little bit about finance. The world has really gotten kind of interesting in terms of, we’re still seem to be dealing with the echoes of the financial crisis. Yeah. We’re, yeah.

00:14:48  It’s amazing. It’s almost 20 years ago. And yet things like when SVB, Silicon Valley Bank and, and Signature Bank failed in 2003, people started to get concerned about systemic risk, even though these are kind of two minor, that was not,

00:15:05  Sheila Bair: Those are not systemic. It was

00:15:07  Barry Ritholtz: Reaction Yeah. Systemically important they to financial institutions. Yeah. They, and yet, in order to cover uninsured depositors Yeah.

00:15:16  Regulators,

00:15:17  Sheila Bair: Who are the richest people? Some among the richest people in the country.

00:15:20  Barry Ritholtz: Gee, I wonder if there’s, I wonder if that’s just a total coincidence or if some upset people made some phone calls.

00:15:27  Sheila Bair: Yeah, I, I was appalled

00:15:28  Barry Ritholtz: Because if your local credit union Yeah. Goes out Yeah. And it’s, and you’re

00:15:33  Sheila Bair: Yeah. You’re, you’re taking a loss if you’re an uninsured deposit or a community bank. Yeah, you bet.

00:15:37  Barry Ritholtz: But if you’re a Silicon Valley VC and you’re connected, you, you get

00:15:41  Sheila Bair: Stable coin issuer. Yeah. It’s like somebody, the Biden administration was doing everything they could to kill crypto on one hand, and then they bail out. One of the biggest, they the biggest stable coin issuers who had, what, a couple, two and a half billion or so of uninsured deposits.

00:15:57  You’re really irresponsible on their part to put that much of their reserves in uninsured deposits. But they were bailed out. I couldn’t believe it. I wrote a very strong piece in the Financial Times after it happened.

00:16:07  I th you know, it was just this knee jerk bailout, bailout, bailout. Right. Especially if they’re rich, powerful people. I don’t, I was just, I was appalled.

00:16:15  I’m still appalled. I was, it was, it was 200 billion. It was not systemic. It had good assets.

00:16:20  If they had, they should have tried to find a, a buyer quickly

00:16:23  Barry Ritholtz: And like Washington Mutual.

00:16:25  Sheila Bair: Yeah. So, but there was, I think nobody said this, but my suspicion is there is outta this Biden administration religious adversity to, to, you know, bank mergers and acquisitions. Oh, look, we can’t make banks bigger. So instead of quickly trying to market and sell it, they didn’t do that.

00:16:42  And, but if, even if they hadn’t, if they just put it into a bridge bank, they had good assets, they probably could have paid 85 90 cents on the dollar to Didn’t

00:16:51  Barry Ritholtz: Someone else come along, buy all the assets anyway. Yeah. Well, yeah. Yeah.

00:16:55  So the merger happened regardless,

00:16:57  Sheila Bair: But, but it cost, the FDAC was 17, $18 billion the deposit insurance fund. It was, it was outrageous. I’m, I’m still aghast that that even happened. And that, you know, and you know, that annoys me with my Democrat friends who pretend that the Republicans are the ones that are pro industry and pro bail out, and then they do something like that.

00:17:17  So, go figure.

00:17:18  Barry Ritholtz: Coming up, we continue our conversation with Sheila Bear, former chairperson of the FDIC, discussing regulation and deregulation in the modern financial system. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz.

00:17:50  You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Sheila Bear. She’s the former chair of the FDIC, which she helped steer through the financial crisis, her latest book, how Not to Lose a Million Dollars, aimed at Teenagers and helping them really understand the basics of finance. So let’s talk about something else that’s a potential issue.

00:18:15  Private credit has exploded in the past decade. It’s now over $2 trillion. And while we have all of these private, non-bank credit funds, they’re all being funded by regulated banks. Yeah.

00:18:29  Banks. Yeah. Is this just regulatory arbitrage? Yeah.

00:18:33  Sheila Bair: Well, it is in a not, but not in the way that I think the banks soundbites make it sound. So there’s, their soundbite is, is that the capital regulations are too onerous, much tougher than they are for these private funds, which is, the private funds are much less levered than banks. Right. Banks are, you know, on a, on a non-risk weighted basis, you know, bank, these big banks are operating with six 8% capital funding.

00:18:58  Right. It’s equity fund funding. So it’s not, it’s not like they’re, they have tougher capital requirements. The problem is these risk-based rules, and this is exactly what was going on in subprime two, the risk-based rules through the magic of securitization structures and quote unquote overcollateralization, you can lend to a private fund.

00:19:18  And the private fund will give you collateral. They’ll give you their loans and they’ll say they’ll be valued 150% of, of what your loan is. Right. So that you’re way over collateralized.

00:19:28  And if you do it that way, the capital rules will give you a very favorable capital treatments. You can use a lot of leverage increasing your return on equity with that by lending to the fund. If you make the loan directly to the highly levered business who the fund is lending to, you’ve got a very, very high capital charge. And so the argument is, well, you’re directly exposed to this highly levered business, so you know, you need to have it tougher than if you just lend the fund.

00:19:56  That problem is that you’re basically allowing banks to lend and fund indirectly, highly risky mortgages that they would not do or not be permitted to do, frankly, if they were doing it directly. And that’s exactly what was going on with subprime. These horrible unaffordable mortgages pedal to a lot of people who didn’t understand what they were getting. The banks were funding that through their, their were credit lines and their warehouse funding to, you know, provide the, provide the money to the originators packing about securitization and selling them.

00:20:29  And, and again, the capital refer required for that was much, much less than, than actually making a mortgage yourself and holding it. So it, it really is the same basic flaw in how the risk-based capital rules work. I would just say you can’t fund a mor a loan directly or indirectly that doesn’t meet prudent underwriting standards. ’cause what happens is the banks, from a societal standpoint, the banks are funding a lot of really risky loans that if they go bad, can have broader, bad adverse ramifications for the economy.

00:21:02  But they don’t look at it that way. And in point of fact, there are pending capital rules now that will make it even more favorable for these banks to be lending to these intermediary funds as opposed to lending directly. So that’s what’s driving this, not because banks have much tougher capital rules than, than private funds. That is not true.

00:21:20  It’s just that it’s, they can use more leverage to lend the fund directly than to lend the business

00:21:25  Barry Ritholtz: Itself. Here’s what the banks say, and I don’t necessarily believe this, but it, it, it’s not completely un unconscionable. They say when we were securitizing loans during the financial crisis, lending standards had been completely abdicated in all of these. No income check, no job check, just, yeah.

00:21:50  You know? Yeah, that’s true. Sign and pray. And then, oh, it’ll all come out in the, in the collateralization and the syndication.

00:21:57  Right. We’ll spread the risk around. Right. This is, hey, these are, we’re lending money to firms that have been in operation for 10, 20 years and names like Apollo and Carlisle and Blackstone who are trying to get a return on investment.

00:22:14  And this sounds a little familiar, you know, they would never put their reputations or their names at risk by doing anything too stupid. And besides the, the default rates have been really low and it’s highly spread out across sectors and geographies. Is that a fair argument or It,

00:22:33  Sheila Bair: It is a fair argument. And I’m not saying private credit is legitimate asset class. I I don’t, and I don’t think it’s systemic, primarily because you don’t have all this financial engineering sitting on top of it. I do think they’ve been making some really risky loans.

00:22:46  There are a lot of conflicts of interest involved since a lot of the private credit funds are affiliated with the private equity funds, they’re lending to the private equity portfolio companies. And this is a particular problem, actually. I, I’m more, I think this is an investor protection issue more than systemic issue. I really do.

00:23:03  And for sophisticated investors, I think private credit is absolutely a legitimate asset class. You know, gotta understand it’s not regulated. You don’t really know what the loans are worth. Right.

00:23:13  So there’s, there’s a big problem with getting a proper valuation on the assets. Not a lot of transparency for retail or even high wealth, high net worth individuals. There’s liquidity issue, right. The business model doesn’t really work unless most of the capital is locked in.

00:23:30  And, and frankly, there’s a re a lot of research questioning whether it really provides better returns. You know, the s and p 500 has been kicking it for, for several years now. Right. So, you know, so there, there are a lot of questions, but for sophisticated investors, you know, go forth and do it.

00:23:44  And it’s, I don’t think it’s systemic, but I do, and I do worry about these life insurance companies and the annuities because the, again, you’ve got private equity owned life insurance affiliate. You’ve got the private credit affiliate, you’ve got the life insurance affiliate lending into the private credit affiliate. You’re using these third party credit raters to make sure, you know, it’s all at arm’s length, but very incestuous. Yeah.

00:24:08  And that the BIS did a study about a year ago on this. And there others have taken a look at these valuations and they’re finding significant evidence of inflated values. So I, I do think we need to protect at the retail level. We need to, there need to be some not expanding access to this.

00:24:25  Barry Ritholtz: So you’re not a fan of private equity or private debt in 4 0 1 Ks? No,

00:24:30  Sheila Bair: I am not. As a matter of fact, I am not. You know what, if you wanna, there’s a pub, you, you wanna buy a stock in KKR, go for it. You know, you might check how it’s been forming.

00:24:38  I an actual, I don’t know how it’s been performing, but I’m just saying there are pub, if you really want exposure, there are, you know, publicly traded away BDCs. Now sure, there are publicly traded BDCs, there are public ways to do it. There are some funds, 40 ACT funds that do invest a small percentage in alternatives too. So there, there are ways now, but yeah, opening it up for, directly for retail, especially 4 0 1 Ks, to, to start, you know, loading up on this, on this asset class, I think is really problematic.

00:25:07  And I do worry that, you know, the, the, the, the plan sponsors, the fund sponsors, the 401k sponsors are gonna be getting the hard sell about, you know, putting this stuff into people’s 4 0 1 Ks. And I, and I, again, I don’t think retail, I know I don’t, I I don’t want exposure to it. I’ve read enough to make me really worried about it. So I think really sophisticated big institutions, which have traditionally been their investor base, they wanna do it fine, but no, it’s not right for retail.

00:25:35  And it, it shouldn’t be going into 4 0 1 Ks and I’m, yeah, I’m very worried about that.

00:25:39  Barry Ritholtz: And, and to put some numbers on what you had referenced about the performance, the median alternative funds doesn’t do all that great. No. Doesn’t, it’s not that diversified. No.

00:25:52  And it doesn’t outperform the s and p 500. Hey, if you’re lucky enough to get into a top decile fund Exactly. You, you’re gonna kill it. But it’s gonna take a couple hundred million dollars

00:26:03  Sheila Bair: Yes, exactly. To have access to that. Yeah. That’s, yeah.

00:26:05  The retail people are not gonna be getting the criminal LA crim on this. No, that’s, and that’s a huge issue. They’re gonna stuff the, the riskier stuff into the 401k.

00:26:13  Barry Ritholtz: It makes a lot of sense. So, so we’ve talked about everything, but too big to fail. Right. Which was a big part of the lead up to the financial crisis and how the fed, the FDIC, everybody dealt with it afterwards.

00:26:30  As an example, JP Morgan Chase now has over 4 trillion with a t Yeah. In assets. Can a bank that size be effectively regulated? Is is too big to fail the norm now?

00:26:44  Sheila Bair: Oh, I think so. It absolutely is. I mean, I, I worked hard in Dodd-Frank to come up with res, you know, to instill more, better authorities to put these large institutions into a resolution type process where you would impose that accountability. You could fire the top management, the boards and impose, you know, make the shareholders and bond holders unsecured creditors absorb the losses.

00:27:07  All the stuff we didn’t do during the crisis.

00:27:09  Barry Ritholtz: You mean normal bankruptcy rules?

00:27:11  Sheila Bair: Yeah, exactly. Yeah. It was, it was similar to the FDIC process, which is basically a bankruptcy process. And, and Title two, and Dodd-Frank, excuse Dodd-Frank provides for both the Title two mechanism, which is FDIC run and a bankruptcy process, a Title one process.

00:27:25  So the tools are there, but I don’t, I don’t think there’s any, I i I, I hate to say this, but I don’t think there’s any chance they’d ever use it. I really don’t. I think they’re gonna bail out again. They already, they already do.

00:27:36  They’ll, they’ll set up special lending facilities or ratchet interest rates down. You know, they’ll, if, if, you know, private equity, so actually I worry more about private equity than private credit because private equity funds are heavily exposed to software companies, which we don’t know how that’s gonna shake out. But there’s a quite a bit of concentration there is. So, you know, so, but if that sector gets into trouble, you know, the Fed will lend to the banks who can then lend the funds.

00:28:01  I mean, that’s, that’s just the way I think it works now. And I think a lot of the push for ev ever more deregulation, lower capital rules, is based on the assumption of the big bank lobbyist that they’re never gonna go down. There’s another kerfuffle, another problem. The fed’s just gonna open up the spigot again.

00:28:18  So, you know, why should they have to operate with all this capital when they can lower their capital and get much higher returns on equity? And I do think that’s, that’s the unspoken rationale, because it doesn’t make any sense otherwise. Because we’ve got a lot of uncertainties in the banking system right now to be lowering capital. Makes no sense.

00:28:37  Unless you’re just banking on a bailout if things get dicey.

00:28:40  Barry Ritholtz: Let, let’s talk about a financial crisis that really has gotten a lot of short shrift, given everything else we just discussed, which is the student debt crisis. Yeah. Yeah. We’ve seen just an explosion of student loans.

00:28:57  It was briefly and defaults, it was briefly put on pause during the pandemic. And right afterwards. I just saw a survey earlier today that said 83% of young people say this is a bad economy when by most historical measures, it’s a booming economy. Yeah.

00:29:18  Yeah. So, so how did we get here? Why is it so difficult to fix? What is a potential policy?

00:29:28  Solution to Yeah. The student debt crisis?

00:29:30  Sheila Bair: Yeah. Well, and I do, I think the headline numbers are, in this case shaped economy. I think the headline numbers can be, can be misleading. ’cause you gotta look at how, how that wealth is being distributed, of course.

00:29:39  But I think for student debt, I, I will give credit to the Trump administration in Congress. The, the BBB, the big beautiful bill, I hate that name, but it had some really important reforms to the student loan system. So they’ve dramatically simplified the repayment options. There’s now a standard plan and a one income based repayment plan.

00:29:59  They have imposed some accountability on colleges, which desperately needed to be done. And so it’s easy to kick colleges now with high default rates out of the, out of the loan system. They have gotten rid of negative amortizations. One of the, one of the frustrating things about student loan borrowers was that because in previous administrations, the repayment plans that were based on a percentage of your income were set so low that people were even, some of ’em were not, were paying zero because you had to earn a certain amount of money before, you know, a loan payment obligation even kicked in.

00:30:33  But what happened was, then they, for bookkeeping purposes or whatever, they would negatively amortize the loan. So all your unpaid interest was going into your debt principle and it was getting bigger and bigger. Just

00:30:43  Barry Ritholtz: Recapitalized.

00:30:44  Sheila Bair: Yeah, yeah. Forever. So even if you were, if even if you were making some payment, your got frustrated ’cause your debt was getting bigger and bigger. That’s all gone away with.

00:30:52  Now negative amortization has been abolished. Everybody has to pay at least $10 a month. I don’t think that’s unreasonable. If you got a loan from taxpayers, even if you’re struggling, you can pay $10 a month.

00:31:04  And then there’s, and then, so if you, and if that payment is so low, if you income driven payment is so low that you’re not covering your interest, the government will pay $50 a month to lower your principal. So, so long as you’re making at least $10 a month, your principal will go down each month. And I think this will be, it’s simpler and will provide better incentives to keep, make loan payments, keep up the loan payments, you’ll actually be able to see the principal going down. So I give credit, and in full disclosure, my son, who’s a fellow at the a EI was, was also heavily involved in this.

00:31:40  So he’s a chip off the old block though. We think a lot when it comes to student. Yeah. Simplification, more accountability.

00:31:47  And those are the things that this bill accomplished. So I’m, I’m hoping that this gets straightened up and people are having to pay now. But the transition to going from not paying for years, you know, and Trump did that too. We had this, what, three or four year long moratorium people are gonna have to pay now, it’s gonna hurt.

00:32:04  They haven’t made room in their budget for these lump

00:32:06  Barry Ritholtz: Payments. Well, $10 a month isn’t, isn’t,

00:32:08  Sheila Bair: It’s not huge. No, it’s

00:32:09  Barry Ritholtz: Not. Right. And if the government is kicking in 50, yeah. I mean, it’s not a ton of money, but it’s, no, it’s not, it’s not still, what, $600 a year?

00:32:16  Yeah. Yeah. Have we done enough to resolve the student debt crisis or no? What, what else can we do to move this along?

00:32:25  Yeah.

00:32:25  Sheila Bair: Well, I I do think there needs to be more accountability for colleges to assume some belong The schools themselves. Yes. The colleges themselves, because this is, this was, it was the classic misaligned economic incentives. So with the best of intentions, the Congress said, okay, and from now on, all the student loans can be made.

00:32:44  You know, pretty much all of ’em are gonna be made by the government. ’cause we’re worried the banks are not treating borrowers as well as they should. So we’re gonna be doing this. And then the, the colleges themselves will basically originate the loans.

00:32:56  So you apply to a college, and the college financial aid office will come up with a financial aid package, and they will calculate how much you need to borrow to go to their school. Well now what are their incentives? You know, they’re gonna get the money, right. Buying for a tuition room and board.

00:33:10  So they’re, they’re gonna get the money. They’re not on the hook if the student can’t repay the loan. So what do you think is gonna happen? And, and the the what happened exactly is you, you could have predicted it, inflation, you know, with tuition, you know, many multiples, what, you know,

00:33:26  Barry Ritholtz: 9% a year for 40 years, 50

00:33:28  Sheila Bair: Years for, for whatever. Yeah. So it’s crazy. Tuition is, as any parent knows or student knows, this skyrocketed become very unaffordable without borrowing.

00:33:37  And, but, you know, there was all this easy money. And the grad, the undergraduate is problem with the graduate schools. You know, a lot of young people then sold a bill of goods to get a master’s or a PhD because they’re unlike undergraduate loans. There is some caps on your federal loans, but no effective caps.

00:33:52  That’s been changed now too. There are some caps, thank goodness, on your graduate professional schools, you know, so somebody like me, oh, I’m gonna go get a PhD in philosophy so I can teach. Right? So I paid $300,000 to get my PhD in philosophy and get a job maybe paying 60,000 a year, some small college.

00:34:09  Well, that makes sense. But I think that’s happened to a lot of people. And, and I don’t think, you know, I don’t absolve the borrower either. They should have known better.

00:34:20  But the schools let this happen. These, these graduate professional schools can be real money makers. They are, the graduate schools in particular, real money makers for colleges. And the degrees are frequently do not enhance the earnings potential of the student.

00:34:32  Barry Ritholtz: So do you have any hope that students are, are in a better shape financially going forward? Or is this still very problematic and needs

00:34:41  Sheila Bair: More help? I know, I think things are getting better. And a lot of it is something else that Trump, the first Trump administration did, which Biden continues. And the, and the current Trump administration continues, is to publish postgraduate outcomes.

00:34:53  So you can go on college scoreboard now and put in a college and a degree that you may be thinking about it. And you can see what the graduates are actually making. And you can find out the graduation rate, you can find out the retention rate, you can find out all sorts of information that will tell you is that college graduating students and are they getting job good jobs after they leave? And so I think more and more parents and student advisors, high school, college advisors are using those tools are more calculators too, that are based on help you figure out how much you can borrow based on what your postgraduate income will likely be in that field at that college.

00:35:31  So there is more awareness. And then I think a lot of, you know, ironically this is coming back to buy a lot of the colleges now, because I think it got so expensive. People were starting to take a second look, well, do I really need to go to college? You know, for so long there was all this social pressure to go to college.

00:35:47  I was a college president. I’ve taught a university. I think it’s a wonderful experience, but it’s not for everybody. And you don’t have to do it.

00:35:53  And there’s no stigma if you don’t do it. You know, you might wanna go directly into the workforce, learn on the job, you might wanna go to a, a trade school. There are, you know, community colleges, you gotta be careful there too. But many of them provide really good, you know, education that’s less expensive and a shorter duration.

00:36:10  So I think students in their parents are also thinking more broadly that they don’t have to go to college. There may be other options available.

00:36:16  Barry Ritholtz: La last question about college and education. We have thousands and thousands of, of universities and colleges. Do we have too many? Too

00:36:28  Sheila Bair: Many? Yeah,

00:36:29  Barry Ritholtz: Probably do. I mean, are we gonna lose 10 or 20% of the college base over the next decade? Yeah,

00:36:35  Sheila Bair: We probably will. And I think the, the, the, the, the, the, the part of it that’s really, really struggling are the private liberal arts schools. And they, they became too pricey. And I, I think that’s sad because I used to be the president of one of those colleges and I think they do offer very special educational experience.

00:36:54  A very, you know, it’s, it’s, it’s more high touch. It’s more, you know, for some, you know, going to college when you’re 17, 18 years old can be pretty traumatic. You’ve never been away from home, you know, and so, so some students that small intimate college environment was a good option, but they’re really struggling now. And so I think we’ll still have them, but I think there’ll be a lot of consolidation there.

00:37:13  Hmm. And then it’s the weaker schools, you know, if they, they’re not proving their worth, they’re gonna, they’re gonna close probably, huh.

00:37:18  Barry Ritholtz: Yeah. Really, really fascinating. So you went from writing a crisis memoir for adults to totally the opposite direction, basic financial literacy for children. What made you decide to aim in between at yeah.

00:37:35  Young adults and teenagers? Yeah.

00:37:37  Sheila Bair: Well actually it was my editor who, you know, everybody, when I first started running the, the picture books, everybody said, oh, this is too, you know, elementary school children are too young for this. And they’re not, they absolutely. And the books have sold well, and, and they, they totally get it. But my, my publisher, everybody said, you need to write a book for teenagers.

00:37:54  And my publisher thought that was a good idea as well. And so I thought about it and I thought, yeah, because, you know, there’s more and more financial education being required in high schools. And I, I want, I’m concerned that as schools start offering these courses, that there’s, you know, good quality, accurate content. There’s a lot of people out there providing financial, you know, a lot of people on social media, a lot of curricula, you know, sponsored by industry groups.

00:38:19  And so I thought, well, you know, I’m gonna, I’m gonna throw my hat in here to try to provide some basic financial advice to teenagers as they’re entering adulthood. So that’s, that was the, I will have to say my, my publisher’s initiative, but I think it was a good idea and I’m pleased with the way they came book came out.

00:38:35  Barry Ritholtz: So, so I’m glad you brought up social media. Yeah. Gen Z and what’s the new generation after them? Generation Alpha.

00:38:43  Yeah. I, I can’t get someones generation. Jones is another one. I can’t keep up with it.

00:38:48  But they all seem to get a lot of financial advice from Instagram and YouTube. Yeah. And TikTok. Yeah.

00:38:55  Rather than, let’s say, more professional experienced folks. Right. How did that impact how you thought about reaching this age group and, and how did it shape the tone of, of your book? Yeah,

00:39:11  Sheila Bair: So it was, I did wanna get some accurate information out there because there’s, and a a, a big theme of this book is, you know, I say in the introduction, building wealth is not hard. You need to establish a regular saving investing habit. You need to avoid debt. That’s really what you need to do.

00:39:29  And, and, but there’s so much advice that’s just the opposite. And especially on social media, it pushes debt. You know, well, why bother with a nice safe index fund? You can go borrow some money and buy a rental property and make way, you know, way more returns than No, no, no, no.

00:39:45  So, but there’s crazy stuff like that or, or borrowing to invest in crypto or mim stocks or, you know, gambling, you know, and their kids are getting confused about the difference between gambling and investing. They’re very different things. So I wanted to, to provide some correctives to that. And then just basically also address and flag common financial behaviors that cost people money.

00:40:07  Like carrying a credit card balance that I’m very open in my first chapter about my, I totally got in trouble with credit card debt. I was just, just graduated from law school. I was a civil rights lawyer, then. Didn’t know anything about finance, didn’t care, thought it was beneath me.

00:40:22  I needed to, you know, buy some clothes for work. I needed to get a, an apartment and furnish my apartment as I was getting all these solicitations from various credit card issuers who had found out that I was now, you know, working for a living somehow. So yeah, I got in trouble with credit card debt and I made that minimum payment and I thought, wow, this is great. I can borrow this money and it, this tiny little payment every month.

00:40:43  And I ended up, I think it was about $6,000 in interest when all of a sudden done,

00:40:46  Barry Ritholtz: Oh my god, that’s a lot. Well,

00:40:48  Sheila Bair: Yeah. Which if it invest in the s and p 500, it would be worth around 240, 200 $50,000 now. So there you go. So, but I think, you know, just avoiding things like that, the average family pays 1600 a year in credit card interest.

00:41:01  If that was just put into an s and p 500 index fund, boy, you know, over 30 or 40 years, that’s, you’re talking real money, huh. So that was, I I wanted to emphasize that is the simplicity of, of how to build wealth compounding opportunity costs are big themes. Those are, I think those are so fundamental to understanding how to manage money. And, but I basically, I just wanna help kids avoid mistakes.

00:41:23  I don’t want them to have financial problems when they grow up. I want them to get off on a, on the good, on the right foot, which I did not, and a lot of people don’t.

00:41:29  Barry Ritholtz: Coming up, we continue our conversation with Sheila Bear discussing her latest book, how Not to Lose a Million Dollars, A Young Person’s Guide to Avoiding the Tricks and Traps of Our Financial System. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio.

00:42:12  My extra special guest this week is Sheila Bear. She is the former chair of the FDIC. Her latest book is out How Not to Lose a Million Dollars, A Young Person’s Guide to Avoiding the Tricks and Traps of our Financial System. So, so you mentioned a couple of really interesting things that taken together.

00:42:34  Howard Linson runs a venture fund and he calls it the degenerate economy. Gambling speculation. Yeah, yeah. End of day options.

00:42:43  Mean stocks, crypto coins. Yeah. And all of these have been through, through apps and other Yes. Methods, yes.

00:42:51  Because of the phones have been adopted by teenagers en mass. What do you make of the DGen economy and what does it mean to the future health of, of these young adults? Yeah.

00:43:04  Sheila Bair: Well, it’s very dangerous and it’s particularly a problem with young boys. And oh, by the way, they shouldn’t be doing this if they’re under 18, but a lot of ’em, ours, we know they’re targeted and they, they don’t understand the, the worth of money. The, the apps just make it so easy and don’t, you know, they don’t make the connection between the financial losses they’re experiencing. It’s a game for them.

00:43:24  And, and the industry advertises. They, they do gamify it. So, and even, you know, stock trading, some of these online brokers are big ones. They, they gamify it and it’s not a game.

00:43:34  It’s, it’s serious money. Serious. And I think one of the things from early on, if parents give their children allowances, but tie that to work, I think it’s really important for kids to understand early on the connection between work and money. It’s not just free, easy, you know, ’cause too many kids don’t make that connection and their parents are generous with the credit cards or whatever.

00:43:56  And, and they use their credit card numbers to do all these gaming apps. And, and I just don’t think it, the reality of what these kids are doing actually sinks in until they’re really in over their head. And I think it’s purposeful. I think, you know, kids don’t understand the difference between gambling and investing.

00:44:13  Well, there’s a big difference. And you’re investing, you’re supporting capital formation and the real economy helping businesses who make real goods and real services raise money and operate or supporting the secondary market that enables all of that. And what are you supporting with gambling or crypto? I mean, some crypto to the extent it, it represents the technology, I think crypto technology is, is very valuable.

00:44:36  But these, these, these, you know, these different currencies and tokens that have nothing

00:44:41  Barry Ritholtz: Behind them, you can call ’em shit coins.

00:44:42  Sheila Bair: That’s what they’re, how I call ’em shit coins. ’cause that’s, that’s nothing behind them. I’m amazed that Bitcoin is held up. I think it’s just, you know, it’s kind of the, the granddaddy of ’em all.

00:44:50  So if you’re gonna invest, most people do a Bitcoin ’cause they’ve, they’ve heard about it and the rest of it is crap. But Bitcoin may be too, but it has lasted. I will give it that. But yeah, I mean, what are they supporting?

00:45:02  And they’re losing money. You know, there’s a, there was a study done of gambling apps that showed that the people that use gambling apps, only 5% take out more money than they put in. And it’s addictive in these, these gambling platforms. If these, even if you start winning, well wow.

00:45:18  Oh, you’re doing great. Here’s a little money, why don’t you keep going? You know, they want you to keep going until you start losing money. ’cause the yard are, you will always lose money.

00:45:25  And Bloomberg came out with some great research recently on prediction markets. 75% of the profits, I believe are going to 1%

00:45:32  Barry Ritholtz: Of the users. Less than 1%. Yeah. Less than 1%.

00:45:34  It’s crazy. It’s so less money.

00:45:36  Sheila Bair: The whole game is rigged. Well, even active trading of stocks, very few people can do that and make, make money consistently

00:45:42  Barry Ritholtz: Over time.

00:45:42  Sheila Bair: Yeah. And you’re gonna be going against people who do it for a living, have a lot more access to data and expertise and, you know, algorithms and all the things, all the tools you’ll not have when you try to actively trade

00:45:53  Barry Ritholtz: Stocks. So, so this is kind of fascinating. I bet most people don’t know how much of a passion project this has been for you so long. I’m not, did I read this correctly?

00:46:04  You established the financial education division within the Treasury department early. I did

00:46:08  Sheila Bair: The Office of Financial thousand early education early in 2001. Yeah, yeah, yeah, yeah, yeah. Well I did, I still, I established the Office of Financial Education and it’s grown now. It’s in the treasurer’s office now.

00:46:17  And I think they held, they held, they held a group, it’s called fl and it’s basically a, a council of all the different financial education components of the various different regulatory agencies. And it’s a good group. Yeah, I did start it. That’s, that’s one of the things that got me interested in I, and actually my first book I was, was pre-crisis, was Rock.

00:46:37  Rock and the Saving Shock. It actually came out in 2006 because based on that experience, it inspired me to start writing kids books. ’cause I became aware that there really weren’t any resources for elementary age schools.

00:46:48  Barry Ritholtz: So, so how not to lose a million dollars covers basics like savings accounts, right. Student loans, debt avoidance. Right. And retirement planning it.

00:46:55  Yep. It kind of raises a question, why aren’t we teaching our kids financial fundamentals at the grade school level? Yeah. Why, why is this not just part of civics and Yeah.

00:47:07  Sheila Bair: Yeah. Well it can and should be. I mean, I, I think there’s a big movement now to have a standalone high school personal finance class. But I think is good.

00:47:16  But it really, it needs to be more than that. It needs to be, every year it needs to be introduced. And, you know, math curriculum is an, an obvious place. ’cause I think it makes ma it will make math more interesting to kids if you do use money examples, right?

00:47:29  So you wanna learn about ratios and percentages. Let’s talk about compounding and how much your money grows at four percents a year, whatever. So it, it does need to be introduced every year. And, and again, that’s one of the reasons my books are, I mean there’s supplements to curricula.

00:47:44  I don’t write educational curricula, but there’s certainly could be assigned readings to go with those, those classroom efforts. And I think that’s important and the kids get it. They’re interested in it. They absolutely get it.

00:47:54  They’re not too

00:47:55  Barry Ritholtz: Young. One of my favorite parts of the BBB was the new newborn accounts. Oh,

00:48:03  Sheila Bair: It’s Trump accounts.

00:48:04  Barry Ritholtz: Yeah. The baby bonds, which Corey Booker started talking about, drawing a blank on the name of the venture capitalist who suggested something like this years ago. But it’s only a thousand dollars to every newborn in an investment account. Yeah.

00:48:18  Yeah. I Is this a good start? Is this gonna help kids learn about money? Yeah.

00:48:23  Yeah.

00:48:24  Sheila Bair: It absolutely is. It’s, I think, you know, it’s only for, there’s a three year period where children are born within this three year period we’ll get the thousand dollars. But it, it can be matched by employers. A lot of employers who

00:48:36  Barry Ritholtz: We’re hearing already, Dell and JP Morgan and a bunch of big employers. And they’ll do a a thousand dollars match. Exactly. And the assumption is this’ll be renewed after three years.

00:48:46  Sheila Bair: I, I hope so. I hope it is. I’m, you know, I’m kind of a fiscal conservative when it comes to our deficits, but I think this is a good way to spend the money. ’cause it goes directly, you know where it’s going.

00:48:56  You know, it’s helping. And it is, it’s a wonderful way to learn about the power of compounding. Congress mandated the, the money has to be invested in broad based index funds, which is good. Right.

00:49:06  I, you know, or we’d be seeing crypto and mim so, or whatever, right. So that’s, that’s good. But you can see over time how it’ll grow. And I hope, you know, when they’re 18 they can, they can take it out.

00:49:15  But I hope they leave it there and it just converts into a regular, i a at that point. But it’s, it’s great. It’s a wonderful financial educational tool as well as some additional financial security for low income families and their children.

00:49:27  Barry Ritholtz: So let, let’s talk about another aspect of money that’s so different today than it was when we were kids. Money is effectively invisible. Yeah. Credit cards, apps, buy now, pay later, subscriptions, all that.

00:49:42  There, there have been studies that have shown that if you give people a pile of cash to spend or a credit card loaded with the same amount, they spend more with the credit card than with actually paying, you know, greenbacks, which says a lot about the psychology of, you know, modern spending. It does. Yeah. So, so how do you, how do we recognize that and how do we teach kids the value of a dollar?

00:50:10  It’s, it’s, it’s really a challenge when you, you just tap the card and it’s magic.

00:50:15  Sheila Bair: It’s, it’s not real money. It’s funny money. Yeah. Well that’s what, you know, I think it’s important to attach an allowance to jobs.

00:50:23  I think helping kids make the connection between having to work and earning money is really, really important. ’cause the parents are too generous. They let ’em use their credit card. So that’s, they start getting that easy usage.

00:50:33  And if they’re using their parents’ credit card, they’re not having to, it’s not causing them any pain to spend money. So I think the parents can control a lot of this, but the, the kids need to understand the connection between earning money and spending money. And if they make that connection, they will be more judicious and careful with their money because they realize how dear it is because it took that $10, took an hour of their life, raking leaves or whatever, you know. So I, I think it’s, it’s important to make that connection and financial education understanding.

00:51:03  You know, I have a chapter on, I spend a lot of time on credit cards. ’cause I think it is a, an early trap for a lot of families and a lot of kids because it’s just so easy. And bnm PL is the same thing. B-M-P-L-I don’t like it.

00:51:15  Barry Ritholtz: Buy now, pay later,

00:51:16  Sheila Bair: Buy now, pay later. The whole idea is to facilitate impulse buying. Let’s face it, you know, you’re using BMPL when it’s really beyond your budget to buy. You weren’t thinking about buying it.

00:51:25  You don’t really have the money now to buy it, but you really want it. And that’s what BNPL does. And they’re, you know, BNPL users a, a very high percentage of them. You know, first of all it’s not interest free ’cause it ends up going on your credit card ’cause you can’t pay it off.

00:51:38  So you’re just carrying the balance on your credit card or it’s coming outta your checking account and you overdraft and you get an overdraft fee. So it’s not really, they say it’s interest rate, it’s not for a lot of users’, it’s not really, it gets them in a financial

00:51:50  Barry Ritholtz: Trouble. When we were kids it was called layaway lay. That’s right. And you didn’t get the good or item, I tell you until you paid it off.

00:51:57  And you very much understood. Yeah, I gotta shovel more, more sidewalks or, or mom more lawns Yeah. If I want that bike or whatever it happened to be. Exactly.

00:52:08  Yeah. It, it was, this is the opposite lesson.

00:52:10  Sheila Bair: It is. It, it totally is. And I, you know, so I think it feeds a lot of overspending. I think impulse, I, you know, kids are making decisions and decisions more impulsively.

00:52:21  I mean, they don’t have the same impulse control adults have. And, and I think you know it, people know that, retailers know that. Commercial entities know that. So they, they try to encourage them to make snap decisions to, to buy something.

00:52:35  And it just, it’s so important. I, I have a rule, wait a week when my chapter I’m budgeting about buying things. Just wait a week. You know, there’s some things you have to buy your needs, like your rent or whatever.

00:52:44  Right? But if, if it’s your wants, first of all, don’t buy any want that’s not within your budget. And even if you do wait a week, you know, just don’t buy it on impulse. Wait a week, come back to it.

00:52:54  You really wanna, or not? When I go into grade schools and do readings, I, my common question is, raise your hand if you’ve ever bought something you wish you hadn’t bought. Every hand goes up. Every hand goes up.

00:53:05  Yeah. Every hand goes up. It’s amazing. Yeah.

00:53:07  Already, you know, at seven years old, they, they’ve got buyer’s remorse. It’s usually junkie toys. What,

00:53:11  Barry Ritholtz: What I, speaking of junkie toys, when there’s a car I fixate on. My little hack is I’ll buy one of the die cast models and put it on my shelf. So for 60 bucks, I like, alright. I feel like, all right.

00:53:27  I, I have a little experience in this car. Yeah. And after a few weeks, it’s like, all I have the toy, I’m good. I don’t need to spend a hundred thousand dollars on another stupid thing for the garage.

00:53:38  Well,

00:53:38  Sheila Bair: That’s right. There’s a, there’s, there’s a chapter on buying a car too. I just bought a by a, I just bought a car, actually, a used car. I didn’t wanna, they, they proceed so fast, it’s gonna be second car.

00:53:47  But this, this, I couldn’t believe it. I mean, I knew this, I’ve had experience in the past. It’s been a while since I bought a car. He was trying to upsell me with everything.

00:53:54  And now they’re trying to sell me, give me all these service contracts. So would increase the price of the car by about 25%. It’s just, it’s just unbelievable. They’re, you know, kids wanna buy cars.

00:54:04  They want their own cars. That is such,

00:54:05  Barry Ritholtz: Such erritory. I I don’t think that’s true anymore. Anymore.

00:54:08  Sheila Bair: Maybe not,

00:54:09  Barry Ritholtz: Not a lot. A lot of kids aren’t getting licenses. They can uber wherever on mom’s urban. I think that’s true.

00:54:14  Yeah. Right. And it, it’s, there seem, although there is a renaissance of kids buying, let’s call ’em 20-year-old analog as opposed to digital cars with stick, with stick shifts, really. Like there’s a whole generation of new car enthusiast coming up.

00:54:34  Yeah. That I, I think a stick shift today is an anti-theft device because, you know, nobody knows how to drive. You bring it to a valet, they look at you, you go to a restaurant, they’re like, would you mind pulling it in over there? Yeah.

00:54:46  Okay. Nice.

00:54:47  Sheila Bair: That’s funny. But it’s really true. It, and it’s good because, you know, cars are expensive. The average monthly payments, well, like 700 a month, you know, for a young boy party,

00:54:56  Barry Ritholtz: It’s a thousand dollars a month is not uncommon on a lease. Yeah.

00:55:00  Sheila Bair: Well

00:55:00  Barry Ritholtz: Lease. And kids don’t understand why, Hey, no down payment. Yeah. Well, yeah.

00:55:05  But no, no residual at the end, you have the back. Right. It’s just the cost.

00:55:10  Sheila Bair: It’s exactly right. Yeah. So it, yeah. It’s really expensive for in person to buy a car if they can avoid that.

00:55:15  Barry Ritholtz: So, so I only have you for a few more minutes. Yeah. So let me jump to my favorite questions. I ask all my guests.

00:55:22  Starting with, tell us about your mentors who helped shape this Yeah. Career you’ve enjoyed through academia, finance, and government. Yeah.

00:55:31  Sheila Bair: Well, Bob Dole obviously stands out. He was really, he, he really taught me what public service meant. And he was always focused on the public interest. He was a populist in the good sense.

00:55:42  You know, he was from a small rural town in, in Kansas. He was horribly injured during World War ii. Laid up for years. The townspeople rallied, supported him, got him back to health.

00:55:52  Helped him become who he became. So he was really, he really focused on, on the public. And I learned that. And I think later in my career and at the FDIC, we, we kept that focus on the public, the people who are using the banks, not the banks.

00:56:06  Who are we helping? Were we helping the people who use banks? So I, I’m proud of that. And I learned a lot from him.

00:56:12  You know, later I got to know Paul Volker. I learned a lot from him. I, Paul Paul. Yeah, that’s right.

00:56:19  Elizabeth Dole was someone, I never really had a chance to work with her, but I knew her through, through the Senator Bob and had maintained contact with her over years. Another woman who inspired me, not a mentor, but Senator d O’Connor, the first woman, Supreme Court Justice, when I was on the Judiciary committee, I got to handle her confirmation. And she was just a lovely person. So a lot of people I’ve met over the years, but Dole really stands out as, as my, my prime supporter and, and mentor in my career.

00:56:48  Hmm. Yeah.

00:56:49  Barry Ritholtz: Let, let’s talk about books. What are you reading now? What are some of your favorites? Yeah,

00:56:53  Sheila Bair: So I love murder mysteries. I’m reading Anthony Horowitz’s new book, A Deadly Episode. I mean, if we an know Anthony Horowitz, he’s a British mystery brother. I

00:57:02  Barry Ritholtz: Know the name. Yeah. My wife is a fan of those. So she, yeah.

00:57:05  Sheila Bair: Well, she burns through those. Yeah. He’s quite prolific. Yeah.

00:57:07  Right. He, he was the young, he, he was actually chosen by the Ian Fleming estate to continue writing. He’s written two. They’re really good.

00:57:14  Yeah. I actually like

00:57:16  Barry Ritholtz: Tofl owned by Amazon.

00:57:19  Sheila Bair: That’s right. That’s right. So, so yeah. And then I’m reading John Hershey’s Hiroshima.

00:57:25  My family and I are going to Japan at the end of the month. And I wanted to, I’m dying to go take them. Yeah. Yeah.

00:57:29  And I, the kids kind of bought, I said, we’re gonna go to Hiroshima. ’cause I think that’s an important part of history. You need to, we need to see this and, and understand it. And I read Hiroshima when I was young, you know, probably, you know, high school.

00:57:41  Right. I think when it came out and, and it had such an impact on me in so media again. And it still has an impact on me. And especially everything going on in the world now.

00:57:49  And other countries, even Japan talking about wanting to have a nuclear capability because things just don’t seem very unsettled on that score right now. So that’s, those are my two. I usually have two books going. One nonfiction and one fiction.

00:58:02  Barry Ritholtz: So yeah. So I’m gonna recommend a book to you. Okay. It’s just really kind of fascinating.

00:58:06  An American who’s a professor somewhere in, in the uk, Brian Klaus with two As. And the book is called Fluke. And the book starts with this story of a young couple honeymooning in Kyoto. Later in life, the husband becomes the head of the war department.

00:58:29  And when we have to figure out where to drop the abo, he absolutely vetoes Kyoto And Hiroshima is what gets, is what gets true because this couple went there for a honeymoon. Oh, that’s really interesting. That country, that city is spared. And then it wasn’t supposed to be Nagasaki, it was in, I don’t remember what city it was, but there was cloud cover and they couldn’t, back then you were doing visual reads.

00:58:59  Right. You couldn’t see. So they went to the secondary target. Yeah.

00:59:03  And so think about, talk about flukes. Yeah. How random things are. Yeah.

00:59:08  So Hiroshima gets it because somebody went there on a honeymoon.

00:59:12  Sheila Bair: On a honeymoon. Just crazy. Well, and now you look back and why did any city get it? Couldn’t you drop it over the ocean or something?

00:59:17  You wanna make a point? I mean, really. I don’t, it’s hard for me, me to understand now. I know.

00:59:22  And that’s just, you know, we are not there at the time. There was a lot of

00:59:26  Barry Ritholtz: The psychology during

00:59:27  Sheila Bair: War time. Yeah. So different. And the Japanese had been, everybody had been horrible, but the Japanese had done some brutal things.

00:59:33  Well, for

00:59:33  Barry Ritholtz: Centuries.

00:59:34  Sheila Bair: Yeah. Well, okay. All right. Speak

00:59:35  Barry Ritholtz: To speak to China. Korea. Not I’m, no, no. I’m a big fan of Japan.

00:59:42  Yeah. But no, but they were quite a, they in China Ruthless Empire

00:59:45  Sheila Bair: For a long time. Yeah. Yeah. So there was a lot of, so I understand that.

00:59:49  And I think, well, maybe the horror of it when, you know, and the, and I think that’s why John Hershey’s book was so important. ’cause it really underscored the horror of it. But maybe because people then understood how horrible it was, it made it even less likely every anybody would ever use it again. I’m gonna, I’m gonna rationalize it that way.

01:00:05  But it is hard. You know, you look back and, oh my gosh, did we really have to do that to people? Because it was, it was not just the people who probably were killed immediately were the lucky ones. Oh yeah.

01:00:14  The radiation sickness after the horrors

01:00:17  Barry Ritholtz: Slow up. I think I signed that same book in, in high school and

01:00:20  Sheila Bair: Everybody read it. Yeah.

01:00:21  Barry Ritholtz: And plowed through it. And it was just,

01:00:23  Sheila Bair: It was, yeah. No, it’s very well written. It was. Yeah.

01:00:26  Barry Ritholtz: Let, let’s shift to, are you streaming anything these days? You listen to any podcasts? I don’t. Or watching anything.

01:00:31  Yeah.

01:00:32  Sheila Bair: I don’t stream or podcasts that much. I get podcaster, I like to read transcripts of podcasts ’cause I can read a lot Faster. Faster. That’s what I can listen

01:00:39  Barry Ritholtz: Faster. Yeah. How, how about Netflix or HBO or anything like that? Yeah.

01:00:42  Sheila Bair: You know, again, I’m, I’m, you know, one note on this murder, BBC, I’m there, you know, I love the murder mystery box box. Yeah. The, all the, all the agathe IES I’ve seen in the, the David Che prose are by far the best. Foils war was great.

01:00:58  Also, Anthony Horowitz, the, he did a, the, the,

01:01:02  Barry Ritholtz: They made it into a series or a movie.

01:01:05  Sheila Bair: Which one? The Foils War. Foils of War. Foils War.

01:01:07  Actually, that was, that was a TV series. It wasn’t a book. That was one of the few things. But it’s, it’s, it’s, it’s really good.

01:01:13  I like the, the Morse. You know, have you ever watched Morse Inspector Morse? No. That’s, that’s so famous.

01:01:19  Sounds me familiar. It

01:01:20  Barry Ritholtz: Used to be on PBS at one point.

01:01:21  Sheila Bair: Yeah. Yeah. It’s old. But there were three Morse and then Endeavor, which was about Morse when he was younger.

01:01:27  And then Lewis, who was Morse’s sidekick. So BBC did a really good job there. So yeah, these are old stuff. I recycle ’em.

01:01:33  But yeah, I, I love, I love BBC and I love British. I love British Redbox. Excuse me. I love

01:01:38  Barry Ritholtz: Our final two questions. What sort of advice would you give to a recent college grad interested in a career in banking or finance or government service?

01:01:50  Sheila Bair: Yeah. Well, I would say be open-minded, because I think the job market is, you know, we don’t know. AI is kind of having a negative impact on entry level white collar jobs. So they’re need to be thoughtful about that and how to navigate that.

01:02:05  So I think you need to be open-minded. But preferably, if you have options, you know, pick, pick a company that has a good culture. I, you know, ask them how they think about their customers. Right.

01:02:17  If they’re an investment firm and they talk about them like, Muppets, you probably don’t wanna work there. But if they talk, talk about them as

01:02:24  Barry Ritholtz: I remember Muppets

01:02:25  Sheila Bair: Mpe. Yeah. Just to mention an example. So I think, I think it’s important, any business actually, whether it’s finance or any real economy business, how they think about their customers and treat their customers.

01:02:36  ’cause I do think long, long-term success is based on having a mutually beneficial relationship with your customers. So I would, and, you know, just the work ethic and, but, and again, keep an open mind. Sometimes things you weren’t even thinking about come up and they turn out to be really, really good job choices.

01:02:52  Barry Ritholtz: And our final question, what is it that you know about the world of banking regulations, government service, financial industry today might have been useful to know way back when, when you were first getting started. Yeah,

01:03:07  Sheila Bair: I thought about that. Markets, right? Not personal finance, but market. Clearly credit card debt

01:03:14  Barry Ritholtz: Go whichever way you want.

01:03:15  Sheila Bair: Yeah. Well, compounding was something I did or did not understand in credit card rates. That

01:03:20  Barry Ritholtz: Comes up surprisingly

01:03:22  Sheila Bair: Frequently. Yeah. Yeah.

01:03:22  Barry Ritholtz: So because it’s not intuitive.

01:03:23  Sheila Bair: Yeah. No, it’s not. And the, the daily compounding is, you know, it, it, it backs up pretty quickly, I think for markets, financial markets and investing in particular. I, I’ve actually done pretty well over time.

01:03:35  I was, my grandmother gave me a thousand dollars when she was getting later in life near her death. And she didn’t have much, but she wanted to give my sister and I something. So she gave me a thousand dollars and told me to put it in IRA. That was back when IRAs had just gotten started.

01:03:50  And with my dad’s self, I put it in the contra fund. It’s worth a lot of money now. Right. So I, I’ve made some lucky I’ve, I’ve stuck mainly, I’ve picked a few stocks, but I’ve picked mainly diversified index funds of various sorts.

01:04:03  And I wish I’d understand better about being brave during the dips though. You know, I think I usually, I, I, I buy and hold, so I don’t, I don’t sell when the market’s going down, which is the worst thing you can do. But I think I would’ve been a little more courageous buying in the dips,

01:04:15  Barry Ritholtz: You know, buy, buying more into, into weakness. Yeah. Yeah. Well, well, Sheila, thank you for being so generous with your time.

01:04:21  As always, a delight. We have been speaking with Sheila Bear, former chair of the FDIC, author of the new book, how Not to Lose a Million Dollars. If you enjoy this conversation, well check out any of the 600 we’ve done over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts.

01:04:44  I would be remiss if I didn’t thank the crack staff that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer.

01:04:59  I’m Barry Bri Holtz. You’ve been listening to Masters in Business on Bloomberg Radio Video.

~~~

The post Transcript: Shelia Bair, former FDIC Chair appeared first on The Big Picture.

In this guest post, relationship marketing expert Bill Cates discusses how financial advisors can get more 'unsolicited' referrals from clients (though this process is by no means 'passive') and increase the chances that those who are referred would make good-fit clients.

To start, clients tend to make more referrals when they feel strongly about the value they're receiving from their advisors. Notably, there are opportunities to learn from both prospects and clients about what part of the advisor's value proposition sticks out to them. For instance, an advisor might ask a new client what 'tipped the scales' in their decision to move forward or ask an existing client during a review meeting what they like about their working relationship with the advisor.

In addition, clients are more likely to become advocates for their advisors when they experience a transformation as a result of financial planning. For instance, through cash flow management, an advisor might be able to show their client that they can do and have things they previously thought weren't possible.

Further, advisors can be proactive in educating clients to increase the chances of receiving good-fit referrals. For instance, letting clients know who the advisor serves best or for whom the advisor's processes are best suited can lead to better-fit matches (also, having a client niche and/or ideal client persona can make it even clearer to clients who the advisor serves best).

While an advisor might be hesitant to directly ask for a referral they can still plant referral 'seeds' in a less direct manner. For example, they might encourage clients to "share the experience" or (particularly if the advisor has a sense of humor) tell a client "don't keep me a secret". Also, to relieve potential concerns clients might have about making a referral, the advisor could assure clients that they will handle their (and the referred individual's) information confidentially and that referrals work best with a warm introduction (e.g., an email "handshake" from the client connecting the referred individual with the advisor and letting each party know a little more about the other).

Ultimately, the key point is that because client referrals can be a powerful source of organic growth for advisory firms, taking the time to discuss the value clients are receiving, finding opportunities for client 'transformations', and educating current clients on the types of individuals the advisor serves best can be worthwhile investments that result in more high-quality introductions (while reducing potential awkwardness in the process!).

65 percent of high-net-worth clients prefer to meet their advisor via referral. Without a reliable process to generate those referrals that turn into connections, advisors could be missing out on qualified prospects. However, many advisors are hesitant to ask for referrals, instead hoping current clients refer their connections unsolicited. The question becomes, how can advisors increase the chances of receiving unsolicited referrals?

Unsolicited referrals happen because an advisor has become super referable. The client experience and the client-advisor relationship has to become remarkable, i.e., worthy of remark.

Unsolicited referrals that turn into introductions and connections happen because of the advisor : how they intentionally build advocacy based on the principle of borrowed trust. (You borrow the trust in one relationship long enough to earn your own. You ' repay ' that borrowed trust by taking great care of your new relationship.)

Some advisors have intentional processes that lead to referrals without asking. Too many advisors wing it when it comes to referrals. I'm here to tell you that wishing and hoping is not a plan.

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My guest on today's podcast is Liz Miller. Liz is the founder of Summit Place Financial Advisors, an RIA based in Summit, New Jersey, that oversees approximately $300 million in assets under management for 37 client families.

What's unique about Liz, though, is how she has grown her firm in part by both offering a high-touch service model for her high-net-worth clients and by serving their children and grandchildren, creating continuity for the firm as family wealth passes between generations.

In this episode, we talk in-depth about how Liz attracts her high-net-worth clients not necessarily through traditional financial planning analyses (as most of them run little risk of running out of money) but rather by ensuring that no key planning issues fall through the cracks (saving the clients time and anxiety in the process), how Liz uses checklists to show clients that her firm is on top of key planning issues and to highlight topics that have been successfully completed, and why Liz starts her discovery meetings by allowing prospects to lay out any financial concerns that are on their mind (as they might not be able to focus as well on other topics if particular pain points are bothering them).

We also talk about how Liz brings up multigenerational planning conversations starting in the prospect phase (allowing clients to decide whether they want to bring their children into the fold or have her firm reach out), how Liz balances the benefits of intra-family communication about financial issues with the privacy obligations her firm has regarding each generation’s financial situations, and how Liz cultivates relationships with the next generation at different ages (for instance, helping individuals in their 20s get off on the right foot with saving and workplace benefits or supporting those in their 30s managing financial issues related to their children), building client relationships that typically persist after they eventually inherit their parents’ wealth.

And be certain to listen to the end, where Liz shares how investing her high-net-worth clients’ assets in individual securities allows her to offer tax and expense savings compared to a fund-based approach, why Liz expects clients to continue to seek out human advisors in a world of growing AI capabilities given human advisors’ ability to physically ‘be there’ for clients facing complex planning issues that require communication with multiple professionals, and how Liz has found significant benefits from participating in professional organizations (including serving as chair of CFP Board), both in terms of building a strong professional network and to help advance the financial planning industry as a whole.

So, whether you’re interested in learning about providing more effective multigenerational services, building the trust of high-net-worth prospects and clients by not letting tasks slip through the cracks, or the benefits of participating in financial planning organizations, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Liz Miller.

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Tennis great-turned-philanthropist Roger Federer delivered the Commencement address at Dartmouth on June 9, 2024. The eight-time Wimbledon champion gave pointers on how to win at life. Federer received a Doctor of Humane Letters degree at the Commencement ceremony.

The post Roger Federer at Dartmouth 2024 Commencement Address appeared first on The Big Picture.

This week, I speak with former FDIC Chair Shelia Bair. We discuss the release of her latest book “How Not To Lose A Million Dollars” and the importance of financial literacy across age groups. Bair also discusses her concerns about crypto, gambling, and the rise of Buy Now, Pay Later.

A list of her current reading is here; A transcript of our conversation is available here Monday.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Vimal Kapur, CEO and Chairman of DJIA component Honeywell International. The firm is in the midst of dividing into three companies: Honeywell Automation, Honeywell Aerospace, and Solstice Advanced Materials. The firm has fully integrated AI as the intelligence layer in all of its automation processes and products.

Authored Books

Current Reading/Favorite Books

Books Barry Recommended

The post MiB: Shelia Bair, former FDIC Chair appeared first on The Big Picture.

The SEC has proposed allowing companies to move to semiannual earnings reporting.

On Monday, we discussed why eliminating quarterly earnings as a basic premise was a bad idea: it reduces transparency, increases volatility, and is likely to create a surge in insider trading, all while accomplishing little to move us away from the short-termism surrounding quarterly earnings at present.

In the future, I’ll do a deep dive into why this is such a bad idea.

For today, let’s go in the opposite direction and consider the best practices of some of the largest and/or smartest companies in America. They have been managing around this issue on their own, taken a variety of approaches regarding earnings, and have been applauded by their shareholders for how they conduct their business.

Here are some creative, innovative, clever ideas that have become best practices – even without being required to do so by the SEC.

Berkshire Hathaway: does not do a quarterly call at all. The Q1 results historically came out alongside an 8-K and a quick slide at the annual meeting. Buffett has used this meeting’s Q&A to add whatever color he wanted to the numbers. Greg Abel’s first quarter (Q1 2026) still produced a Saturday earnings release with no accompanying call, just the report. Given that he was selected by Buffett, it is hard to imagine that changing very much.

Costco: historically refused to provide forward guidance, and the call is famously short and unadorned. To keep their investors informed, the CFO does monthly comp sales updates. This has made COST’s quarterly calls mostly uneventful.

Tootsie Roll: Admittedly, BRK & COST are giant companies with unusually loyal shareholders. Let’s consider a smaller player: Tootsie Roll. Their Q1 2026 release was issued on April 22, 2026. The entire document is a one-page press release. It is filed as Exhibit 99.1 to an 8-K.

That’s it! Nothing else to see here, please move along…

No conference call, no webcast, no slide deck, no management discussion, no analysis – just the naked release itself. It does not include a balance sheet, a cash flow statement, or a segment breakdown. Chairman Ellen Gordon includes a brief narrative and a four-line summary table. Oh, and precisely zero forward guidance.

Other companies split the difference with pre-recorded calls. The Tisch family runs the Loews Corporation, and instead of a live call, they file a written set of “Earnings Remarks” as an exhibit to the 8-K in PDF form; again, they eschew the live Q&A format and provide no forward guidance. Google similarly pre-records the management remarks via a script recorded up to 48 hours ahead of time. Mark Leonard of Constellation Software is openly disdainful of what he calls “IR theater.” The reclusive billionaire shares few speculative opinions beyond his shareholder letters. (He famously asked the board to reduce his salary to zero.)

Then there is Robinhood, which has reinvented what an earnings call looks like. CEO Vlad Tenev has said he is trying to “improve the branding of being a public company,” which is very on-brand for a brokerage app in an era when fewer and fewer companies are going public. (See, e.g., Q2 2025 Earnings Call, July 30, 2025)

They livestream the video on multiple platforms, including Tenev’s X account, in front of an in-person audience physically at a venue. The Q1 2026 call (April 28) was held outdoors at their Menlo Park HQ – it could be the first-ever outdoor earnings call in history.

Stock ownership is the entry ticket for asking a question – it is a mix of retail shareholders, “finance content creators, analysts, and institutional shareholders. Robinhood begins with the Q&A, via Say Technologies – Shareholders’ questions are submitted in advance and “upvoted” during the week leading to the call.

There are plenty of others: Tesla, Amazon, Opendoor, Netflix, Spotify and Palantir all come to mind.

The bottom line is that the SEC should encourage more information sharing, greater transparency, and more frequent earnings reporting — not less.

Allowing less information, rather than mandating more, is a step in the wrong direction.

Previously:
Artificial Intelligence and Quarterly Earnings Reports (May 11, 2026)

Report Earnings Daily (Bloomberg, August 20, 2018)

The post Good Quarterly Earnings Behavior appeared first on The Big Picture.

Also in industry news this week:

• A study finds that AI chatbots frequently give incorrect or incomplete answers to questions asked by high-net-worth clients, potentially putting advisors in the position of correcting assumptions of prospects and clients who use these tools
• By using alternative benchmarking assumptions, a study finds that the gap between investor performance in passive and active equity funds narrows significantly (while investments in actively managed fixed-income funds are found to have an advantage over those in their passive counterparts)

From there, we have several articles on tax planning:

• Five ways financial advisors can help their clients avoid tax penalties in the coming year
• How the information contained on 1099-DIV forms can help advisors craft tax planning recommendations that result in hard-dollar savings for their clients
• How the flexibility of tax withholding from retirement account distributions can help clients avoid tax penalties while keeping their money invested for longer and postponing tax withholdings until later in the year

We also have a number of articles on education planning:

• Why one financial planning expert isn't using 529 plans to save for his kids' future education needs, preferring instead to use taxable accounts
• Why 529 plans are more flexible and offer better treatment for financial aid calculations than certain other education saving alternatives
• A comparison of the pros and cons of 529 plans and Roth IRAs for college savings (and why it's likely not an either/or savings decision for many clients)

We wrap up with three final articles, all about travel planning:

• Airplane ticket prices have risen amidst a jump in the price of oil during the past couple months, though continued strong demand, amongst other factors, could mean elevated prices continue even if oil prices decline
• How to get the most out of a trip to the museum, from what to pack to how to avoid "gallery fatigue"
• An examination of AI chatbots' travel-planning capabilities finds that while they can recommend thoughtful itineraries, a human touch might be preferred for more a more bespoke travel experience

Enjoy the 'light' reading!

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I am hosting a few panels today at the Bloomberg Hedge Fund & Alternative Emerging Manager Forum.

We just did a version of this in San Francisco last month — these are always fascinating and informative. What makes these events so special is the Bloomberg special sauce — they have all the data needed to select the top-performing managers.

My views on Alts have only slightly moderated over the years: If you have access to a top decile fund, you should strongly consider it. As to all of the rest…

~~~

Here are the details:

New & Emerging Manager Panel
Discussion with new and emerging fund leaders about launching and scaling differentiated strategies, including AI use cases in investment processes and operations.

Featuring:

Paul Podolsky
Founder and Chief Investment Officer
Kate Capital

Michael Alfaro
Chief Investment Officer
Gallo Partners

Nadine Buckland
Founder and Chief Executive Officer
Zenzic Capital

Bloomberg:

The alternative investment landscape is evolving rapidly, with hedge fund managers navigating unprecedented market volatility, rising investor expectations, and accelerating advances in technology. The Bloomberg Hedge Fund & Alternative Manager Forum 2026 brings together senior leaders from hedge funds, multi-managers, family offices, and private capital firms for an afternoon of strategic insights, networking, and innovation.

As the lines between traditional and alternative investing continue to blur, this event will explore what it takes to stand out in today’s competitive environment—from launching a fund to scaling operations and embracing new approaches to data, research, and risk. Sessions will feature industry-leading allocators, emerging managers, and experts at the forefront of global macro strategy, AI innovation, and private markets expansion.

Should be fun!

Swing by if you are in town…

Previously:
Video: Bloomberg Hedge Fund/Alt Fund Manager (June 30, 2025)

Bloomberg Hedge Fund & Alternative Manager Forum 2025 (June 24, 2025)

Bloomberg’s Hedge Fund Forum 2024 (June 4, 2024)

The post Hedge Fund & Alternative Manager Forum 2026 appeared first on The Big Picture.

In this 190th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the tradeoffs between the emotionally intensive work of financial planning and the automative promises of artificial intelligence. For example, one of the promises of AI is that it allows advisors to have more client-facing time… but what is the upper limit of that effect? Increasing client-facing time from roughly 25–30% to significantly higher levels may not be desirable – or even sustainable – for many advisors. Beyond a certain point, more meetings do not equate to better outcomes, as the quality of advice and the advisor’s own well-being can deteriorate. In this context, optimizing for maximum efficiency risks pushing the profession toward an “assembly line” model that is poorly suited to relationship-driven, high-empathy work.

On the other hand, financial advisors have increasingly turned to AI as a potential solution to the industry’s widely discussed “talent shortage”, with the expectation that greater efficiency will allow firms to serve more clients at a lower cost. Yet this framing assumes that the core constraint is advisor capacity, rather than questioning whether the real issue lies in how advisors are trained, developed, and deployed. As firms rush to automate back- and middle-office functions, a deeper tension emerges: the same tools that promise to expand capacity may inadvertently undermine the very human capital pipeline the profession depends on.

At the same time, the push for efficiency raises critical concerns about the long-term development of talent. Entry-level roles – often responsible for the operational and analytical tasks AI seeks to replace – have traditionally served as the training ground for future advisors. Eliminating these positions in pursuit of short-term productivity gains may hollow out firms’ ability to cultivate experienced professionals over time. The result could be a paradox: firms solve for immediate capacity constraints while exacerbating future talent shortages by failing to invest in the next generation. This dynamic is already evident in hiring patterns that heavily favor experienced advisors, despite a lack of willingness to train newcomers internally.

Compounding this challenge is the nature of AI itself, which often performs best when paired with experienced practitioners who can validate and refine its outputs. While AI can generate recommendations or streamline analysis, it is not infallible. Advisors who have developed judgment through hands-on experience are better equipped to identify errors, contextualize advice, and apply nuanced decision-making. If future advisors are trained primarily through AI-assisted workflows without building foundational expertise, their ability to critically evaluate these tools may diminish. Over time, this could lead to a degradation of professional judgment and an increased risk of systemic errors that go unnoticed and compound.

Ultimately, the key issue is not whether AI can improve efficiency – it clearly can – but determining what firms are actually trying to optimize for. If the goal is short-term productivity or preparing a practice for sale, maximizing efficiency may be rational. However, for firms seeking to build enduring businesses, a more balanced approach is required – one that leverages AI to enhance, rather than replace, human development. By using technology to support training, deepen expertise, and expand advisor capabilities (instead of eliminating formative experiences), firms can position themselves to both serve more clients and cultivate the skilled professionals needed for long-term success.

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At The Money: Is SpaceX IPO Breaking Capitalism? (May 13, 2026)

Once upon a time, companies went public to raise money. Road shows, pitch decks, investor meetings — and eventually, you’d float some stock and IPO. That’s not the case anymore.

Full transcript below.

~~~

About this week’s guest:

Dave Nadig is President and Director of Research at ETF.com, and he shares with us how investors should navigate all of these new products. Dave helped design and market some of the first exchange-traded funds. He is the author of  “A Comprehensive Guide to Exchange-Traded Funds” for the CFA Institute.

For more info, see:

LinkedIn

Twitter

Substack

~~~

Find all of the previous At the Money episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg. And find the entire musical playlist of all the songs I have used on At the Money on Spotify

Transcript:

Barry Ritholtz: Once upon a time, companies went public to raise money. You’d go on a road show to pitch your story and drum up interest. You’d float a big pile of stock, and then you’re off to the races to go build your company. Turns out, that’s not really the case anymore. I’m Barry Ritholtz, and on today’s episode of At the Money, we’re gonna talk about the upcoming IPOs for trillion-dollar companies like SpaceX, Anthropic, and OpenAI.

Barry Ritholtz: To help us unpack all of this and what it means for your portfolio, let’s bring in Dave Nadig. He is president and director of research at etf.com, and he shares with us how investors should be navigating not only these IPOs, but what they’re gonna mean for various indexes, like the Nasdaq 100 and the S&P 500.

Barry Ritholtz: So, so Dave, you wrote a fascinating piece, and essentially you claimed SpaceX is breaking capitalism and indexing. W- what is exactly broken? Is it the IPO process, the index process, or both?

Dave Nadig: I gotta say I think it’s both. Sadly, I think it’s both. Uh, the IPO process I think most people can understand seems pretty broken, right? We now live in a world, uh, where, uh, the private equity space is where most of the growth in capitalism is captured, right? If, if I had a great idea, if Barry, if you and I were gonna just launch a company tomorrow, go raise a bunch of money and do something, we wouldn’t go to Wall Street. We would go to some private equity firm, and we would say, “Hey, we’ve got this great idea.” And they would say, “Awesome, give us 75% of your company for a couple million bucks,” and we’d be off to the races. And then when we need more money, we would go back to that same private equity person, who would probably connect us to their favorite private credit person, who would then loan us another $50 million for us to do the next stage of our business. And so on, until we’d accumulated so many shareholders, so many, so many mouths to feed, that if eventually we have to go public so that all those people can get paid. That is the reality of the modern IPO market, which works out pretty well for the private equity capital, but no longer really rewards the public as a public market the way it used to.

Barry Ritholtz: So, so let’s talk about that contrast between old IPOs that raised growth capital. You, you very much imply in, in your piece, “SpaceX Is Breaking Capitalism and Indexing,” which by the way, I stole that opening paragraph of, um, you, you very much imply that modern IPOs, uh, essentially exist to provide insiders and early investors with, with liquidity. So first, when did this shift occur? And second, is it an issue? Is it a structural problem?

Dave Nadig: Um, I, I think we can trace this back to pretty much every IPO since the g- the great financial crisis. I mean, I think any, any IPO in the last 15 or 20 years has followed a pretty similar pattern. We’ve seen this, the steady growth of the size of IPOs. They, they’re bigger and bigger and bigger companies. Now we’re talking about trillion-dollar IPOs. You know, when I went… In the dotcom era, the average IPO was about $120 million. That was the value of the company post-IPO, and the amount being floated averaged around 30 or 40%. So big chunks of these companies went public. People could assess them. They traded for a significant period of time, sometimes profitable, sometimes not profitable, and then they would end up in the hands of the public and in indexes, and that was a, that was a lengthy process. It took, you know, a year or two of being a public company for people to get familiar with you. That’s all sh- that’s all gone now, and so now what we have are these sort of headline-making IPOs of big companies, whether they’re, you know, a, a Klarna or a Reddit or now a SpaceX. Uh, and so everybody now feels like these are lottery tickets, that you wanna get in super early on the IPO, get some purported pop which no longer really happens, uh, and that that is your key to riches. Increasingly, what actually happens is the opposite. Companies come public. They trade down initially. Sometimes they ramp up. Tesla famously had a great first year after the initial sell-off. Um, so it’s not that all IPOs go this way, but it is no longer like the dotcom era.

Barry Ritholtz: So you mentioned SpaceX. People have described this company as kind of unique, in part because it involves commercializing space, uh, in part because Elon Musk still, despite the past couple of years, has a cult following, um, courtesy of, of his work at Tesla, uh, and then also because it’s just an immense valuation. Uh, what makes SpaceX unique or, or is it not unique?

Dave Nadig: Well, I don’t, I don’t want this to be about whether SpaceX good or SpaceX bad. SpaceX is unique for a bunch of structural reasons. It is already a multi-business conglomerate. It’s pretty rare we see a multi-business conglomerate come out as an IPO. That tends to be what you do after you IPO and start accumulating new companies. So inside the SpaceX wrapper, we’ve got Twitter/X, we’ve got Grok and xAI, which is increasingly now a data center story, I guess, and less a development of AI story. We’ve got the providing commercial internet, right? 9 million Starlink subscribers. That’s a very real business that makes real money. And then the near monopul- monopoly on at least, uh, United States space launch, uh, is, is, you know, virtually completely a monopoly now for SpaceX. So wh- whether that’s a great business or not, that makes it a bit unique already out of the gate. But more unique is how it’s coming to market. It’s only floating 5% of its stock, so 95% of this company will still be privately held after they float the IPO. And yet, despite that very, very thin float, uh, it’s getting accelerated entry into the Nasdaq 100 and is being considered for accelerated entry into the S&P 500. So we’re breaking all sorts of rules.

Barry Ritholtz: So, so let’s talk about the Nasdaq 100. Um, if you’ve been an investor in the QQQs as, as they’re known, uh, the Nasdaq-100 index ETF, you have done tremendously well over the past 15 years. Outperformed the S&P, outperformed just about every historical period, including the ’90s where the QQQs were just, you know, a giant home run, except for that little, you know, 83% crash at the end. Um, so, so what, what did Nasdaq do wrong in admitting SpaceX to the, the QQQs, and, and what should they have done instead?

Dave Nadig: Well, so what they did was over the spring they did what’s called a consultation, which is they go to all the people who actually pay for the index. I mean, important to point out, Nasdaq’s in a business. They license the S- the Nasdaq-100 to folks like Invesco to run the QQQs products that people know. And so they went out to all the people who licensed that index and said, “Would you be okay if we did this thing?” And everybody said yes, and so now we have new rules. What the new rules did was accelerate how quickly a company can get in if they’re very large, uh, to 15 days. It used to be six months. Um, and they’ve also, uh, changed how they think about the float. It used to be if you really floated a very thin amount of stock, they just wouldn’t consider you at all. Now at 5% float, they’re going to pretend that your float is 15% or 3x, just because of reasons. Uh, and, and then over time as the float increases, as shares come off lockup and more shares trade, that will ramp until, uh, 33% of the fund, the company is floated, at which point it receives full weight in the index because the Nasdaq-100, unlike most other indexes, is not free float adjusted. So normally if they didn’t do anything and they let SpaceX in, it would come in at 1.75 trillion. Instead it’s gonna come up at 15% of that when it finally launches, and then that will increase with every unlock. The percentage that the funds need will go up, and so it creates this kind of ramp that as more shares come out, there’s more guaranteed buying, which I gotta say feels like bag liquidity for the insiders.

Barry Ritholtz: What, what motivates them to do this? I mean, what harm would befall the index or the IPO or, or Nasdaq generally if they waited the six months that they’re supposed to wait for every other IPO?

Dave Nadig: I mean, basically none. The only argument you can make is that by having SpaceX in the ETFs, in the index itself, that people will be more attracted to that index, and therefore people will put more money in those funds, and ultimately that’s what people really care about. They want money tracking those funds. From a performance perspective, it’s not like every human being on the planet won’t be able to buy these shares the day after it IPOs. There’ll be a pr- I think if you wanna go buy 100 shares the day after the IPO, there’ll be a price-

Barry Ritholtz: Or the day of the IPO. You don’t even have to wait till the day after.

Dave Nadig: Right, there’ll be a price. Anybody will be able to buy it. So it’s not like it is this rarefied thing that can only be bought through this index. It’s gonna be everywhere. It’s gonna be like Apple stock. It’ll be easily tradable all over the world. So all this is doing is guaranteeing that existing money that is tracking that index will have to sell a whole bunch of other things in order to buy this new slug of SpaceX, which will be something like seven-ish billion dollars on that one day that they have to buy it all. So they’re just gonna be a big whale buyer in the market on one day. Uh, guess which way the price will go. Honestly, who knows, because who’s… Everybody knows this, so it’s gonna get front run.

Barry Ritholtz: So do you buy it the day-

Dave Nadig: Uh… before this? Do you wait until after this? It’s gonna be one of those get the popcorn moments in markets.

Barry Ritholtz: Is this an attempt to get ownership of SpaceX in an index before the S&P 500?

Dave Nadig: Sure. Uh, it’s, it’s a chance to build a pool of assets with a s- with, you know, a reasonable weight before the rest of the index world has piled on. Although we should point out Space, uh, S&P is now considering accelerating their rules too to include a company like SpaceX after six months. Not nearly as egregious, and the S&P has a committee that could say no, and they c- they always free float weight everything, so even if they did let it in early, it’s only gonna be in at 5% of its no- nominal real value.

Barry Ritholtz: Right. Yeah.

Dave Nadig: So what could happen in the S&P is much less dramatic, thankfully, than what could happen in the Qs.

Barry Ritholtz: So really this raises the question: Is this just a one-off, a one-time technical distortion, or is this gonna be a recurring tax on index ownership for people who don’t wanna play the IPO game, don’t wanna play the stock picking game?

Dave Nadig: Well, historically, I should point out the academic research would suggest that getting IPOs into your index earlier is bad for the in- in- the investor who’s standing there before the transaction. So, um, oddly, Vanguard’s CRSP indexes from the Chicago Research Center for Pricing, um, those indexes have, some of them are accelerated to five-day intr- induction after the IPO, and there’s been a study around that, and it says that’s kind of a bad idea. You’re very likely to, to be buying the pop and then sort of sitting on a long, slow decline back to what becomes some, you know, market value, market fair value. But the index tends to be the top tick. I think it’s very easy to create a scenario where you could see something like that in the queues as these IPOs get added. But again, given that everybody knows precisely when the trade’s gonna happen, which is market on close 15 days after the IPO, you’re probably gonna see the ramp up well before that because everybody’s gonna try to be the one selling into that index buying.

Barry Ritholtz: So how do you solve this problem? Is it simply a matter of adjusting this for the full float? “Hey, you’re only gonna put 5% out. Great. That’ll be reflected in, uh, in the waiting.” Or do you just follow your existing rules in terms of how soon we add an IPO, uh, to the index after it goes public so SpaceX has to wait the usual six months?

Dave Nadig: Well, y- you know, the question is w- the should here is for who, right? As an in- as an investor, as a lowly end investor, what this is doing is creating more differentiation between indexes than we have previously seen, right? So we’re gonna look at the world as it is now. Well, now the queues, the W- NASDAQ 100, is for sure the hyper IPO, get everything in fast, get every- get everything in big. As long as it’s listed on NASDAQ and it’s not a financial company, you’re gonna get it in the queues, and so that’s gonna be the go, go, go index. S&P is somewhere in the middle. They’re, they’re sort of trying to acknowledge this reality of the broken IPO market and maybe do things a little sooner. I would say most investors can probably ignore most of that because they’re adults in the room. And then institutions, I should point out, aren’t playing with any of this stuff. They all use MSCI indexes, right? And those have very static rule books that are very carefully adjudicated, and nobody’s even talking about MSCI changing their rules about this stuff. So what this means is we’re gonna have much more differentiation between what passive means, and as an investor, that means you can no longer just say, “I’m indexed, I’m fine.” You’re gonna have to have an opinion.

Barry Ritholtz: Huh, really, really fascinating. I, I’m, I’m deeply concerned about the everybody-knows massive buying clo- uh, on close for, for SpaceX. What does this mean for price discovery? What does this mean in terms of distorting the true, um, uh, demand and supply relationship?

Dave Nadig: Uh, it’s, it’s hugely distortive. Um, and the problem is that normally what you could say is something like, “All right, we’ll let this transaction get out of the way, and then things will calm down, and then everything will be… And then we’ll find out what prices really are.”

Barry Ritholtz: Mm-hmm.

Dave Nadig: Like when natural buyers and sellers actually show up in the market and have to think about it. The problem is that implies there’s some future s- time when we can say things are now normalized. N- I would usually have said something like, “Ah, three to six months things will settle down,” ’cause in markets three months is a long time. But I should point out, six months after this IPO, we get two things happening at the same time. Traditionally, when a lot of stock unlocks-

Barry Ritholtz: Mm-hmm.

Dave Nadig: …right, 180 days is a very common unlock window. And second, Nasdaq’s gonna have to rebalance the index again. And if those things time perfectly, we’re gonna end up with a bunch of shares unlocking, meaning the fligh- float might go from, say, 5 to 15%. At the same time, Nasdaq will have to take their exposure from 15% to, say, 45%, because they’re gonna be 3x whatever the float is on that rebalance. So we’re gonna have the exact same problem all over again as shares unlock and the index rebalances.

Barry Ritholtz: I assume the 3x was just for the thin IPO float. If that goes to 15% or 25%, it’s 3x again? That seems kinda silly.

Dave Nadig: Until it, until it hits a third, at which point obviously you’re at 100%, right?

Barry Ritholtz: Right.

Dave Nadig: So but that’s, that’s the w- it, it happens linearly, but as float unlocks, three times that amount gets added to the index until-

Barry Ritholtz: Why? What’s the motivation for that?

Dave Nadig: Because the N- Nasdaq-100 has never been free float adjusted. Now, it hasn’t usually mattered because nobody really cares that Nvidia is 95% float and Apple is 92% float, but the index has always just included them at 100%.

Barry Ritholtz: Right, which makes sense.

Dave Nadig: It’s only a, it’s, it’s only a problem when it’s very, very small, so what historically there’s been is a floor. If only 10% of your shares are floating, you don’t get to play at all. That’s what they’re getting rid of to replace it with this sort of weird multiplier effect.

Barry Ritholtz: It seems like, you know, we’re talking about, uh, an index, it seems like this isn’t a passive decision, and it’s coming from the folks at Nasdaq are making a very-

Dave Nadig: Active bet.

Barry Ritholtz: Hey, this Elon guy with Tesla was a giant win, and S&P was late to the party adding them. Let’s not make the same mistake with SpaceX. Is, is that the thinking?

Dave Nadig: Yeah, I, I think that’s exactly what’s going on. Uh, it, it will for sure be a marketing tool for the index, certainly if SpaceX tears out of the gate, which with all this buying, m- you know, is more likely now, right? Definitely puts some tailwind behind the s- price of the stock when you have these known buyers. That’s gonna just take some time to roll through. And, uh, look, I, I think it makes it a very active index. It already was. It has weird selections all through it, like non-financials, only on Nasdaq. It’s, it’s a bizarre set of rules. And, and now it’s got this weird timed trading thing that you just mentioned. I think this makes it very tough for anybody to think of this as a long-term buy and hold investment where everything will just work out in the long run. It’s now making some very active trading bets.

Barry Ritholtz: All right. So I’m gonna make you the philosopher king of index inclusion rules. What does that look like in terms of waiting period, minimum float, profitability, governance, um, a- and just do we have different rules for mega IPOs than regular IPOs?

Dave Nadig: I, I… If I was running the universe, if it was Dave Nadig’s index company, companies would have to trade for a year. They would have to have a year of trailing profitability, which is what the S&P currently has. They’re talking about getting rid of that, too. Uh, I, I, I would, I would free float adjust everything without question all the way down to nothing. Like, you can float 1% of your stock and you get a 1% presence. Like, I think that’s fine. And I would not count non-voting shares at all, period.

Barry Ritholtz: Huh. Fascinating, fascinating stuff. So for investors interested in the SpaceX IPO, there are gonna be a lot of trading anomalies around this IPO. It seems like the structure is very much, um, set up by Nasdaq and others to goose the price higher. If you’re a holder of Qs, well, maybe this has some impact around the edges. Um, some of it’s gonna offset, some of it could drive prices higher. But regardless, the IPO of SpaceX is gonna impact your passive index. I’m Barry Ritholtz. You’re listening to Bloomberg’s At the Money.

~~~

Find our entire music playlist for At the Money on Spotify.

The post At The Money: Is SpaceX IPO Breaking Capitalism? appeared first on The Big Picture.

My guest on today's podcast is Sara Grillo, a digital marketing specialist for financial advisors.

What's unique about Sara, though, is how she has identified several (perhaps counterintuitive) ways financial advisors can win more clients, including by talking less about their expertise and reducing 'friction' by asking less of prospects early on in the relationship.

In this episode, we talk in-depth about how Sara finds that financial advisors sometimes fail to connect with prospective clients because they put the focus on their services and capabilities (often using intimidating industry jargon in the process) rather than on what's keeping the prospect up at night, why Sara thinks that common phrases used on advisor websites (for example, serving as a "household CFO" or being a "boutique advisory firm") might confuse rather than attract potential clients, and how Sara finds that advisors can encourage prospects to take the next step (whether it's scheduling an initial appointment or becoming a client) by reducing 'friction' points along the way (for example by offering simple, shorter lead magnets and by limiting the scope of information requests).

We also talk about Sara's approach to content creation for financial advisors and how answering common questions for a firm's ideal target client can be an effective place to start, how Sara finds that if an advisor receives the same question three times in a given week or month that it could be a good candidate for a piece of content, and how Sara is less concerned that writing high-value, targeted pieces of content will cannibalize an advisor's business as prospects could likely access this information already (as many will be amenable to working with an advisor to save them time and hold them accountable on execution).

And be certain to listen to the end, where Sara shares how being more targeted with content not only can attract attention from both search engines and AI platforms but also can increase the chances that it's passed around members of the target community the advisor works with, how Sara's involvement in the advisory industry (including her previous experiences as an advisor) has led her to help found a movement dedicated to greater transparency in the financial advice industry, and how Sara has found that building community (both amongst peers and with target client groups) offers rewards in its own right in addition to the business growth opportunities doing so can provide.

So, whether you're interested in learning about the benefits for advisors of talking less and listening more when meeting with prospects and clients, generating productive content ideas by answering the questions an advisor's ideal target is answering, or the benefits of building an advisor community, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Sara Grillo.

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In this guest post, David Haughton, VP of Estate Planning at Carson Group, explains that although advisors may feel as though they already know a client's family well, that familiarity is often one-directional. From an heir's perspective, being thrust into the challenging situation of losing a loved one – and potentially being named executor or trustee – can make it difficult to build a personal relationship quickly and from scratch with an advisor. Nonetheless, there are several planning topics that naturally create opportunities for advisors to engage with the next generation, not only to build familiarity in advance of a future wealth transition, but also to add value for the existing client by helping heirs prepare for future roles and responsibilities.

For instance, education planning can offer an early touchpoint, as an advisor might bring a 529 plan beneficiary into a conversation to discuss how the account may eventually be used and to show how financial planning translates into real-world outcomes. Charitable planning can also create a meaningful participation opportunity, such as when clients invite children into conversations about giving values and allow them to help direct a portion of charitable donations. Similarly, smaller investment accounts can give advisors a way to discuss concepts such as asset allocation, risk tolerance, and time horizon in a lower-stakes setting, while trust and estate planning conversations can help prepare future fiduciaries for responsibilities they may eventually need to take on.

As those early interactions accumulate, they can create a foundation for deeper family governance conversations. And because clients might feel hesitant about sharing detailed financial information or estate plan specifics, advisors can frame those meetings not as exercises in disclosure, but as opportunities to prepare heirs for future decision-making roles. Which can help clients articulate intentions that might otherwise go unspoken while also increasing their confidence that their plans will be understood and carried out as intended.

Ultimately, the key point is that while estate planning and inheritance conversations can be sensitive, many advisory relationships already contain natural entry points for involving the next generation in meaningful ways. And when those opportunities are used intentionally, they can improve family dialogue, help heirs feel more prepared for future responsibilities, and strengthen both the likelihood of continuity after a wealth transfer and the value of the planning itself for the current client!

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A proposal from the current administration is working its way through the U.S. Securities and Exchange Commission to end quarterly corporate earnings.

This is a good idea.

Unfortunately, the frequency is in the wrong direction. Instead of replacing quarterly earnings releases with annual or semiannual ones, the SEC should be moving toward monthly, weekly, or even real-time earnings releases.

It’s counterintuitive until you experience it: more frequent reporting makes the data less significant.

Shifting from quarterly to annual doesn’t reduce the focus on short-term earnings management – it intensifies it. Think Christmas: If earnings come out only once a year, it becomes a huge event filled with hoopla and volatility. Even twice a year becomes a hyper-focused earnings-management festival.

The last time I addressed this was in 2018, during President Trump’s first term. As I exhorted the SEC:

“Report earnings monthly, with the goal of eventually moving to a near real-time, daily, fundamental update. Technology is improving to the point where business intelligence software and big data analyses will make this automated. Indeed, some companies already do much of this internally.” (emphasis added)

My frame of reference was the asset management shop I worked at in the late 2000s and early 2010s. I saw firsthand what the pressure of quarterly reporting does to a company that only issues its performance report four times a year. Regardless of whether we led or lagged the benchmark S&P 500 Index, the phones and emails would light up with questions.

That focus on the numbers every three months was an unhealthy obsession among clients and employees alike.

When we launched our firm in 2013, we worked with several partners (Custodians, Analytics, Reporting, etc.) to give every client real-time access to see exactly how they were doing, whenever they wanted. The only caveat we gave them: “You now have 24/7 access to see your returns, tick-by-tick — but please don’t, it will make you crazy.”

For the most part, this completely defused the hoopla around performance reporting.

The state of Artificial Intelligence today can do the same thing for the heightened focus on quarterly earnings reports for Corporate America. Back in the 2010s, Artificial Intelligence was in its “IBM Watson playing Jeopardy” era. We were pre-Claude, pre-Gemini, pre-ChatGPT, pre-Grok, and pre-Perplexity. Today, AI is something everyone carries around in their pockets.

This is not unknown territory. In 2014, the United Kingdom dropped its reporting requirements from quarterly to semi-annual; it saw no benefit. There was no increase in long-term investments after mandatory quarterly reports were dropped.1

Less frequent disclosure only widens the information asymmetry between insiders and investors; we will see even more insider trading as non-public information becomes more valuable. Price discovery will deteriorate even further than it already has. Instead of unpredictability, markets will experience regular tsunamis of volatility.

If we really want to end this sort of short-termism, companies should unilaterally stop giving guidance. The entire gamesmanship of beating last quarter’s company earnings guidance would come screeching to a halt.

The owners of corporate America, aka public shareholders, have the right to know how well the companies they own are doing. This includes basic information such as sales, revenue, and profits. The goal shouldn’t be to make public companies look like private ones. If anything, we should aim to generate more information about private and public companies so that investors can make informed decisions about risk.

This can be implemented gradually: the first companies that volunteer to move to monthly, then weekly, and then real-time are given safe harbor protection from the SEC (for a short period) against shareholder litigation. Eventually, over a 5-ish-year period, all companies move earnings reports to real time.

The recent blowups in private credit illustrate what happens when reporting is less frequent, transparency is lacking, and information exchange between those managing these firms and their owners or investors is highly limited. Private-credit managers, BDCs, interval/tender funds, and flagship private-credit vehicles have experienced notable redemptions, markdowns, defaults, and even portfolio blow-ups over the last couple of years. It is not a coincidence that these private companies report to their shareholders annually.

The idea of automating the process of reporting earnings in real time seemed fantastical a decade ago. Today, it is no longer unimaginable – it has become obvious.

Previously:
Report Earnings Daily (Bloomberg, August 20, 2018)

__________

1. Impact of Reporting Frequency on UK Public Companies by Robert Pozen, Suresh Nallareddy, and Shivaram Rajgopal

We studied the effects of these regulatory changes on UK public companies and found that the frequency of financial reports had no material impact on levels of corporate investment. However, mandatory quarterly reporting was associated with an increase in analyst coverage and an improvement in the accuracy of analyst earnings forecasts.”

~~~~~

AI DISCLOSURE: I wrote this myself. I used CHatGBT to generate the graphics;  Claude to research various proposals, and Google Gemini to identify issues with UK changes in earnings reporting

The post Artificial Intelligence and Quarterly Earnings Reports appeared first on The Big Picture.

In this guest post, advisor marketing expert Kendra Wright of Rebel Media Agency conducts a detailed "marketing funnel breakdown" of the changes that one financial advisor made to turn his multi-year podcast that had generated virtually no new client results into one that generated more than $100,000 of new revenue in just the past 12 months, and the specific changes that he – and any advisor – can make to whatever their marketing funnel happens to be, in order to drive better business outcomes.

The starting point is to recognize that education-based marketing is really a three-stage "funnel" process, where the actual educational content itself – the seminar or the podcast – is just the middle of the funnel. It's a crucial stage – where advisors demonstrate their competency and build trust – but a great educational podcast unto itself does not create new clients.

Improved results also require paying attention to the top of the funnel, where you earn the attention to attract attendees, viewers, or in the case of a podcast, listeners who will become regular consumers of your content in order to build trust with them. This means getting clarity on who your ideal prospects are (and what kind of content they would be interested in), aligning the title of the podcast and the titles of each episode to that ideal target audience, and then further expanding awareness to others who might be interested (which in the case of a podcast, means appearing as a guest on other podcasts that might have listeners who would cross over).

In addition, advisors also have to pay attention to the bottom of the funnel, where prospects are invited to actually reach out and learn more about how to become a client. Because especially in the age of "finfluencers", it's not automatic for video viewers or podcast listeners to even realize that you are a financial advisor who actually works with and accepts clients! That has to be said – more than once, with a clear statement of what you do (as a financial advisor), who you work with (e.g., retirees nationwide), that you're accepting clients (as they may not realize you have capacity!), and how to take the next action step to reach out and schedule an introductory call.

Ultimately, the key point is that marketing by educating is an incredibly effective way to build trust with prospects, but putting out great educational content alone doesn't drive results. Turning educational content into qualified prospects means paying attention to the top of the funnel to expand your audience, and the bottom of the funnel to help them understand that you're a financial advisor who is accepting new clients, and how they can begin to work with you. The good news, though, is that when it works well, you can quickly reach the point where there are more prospects than you can handle – such that ironically, for the most successful advisor podcasters, their scheduling form is built to introduce more friction to slow down how often prospects reach out (and ensure only the most qualified do so). A nice problem to have!

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The transcript from this week’s MiB Howard Lindzon, Social Leverage, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

~~~

Masters in Business with Howard Lindzon, Hosted by Barry Ritholtz on Bloomberg Radio

00:53  Howard Lindzon: Wow. If only my kids could hear

00:55  Barry Ritholtz: That. I know. They think you’re just an old man. They don’t even

00:58  Howard Lindzon: Know it. They wince.

00:59  Barry Ritholtz: Show, use the finger and ask for pity. Surgically reattached.

01:05  Howard Lindzon: Surgically reattached is a lesson of how lucky we are. What we’re you’re I’ve lived without a acute pain. Like first of all, when I, when I cut it off. It’s amazing how many people do do that.

01:19  Barry Ritholtz: Was it still dangling on or was it severed completely?

01:22  Howard Lindzon: You pick it up, you call 9 1 1 and you go As a Jew. I wasn’t sure if I boil it or freeze it. So that was the question I asked. 9 1 1. ’cause it’s never happened.

01:31  Barry Ritholtz: Well, as a Jew you were only supposed to take the tip off. Not

01:33  Howard Lindzon: The whole thing. I don dunno. If you cook it, I don’t know if you freeze it. It’s like lobster. So the woman on 9 1 1 said to Please don’t bleed out. I go, that is not helpful right now. Now as luck would have it, I live on Coronado. Good

01:48  Barry Ritholtz: Advice. Yeah.

01:49  Howard Lindzon: Out. Good advice. I’m like the one guy, hold on time. I call, write down, call 9 1 1. I go, let’s not talk. Get me a machine over to my house. Get me a robot. So living in Coronado is a magical place. You’ve been there couple times. And, and the great news about Corona is the Navy Bays, Navy Seals are there. It’s like the, it’s the greatest place.

02:05  Barry Ritholtz: They have a hospital right there. They

02:07  Howard Lindzon: Do, but I’m saying there’s cops and firemen everywhere.

02:11  Barry Ritholtz: Everywhere.

02:11  Howard Lindzon: Right. So literally as I’m dialing 9 1 1 IC it’s like they knew I cut my finger off. So, so as a miracle would have it. The the, the young. I’ve never really had to be in an ambulance themselves. Right. So, again, I’m lucky. And they took me off island ’cause they found a hand surgeon who turned out to be 30 years old, which freaked me out. Right. Because I thought he’d sew it on backwards or whatever. Right. Anyways, long story short, you know, I was at peace. Once you realize you’re gonna live. Yeah. ’cause it’s, I’ve never had that happen. Like, something like that happen

02:41  Barry Ritholtz: Was, were you gushing blood?

02:42  Howard Lindzon: Was it frightening? Yeah. Yeah. I, as a favorite of my wife, I went to the neighbors to bleed. So it was like the next day it was spotless in front of our house. Right. But as luck would have, everybody did a great job. The, the, the amazing thing, we make fun of so many things in America these days. The emergency system, I needed it. I don’t care what I pay in taxes. It was, it was amazing right

03:06  Barry Ritholtz: Now. And you still have 10 fingers?

03:08  Howard Lindzon: Yeah, I have 10 fingers for now. The joke in the family is, I don’t want it ’cause it’s kind of like a dead finger at this point. Oh

03:14  Barry Ritholtz: Really? Oh, will it be functional? Will you regain function?

03:17  Howard Lindzon: It feels like if I, if I’m using it, it just feels like a, a wet skin.

03:21  Barry Ritholtz: Right.

03:22  Howard Lindzon: And so I’m not happy, but the doctor was like, you can decide later. It was his, it was his

03:28  Barry Ritholtz: Fault. If you want a prosthetic or

03:30  Howard Lindzon: No, not a prosthetic. If you just want to work with a nub, it’s only a third of the finger. Right. So anyways, it’s, it was traumatic, but here we are. Wow. Alright. Yeah. There’s great stories. If you’re a storyteller. Yeah. Cut a finger off. I mean, if you want traffic on Twitter, bleed out.

03:48  Barry Ritholtz: Yeah. You, that’s, you get traffic. But no engagement. That’s the problem with Twitter. I wanna go

03:51  Howard Lindzon: Viral. I got nine chances. Well,

03:55  Barry Ritholtz: 21 if you wanna be accurate.

03:57  Howard Lindzon: Toes are not good in the operator. No fingers are good.

04:00  Barry Ritholtz: And 21, the 21st. No, go

04:03  Howard Lindzon: The 21st. You, you could be president.

04:07  Barry Ritholtz: So let, let’s roll back a little bit and, and start with your, your early education bachelor’s from Commerce University. Bachelor’s in Commerce from the university at Western Ontario.

04:23  Howard Lindzon: Yeah. It’s a famous business school for

04:25  Barry Ritholtz: Canada. MBA Arizona State and then famous

04:27  Howard Lindzon: For bums. Arizona State Business School. What does that even mean?

04:32  Barry Ritholtz: And then masters at Thunderbird School of Glen Global Management, which

04:35  Howard Lindzon: Was a great school now owned by Arizona.

04:37  Barry Ritholtz: Arizona State. And a great animated cartoon in the sixties and

04:39  Howard Lindzon: Seventies. Correct. Correct.

04:40  Barry Ritholtz: So, so what, given all that, what was the original career plan?

04:44  Howard Lindzon: Comedy? Yeah. I grew up

04:48  Barry Ritholtz: You and Martin Short, right outta Canada. Right.

04:50  Howard Lindzon: Not mine. He was already older. But I grew up in Toronto and that was, so when I was 75 watching Johnny Carson on my first tv, you saw everybody and it was like your living room. Right. And so it’s, Toronto had Second City. I had John Candy, Martin Short, Eugene Levy. Second City was before Saturday Night Live. And, and so I grew up just

05:11  Barry Ritholtz: Surrounding around the same time, weren’t they 74

05:13  Howard Lindzon: Little earlier. Yeah. Yeah. Three earlier. So I’m like 12 years old giggling, you know, and there was no internet. So you were like, go to the comedy clubs with your friends. Toronto had this clubs called Yuck Ys, which was a famous chain. Yes. Like the improv but of Canada. And you had Mike Myers,

05:31  Barry Ritholtz: Another Canadian. Yeah.

05:32  Howard Lindzon: Everybody exploding onto the scene at, at the same time. And so I was doing standup in high school, get out, but not good obviously. But Mike Myers would come, come up. Mike Myers would come up and kill. He was like 17 years old. Right. Jim Carrey’s. 14 years old. Right. And

05:49  Barry Ritholtz: Killing.

05:49  Howard Lindzon: Right. And so everybody wanted to be a comic. No different than like the Web 2.0. Everybody went to Stanford to be an engineer. Right. At certain, in nineties it was investment banking. Right now it’ll be robots and ai, it’s just what’s in the water. And I grew up with comedy in the water. And so that was the goal. And obviously, you know, with Jewish parents at the time, that ain’t flying. Right. Especially I wasn’t good. Right. And so I went to school.

06:15  Barry Ritholtz: You, you dropped that. You weren’t good as like an afterthought. I think if you’re successful and earning a living. Well I wasn’t even a Jewish parent will put up with you being

06:26  Howard Lindzon: Stand up. No, it would be nuts if

06:27  Barry Ritholtz: Warn like Jerry Seinfeld’s mom is fine with it. Yes.

06:30  Howard Lindzon: But I’m saying now, if my son came in and said I’m gonna go hit the comedy tour, I’d warn ’em how dark it is. But I’d say go make it. Go on YouTube. Like

06:38  Barry Ritholtz: Right. Go do you don’t to 10,000 hours. Don’t, don’t have to live in motels to

06:41  Howard Lindzon: Do 10,000 hours. Yeah. The faster you get those 10,000 hours and the better.

06:45  Barry Ritholtz: That’s right. So you grow up in Canada. Yeah. You start your career in Phoenix and San Diego and New York City. Yeah. I’m curious. That’s an interesting, you know, Toronto, Phoenix, San Diego, New York. Yeah. Yeah. How did that geographical upbringing affect your perspective as an investor?

07:06  Howard Lindzon: Oh, as an investor, I don’t know. Because as a, as a kid I was lucky. Yeah. Because if you’re Jewish in Toronto or New York at that area, you go to Florida, you know, the original Del Boca Vista. And, but my dad was different and he discovered Phoenix. And so in the eighties, like Phoenix was like swamp coolers. And he just liked the weather. And I don’t know,

07:29  Barry Ritholtz: I’ll let you on a little secret. The weather in Florida ain’t great. It’s humid. It, it

07:34  Howard Lindzon: It, well to my dad, obviously that’s the way he thought. It’s cold. It’s, yeah. So that’s the way he discovered Phoenix and bought a home. And I liked golf and biking. And so lucky for me, we had a, I went to, instead of going to Florida, we were going to Arizona. And so I would go to the football games as a kid and I was like a SU that was my dream giant is just, just, just go to Arizona State University. Which I ended up, you know, doing for grad school, which isn’t a great grad school, but it was party school. But that was my dream. Get outta Canada. Right. So I got lucky. I, you know, my parents exposed me to, you know, Arizona and I went to a SU at the time. It was amazing. And then if you’re Jewish in Phoenix, ’cause of the summers, right. It’s, it’s like New York goes to Florida in the winter. Jewish people in Phoenix go to this, go to San Diego in the summer to get out of

08:24  Barry Ritholtz: The right. They wanted, it’s closer to the ocean. It’s a nice weather. It’s

08:27  Howard Lindzon: Six hour drive and it’s 70 degrees.

08:29  Barry Ritholtz: And I love La Jolla and that whole area is amazing. So the whole,

08:32  Howard Lindzon: It’s called Zs. So Arizonans flood San Diego to to Del Mar. I wish. And so we grew up, Coronado not grew up, sorry, I I, my in-laws had a place in Coronado. And so when we had kids, I’m like, get out of the heat. If you’re not rich, you

08:48  Barry Ritholtz: Summered in Coronado.

08:49  Howard Lindzon: Yeah. We would, not summer, but a week here, A week there.

08:51  Barry Ritholtz: I wish California wasn’t six hours away if it was two hours away. A hundred percent. We were just in San Francisco.

09:00  Howard Lindzon: It’s fun again,

09:01  Barry Ritholtz: It’s a boom town. Yeah. Tales of an apocalyptic hellscape have been wildly

09:05  Howard Lindzon: Exaggerated. It’s, it’s still not my fa but it’s cool. It,

09:07  Barry Ritholtz: It’s less homeless than New York.

09:09  Howard Lindzon: Yeah. I’m not, I’m not just talking about homeless. The people are still,

09:13  Barry Ritholtz: They’re educated. Yeah. They’re intelligent. I mean if you’re, if you lose, if you’re

09:17  Howard Lindzon: Used, it’s not New York man, York City. It’s not New York. You

09:20  Barry Ritholtz: Could, you know, when you leave New York, I, I I I don’t know about you. I make a conscious effort to not be that New York abroad, even out of Yeah. It’s fun out of town. Yeah. California, especially San Francisco. San doesn’t feel like you’ve left town. I

09:41  Howard Lindzon: Love it. Yeah. I mean, I just have the California bug. Yeah, same. But coast to coast is a dream and I get to live it. So

09:47  Barry Ritholtz: It, it’s just a lot of travel.

09:48  Howard Lindzon: The thing about, and I do like Florida a lot, but same as you six hours like Phoenix or San Diego, Florida is like not on the map, no brainer. Right. It’s no, no one does it. Right. Like it’s not a thing.

09:59  Barry Ritholtz: Right. No. Phoenix to San Diego makes sense. Yeah. Phoenix to Florida, just like New York to Florida makes sense. Correct. New York to, so

10:07  Howard Lindzon: You asked, so you asked how that happened. Yeah. That’s the rite of passage. Instead of Toronto, Florida my whole life, I jumped to the West coast and then I discovered San Diego through my in-laws and my wife and man. Yeah. Well you’ve been to Coronado, it’s, oh yeah.

10:21  Barry Ritholtz: It’s ridiculous. Yeah. So let’s, let me, let me wrestle this. Yeah. Yeah. Back into submission. So you’ve worn a lot of hats. Yeah. You are a hedge fund manager, a founder, a CEO, a seed investor. A media personality. Yeah. How do you describe to people who don’t know you, what you do?

10:38  Howard Lindzon: It’s a great question. My in-laws are in their eighties and they, they still ask me, what do we tell people you do? And I’m like, who the hell cares? Well, and the world’s now decided that for you, no one cares. Right. So what do you do? Right? Like I think we’re getting back into like where it’s, it you should be proud to have like a, what do you call profession? I don’t have a profession. So you asked how I got started as an investing. I got started as investing ’cause I failed at everything else. And which is kind of the Larry David part of it is like, I stumbled into it because the internet is like water. It’d be like discovering California. Like internet was like tech. So the nineties were like, I didn’t understand it was semiconductors. Right. Were full circle. You’re

11:21  Barry Ritholtz: Not a coder.

11:22  Howard Lindzon: I’m not a coder. I don’t even know how things work. I never did Radio Shack. Right, right. Like, so the odd, I like walkie talkies were freaking me out. So the odds of me being in tech are, are, are part of the comedy full circle. We are now back in a tech world. Robots, chips, like real stuff

11:39  Barry Ritholtz: Global. They get a little secret. We never left. It just kind of fell out. Favor.

11:43  Howard Lindzon: No, I, I found the goofball era. Web two was the goofball era where you and I were social media. You could be the class clown and have scale. Okay, now that’s gone again and class clown. You, now you need to be a bully again. It’s, it’s, you need to already have distribution.

11:58  Barry Ritholtz: Right. It’s hard to build distribution today. So I’m

12:01  Howard Lindzon: Saying when

12:01  Barry Ritholtz: Being an early adopter is certainly an advantage,

12:04  Howard Lindzon: It’s super. But now it, it doesn’t matter. You have to have real tech chops. Again, you can’t pose like I am, like I have imposter syndrome for the right reasons. Right. Because I’m an imposter. Meaning the internet left a little opening in 2006 for goofballs. And we got to participate in an era of free growth. When Facebook didn’t charge you or have an AI algorithm that blocked you. You could say whatever you want. People go, he’s funny and you could scale for free. Which is why we had an internet boom. Web 2.0, internet boom right after the internet crisis. Now we live in an era where those people are confusing their genius for a bull market. Right. And we’re all sick of those people.

12:44  Barry Ritholtz: Can can I push back on you a tiny a little bit? Sure. ’cause I know you for so, so well, for so long hold the imposter syndrome aside. The early internet rewarded people who could communicate effectively, be it work your way through the media, be it blogs or short form blogs like Twitter or other social media or podcasts or video and YouTube. There’s a whole run of different ways to use the internet to scale. Yeah. So it’s not an imposter. You basically just kept tacking into what was working. Oh, this works. Let’s do more of it. Of

13:37  Howard Lindzon: Course. But the era was free. So you had the great financial crisis. No one thought effort, the internet was gonna happen. So meaning Uber couldn’t be possible without Google maps. Right. Like people say Uber’s great. It wasn’t possible unless there was an iPhone. The cloud

13:54  Barry Ritholtz: Maps or media five global

13:55  Howard Lindzon: Process, people would be taping, I want a taxi without Google Maps, no one would know where to go.

13:58  Barry Ritholtz: That’s right. And all of that only worked because of the bubble and the build out of global crossing and metromedia fiber. So I’m saying a thousand dollars a mile bought for pennies.

14:09  Howard Lindzon: No, but my imposter syndrome is born of, of course I have an ego, but my imposter syndrome was surrounded by crazy people who, who are mistaking. As I was talking to Tim O’Brien, if this was, we went from a world where strength matter, not that long ago world. That

14:24  Barry Ritholtz: A century world, not even a century, a world where

14:25  Howard Lindzon: This matters.

14:26  Barry Ritholtz: Right? No, you And

14:27  Howard Lindzon: I’m like, people just, the humility is gone. And I feel it’s with my kids and everything. It’s with the injury and everything. You have to have some humility. We need to get back to having some humility and laughing at our success and going, wait a minute, it was a bull market. Zero interest there erp, there was the free internet. Aws, right? You had YouTube, you had, if you d here’s my question. If you aren’t successful, that’d be more interesting. I want to talk to the guy like the Larry David commercial with FTX. I mean he is like, right. Oh, the circle who fire,

15:01  Barry Ritholtz: Who needs a wheel? Who

15:02  Howard Lindzon: Needs fire? That was such a great commercial. ’cause only Larry, David or f you know, I know the guys who wrote the commercial that what made that commercial great is Larry David gets the joke. Right?

15:13  Barry Ritholtz: You idiots. He’s in on it.

15:14  Howard Lindzon: You’re in on the fact that of course you made money, you worked at Facebook, it grew because the product was genius and tricked people into signing up. You did nothing except ride the the train. Now, I’m not saying smart people didn’t work there, but let’s remember Game of Thrones we’re all dead. The people that are successful today are Mark Andres and Shaman. The people that I can’t like, are hilarious to me. They have no humility is that Game of Thrones. There we’re all dead. First, second, first scene. Right. There’s a hammer in our heads and, and you and I might have a chance ’cause we’re the court gestures,

15:48  Barry Ritholtz: Right? That’s right. And

15:49  Howard Lindzon: If we dance well enough,

15:51  Barry Ritholtz: Dance with me Monkey boy. But

15:52  Howard Lindzon: Andreessen dead. Right? Jamag dead. Right. There’s just a pitchfork in their foreheads on the first scene of gladiators.

15:58  Barry Ritholtz: Well, if you, you know,

15:59  Howard Lindzon: So that’s the,

16:00  Barry Ritholtz: You have people like Da Vinci that were consultants to the king to help build weapons and things. So unless you can, you know, early days, days of Palantir. Unless you can say, sure. Hey, here’s how to make a better catapult. Sure. You know, those guys survive.

16:16  Howard Lindzon: So I’m saying I come along with like tweeting stock twits. Like, it was just enabling communication. Listen, I’m very proud of this stuff. Yeah. But I’m also can laugh about how stupid it is. Like I don’t have another trick. Like the internet left this opening. Kind of like discovering California, if you’re early to discover California made it pass the Indians and the mountains. Right? Didn’t get robbed by like

16:39  Barry Ritholtz: Murdered stampeded cash.

16:41  Howard Lindzon: Like right, let’s carry all our money in a stage coast pulled by horses at three miles an hour. What are the odds we get killed? Right. It’s impossible. So the internet left this opening and I snuck through it. And it’s fun to look back with some humor at the whole thing. You, you’re gonna let, I think the hole’s closed up.

16:58  Barry Ritholtz: Like Elon

16:59  Howard Lindzon: Owns the pipes. Zuckerberg owns the pipes. True social owns their version of a pipe. TikTok has an algorithm. How do you break

17:07  Barry Ritholtz: Through? Because those things get tired. And the next gen says, but there’s no scale. Just the way fa just the way Facebook became, oh, my parents are on Facebook. I’m out. I’m gonna go to Insta and then I’m gonna go to TikTok. And so there’ll be something new.

17:21  Howard Lindzon: You’re not questioning that. I’m just questioning. It’ll never have been e it’ll never be easier than when I made money. And I’m cool with that. I’m like, that’s the imposter

17:30  Barry Ritholtz: Syndrome. I don’t disa completely disagree with you. And you’re touching on a pet thesis. I love to ask, what would’ve happened to you had you been born a hundred years earlier or even

17:42  Howard Lindzon: Dad first

17:42  Barry Ritholtz: Seen, or even 25 years earlier. Right? Yeah. If you are born in 1940, what happens?

17:49  Howard Lindzon: I’m a furrier. Look at my ox mo

17:56  Barry Ritholtz: Beaver peltz. Look at my fur. I have all these beaver PEs.

17:58  Howard Lindzon: I have a, a cafe that has so many dishes on it that make no sense. Right. And I’m selling furs some, right. I mean, I had no shot. I have no

18:06  Barry Ritholtz: Strength. Right. Right. Just think about how fortunate you were. I cut my

18:09  Howard Lindzon: Own finger off.

18:09  Barry Ritholtz: Right? So if you didn’t bleed out your nine finger had forever. Well, but have watched to show the nick, you stick, you stick your finger into the fire and you ize it. That’s what the old timers would tell you. Get a bo get a piece of steel in the, in the fire. They’ll heat up the iron. You just burn it. And that’s your nine. All

18:28  Howard Lindzon: I thought about

18:28  Barry Ritholtz: Was like, Howie,

18:30  Howard Lindzon: What’s the, what’s the, is the ambulance gonna charge too much? And should I bleed at the neighbor’s house? Those were my first two thoughts. My wife will kill me that I’m bleeding in our yard.

18:39  Barry Ritholtz: Oh wow. Let’s do segment two. And I have to start by asking about social leverage. You’ve, you’ve been doing this for 20

19:30  Howard Lindzon: Years.

19:31  Barry Ritholtz: Yeah. So how from the first seed fund you did to today Yeah. Where you have a portfolio of 150 plus companies. Yeah. How has this evolved? First of all, what was the first company you invested in?

19:42  Howard Lindzon: So the first company I invested in was the, was so dumb car, cars direct 1998. The tippy top. As my wire left digitally, my fingertips or whatever bank it was coming from. It was worthless. Right. Meaning like it was a series Q

20:01  Barry Ritholtz: Right?

20:02  Howard Lindzon: It was But

20:02  Barry Ritholtz: You were just early. This was Yeah, yeah, yeah. pets.com eventually became, but I

20:06  Howard Lindzon: Was late in that cycle. ’cause was

20:08  Barry Ritholtz: Carvana would’ve been. Yeah. So

20:09  Howard Lindzon: I was a retail idiot. So I grew up, like I said, I went to a SU You’re gonna be a furrier. Right. That’s your chance. And so in a bad one. ’cause you know, so the internet comes along. I fall in love with stock market ’cause I had made some money at my, at my first startup and I had to be my own broker. And so Yahoo Finance, jim cramer street.com. Like they’re still around. Right. So, so those were my onboarding. Were the, were you were writing for the street.com.

20:37  Barry Ritholtz: So I was they were the dominant, like people who were younger. Don’t realize by the way, that

20:42  Howard Lindzon: Still massive. Right? Kramer’s still massive.

20:44  Barry Ritholtz: I I think the street.com doesn’t get the traffic. No,

20:47  Howard Lindzon: But Kramer’s

20:48  Barry Ritholtz: Massive. Well, yeah, well he’s on TV twice a day. But

20:51  Howard Lindzon: I’m saying this is 30 years. Yeah. So that was my imagine the introduction to retail investing. ’cause I couldn’t afford a Bloomberg. Still can’t. Right. So I think you can, I can afford afford the

21:00  Barry Ritholtz: Drapes. I think you could afford a Bloomberg Post. I

21:03  Howard Lindzon: Could, I wouldn’t know how to use

21:03  Barry Ritholtz: It post Robin Hood exit.

21:04  Howard Lindzon: I wouldn’t know how to use it unless there’s a phone line. What? Especially

21:07  Barry Ritholtz: Huh. Church. Especially with fingers. How you need all 10 fingers for the terminal.

21:12  Howard Lindzon: So, so I was inspired by you that street.com had murders, row of writers. It’s amazing to a new investor. Yeah. I just would sit and wait for articles to come out and Yahoo Finance. So I was on the message boards. Pearlman you like we were, the first download was on the message board

21:27  Barry Ritholtz: First. So Cars Direct was your first investment.

21:29  Howard Lindzon: And 10 years later I got 10% of my money back after it being successful. So, so my first thing was a disaster. What

21:37  Barry Ritholtz: Was your first successful investment?

21:38  Howard Lindzon: So my first successful investment was a cold call that I made pre-internet in a, in a company I probably talked about in the last show called The Grip. It was the, so Q So I had the good fortune of being an hour before the internet, before the internet, an hour before the internet. The thing before the thing was QVCI

21:57  Barry Ritholtz: Recall. Okay,

21:58  Howard Lindzon: So before the internet still on

21:59  Barry Ritholtz: TV

22:00  Howard Lindzon: QVC was the interim, right? Meaning there was the whole of Philadelphia was just old people on the phone saying, yes, yes, we’ll take your order and your credit card. Right? And if you were on QVC was a studio like this, what

22:11  Barry Ritholtz: Was the grip?

22:12  Howard Lindzon: And we had a product called The Grip. I recall this and it’s in the QVC Hall of Fame. So I made a cold call while I was a stockbroker to this kid. I thinking he was rich. ’cause back in the nineties, you, it was just like the movie Wall Street,

22:24  Barry Ritholtz: Dun, Brad Streets.

22:25  Howard Lindzon: You would get a newspaper and decide who you’re gonna cold call that day. Right. So I hated my job. That was my first job outta college. And I was cold calling to get rich clients. And I called this kid and he ended up needing money. Like he was just promoting himself.

22:38  Barry Ritholtz: He reverse pitched you.

22:40  Howard Lindzon: He he, he reverse pitched me. Right. And, and I, and I had to cobble up 25 grand from my mom and friends and I hated my, and I’m like, I’m in. And then he paid off his Amex with that 25. But by the way,

22:52  Barry Ritholtz: Every, every stockbroker and salesperson to appreciate a good sales pitch. Yeah. There’s soccer for a good sales pitch. Well,

22:58  Howard Lindzon: He was promoting himself and I was trying to sell him something and he sold me on his company. So what was, which turned out to be a home run company. What was the grip? It was, it was, he was a dropout. Mark Sced a unbelievable entrepreneur. And he had, he had made this product with five balloons wrapped around this Siberian millet. And we were the largest Siberian millet orderers in the world in the nineties. ’cause we were making millions of balls a month by, by hand and selling ’em with corporate logos on ’em during the whole nineties rather pharmacies. And this

23:29  Barry Ritholtz: Is the desk toy, a squeezey.

23:31  Howard Lindzon: But our genius was putting corporate logos

23:33  Barry Ritholtz: On it. Nobody had done that before.

23:35  Howard Lindzon: Well that industry was huge in the nineties. Corporate giveaways. Right. With trade shows and whatever. And we just got the right product at the right time and it worked. Oh my God. We were just, how many days we were the ball. There’s so many ball jokes, but they’d all get deleted here. We were the ball boys of the nineties. How many

23:52  Barry Ritholtz: Did you

23:53  Howard Lindzon: Sell? We did, we did 60, 70 million in sales. Get out. That’s amazing. And the margins were crazy because unlike retail, if you put Bed, bath and Beyond or compact on a ball, they own it. Right. There’s no returns. And so, so we just had this pet rock business where like Compact would call ’em, we need a million balls for com decks. And we’d just hire people, illegal aliens. And they would come into Phoenix and they would all cut their fingers off like making these things. But you made

24:19  Barry Ritholtz: It in the states. China.

24:20  Howard Lindzon: We made it in the States. China. We spent, we all our money was trying to figure out how to machine make these in the nineties. And we wasted so much money trying to like, get humans out of the process. Compact would order a million, pay you

24:33  Barry Ritholtz: Right in advance

24:34  Howard Lindzon: To start. Right. So we’d be buying cars. It was just two person company. Yeah. Like a bunch of like staff. And so we’d go out to lunch and buy cars because we were paid before we even started making the product. And, and so we were like, that’s how I learned business. Kind of like back to school.

24:51  Barry Ritholtz: School. And you started this on QVC? No,

24:53  Howard Lindzon: QVC picked us up and Mark used to go on TV and back back in the nineties in QVC if it was selling, they just kept you out there like a cartoon character. Right. They didn’t, they hadn’t scientifically gone to the profit per second Right. Model because they were surprised at their success. Right. So the grip appealed to like 70-year-old women who had carpal, like they just like squeezing little arthritis,

25:16  Barry Ritholtz: Little carpal tunnel,

25:17  Howard Lindzon: Little arthritis. So we created this $19 three pack that had soft medium. And I swear to God, you can’t make this up and soft, medium and firm and QVC just kept mark on stage all day and the numbers would go unbelievable. And, and it was a miracle. That was our first success. So that was, so I was very much, that was my first internet success. So when did social, sorry, that was my first success.

25:41  Barry Ritholtz: When did social leverage launch?

25:44  Howard Lindzon: So, so, so you, you and I both lived through this, the, the great financial crisis. And that was an era. So up until 2007, 2006, we lived in a world of financial leverage. Meaning, and we know what happened at the end of that stacking, you know, Excel came out. People didn’t have to, my dad, when I grew up with my dad in Toronto, if you did an acquisition, it was like 700 pieces of paper with pencil taped together. Then Excel comes out, which of course nothing, you know, everything’s made up at that point. And one, one sell off can change the world. Sure. But, but we became a, a world that the stacking things financial leverage, right? That was the banking era. And the end of the financial leverage era came in 2006, 2007 at the same time that social media came out. So the, the, the play on words was, I wanted do as an early adopter of social media, I was like, if an idiot like me. So the idea was social leverage, you can’t implode Right. With social leverage. Whereas this financial, you canceled. Of course. Well that was pre canceled. So I’m saying my thesis was, oh my god, an idiot like me, who knows the right three people can just grow their network for free forever. Right? And so that was the birth of the i the name social leverage.

27:06  Barry Ritholtz: It makes a lot of sense. Yeah.

27:08  Howard Lindzon: It was just like a play on words. Some, some people will call me and go, oh, you guys do social investing. And go, that’s the last thing I do. Meaning I’m not, there’s no impact. It was just the i the play on words of financial leverage to social

27:18  Barry Ritholtz: Leverage. I, I like it. But

27:19  Howard Lindzon: Good point. You can blow up on social leverage

27:22  Barry Ritholtz: Now. So So now you’re up to fund four.

27:24  Howard Lindzon: Fund six.

27:24  Barry Ritholtz: Fund six. Yeah. Wow. I have the I and the V in the place.

27:28  Howard Lindzon: The good news is you passed on all of them. I did pass on. So we continue to do well until you come

27:31  Barry Ritholtz: In. Right. Soon as I come in, it’s over. Well that’s

27:33  Howard Lindzon: When we shut down. And,

27:34  Barry Ritholtz: And I famously or infamously was an investor in stock Twiz. And then when you pitched me on Robinhood, it’s a line in the book how that’s the dumbest fing idea I’ve ever heard in my life.

27:48  Howard Lindzon: You weren’t the only one

27:49  Barry Ritholtz: And it was tha it was. I will, I will, I will. I You are in the

27:54  Howard Lindzon: Majority. You were in the majority. I

27:55  Barry Ritholtz: Own it in the book. And between you and me, I’ll say A, it was offbrand and B no doubt that the pandemic lockdown helped them dramatically Perfect

28:06  Howard Lindzon: Time. No, no, no. The the, the thing about ramen hood, ’cause I was there from day one and by day one, I mean they had, it was another company, right? Kronos Research before they were like high frequency guys and math guys. But you could only, this is about you ask about investing. It’s, you know, the life I’ve led boots on, like, just curiosity, your eyes, nose, ears, feet. You, you become a great investor by like it touching feeling, right? You gotta be on street level. The best investors are street level. I invest, I’m talking about private markets, public markets is a different thing. Street. So

28:42  Barry Ritholtz: Let’s talk about private, let’s talk about

28:44  Howard Lindzon: Street. So, no, we were talking about Robinhood. So, so the great thing about Robinhood is it’s not that I got it right? It’s like I was, if I didn’t get that right, I’m nobody. Meaning I had to get that right as a Yahoo Finance user street.com guy, E-Trade baby, you know what I mean? Twitter, user StockTwits founder. And, and I, if I had any nerve or any tech skills or any like real balls or whatever we’re gonna call it, I build my own brokerage. Like we, I was there to do all that. But in 2010, even till till Robinhood started, no one wanted to start it. Brokerage ideas were terrible ideas, right? So you have to understand that in 2013 when I saw Robinhood, no one in America, that’s shocking that no one wanted to build E-Trade 2.0. Right? But what the venture capitalists were doing, they were enamored. And this is where venture capitalists, I always goof on venture capitalists. They were enamored with the wrong thing. At the time. It was like wealth front betterment, right? The, the VCs were enamored with assets under management. A UM. They felt like Vanguard was the one to disrupt. So everybody wanted to be the next, if you’re a venture capitalist, you wanted to be the next vanguard. No one. And

29:56  Barry Ritholtz: I thought, thought that

29:56  Howard Lindzon: Was flawed. I thought that was flawed because the margins are tiny and, and you’re never gonna build something 10 times better than Vanguard. Meaning wait a minute, what’s wrong with Vanguard? And they’re, versus E-Trade. I’m like, it’s interface trade. You know, it was just ripping me off and I was a, I was the right guy to get that pitch at the right time. So of course I had to do that deal. It would’ve been, that’s what, that’s why the podcast with the guy who passed, if I passed on Robinhood, I’d be a more interesting guess. Like

30:26  Barry Ritholtz: It’s a Larry. So how much did you put into to,

30:29  Howard Lindzon: Well, we did a hundred. Like I, we had a, it was our first fund, so we were writing a hundred thousand dollars checks. So it was a hundred thousand dollars at 8 million. I thought it was expensive. 8 million, an 8 million valuation. Like at the time we were doing 3 million valuations. So, you know, we nego, like I met them by Ju and I flew up because they called me ’cause of StockTwits. So they called me and said, we have this app. They were, they were outta, they were outta money. And I flew up to Silicon Valley and they showed up wearing Google Glass Two idiots. Like, I’m like, immediately I’m out like no one, you know what I mean? Like, remember that era

31:06  Barry Ritholtz: Glass Holes is what everybody

31:07  Howard Lindzon: Called. I don’t know what it was, but I was immediately like, what? And two dorks. But they showed me the app. They had this guy, this Joe who was their designer who had been at Facebook and he showed me the app and that’s when I knew it wasn’t live. They didn’t have their finra they didn’t have their broker. So it was really early. But because of Stock Twist and Twitter, I knew that if you build it, they will come. If you build an a design like Uber, if you build Uber for trading, okay, what people didn’t get again was they were all betting hundreds of millions had been be invested in Betterment and Wealth front at the time. So the, the Silicon Valley was leaning into the Vanguard model, right? So no one wanted to do the deal because who needs another brokerage? And by the way, building a brokerage, getting SEC approval. VCs tough don’t like doing work. Right? They don’t like waiting a year.

31:58  Barry Ritholtz: It’s a grind. Yeah.

31:59  Howard Lindzon: VCs do not like doing investment. Now they do. ’cause there’s so much money in, in sovereign, you know, you can get so much money in charge 2%. But back in 2013, it was like, so me something that’s working, I wanna be the uber of that. So to take a year off and go get SEC approval to go do those things, they deserve to be It’s laborious. It it was, it’s tough. And you had to wait. You couldn’t just go launch it and get sued.

32:20  Barry Ritholtz: Thi this is in hindsight, if you want to be the next Vanguard, wait, their secret sauce is that they have such scale, they can charge four bips and still make money. You, you’re losing money at 25 bips.

32:33  Howard Lindzon: Yeah. And if you switch, you switch. Right? But they have so much assets. Right? So switching costs. So I could, we could talk about this forever. I was in the right place, right time, right. People pitched me, right. Valuation, everything worked. I could tell you a hundred stories of like everything lined up and it doesn’t work. Robinhood would’ve worked whether I showed up or not. Right? So we did a hundred thousand. Now obviously we helped them tremendously with stock to it. So we were like responsible for hundreds of thousands of early signups. ’cause stock with users love the idea of

33:00  Barry Ritholtz: Yeah, of course free trading.

33:01  Howard Lindzon: Free trade free. But also the API hooking into you could slide right on,

33:06  Barry Ritholtz: Right over

33:06  Howard Lindzon: And, and trade. Yeah. It’s pretty funny. Now that idea in oh seven when I had it Jack and Ave, like as a Twitter guy, I went to Jack and a Jack Yeah. And a, and Fred Wilson put me in the room with them. And I’m like, guys, what are you talking about? Kim Kardashian taking a poop on Kanye West. That’s not interesting. You know what’s interesting? The president’s gonna tweet one day and the markets are gonna move. Like this is literally pitch the conversation. My pitch to Jack and AAV set up by Fred, Fred Wilson, who was, they were like, kumbaya plane lands on a Hudson. Right? You know, we’re growing our beards. No. You know, like, I mean they were just the darlings. They didn’t need I ideas. So they

33:45  Barry Ritholtz: Were like, well it was, it was the town. The town. No,

33:48  Howard Lindzon: They weren’t massive.

33:49  Barry Ritholtz: They weren’t for the world

33:50  Howard Lindzon: Financial guys. They were kumbaya guys. They were builders. So my pitch fell on like, who are you?

33:56  Barry Ritholtz: They didn’t get monetizing Twitter through

33:58  Howard Lindzon: Brokers. They didn’t, it’s not about monnet. They didn’t understand what they had. Meaning selling ads against something that Goldman Sachs will pay infinity for. Meaning a new pipe where Bloomberg’s charging $2,000 to get real time information now like Osama bin Lain getting killed. The futures like in oh eight whenever Osama was finally killed. What year? 11, 12. I know where I was, right? Because immediately I checked the futures and they had already moved. Right? And that’s ’cause of Twitter, right? Because some guy in Pakistan saw it. And the futures move, right? Like that’s when it should have clicked is like, shut down everything, delay the feed 30 seconds. And you know what’s gonna happen? Goldman will call you Reuters, Bloomberg, they’ll see that you’re off by 30 seconds and they’ll pay you fortunes to get the real time feed. Right? You and me schmuck, it’s even seconds. And three don’t need real time. One

34:51  Barry Ritholtz: Second, it’s five minutes. Right?

34:52  Howard Lindzon: So my pitch to Jack and e with Fred Wilson was like, slow down the feed. ’cause 99% of the population and then we we’re there anyways with ai, no one, no one gets the real time feed, right? Slow down the feed, your phone will ring for the people that know that the feeds are not in real time and they will pay you infinity, right? To get the pipe. And they were like, no, let’s sell ads. So here we are.

35:17  Barry Ritholtz: So, so you haven’t talked about the cash tag, which I really wanna talk about something Stock Twits invented. Yes. A dollar sign and then a A PL is the symbol for Apple or

35:27  Howard Lindzon: So, so this is the Ginette store. So again, I didn’t wanna start a company, I just sold Wall Stripp, which, you know, which was my best work. But again, stupid work arguably. But my be no personally I’m most proud of it. You sell a company to CBS when you are literally an idiot, right? Is the dream. And

35:44  Barry Ritholtz: I think that’s a fair disclosure. Yeah, yeah, yeah. Advised like

35:47  Howard Lindzon: They said, by the way, as they wrote as Les Ez wrote the che, he goes, I can’t believe we’re writing an idiot like this. A check. That was like, he said that,

35:53  Barry Ritholtz: That’s the quote.

35:54  Howard Lindzon: I said, please write that like you in your book, please write that you’re so angry. So anyways, they had just bought my company and literally a month later I’m like, you made the wrong acquisition. You need to buy Twitter. Like Twitter is

36:09  Barry Ritholtz: Said this to them, to,

36:10  Howard Lindzon: To Quincy at, at who had bought my company at CBS. And I remember there was no iPhone yet. And Twitter came out and I thought it was stupid. You thought it was stupid. We all thought it was stupid. It was just annoying. Andy Swan, an old friend, was like, I get this, this is financial. ’cause you know, at the beginning I’m on, we all had our Blackberry, it wasn’t even, it wasn’t even a native mobile app, right? It was just the web and it was all venture capital. And my shtick in 2006, 2007 was I just peed at the Gramercy. Like, so the VCs loved me. They were like, who’s this idiot talking about with bowel movements? And and then Andy Swan said, you know, this is like financial, this is like a new Bloomberg, right? And I said, and I just, so, so the hashtag was a thing and I’m like, it was all spam. Like if you went to Apple, like hashtag AAPL or hashtag Apple, it was like, I went to the store and bought a green apple. Right? Like that’s literally what people were saying it was. So now it’d be like, let’s a new Apples. But like at the beginning I was like, I bought a green apple. And I’m like, that’s spam. So I sent Fred Wilson the first message that I’m saying like, and back then Blackberry was the hot stock. And I’m like, I just bought dollar sign RIMM. And Fred Wilson is the godfather of all this and was an investor in Twitter. Sent me back a Texaco, this is genius. You need to start a company. And that’s what set me down the stock t it

37:27  Barry Ritholtz: Patch did Was Wilson an investor in stock? Twiz?

37:29  Howard Lindzon: No, because he was an investor in Twitter and he thought there would be a conflict.

37:32  Barry Ritholtz: It’s no conflict. It’s, I agree.

37:34  Howard Lindzon: But Fred is a Fred,

37:35  Barry Ritholtz: The

37:35  Howard Lindzon: Og, Fred Fred’s the OG Fred, full dis disclosure. Fred, Fred, Fred on strategy is if he bets on one, he does. And I, I follow Fred’s strategy. There’s other people who spray and pray and don’t care who they and 90% do that. But Fred was of the opinion back then as like, I work with you, there’s gonna be, conflicts are a thing. Like no conflict, no interest, of course. That that’s, he’s very cool that way, but don’t create conflicts just to create conflict. So in his wisdom, he was like, you know, what’s gonna happen if you guys get in a fight and yada, yada, yada. So he politely backed out. But we were backed by good VCs, right? Raising money was not my problem. The, my VC should have said Harry, you know, just not a good enough idea.

38:18  Barry Ritholtz: So as an investor in StockTwits, I always wondered why the hell didn’t Twitter buy StockTwits? Well,

38:24  Howard Lindzon: They don’t understand finance.

38:25  Barry Ritholtz: Is that what

38:26  Howard Lindzon: It’s, they should have bought it. You remember the last scene in Raiders of the Lost Ark? Yeah,

38:29  Barry Ritholtz: Of course. The whole

38:29  Howard Lindzon: Movie

38:30  Barry Ritholtz: Where they is about

38:31  Howard Lindzon: Getting, and then the last scene is this is a very important, again, media matters to investing into the, and it’s just a black hole. Forever Miles. Forever Miles, never to be seen again. Miles of miles. The best tech companies like Salesforce, he understands corporate dev. Sometimes you buy something to kill it,

38:50  Barry Ritholtz: Right?

38:51  Howard Lindzon: To say, and by the way, it’s not

38:54  Barry Ritholtz: Best.

38:54  Howard Lindzon: It’s cost me a fortune. They’re like my Newman, Twitter’s like my Newman from Seinfeld. It’s like Twitter, like, you

39:00  Barry Ritholtz: Know, now who’s dating themselves.

39:02  Howard Lindzon: So, no, but what I’m saying is they’re my Newman, like in Seinfeld, meaning these people, it was a clown car. As, as Zuckerberg said, there’s so many people that got rich.

39:11  Barry Ritholtz: It was a clown car. Non executing. I love the Linein Yeah. From Zuckerberg. You, it was in one of your recent posts, right? But,

39:16  Howard Lindzon: But Zuckerberg said it first,

39:18  Barry Ritholtz: Which was,

39:19  Howard Lindzon: It was a clown car. I

39:20  Barry Ritholtz: Don’t know. That crashed into a gold mine. Yeah.

39:22  Howard Lindzon: And so Twitter and the, the real problem with Twitter was it was a financial product. And Elon knows that better than anybody in the end. ’cause he,

39:31  Barry Ritholtz: Although he just,

39:32  Howard Lindzon: Well he monetized it by stuffing it in a shell company. It’s still like, it’s an asset. And he’s made tremendous mistakes to, to, to think that Trump end around of the whole thing. Meaning Twitter’s supposed to be a real time network, right? They have to poll true social, right? True social is worthless other than one guy who sits on top of Twitter, right? And you have to copy paste his tweet like so Twitter,

39:57  Barry Ritholtz: Well, on a different platform forgetting

39:59  Howard Lindzon: How bungled the company is, the fact that they owned real time and do not own real time. And that I’m the schmuck that came up with the original, like Trump is gonna tweet. Now obviously Obama was president when I had this idea. But like that the pipe matters. And who is king of the pipe? To think that Trump beat Elon at his own game is pretty insane.

40:20  Barry Ritholtz: He, he is savvy in ways that people don’t appreciate

40:23  Howard Lindzon: Insane the truth. Social exists, it’s worthless. But for one guy tweeting, right? Unbelievable. So it’s inconceivable

40:30  Barry Ritholtz: To, to bring back

40:31  Howard Lindzon: You bested my man of orange

40:33  Barry Ritholtz: To,

40:34  Howard Lindzon: To, so the poison cannot be in front of you.

40:36  Barry Ritholtz: So, so now 2024, you come back to stock Twiz Yes. As CEO. Yeah. What motivated that? Are the early investors gonna see an exit? What’s, what’s going on?

40:47  Howard Lindzon: That’s inside information.

40:49  Barry Ritholtz: No, it’s not public.

40:50  Howard Lindzon: No. So it’s

40:51  Barry Ritholtz: Not, it’s it’s, it’s non-public information. It’s like a but it’s not legal inside information.

40:56  Howard Lindzon: No. Stock just is like a, a corn on your foot. You can’t, no. I mean, listen, just can’t go away. Here’s the thing about venture capital is here’s the thing about venture capital. Not everything should be venture capital. True. Okay. So I joke about this with, with my finger. Like, like whose fault is it? Okay? I think stock is a great idea. The Cash Act was a great idea. Yeah. I’m very proud of that. Hundred percent. I’m not proud of having to run a company 17 years later. Not that it wasn’t my dream when I started Stock Twist is to be sitting here answering questions about how am I gonna make money? Let me bust your up, but you every right to do this. So what I’m saying is, I and young kids need to know this like math. Not everybody gets to have a startup.

41:38  Barry Ritholtz: Of course.

41:39  Howard Lindzon: Okay, well my venture capitalists, if they’re as good as they say and they are great, should have stopped me and said, this isn’t quite venture capitalist.

41:48  Barry Ritholtz: Let me push back on that. ’cause I knew you gonna go there.

41:50  Howard Lindzon: I am,

41:50  Barry Ritholtz: I am. And your venture capitalists, and we know a lot of the same people said, Hey, there was a window to get out. You wouldn’t have gotten a, an fu number, but you would’ve gotten a pretty good number.

42:02  Howard Lindzon: No, I never got a number.

42:04  Barry Ritholtz: There was never, I thought there were discussions that just never came to always discussions. Yeah. I thought you guys were on the one yard line.

42:11  Howard Lindzon: I’m discussing it right now. Openly, there’s always a price. Who, which camera? Camera two. No, listen, we have never, some things are only fairly valued for a second. Right. And some things stay overvalued or undervalued forever as we know from the market. For sure. And I think StockTwits I’ll take full responsibility. We’ve always missed a window of positioning, right? But the good news is stock TWI is thriving, right?

42:38  Barry Ritholtz: It’s doing well. This is a perfect,

42:40  Howard Lindzon: So I’m saying like,

42:41  Barry Ritholtz: Robinhood should be the,

42:43  Howard Lindzon: We were 10 years ahead of our time. If you think about where public, when, when I started stock to retail, investing was a laughing stock. Yeah. And it still is to most institutions,

42:52  Barry Ritholtz: Much less so today than it was. Correct. Now it’s

42:55  Howard Lindzon: So, so again, if you look at my portfolio,

42:57  Barry Ritholtz: The, by the way, the private equity, private credit wouldn’t be so hungry for retail investors if it was truly us.

43:05  Howard Lindzon: They call me every day, right? So there’s two worlds that I live in the world where retail doesn’t take itself seriously enough. And private equity guys call me CEOs of public companies call me to take like I’m in a crazy seat, right? Because I’m a goofball. Right? But I am serious, you know, like I am serious. Like I’m trying to be serious.

43:24  Barry Ritholtz: You used to be 60 40 goofball serious. Now you’re 40, 60.

43:28  Howard Lindzon: Yeah. It switches.

43:29  Barry Ritholtz: You’re the new 60 40.

43:31  Howard Lindzon: Yeah. I’m, I am. I can laugh at myself, but I’m trying to run a serious business. Right? Because, because it’s been a long time and we were just way ahead of the curve. Like Jack and Eeb didn’t understand what we have. Fred Wilson understood it. Right? There are very few people that understood. Very few people liked Robinhood until 2020. And GameStop, they like it for the wrong reasons. By the way, I don’t like the Robinhood that became like, I don’t, not, I call it the degenerate economy. But when I invested in Robinhood, I didn’t know the degenerative economy would exists. I didn’t know the prediction markets would exist. I didn’t know options would be their biggest product. I was just wanting to see options

44:10  Barry Ritholtz: Are bigger than crypto for Robinhood.

44:12  Howard Lindzon: Crypto’s Tiny Options is everything. Huh? 90% of their fucking profits will come from o Options. Any brokerage.

44:18  Barry Ritholtz: Wow. I didn’t realize that.

44:20  Howard Lindzon: How are they gonna make money on zero commission other than options, people

44:23  Barry Ritholtz: Doing YOLO trades payment for order flow margin loans.

44:26  Howard Lindzon: That’s just a, that’s just media being bad media.

44:29  Barry Ritholtz: I, I’m gonna tell you that the big shops like Fidelity and Schwab, the single biggest line owner line item of profitability are credit loans

44:38  Howard Lindzon: And money. Okay. It could be I’m 90, I don’t know. I don’t, I don’t The

44:42  Barry Ritholtz: Financials, no. I mean at one point in time it was over half at Schwab. I don’t know what it’s today. Yeah.

44:45  Howard Lindzon: When we invested in Robinhood here was, my thinking is, first of all, I love the product. You gotta be a user of the product to be a good investor. I’m not the guy who’s like, here’s space check and here’s a biotech check. Right? What do I know? So yeah, the odds have to be stacked in my favor, first of all. But second of all, and they were, I was Yahoo. I was Yahoo Finance, I was you, I was blogging, I was doing everything right. And, and they came along at the right time. When Robin, the pitch for me with Robinhood was not that they were gonna make money, it was an 8 million valuation. Like, you know, at my event people were like, how are they gonna make money? I’m like, chill the hell out. They haven’t even launched a thing yet. The point was Schwab was paying $150 to get a customer

45:25  Barry Ritholtz: To acquire customer, customer acquisition

45:27  Howard Lindzon: Customer. Yeah. And my thesis was like Uber Robinhood would pay zero. So if you get a million people, even if they’re $4 in their account, it’s a hundred. That’s a good herb. Yeah. Those don’t come along very did. I think it could be $30 billion. I’m not so psycho that I thought I was investing in a 30, $40 million company. Billion, billion, billion, billion dollar company. So of course I’m not that smart. But what I’m saying is I saw the ARB and all they had to do was deliver the product. Now it went way beyond my expectations. That’s the Larry David

45:56  Barry Ritholtz: Part by the way. You didn’t gimme that pitch. The pitch was, I,

45:59  Howard Lindzon: I’m sure I did. The

46:00  Barry Ritholtz: Pitch was free trading millennials, the whole next generation. You’re gonna capture them before anybody else.

46:05  Howard Lindzon: Well, I knew that from Stockton. I knew I’d capture ’em. But if I say, if I mention the ARB trade, people are like, oh, they’re gonna have to raise so much money. There was a lot of problems.

46:14  Barry Ritholtz: No, the ARB trade in hindsight. Yeah, the trade A

46:16  Howard Lindzon: Trade would, was why I invested would

46:17  Barry Ritholtz: Would’ve been compelling. And, and again, I it’s a chapter, the, I’ll tell you a great, Hey, it’s so offbrand

46:24  Howard Lindzon: One great story. Go ahead. Because, because this is just a, an investing story. So we’re a very small fund. The first one was 6 million. We’ve, we’ve done, now we run a hundred million dollar funds and

46:33  Barry Ritholtz: You cap it at a hundred or

46:35  Howard Lindzon: Yeah. I don’t think you, I don’t think get our returns would be good. Yeah. We like writing one to $2 million checks. I get that. Stay in your lane is something everybody hates saying. But I think true in my world, unless you’re fee gathering, stay in your lane. Like people know what we do,

46:48  Barry Ritholtz: You’re gonna laugh.

46:49  Howard Lindzon: I I believe in that. I hate when people say it, but Right. I

46:53  Barry Ritholtz: Practice it. That, that’s an annoying way to say I disagree with what you’re saying, but Right. But what you’re saying is that’s skill. Hey, your expertise. Here’s my skillset. Yeah. I’m

47:01  Howard Lindzon: A good monkey.

47:02  Barry Ritholtz: I to apply my, the area I know best.

47:04  Howard Lindzon: So with ramen, so occasionally, and again,

47:06  Barry Ritholtz: Stars

47:07  Howard Lindzon: All long enough and I had breakfast with Fred this morning. We’re talking about like, you’re a legend. Josh is a legend. Like I’m around surrounded by legends. ’cause I’ve lived long enough, okay, I’ve lived long enough and I’m curious and I’m nice and I call people to say hello, I’m a salesman. So who do I see this morning? Fred Wilson. Like who did I run to? Tim O’Brien? Like I’m friends with like people that have, you have signal, right? Because you have what you’ve been on the street, right? And you have experience, not maybe in space, but in what you do. You have signal. So with Robinhood, and I had learned from Fred Wilson, like if you really believe in something just, and I’m not a poker player, I don’t ball, you gotta go in as a vc you have to, so Robinhood,

47:47  Barry Ritholtz: You’re, you’re convincing me to throw money into Fund vi and that’ll be the end of your run. But

47:52  Howard Lindzon: That’s different. Every fund is like a crop of wine. It could go depending on how you know we’re wrong all

47:58  Barry Ritholtz: The time. Well, 24 was a good vintage

47:59  Howard Lindzon: 2020. 2021. Terrible vintage. So, so, so when Robinhood was doing very well, but they, the two guys were like, it was not popular. Everybody, all the VCs had committed to betterment wealth front type model. Right? So now they needed to raise another round. And I’m like, they wanted a raise.

48:18  Barry Ritholtz: This is 14 or 15? 14. Yeah. So it was like, I think that’s when we spoke. Yeah.

48:22  Howard Lindzon: So they were like it and I’m like inexperienced. ’cause we write one check, we don’t have more money. So they call me up and they go, can you write us a term sheet? It’s a very sophisticated way of saying like, you won’t have to like actually invest, but if you come in like we can shop, like we can kind of shop around. You can shop it around. So I’m like, dude, screw that all I wanna invest. So over like July 4th week, I’m telling my partner, and I was two of us at the time, I’m like, let’s just write an 11 million. They needed to raise 11 million bucks and they wanted to raise it at some stupid valuation. Right? Let’s, it was 60 million ish. And I’m like, well we’re never gonna have to really write it, but even if we do, I can convince my friends like, this is the what. Right. And I called Fred Wilson and he goes, what are you calling me for? You know what to do. Let’s write a term sheet. I go, but we don’t have $11 million. And Fred goes, you’ll find it. Just, just do it like a six week. Right. Which is absurd. Now today people write billion dollar checks in an hour. Right. But like he goes, just ask for six weeks. Right. So, you know, word, you know, whatever. You’re typing it up, send him a term sheet by fax.

49:25  Barry Ritholtz: Back then you 10 fingers. So it much,

49:27  Howard Lindzon: Much better back. It was more, but, you know, 10 fingers more errors. So anyway, so we write up this term sheet, we send it to ’em and they shop it as they probably really in Index Ventures, y Hammerer, who’s like a, like one of the best investors, comes back with a term sheet of 11 million on 65 million. Wow. And like a five day close. So like, you know, they got what they wanted. Oh, and by the way, indexing their term sheet, put index in their term sheet. Like fuck, social leverage. Right. That’s a typical, like who are they? Right. Luckily by writing that term sheet, VLA Baiju did the right thing and they carved out like as much as we could. We couldn’t even raise a million on. So when we, so they carved us out, we put 800 grand in the series A. If we had done the 11 million, I’d be a billionaire.

50:17  Barry Ritholtz: Right. 200 x on, on the, yeah. That’s unbelievable.

50:20  Howard Lindzon: No way bigger, like at the peak. But like we’ve had better investments. We’ve

50:26  Barry Ritholtz: Better investments. You’re not sitting with the Robinhood shares.

50:28  Howard Lindzon: A lot of my LPs, we distributed the stock. A lot of my LPs have not sold, sold

50:32  Barry Ritholtz: Calls it nobody says

50:33  Howard Lindzon: I don’t ask. Our job is to deliver them. There

50:36  Barry Ritholtz: You go.

50:37  Howard Lindzon: The, the, the, the cash.

50:39  Barry Ritholtz: I wanna start with a quote of yours that I really love. Okay. Quote, the whole world has become a casino. Thanks to AI and prediction markets, we are all more productive and degenerate. Now let’s talk a little bit about the degenerate economy. Yeah. Explain to listeners what is the degenerate economy or the degen economy.

51:03  Howard Lindzon: Well, I don’t like the word degen. So when I say degenerate, I say it in the humoristic way. You and I are degenerate, right. Because we’ll buy a watch. We’ll bet on a game. We laugh at de degeneracy. We don’t, we don’t, we appreciate the art of de degeneracy versus meaning, meaning laser eyes was dumb. Right. But degeneracy is an art form, like speculation. And I live, I own and I joke that I own and operate two millennials. And when you own and operate two millennials, you watch, you look over their shoulders. Those

51:36  Barry Ritholtz: Were your first startups?

51:37  Howard Lindzon: No, my kids. Yes. By the those were your startups. Startups. My the only startups that matter. And did

51:43  Barry Ritholtz: Either of them merge yet? Do we have any m and a activity yet?

51:46  Howard Lindzon: No, we need, we need, I’m not talking about spinoff need

51:50  Barry Ritholtz: I not talking about dividends. I’m talking about are they married? No. So no mergers yet?

51:54  Howard Lindzon: No, my son was, my son was in a Are you on the board?

51:57  Barry Ritholtz: You should be chairman of their board.

51:58  Howard Lindzon: Are they on the board? I’m trying to get, you see adult also. I’m trying to get them fired. I’m trying to get medical checks to see if anything’s working. Right. So, so degenerate economy was born of this idea that I couldn’t believe where we went, like with GameStop. Like I was so stressed during the GameStop thing because really I’m so surpris, I hadn’t monetized, I hadn’t monetized our investment. I’m like, okay, on Robin Hood there, there was a weekend Yeah. When Robin Hood was worth 40 billion.

52:28  Barry Ritholtz: Right.

52:28  Howard Lindzon: And it could have been worthless. Right. Do you understand? Like

52:31  Barry Ritholtz: A hundred

52:31  Howard Lindzon: Percent. I wasn’t rich. And I’m like, it wasn’t even their blame. Whoever you want, people lost their minds.

52:39  Barry Ritholtz: Let me annotate.

52:40  Howard Lindzon: So, so let me just explain to you, if you have your phone, go

52:42  Barry Ritholtz: Ahead.

52:43  Howard Lindzon: What Robinhood perfected, which no one figured out. It was like when we used to play pinball, everybody, there was always that kid who was so good at it.

52:52  Barry Ritholtz: Crazy flipper.

52:53  Howard Lindzon: He could bump it. Well he could bump it without tilting it. Right. And he could just get the, he could just get the machine to dance for him. Tilt happened.

53:02  Barry Ritholtz: Everybody,

53:03  Howard Lindzon: The, the app was so well designed. The app was so well designed that everybody pushed the same button at the same time

53:09  Barry Ritholtz: And it couldn’t carry the, the, I remember it was scratching. Do you understand?

53:12  Howard Lindzon: That’s literally what happened. So that’s

53:14  Barry Ritholtz: What you were,

53:14  Howard Lindzon: It was a design flaw. You were, it was a design flaw. It

53:16  Barry Ritholtz: It wasn’t the design flaw. Nobody expected it to scale 10,000 x. No,

53:21  Howard Lindzon: But a if you push everybody to one button, right. Or or another button. Yeah. And then people come on see me say push this button and everybody’s like, let’s see what happens. And guess what, what happened? Crash. Crash. Not to be repeated again. Right. Hasn’t been repeated again. And the, that’s what makes the markets great. That hole was filled by the whole being created. Right. We haven’t seen another thing like this, although recently with Car Avis. But like GameStop broke the machine. Yeah. And almost bankrupted the company. Right. And and it was many lessons in there. The most important was Robinhood. None in their hubes or anything. They mistook success for a brand. When you build a brand in four years, not 40 years, you don’t appreciate that you have no brand value. Right. And I’m like, no one understands this. Like they were one of the first case studies and like why it didn’t deserve to be zero. Who knows what all the things that went wrong. But I’m just some guy that’s like, what the right. I’m like couldn’t. How embarrassing would it be if it goes from 40 billion to zero and you know, Galloway and all these guys were piling on and all these people piling on. I’m like, you don’t even understand what’s going on.

54:26  Barry Ritholtz: So wait, let me, let me tease this outta you a little bit. I thought you were going in a different direction. How degenerate the trading in things like GameStop and when Hertz was bankrupt and or was it Avis? I don’t even remember which. Some really foolish, reckless Yeah and and I, I think those of us with gray hair looked at it and kind of laughed. ’cause we knew exactly how that was gonna

54:51  Howard Lindzon: End. Yeah. The apes and all the a c stuff. I hated it. Right. But it doesn’t mean I can stop

54:54  Barry Ritholtz: It. That wasn’t your concern. Your concern was hey here’s a fire hose of new clients, new orders. This is the scale. This company needs to become wildly successful and they’re just not prepared to deal with the sheer volume. How could be, and if this crash goes on more for a couple of hours two days from now, this is a zero. It was

55:14  Howard Lindzon: A zero. We can argue, I don’t know the whole story, but I imagine someone called someone at the options clearing firm and said you’re bankrupt. And the VCs lucky we’re in so big. Didn’t they had had to put in more money.

55:24  Barry Ritholtz: They didn’t have the reserve cash. The margin trades have the of options.

55:28  Howard Lindzon: The cash. We’ll never know the real story. So,

55:29  Barry Ritholtz: So technically SIBO is the counterparty on all trades. Yes. And they also own the platform. So they demand a certain amount of capital if you’re gonna trade X. Yes. And they’re trading billions of dollars. Correct. They didn’t have that capital.

55:44  Howard Lindzon: So, so this is why my degenerative economy index was born. Meaning I don’t think AMCs in what’s in my index, which is outperforming everything is SIBO is one of my time number one positions who benefits. So my degenerate economy thesis is finding the companies that benefit from global degeneracy. You

56:02  Barry Ritholtz: Created this last year, two years ago, three years ago. All crush.

56:06  Howard Lindzon: It’s three. I had to share it

56:07  Barry Ritholtz: Just to put some numbers on this. Yeah, it’s gambling, it’s day trading. It’s meme coin speculation.

56:14  Howard Lindzon: It’s vaping. Unfortunately

56:15  Barry Ritholtz: It’s up 170%. The NASDAQ 100 over the same type of period isn’t even up a hundred percent. It’s up 94%. Correct. You’re almost doubling the nasdaq.

56:24  Howard Lindzon: And I give it away for free ’cause and I share the

56:27  Barry Ritholtz: Petition size. It’s not, why isn’t this an ETF?

56:28  Howard Lindzon: Because the VanEck always talks to me VanEck always like, why do you wanna be in the e TF business?

56:33  Barry Ritholtz: So do it. You know you use ETF architect. No I get it. Work with VanEck, but I

56:38  Howard Lindzon: Billion dollar product. Again, this is, I think part of like, you know, the age I’m at is like, I don’t wanna be someone yelling at me. That might that I Kathy would that I, I, as soon as I monetize it, it’ll go to zero. Like that thing will stop working. I love the idea that I can give it away for free. This goes back to the

56:55  Barry Ritholtz: Original

56:55  Howard Lindzon: Social media. Meaning what am I gonna make? It’s like y as soon as I start charging for it, the whole thing becomes

57:02  Barry Ritholtz: Fast, slow. I took ads off the blog ’cause they were annoying and ugly and the amount of revenue it made peanut was just too annoying. You you’re saying the same thing.

57:11  Howard Lindzon: Yeah. I’m saying like, hey man, I’m like, I got a little thesis. It’s not that complicated. I,

57:18  Barry Ritholtz: I love this thesis. I would, I think people would be

57:20  Howard Lindzon: Buyers. So she’d be always CE big hyper liquid now is in there and no one knows what hyper liquid is. I constantly What’s hyper liquid? Hyper liquid is the, is the thing. Meaning today all I get pitched on or by the next Robin Hoods and I’m like, the world doesn’t that another Robinhood. But all they keep talking about is, you know, we got perps trading 24 7 on hyper liquid. It’s, it’s, it’s the new salono, let’s call it. ’cause I’m not a crypto guy and I’m like, after getting a hundred pitches of the same product and they all talked about hyper liquid. I just bought hyper liquid.

57:51  Barry Ritholtz: And what what’s the market cap of that

57:54  Howard Lindzon: One?

57:54  Barry Ritholtz: Couple

57:55  Howard Lindzon: Billion. It’s like 12 people and one of the most profitable companies in the world side of Singapore. Like the guy has no freedom ’cause he is so rich. It’s like a system. It’s like a very fast chain.

58:05  Barry Ritholtz: What’s the symbol?

58:06  Howard Lindzon: HYPE hype.

58:08  Barry Ritholtz: Yeah. What a great symbol. Yeah,

58:09  Howard Lindzon: It’s a token. And you can buy it on Robinhood. Again, I’m not promoting, I’m just saying wait,

58:14  Barry Ritholtz: So this, you could buy it on Robin Hood, but does this not trade over the counter? You can’t get it anywhere.

58:18  Howard Lindzon: You can trade it as a, there’s a dat called PURR. And again, I’m not recommending it, but I’m long A little is a way that you can trade it over the counter. And, and again, you’re betting on the fact you don’t know anything about supply demand. You’re just Right. It’s the system that everybody’s

58:34  Barry Ritholtz: Trading on. Pure speculation. Pure speculation on other people’s speculation. That’s what is

58:39  Howard Lindzon: Speculation.

58:39  Barry Ritholtz: My thesis. This is squared.

58:40  Howard Lindzon: So anyways, what I’m, what? So the degenerate economy is about picks and shovels. We can’t stop if, if a young person like my son, and again I own and operate two millennials and, and they’ll, I don’t want them betting, my son will call me and goes, I can’t believe I lost a 20 team parlay. I go, who are you? Are we even of my, this is why I have to do a step in takeover of my son’s company. ’cause I’m like

59:04  Barry Ritholtz: Dick private, are

59:05  Howard Lindzon: You talking to me like you ask me to end my U 50 bucks to put on a 20 team parlor And you’re complaining about, so idiot three threat idiot. It’s so idiotic. So I’m like trying to teach them not to be idiots. You can have a degenerative economy, you

59:16  Barry Ritholtz: Just need a little bit of math. The problem is not enough kids, kids has taking math,

59:20  Howard Lindzon: Math important. And you also full circle on the general economy. You have the wrong teachers Right now I got brought on board by guys like you Kramer, the people who had experienced stuff. Fred Wilson. These kids are learning from Chamath and David Sachs. These guys were born of one generation. Right. They worked at Facebook. Right. They worked for Elon. You could, if you’re not rich working for Elon or Facebook, that would be interesting. Yeah. If you are rich and you’re kissing the nipple of Facebook and that’s not interesting. You are supposed to be rich. Right. Have some humor. Have So we’re, our job is to

59:50  Barry Ritholtz: Little humility. You’re a little hubris.

59:51  Howard Lindzon: Yeah.

59:51  Barry Ritholtz: So my job is to teach

59:52  Howard Lindzon: My kid is like more humility. Stop being a degenerate. Right. But the fact is, you can’t not be a degenerate when prices kids are yo lowing. Because they can and because,

1:00:04  Barry Ritholtz: And it’s frictionless. We, we

1:00:05  Howard Lindzon: Frictionless. And they’ll learn. Some of these kids will learn how to be good. Put sellers very or premium sellers. Very few. I understand. But the markets are very important. Meaning having a price on everything is fantastic.

1:00:16  Barry Ritholtz: And when I say old it’s only partly ’cause we know each other so long. It’s mostly because he’s an old man. 60 and is now 60 years old. Years ago, my wife and I, I I’m not a cruise person. We were young, we were broke. We used to use this website called vacations to go.com. You book last minute, it would cost you nothing like a week long cruise through eight islands in the Caribbean, 500 bucks food and drink included. Booze included. So as soon as they hit international waters, the casino opens. I am not a gambler. We walk through and I just decide to look at the roulette table. Not bet. Look at it. And this is the difference between my wife who taught fashion illustration and design is a visual person. I’m a little more of a math guy and I say to her, so we watching 20 minutes of roulette and it’s just, it’s so dumb. Yeah. I hate

1:01:46  Howard Lindzon: Losing money.

1:01:46  Barry Ritholtz: It it’s for for random stupid reason. Yeah. But I point out to her, look the red pays or red or black or odd, even pay two to one. But you have zero and double zero. So it’s not even odds. Correct. And then this group pays three to three to one, but it’s one in four chance of winning. So they’re making money and I’m going over all the math with her and she listens to all the numbers and says to me, I don’t know about the ratios of the math, but all I can tell you is I see people, I see theier taking off a whole lot more money than she’s handing out to gamblers. That, that’s the takeaway. Be theier not the odds. Correct. Be the house don’t be

1:02:32  Howard Lindzon: So CBOE hit all time highs. They’re

1:02:34  Barry Ritholtz: The house. Yeah.

1:02:35  Howard Lindzon: Have you ever hear anybody on social media talking about CBE? Never. Never. They love that. No one’s talking about ’em. So the other thesis that I have is trends with no friends. Okay. So, so I’m looking for trends. ’cause again, I run a huge social media site. Right. So I, if I have a choice between Nvidia and sand disk, everybody’s talking about Nvidia. You want, I’m not saying I know much about, we’re just

1:02:55  Barry Ritholtz: Talking about about Broadcom. Same

1:02:56  Howard Lindzon: Thing. Same thing. So on stock to I can look for tickers that are trending with very few followers. No, it doesn’t have to be. I don’t like small caps. So I’m like billion.

1:03:06  Barry Ritholtz: No, I mean earlier, I mean before it really goes up 10 x.

1:03:09  Howard Lindzon: Yeah. So I, so the one thing that stock to tell, and I have ai, you asked me why I came back to stock to, it’s two things. AI and the fact that like I can now code with clog code. And so I can call bullshit on engineers a little bit.

1:03:22  Barry Ritholtz: Oh, this could take six weeks. I need it by today. Well

1:03:25  Howard Lindzon: Again, there’s not today, but there’s not six weeks. Right. Okay. So so there’s that and then there’s the fact that we have all this data and we have a great community. So I wanted to come back and like see this thing through. And we’re, and we’re doing very well. The, the, the issue is now I can explain to people and I can pull out the data to show people trends with no friends. Meaning I wanna find, you wanna find stocks that are trending that have very little discussion.

1:03:50  Barry Ritholtz: Makes a lot of sense. Yeah. It’s

1:03:51  Howard Lindzon: Just intuitive. You meaning I-B-D-I-I learned on IBDI love price relative strength. We, I’ve just added a layer to that that matches high price, relative strength with low social, it’s almost like the moosh of Vegas. Right? I’m trying to find the stocks that No, even though I run a social media site, I’m like betting on the fact that like, they’ll discover this in time.

1:04:12  Barry Ritholtz: You should talk to Ben Hunt and what he’s doing with I love that Perent. ’cause they’re too

1:04:16  Howard Lindzon: Yeah, they have a narrative thing.

1:04:17  Barry Ritholtz: They’re too, but the combination of where the narrative is just starting to take off. Correct. Tipping and, and where the trends is

1:04:25  Howard Lindzon: Starting. I’m doing

1:04:26  Barry Ritholtz: This for 20

1:04:26  Howard Lindzon: Years friends. So that’s why I, so I give it away for free.

1:04:29  Barry Ritholtz: He’s quantified it. You

1:04:30  Howard Lindzon: Done it. Yeah. I hate the quant side. Yeah. I just visually see it. Right. From years of being a known quant. I went a UI don’t even know math,

1:04:37  Barry Ritholtz: But, but if you want AI to help you with this, I matters. I

1:04:40  Howard Lindzon: Gotta catch up on matters. That’s awesome. But, but he also sees the role a little darker than I see it. I’m a much more of an optimist.

1:04:46  Barry Ritholtz: You and I both. Yeah. So, but, but when I wanna know what’s the worst case scenario, like when the tariffs were first rolled out, not so much losing my finger, but his piece, the end of the pax Americana is true. Was the end point where if this really goes off the rails, this is how bad it could get. Well it’s

1:05:06  Howard Lindzon: Deglobalization, right. Which,

1:05:07  Barry Ritholtz: You know, but, but he, he works out the details. Yeah, he’s great. But again, you and I are both a little more of optimist.

1:05:13  Howard Lindzon: I’m much more simple. Right. If I see something going up, you want up, that’s my cue

1:05:18  Barry Ritholtz: To look.

1:05:19  Howard Lindzon: And then if it’s a certain market cap and then, then I check stocks to and I go, no one cares. I love that. Then I, I need to tell a story. Everybody needs to tell stories. Stocks are stories and some people are great at storytelling. The Palantir guy, the certain, but again, the numbers eventually matter. Right. And I’m trying to find companies going up. Right. And that’s not complicated. But then I have other layers to it and I need to understand the catalyst myself. Like if it’s just something I’ll never understand, it’s hard for me to ride the waves. So if I don’t really understand and use the product, the odds of me getting scared out of a trade are 99%.

1:05:56  Barry Ritholtz: So, so let’s talk about your,

1:05:58  Howard Lindzon: So that’s my index.

1:05:59  Barry Ritholtz: Let, let’s talk about your startups who are becoming degenerates. Yeah. Your kids given social apps, zero commission trading, all the options, stuff that’s going on for your kids’ benefit. What sort of guardrails, I don’t know if it’s the product regulation, educational, what do you wish was in place to protect them that isn’t there yet? And and let’s also add, these are not minors. These are late twenties adults out of school for almost a decade. Yeah. Real people. What guardrail should they have to protect them from their own most instincts? Well,

1:06:40  Howard Lindzon: Listen, we could argue let the be we put our, our negative hat on. It’s like you can go buy bullets at Walmart. So it’s like, what is a guardrail? Right? In a world where you can buy bullets and you know, everybody’s got drones. So I’m like more like, okay guys, if I hear that you did a parlay, we can’t be related. So like stop betting. Betting is different than investing. Right? So if, if, if Shane at at Poly market and their partners of ours, if they, if Shane or tq at at call sheet had pitched me those ideas at the same time that Robinhood pitched me their idea, I would’ve passed. Why? I don’t bet. I think it’s stupid. Right? Okay. Like I think it’s funny and I think prediction markets are news better than the New York Times. No offense because I like prediction markets. ’cause I don’t have an opinion. I just look at the price and I go whether I believe it or not. I think that’s the genius of it. But if, if Poly Market and Kashi went out to VCs and said, we’re the new news, their valuation would be a dollar. Right. Okay. No, they’re so we know the real story. They can’t tell what they really are good at, which is news.

1:07:41  Barry Ritholtz: And by the way, they’re not great at news. I understand.

1:07:43  Howard Lindzon: But either is news good at news? It’s

1:07:45  Barry Ritholtz: Probability of something happening.

1:07:48  Howard Lindzon: Not, but I’d rather not read someone’s opinion. I don’t need to see Elon’s finger on the news. ’cause that’s a stor. There’s, that’s not the real story. Give me the numbers. I know it’s fake, but I got a number. It, it’s not, if Mond isn’t 90% of my daughter’s mad. Right? But go Rachel, here’s what you do. That bet the other side you’ll make eight times. Or or

1:08:07  Barry Ritholtz: Put it’s 10 to one.

1:08:08  Howard Lindzon: 10 to one. But I would bet money on Madami. And if you really wanna change how you think about the world, go help somebody on the other side who has a chance go put in the time. Go help Mark Cuban if you really want to be,

1:08:19  Barry Ritholtz: I love what he’s doing on the healthcare side.

1:08:20  Howard Lindzon: But what I’m saying to my daughter, I said, call Mark, I’ll get you in touch with Mark. Do something but just complaining about the numbers that you see and the numbers were right. Whether, whether they, whether they tipped it in this, again, I don’t wanna get into all like the fraud and all the fake stuff about it, but the numbers are much easier than reading an opinion piece.

1:08:38  Barry Ritholtz: I’m gonna, can I tell share something fun. So yeah. So there was some of the early bets about outcome of the war and different events happening. And I said in a quarterly call, Hey, I don’t really know who’s putting, we don’t know who’s putting these bets in. Yeah. But if you stop and think about it, if you’re negotiating with another side, this being a psyop, ’cause you spent half a million dollars to move the outcome of something, that’s the least money the Department of Defense will ever spend. And anybody on this side is looking at this. Oh, they’re, they’re really gonna put boots on the ground. That’s look at the track record here. Here. Here’s A-A-A-A-A wallet that’s 10 for 10. Oh my God. We have to stop and think about, you don’t really know who’s using this, who’s betting this, who’s manipulating. But we didn’t know that guy who got arrested. That was a throwaway. That’s a, it’s still better. That’s

1:09:33  Howard Lindzon: A false flag. It’s still better than Russia and China using our social media against

1:09:37  Barry Ritholtz: Us. Oh my

1:09:37  Howard Lindzon: God. It’s forced. So I’m very forced.

1:09:39  Barry Ritholtz: And North Korea and Iran.

1:09:41  Howard Lindzon: Yeah. So I’m not saying I’m for, I’m an investor in poly market and college personally at crazy valuation. ’cause I wouldn’t have invested, like I just chased it in, in s pv

1:09:50  Barry Ritholtz: Personally the, the co founder of Calci, the woman, what’s her name? I

1:09:56  Howard Lindzon: Don’t know, but I know it’s a woman. I just can’t

1:09:58  Barry Ritholtz: Remember her name. No, she was a guest on the podcast and I was she great. She was really good. This is years ago. Yeah. I, I’m not this three years ago I should never even thought to put money into it. So

1:10:06  Howard Lindzon: That’s what I’m saying because I

1:10:07  Barry Ritholtz: Don’t, it felt sounded more academic than anything.

1:10:09  Howard Lindzon: It was academic. Yeah. And it still is because there’s very few people using these products for all the free press. It’s like Twitter. There’s very few people using Twitter. Right. All, well, Twitter,

1:10:19  Barry Ritholtz: Press aside. Well Twitters started getting the drain at this point. No,

1:10:21  Howard Lindzon: But I’m saying at the beginning it had a lot of power even though there weren’t that many users.

1:10:25  Barry Ritholtz: It was, it was, you know, it was a fraction of Instagram or TikTok. So put markets

1:10:30  Howard Lindzon: Is the same a fraction. It’s a fraction of the news. But I’d rather my son and daughter go to page two of Poly Market. ’cause you know what? They’re gonna see news that they didn’t, wouldn’t never look at it in the New York Times and go look at the election in Peru and now at least I’ll know the names

1:10:45  Barry Ritholtz: Or Venezuela for that or

1:10:46  Howard Lindzon: Venezuela. So I am super bullish for different reasons on prediction markets. And I know there’s like, obviously I have money on this

1:10:53  Barry Ritholtz: Side and this fits right into the Degeneracy index. It fits completely.

1:10:57  Howard Lindzon: How

1:10:57  Barry Ritholtz: Long does the DEN index run for? Is this a short term thing or does this have legs?

1:11:02  Howard Lindzon: Great question. That’s why I don’t want to charge for it. ’cause I think I’m a elect. ’cause Google and Apple are my biggest positions because they are the rails for the degenerative economy. They are the front facing tool of it.

1:11:14  Barry Ritholtz: And Apple ’cause of the phones and mobile, Google and

1:11:16  Howard Lindzon: Google ’cause of the phones and YouTube and the on YouTube store course the casino games all run on the app stores. Right. Like the free games that you have, they make a fortune

1:11:25  Barry Ritholtz: Off that Apple. Apple. Why not Amazon or Facebook? Amazon

1:11:27  Howard Lindzon: Just added to the beginning of the year ’cause of robots, axons in the

1:11:32  Barry Ritholtz: Portfolio. Not close to the Amazon web service ’cause of robots.

1:11:34  Howard Lindzon: Yeah, I mean it’s just am You can’t not own Amazon at this era in degenerate economy. ’cause they’re the center of it. Again, that’s which robot,

1:11:41  Barry Ritholtz: Which robot shops do. Like

1:11:42  Howard Lindzon: You can argue is a degenerate economy. But you have to own any

1:11:45  Barry Ritholtz: Of the robot builders you like.

1:11:46  Howard Lindzon: No. ’cause they’re too early. I mean personal investor in a few, but Clear, secure,

1:11:50  Barry Ritholtz: Give us some

1:11:51  Howard Lindzon: Names. Apron, which is just massive. Right. But again, it’s a personal investment. You

1:11:56  Barry Ritholtz: Have any interest in what Elon is doing with Gro and I

1:12:02  Howard Lindzon: Mean Yeah, but it’s a holding company. Like I, I don’t know what position.

1:12:05  Barry Ritholtz: It’s kind of random.

1:12:06  Howard Lindzon: So, so meaning

1:12:07  Barry Ritholtz: Tesla is a holding company for everything but SpaceX

1:12:10  Howard Lindzon: Or is that space gonna be the entity that goes public for

1:12:13  Barry Ritholtz: Space? SpaceX? I thought it was SpaceX.

1:12:14  Howard Lindzon: No, but I’m saying to SpaceX, why does he need two tickers? Like again, I don’t understand what the final being is. So why do I need to own some Elon holding company? I think I’m stupid. So

1:12:24  Barry Ritholtz: Because you’re betting on him and you don’t think he’s,

1:12:26  Howard Lindzon: Who cares? I’d rather bet on something. I understand.

1:12:29  Barry Ritholtz: Amazon, I’m with you. I’m not, I don’t disagree. I’m trying to

1:12:31  Howard Lindzon: F figure. Yeah. Another recent ad is it’s already doubled. It’s clear, secure, you know, clear. When you go through it, it’s lot clear. So to me if the world’s degenerate, you need security. So it’s more secure. It’s clear. Clear’s been a home run. They don’t have a lot of tech, but the great brand. Yeah.

1:12:45  Barry Ritholtz: And I thought they have tech isn’t it?

1:12:48  Howard Lindzon: I think they license a lot of the

1:12:49  Barry Ritholtz: Tech every, oh that’s not theirs. They don’t

1:12:51  Howard Lindzon: Own it. Yeah. So again, once you dig into a story, my conviction comes like how much of this they own, but they’re a hell of a brand and that the company’s been around forever

1:12:58  Barry Ritholtz: And they have the relationships. They’ve failed many times with FAA on the

1:13:01  Howard Lindzon: Airports and they can do so much more around stadiums. The brand matters.

1:13:05  Barry Ritholtz: What are you talking about? You go to watch a Nick game. It’s clear. It’s clear. Okay. You use clear on the way in.

1:13:10  Howard Lindzon: That was my bet. It’s just a clear trend. No one ever talks about it too. So it’s a massive uptrend and broke out and you never hear people talk about it. I like

1:13:20  Barry Ritholtz: You use either Chase Reserve or Amex, I wanna say platinum. You get, you get a credit towards any travel and Clear is just an automatic, it’s no brainer. Yeah. I’m Is it $150 a year? It’s fantastic.

1:13:34  Howard Lindzon: It’s, my son would call me and goes, that’s the greatest gift you ever got, man. I’m like, wow. When a 20-year-old knows something and an 80-year-old knows something. Those are good trends. Yeah. You know that’s a brand. Yeah. When it just a 20-year-old knows it not a brand.

1:13:45  Barry Ritholtz: Maybe it catches on. Maybe it doesn’t. Yeah.

1:13:47  Howard Lindzon: C-B-O-E-I love it. ’cause they power the whole thing. You can’t do this without C-B-O-E-C-M-E. The Merck, you know, is, you know, the New York Stock Exchange. Let

1:13:58  Barry Ritholtz: Me ask you a question, a direct investing question before we get to our favorite questions that I, I think a lot of investors have a hard time with. I started on a trading desk, so I’m okay with losses. It’s a given. But if you say to somebody, I want you to put a little money into these 10 or 20 stocks, half of them are gonna go outta business. Yeah. Maybe five or break even. You’ll make money on a couple and maybe one’s a home run. How do you deal with that? Really Fathead long tail. You not a math

1:14:29  Howard Lindzon: Guy indexing. I’m so into indexing. No, I

1:14:32  Barry Ritholtz: Mean on your, on your private seed state, like most of the seed investments you’re gonna make aren’t gonna give you return. It’s a great

1:14:40  Howard Lindzon: Question.

1:14:40  Barry Ritholtz: Return.

1:14:41  Howard Lindzon: I’m

1:14:42  Barry Ritholtz: Bearish. Do. Oh, I’m wrong all the time. I’m just

1:14:44  Howard Lindzon: Bearish on my industry. Right. I’d never, I believe it was a moment in time with Zer. I think it got the country through its unintended circumstances. We live in all these unintended circumstances.

1:14:55  Barry Ritholtz: Consequences, right?

1:14:56  Howard Lindzon: Yeah. Or ci. Yeah. Unintended consequences. Sorry,

1:14:59  Barry Ritholtz: By the way, not that you 60 wealthy, that happens a whole lot more.

1:15:02  Howard Lindzon: I’m wealthy just born at the right time. Lot of unintended circumstances. Zer is a good thing. Right? I’m not saying, I’m not saying I shouldn’t be ashamed, but

1:15:09  Barry Ritholtz: If you have assets, if you’re, if you’re a Yeah, a working stiff, it’s like I used to be, it was tough. Yeah.

1:15:15  Howard Lindzon: S and ps at all time highs, cash levels at all time highs. If I hear those two things together, what do I think of inflation? Right? It just has never been a better time to have assets. Right. It doesn’t mean I don’t know when it’s gonna end. I have cash and stocks. It’s a double whammy. The, the, so I’m lucky. I am so bearish on what I do for a living. Meaning what value do I add in a world of 6% interest rates tying someone up for 10 years when I could go buy sand disk right. In the public markets and get 6000% in a year. I’m not saying I’m smart enough to hold these things right? But in a world where Robinhood and a thousand Robin Hoods are gonna bloom, if you’re asking me my biggest bet, public markets do the work. You have an analyst in Claude, right? You can go see beaten up, no one’s following any stock. Everybody’s momentum investing. Go find 10 companies. So let, why would you do a startup investing? Every kid wants to be an angel investor. I’m like, dude, do it in the public markets. You have liquidity and you’re not locking up your clients for 10 years. But

1:16:17  Barry Ritholtz: You’re not answering my question. Okay. Which is how do you as an investor deal with the psychology of knowing most of your seed investments aren’t gonna work out? Is it just the nature of the beast? No. Or does that weigh on you at

1:16:33  Howard Lindzon: All? No, I think it, it aligned with how I thought of the world as as, as someone who believes their high integrity wishes, who, who wants people to believe they’re high integrity for my kids’ sake. And you know, the integrity of telling my investors that upfront is the release. Meaning I’m not telling my investors we’re gonna be 90% hit rate. If you give me money, you’re gonna hate me because you’re going to think the idea that I love is the dumbest idea. The Robinhood quote

1:17:02  Barry Ritholtz: Unquote Yeah. Dumbest idea I’ve ever had.

1:17:04  Howard Lindzon: You are betting on me to hang 30 pieces of art in Ma Howie’s gallery that Larry David Gallery and you will pick, and if I gave you the choice to invest in all 30, you would pick the two that went to zero. So you’re betting on me to dece the world my way. And then I’m not telling you we’re gonna make a hundred times our money, but my job is to find one company that’s a hundred bagger. Ah, okay. So I, so I have to know math, I have to do this, I have to have just get yelled up by my LPs when they read our quarterly letters and go, that was the dumbest idea. I’m like, you’re right. Like I’m embarrassed. But our job is to find a Robinhood and we found many of them, you know, life flock, Robinhood beehive. We just got one called alpaca. Again, a trend with no

1:17:48  Barry Ritholtz: Ai,

1:17:49  Howard Lindzon: Alpaca powers, a thousand Robin Hoods around the world. They’re like the eight modern apex. So I’m saying like, our job is to know what we know, take crazy bets and and sell that to our LPs is like, you’re investing for 10 years. This is like, you know, it’s not as good as it was in 2013 when rates were zero and, and, and now it’s a different game again. And I’m thinking like with you’ve got Claude and you can do an an, you can analyze the stock in like three seconds. I’m like the, the the, the everyone’s a CFA all of a sudden if they wanna be. Right. What a great time to be a public market investor. And yet everybody wants to be a private investor. So again,

1:18:29  Barry Ritholtz: It’s a it’s so funny coming from you. Yeah.

1:18:31  Howard Lindzon: Special. No, 2020. I’ve been writing about this since COVID is like, public markets are amazing because there’s so many stupid people making dumb bets on Robinhood and dislocation is everywhere and it’s only getting worse.

1:18:44  Barry Ritholtz: And the degenerative economy is gonna Dr. Continue driving this theme.

1:18:47  Howard Lindzon: Yes. And I think most people should index, but everybody should learn how to pick stocks too in this era.

1:18:53  Barry Ritholtz: I gotcha. Yeah. Alright, so it’s almost midnight. I only have you for a few minutes more and you have to end up at, at your events tonight. Cash awards tonight. Yeah. Cash Egg Awards

1:19:01  Howard Lindzon: And Breaking News. October Fest. October 6th. Coming back to New York. That’s our big event where

1:19:06  Barry Ritholtz: That’s

1:19:07  Howard Lindzon: Exciting. Yeah. A thousand people on the west side.

1:19:09  Barry Ritholtz: I’m, I am looking forward to that.

1:19:10  Howard Lindzon: October 6th if you want come hit me up.

1:19:12  Barry Ritholtz: Let’s do our speed round. Five questions,

1:19:16  Howard Lindzon: Two hours,

1:19:17  Barry Ritholtz: 10 seconds each. Okay. I’m gonna jump right into it. Starting with

1:19:21  Howard Lindzon: Boxers,

1:19:22  Barry Ritholtz: Who were your early mentors who helped shape your career?

1:19:26  Howard Lindzon: I think part, I hate saying this, I didn’t have good early mentorships, so I I really take pride in mentoring other people because I think Who

1:19:34  Barry Ritholtz: Were your later mentors? I hear Fred Wilson the

1:19:36  Howard Lindzon: Time. Yeah, you like people that I discovered, like the mentorship came from the community being the mentor led me, like Stock Twit being a giver opened me up to get mentorship. I think young kids are not getting good mentorship.

1:19:48  Barry Ritholtz: So just pure Karma. Karma. I love that. What are some of your favorite books? What are you reading right now? I know what you’re reading next. What are you reading now? Yeah,

1:19:56  Howard Lindzon: I got your, but I don’t read.

1:19:58  Barry Ritholtz: You’re on flights all the time. What do you do? Just movies.

1:20:02  Howard Lindzon: I’m so addicted to like HBO, Amazon.

1:20:06  Barry Ritholtz: So you’re watching series. Yeah, I

1:20:07  Howard Lindzon: Built, I’m just very into content

1:20:08  Barry Ritholtz: That content’s my next

1:20:09  Howard Lindzon: Question. What? But hang on. So you’re asking books. I still love the classic Shoe Dog for business. You know Phil Knight’s book? I love that. That was fun. I guess he’s biography. I I like stuff. I just, I just, my brain doesn’t work with books.

1:20:21  Barry Ritholtz: Huh. That’s really interesting. Yeah. Tell us what you’re watching on Netflix. HBO Amazon.

1:20:27  Howard Lindzon: I just rewatched the Nick. Have you watched the Nick on HBO Soderberg? Why does that sound so familiar? Oh, it’s about the 19 hundreds. The Knickerbocker Hospital.

1:20:35  Barry Ritholtz: No, I did not watch that best show. Really?

1:20:37  Howard Lindzon: This season it’s about, it’s like surgery wasn’t done until like Barbers used to do surgery in 1900. Right. All the rich oil guys started backing hospitals and that was the original tech surgery was tech. And it’s just an incredible period piece about the 19 hundreds and soho in New York,

1:20:57  Barry Ritholtz: Huh? I’ll check that out on hbo. It’s, give us one more.

1:21:00  Howard Lindzon: There’s very little good stuff on tv. I think Rooster’s pretty

1:21:03  Barry Ritholtz: Good. Can I tell you something from HBO

1:21:04  Howard Lindzon: Rooster’s

1:21:05  Barry Ritholtz: Is funny. You have that backwards. There’s okay, there’s too much to stuff,

1:21:07  Howard Lindzon: But I think I’ve seen it all.

1:21:08  Barry Ritholtz: Have you seen Landman

1:21:10  Howard Lindzon: Great. But that’s, that’s more like Harlequin romance kind of series. They’re fun to watch and the kids like ’em too.

1:21:16  Barry Ritholtz: Okay. But the Nick

1:21:17  Howard Lindzon: You’ll love ’cause it’s

1:21:18  Barry Ritholtz: Superior piece. You see three Body Problem if you want something a little more.

1:21:21  Howard Lindzon: No, but that’s sci-fi I think. I don’t like sci-fi.

1:21:23  Barry Ritholtz: You don’t like sci-fi? No, I just, so you didn’t watch The Expanse?

1:21:27  Howard Lindzon: No, I didn’t like that either. Oh my gosh. I try it and I never get into it, huh?

1:21:30  Barry Ritholtz: Yeah, that’s interesting. I like

1:21:32  Howard Lindzon: Degenerate stuff.

1:21:33  Barry Ritholtz: How do you feel about Spy, that sort of stuff? I love him killing Eve.

1:21:39  Howard Lindzon: Killing is good, was great. I like spice. I can rarely follow it. Well nine because I, I start have you start dozing up. Yeah, it was good.

1:21:46  Barry Ritholtz: Wow. Yeah. Really. How about any of the British period pieces? I,

1:21:49  Howard Lindzon: I love Brit Box. I watch

1:21:51  Barry Ritholtz: Bri Box. Alright, so the Crown Bridge, Bridger Tin,

1:21:54  Howard Lindzon: Not Bridgeton, but Brit Box is a great channel. Yeah, there’s that criter criterion for old movies.

1:22:01  Barry Ritholtz: If you have Brit Box, go back and watch. What was the name of that show? There was a show that came out around the same time as friends only coupling. And it had, oh, I’ll watch it. It has teeth. It’s, I mean, everything from the nineties is a little dated, but whereas friends was kind of milk toast and mushy. This has a sharp edge and it’s British, so it’s nasty and funny in a way that only the Brits can do.

1:22:28  Howard Lindzon: Okay. Yeah. So I’m a media fanatic, but not like I’m weird and I’m know that so bullish on YouTube, apple tv, YouTube

1:22:37  Barry Ritholtz: Is just great.

1:22:37  Howard Lindzon: I just love YouTube.

1:22:39  Barry Ritholtz: All right, so final two questions. What sort of advice would you give to a college grad interested in either becoming a seed investor or a startup entrepreneur?

1:22:53  Howard Lindzon: Well, I think there’s no shame in being a number two, number three or number four. So chief of staff is the new CEO. So go be someone’s chief of staff. Like, don’t worry about pay or title. Worry about finding something that’s working this way. It’s, it’s much easier to go work for a company that’s just working. So go like, ignore the title, ignore

1:23:16  Barry Ritholtz: Low end job at a,

1:23:17  Howard Lindzon: Ignore the salary, right? Find a rocket ship and attach yourself, whether it’s manscape, you’re gonna learn more. You’re either, you’re gonna be smarter people around, there’s gonna be, you know, less aggravation, more work, but hey, like, if you’re really serious,

1:23:32  Barry Ritholtz: But you gotta grind it out.

1:23:33  Howard Lindzon: I tell my daughter is like, if you’re really serious about this, it’s gonna take a lot of work, but go do it. If you’re not serious, be a socialist. Like, it’s okay, but like, don’t commit, don’t fool yourself. Like go work for a rocket ship. Otherwise, dude, who are you talking to? So like, there’s no room anymore for these kids that, like, if you wanna start a company, do you know it’s 24 7? Right? And if you, and no one’s gonna like you. And if you wanna be a number two, do you know what it takes to be a number two? So I’m like, be honest, but like, go work for a company that’s working

1:24:06  Barry Ritholtz: More. And our final question, what do you know about the world’s of venture and, and seed investing today that would’ve been helpful 65, 70 years ago when you were first getting started?

1:24:17  Howard Lindzon: No, I think I luckily got the right mentorship entered at the right time. I think you have to do it for a while. You gotta get a crop, like if you’re gonna go do wine or weather matters. And same with tech. Like what matters with tech is you have to get, if you, if you were of the Google Glass era, not much worked, right? If you were in the Blackberry Fund 2008, no go. No go baby. So, so

1:24:39  Barry Ritholtz: Unless, unless you could have been an early investor in Apple or when they were public, when the iPhone

1:24:44  Howard Lindzon: First came out, I, I think the public markets are underappreciated because seed investing became cool because of Zuckerberg and because of a few of these rocket ships. See, I

1:24:51  Barry Ritholtz: Thought seed investing or venture investing really became cool in the nineties and then in the 2000 it kind of faded. No, it became,

1:24:59  Howard Lindzon: No, it’s never been more in, it’s never been more loved

1:25:03  Barry Ritholtz: Today. Oh,

1:25:04  Howard Lindzon: I go see these young kids, they, it seems like they know nothing and they all wanna be venture invested. I’m like, yeah. Have you ever bought a stock, like you get wounded like day one, like stock drops 20%. Like go open a Robinhood account and learn how to invest. Like if you don’t know the public markets, what are you doing in the private markets?

1:25:21  Barry Ritholtz: Gotta graduate to private.

1:25:22  Howard Lindzon: Yeah. I think the most, the guys that got who were interesting to me, and I’m not saying they still are the crossover investors, the people that like knew the public markets and then started doing private. And I think that was my edge. I knew how pricing worked, how mar whether I was right or wrong. I understood how markets worked and the seed investing, the prices made sense to me relative to public markets. Now the prices in private markets make no sense to me,

1:25:43  Barry Ritholtz: Howard, it is always a blast. When you come in, you’re bucking Bronco. I never know where we’re gonna go. You are not Larry David, you are the Zach Galifianakis. Oh, I love Zach of, of finance. He was

1:25:56  Howard Lindzon: Just on Conan watch out episode.

1:25:57  Barry Ritholtz: I should, I should put two ferns in here just for your arrival. Thank you, by the way, for, for being so generous with your time. And good luck at the cash tags. Thank you awards tonight.

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The post Transcript: Howard Lindzon, Social Leverage appeared first on The Big Picture.

This week, I speak with Howard Lindzon, co-founder and CEO of StockTwits, and founder and managing partner at Social Leverage. His podcast is podcast is Panic with Friends. We discuss his outlook for venture capital investing, including what he sees as potentially profitable from human behavior.

Our original recording in April was postponed because Howard accidentally severed a finger completely — he had to have it surgically reattached.

His current favorite book is here; a transcript of our conversation will be available here tomorrow.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Joe McLean, Managing Partner at MAI Capital Management, where he leads firm’s Sports & Entertainment division, serving 100s of pro athletes/entertainers across NBA, NFL, MLB, PGA + NASCAR. His path to finance runs directly through the locker room as a 4-year NCAA Division 1 player at U of Arizona. Dubbed the athlete’s “Money Whisperer” by the New York Times, he is known for his non-negotiable 60% savings mandate for clients.

Current Reading/Favorite Books

The post MiB: Howard Lindzon, Social Leverage appeared first on The Big Picture.

At The Money: Focusing on Growth (Not Market Cap) with Rob Arnott, RAFI (May 7, 2026)

Indexes are weighted by their size, primarily market cap. Research Affiliates’ latest index focuses on Growth, rejiggering these indexes based on how fast companies are growing.

Full transcript below.

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About this week’s guest:

Rob Arnott is known as the “godfather of smart beta” and founder of Research Affiliates, which oversees strategies for over $100 billion in assets.

For more info, see:

Professional Bio

Masters in Business

LinkedIn

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Find all of the previous At the Money episodes here, and in the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg. And find the entire musical playlist of all the songs I have used on At the Money on Spotify

TRANSCRIPT: Rob Arnott on the Research Affiliates Growth Index

Intro
Take a load off Fanny
And (and, and) you put the load right on me
(You put the load right on me)

Barry Ritholtz: Traditional market-cap-weighted indexes like the S&P 500 have really done a great job in dominating investor inflows. But today there are concerns that cap weighting is leading to increased market concentration into just a handful of stocks, especially the Mag Seven, higher valuations, and increased risks for investors. How should an index investor think about this? Well, to help us unpack all of it and what it means for your portfolio, let’s bring in Rob Arnott, founder of Research Affiliates. The firm recently put out the Research Affiliates Growth Index, which is different from both cap-weighted ETFs, but also different from equal-weight ETFs.

Barry Ritholtz: So I’m fascinated by this index, which you guys put out. You’re tracking it live today. It’s not yet investible, but I assume there’ll be an ETF out sooner rather than later. Define Raffi. Define the Research Affiliates Growth Index. What are the weights based on? How do you think about alternatives to cap-weighted growth?

Rob Arnott: Sure. Let’s back up just a little bit and challenge one of the basic principles of modern investing and modern finance—the principle that there’s this binary duality of growth and value. If it’s not value, it’s growth. If it’s not growth, it’s value. Pardon me? Those are not one-dimensional. Those are two dimensions. You can have cheap and expensive. You can have fast and slow growing—two completely different dimensions. Our industry has had a fixation on this simple duality, where if it’s cheap, it’s value, and if it’s expensive, it’s growth. No, if it’s expensive, it’s expensive—it’s much simpler. If it’s growth, it’s growth.

Rob Arnott: So to my astonishment, looking back, cap weighted indexing goes back to the fifties as investible portfolios, and growth indexes to the late seventies, and investible growth strategies to the 1980s. Nobody has posed the question, why don’t we look at this fundamentally? Instead of based on valuations, nobody has asked the question, why don’t we create an index that chooses growth stocks based on how fast they’re growing and weights growth stocks based on how big their dollar contribution to the growth of the macro economy is? If you do that—if you choose companies that are growing rapidly and you weight them on the dollar magnitude of that growth—you wind up with an index that over the last 30 years would’ve outperformed Russell Growth by four and a half percent per annum going back almost 30 years.

Barry Ritholtz: Russell Growth, not Russell Value.

Rob Arnott: Correct.

Barry Ritholtz: So if that’s the case, what are we selecting on? It’s not just cap weight, I’m assuming. And I’ve read some of the research—you’re looking at increasing sales, increasing profits, increasing R&D. Explain what goes into the Raffi Growth Index.

Rob Arnott: Sure. Well, there’s an article coming out in the next issue of the Financial Analyst Journal that takes a deep dive. So anyone who’s got access to the FAJ, take a look. For the moment, you can also find it on SSRN—just look up “Arnott Fundamental Growth” and it’ll take you right there. Anyway, if you wanted a growth index that didn’t anchor on expensive stocks but anchored on fast growing companies, how would you instinctively choose to measure that growth? Sales, profits—those are the obvious choices. Slightly less obvious: most growth companies have R&D, and it’s a big enough part of their business that they break it out as a separate item in their P&L. So what about growth in R&D? Because if they’re shrinking their R&D budget, that’s a bad sign. So if you have three different growth rates—growth in sales, growth in profits, and growth in R&D spending—if R&D is available, use all three; if not, use two of the three. You average those growth rates and you’ve got a very good gauge of how fast the company is growing. If it’s growing rapidly enough to be in the top 25%, let’s use it.

Rob Arnott: Here’s a fun factoid: two of the Magnificent Seven don’t make the cut for the Raffi Growth Index.

Barry Ritholtz: Huh? Really? Which two?

Rob Arnott: Take a guess.

Barry Ritholtz: So who’s cutting way back on their R&D and not seeing increases in revenue? Apple and Amazon. I’m just spitballing.

Rob Arnott: You got one out of two.

Barry Ritholtz: So Apple is the first one. Amazon?

Rob Arnott: Amazon. Amazon and Microsoft. Both were growing incredibly fast in the 2010s and have been growing nicely in the 2020s, but not fast enough to make the cut. So they’re left out of the Raffi Growth Index.

Rob Arnott: The index is on Bloomberg—it has been since last March—and it’s already 13 percentage points in less than a year ahead of Russell Growth. So the idea works and it’s exciting. I wish I was on your show to announce that it’s an investible ETF or mutual fund. Not yet.

Barry Ritholtz: When it comes out, when it becomes investible, we’ll have you back. I want to ask you a question about dollar magnitude as opposed to percentage magnitude of growth. Every metric I see is almost always a percentage. You are looking at absolute dollars of growth. Explain the thinking behind this. How does it manifest in performance? How does it work?

Rob Arnott: We select based on percentage growth. You could have a huge company that has sales grow by a hundred billion in a year, and it’s only 10% growth—right? Or 5% growth. And if that’s the case, it’s not a particularly fast-growing company. So percentage growth is used to choose the companies. Now, the two biggest stocks in Raffi Growth are Nvidia and Apple. One has had stupendous growth from a low base. One has had good growth from a high base. Both have had percentage growth fast enough to make the cut. They are both a little over 10% of our index. Now, think what that means. If it’s a 10% weight, that means Nvidia has singularly, all by itself, been 10% of the sales or profit growth in the aggregate US economy.

Barry Ritholtz: Wow.

Rob Arnott: Huge. Apple has been 10% of the aggregate growth in sales or profits of the US economy. So by weighting companies in proportion to the dollar magnitude, you’re not going to introduce a bias toward frothy tiny companies that have had just a big percentage surge. You could have a tiny company that’s grown tenfold, and if you weight it by that tenfold growth, it’s going to get a huge weight—and it’s a tiny company. It might be a flash in the pan.

Barry Ritholtz: So in other words, the percentage gains matter, but so too do the real dollar gains.

Rob Arnott: Exactly right.

Barry Ritholtz: I understand that. So I’m curious about the volatility of this versus traditional cap weighting indexes. How does this compare? Are you getting better performance, but you have to live with a little more volatility?

Rob Arnott: The short answer is you have to live with a little bit more volatility, and you have to live with occasional periods when it will underperform. On average over the last 28 years, it adds four and a half percent a year, plus or minus 7%. So in just a normal disappointing year, it’s going to underperform by about two. In a normal, excellent year, it’s going to outperform by about 12. So since we launched last March, the 13% outperformance means this is a very typical, very normal good year. You have to be willing to take a little bit of volatility, but if you go back, you find that it wins about seven out of 10 years.

Barry Ritholtz: Wow. That’s pretty cool, to say the very least. So, since we’re talking about a lot of, not just large-cap companies, but companies with a substantial economic footprint, my assumption is there aren’t a whole lot of capacity or liquidity constraints. I’m assuming this can ramp up just like an S&P index or what have you.

Rob Arnott: Short answer to your question is, current AUM is zero, so there’s loads of capacity. Longer answer: An educated guess would be that it has about four times the turnover of the S&P, maybe five. So just on that alone, its capacity would be a fourth or a fifth of the S&P. It’s also tilted toward a particular category, not the whole broad market—so that would suggest another haircut. I think its capacity would be 10 to 20% of the S&P. Given that there’s about 15 trillion indexed to the S&P, that would give us something on the order of one and a half to 3 trillion as a capacity.

Barry Ritholtz: So plenty of capacity. Last question. I’ve been watching various narratives come into favor and then fade. We went through a whole blockchain crypto set of narratives. AI seems to be in the midst of its various narratives. When you think about the Research Affiliates Growth Index—the fundamental growth index—does the dominant narrative matter, or is it just redefining its constituents based on what is best working today, what is seeing the highest increases in revenue, profits, and research and development spending?

Rob Arnott: Well, between Raffi—the fundamental index, which has a stark value tilt—and Raffi Growth, which has a stark growth tilt, I like to think that we’re launching a revolution in indexing. I mean, the runway for this is huge. One other observation: we’re quantitative investors. We love testing things. Quantitative investors are addicted to data mining—go back historically and ask, what can I construct that’s worked? We don’t do that. The scientific method means you start with a hypothesis and you only use the data to test the hypothesis. Our hypothesis was: if you select companies on how fast they’re growing and weight them on the magnitude of their contribution to economic growth, this is an idea that might work pretty darn well. And lo and behold, it does. The back tests of Raffi when we launched it 20 years ago showed about 2% value add relative to the cap-weighted value. It’s added two to two and a half percent live for 20 years. So you don’t fall into the trap of creating a strategy that looks great in a back test and falls apart instantly.

Barry Ritholtz: I’m so glad you said that, because when do you ever see a bad back test? All back tests are great, that you—

Rob Arnott: I see lots of bad back tests.

Barry Ritholtz: Oh, no. I mean the ones that get—

Rob Arnott: And I would never promote it.

Barry Ritholtz: The back tests that get shared are the ones that—of course they are. Totally. And inherent in every back test is the concept that the future is going to look like the past. And very often we see the future does not look like the past. So the back tests fail. Many back tests that look great fail to perform in real life.

Rob Arnott: That’s exactly right. Because the world changes. And if you’re doing a back test to create a better back test—

Barry Ritholtz: Right. That’s right.

Rob Arnott: That’s the epitome of data mining, and it’s endemic in our business.

Barry Ritholtz: Absolutely. So Rob, when this comes out as an investible product—be it an ETF or an SMA or a mutual fund—come back, tell us about it.

Rob Arnott: I’m not sure it will, because I’m trying to keep it secret. It’s so good.

Barry Ritholtz: Well, you and Jim Simons—like, kick out all the outside investors and just keep your own money so it works well. So to wrap up: if you’re concerned about cap weight, if you’re concerned about market concentration or valuation, take a look at the Research Affiliates Growth Index. It’s not market cap weighted, it’s not yet investible, but I know Research Affiliates and I’m pretty confident there will be an ETF for you to put money into at some point in the future. I’m Barry Ritholtz. You’ve been listening to Bloomberg’s At the Money.

~~~

Find our entire music playlist for At the Money on Spotify.

The post ATM: Focusing on Growth (Not Market Cap) appeared first on The Big Picture.

The paperback of “How NOT to Invest” drops this week; to celebrate, this whole week I am running various stories and excerpts about the book. 

This short, Beatles-related excerpt from the book was one of my favorite chapters to write… Enjoy!

Is there any greater gap between “Expert Opinion” and subsequent history than The Beatles?

AllMusic sums up the Fab Four as “The most popular and influential rock act of all time, a band that blazed several new trails for popular music.”1 That’s obvious today, but it was not the consensus early in their career.

Many amusing details were recounted by Bob Seawright is his “Better Letter.” Nobody skewers humanity’s cognitive failings with more amusing flair than Seawright. He giddily recounted the early reviews of the Beatles when they first came to America. At the time, they had five singles in Britain’s Top 20, three of which hit #1 – all in 1963. Their debut album, “Please Please Me,” held the top spot on Britain’s charts for 30 weeks, displaced only by the band’s next album, “With the Beatles.“

Despite the sensation they were causing in Great Britain, The Beatles’ record label (EMI) could not persuade its American counterpart (Capitol) to release any of the band’s singles in the States. Dave Dexter was the man in charge of international A&R for Capitol, and ostensibly an industry expert on the public’s musical tastes. He repeatedly rejected The Beatles’ singles, calling them “generally amateurish and unappealing.” One after another, Dexter vetoed those singles tearing up the charts in the UK, starting with “Please Please Me” and “She Loves You.”

Ed Sullivan had also turned down the Fab Four (twice) for his television show. He was by coincidence at London (now Heathrow) Airport when he witnessed “Beatlemania” firsthand. The band was returning home from a tour in Sweden, greeted by a raucous, screaming mob of teenage girls. That convinced Sullivan to book the lads.2

The Ed Sullivan Show was a huge platform for breaking new acts, and Capitol decided to release “I Want to Hold Your Hand” a few weeks before The Beatles’ appearance. This was not some insightful exec reversing Dexter’s misguided rejections or a change of musical heart but rather, simply good corporate opportunism. How could you not capitalize on the demand one of the country’s most popular TV shows might create?

And how did the Sullivan Show go? 3

The Beatles played five songs on two broadcast segments, ending with “I Want to Hold Your Hand.”  Ray Bloch, Ed Sullivan’s musical director, was unimpressed: “The only thing different is the hair, as far as I can see. I give them a year.” 4

He was not alone in panning the appearance. Seawright collected a string of headlines and reviews that have not aged particularly well:

The New York Herald Tribune: “BEATLES BOMB ON TV.”

The Boston Globe: “Don’t let the Beatles bother you. If you don’t think about them they will go away and in a few more years they will probably be bald.”

The New York Times: “The Beatles’ vocal quality can be described as hoarsely incoherent, with the minimal enunciation necessary to communicate the schematic texts.”

The Los Angeles Times: “Not even their mothers would claim that they sing well.”

The New York Herald Tribune: “75 percent publicity, 20 percent haircut and 5 percent lilting lament.”

Talk about “Nobody Knows Anything.”

It wasn’t just that the reviews missed the mark. What is noteworthy is all of biases evident in those critiques. This is also evident in the prior section on Media (later on, we explore what causes this).

Consider Newsweek:

“Visually they are a nightmare, tight, dandified Edwardian-Beatnik suits and great pudding bowls of hair. Musically they are a near disaster, guitars and drums slamming out a merciless beat that does away with secondary rhythms, harmony and melody.” (emphasis added)

Whether you like their songs or not, The Beatles’ harmonies and melodies are simply not debatable. The musicality and beauty of their songs is simply beyond reproach.

And this was The Washington Post revealing their inside-the-beltway angle:

“They are, apparently, part of some kind of malicious, bi-lateral entertainment trade agreement. The British have to sit through dozens of dreadful American television programs. In return, we get The Beatles. As usual, we got gypped. Nothing we have exported in recent years quite justifies imported hillbillies who look like sheep dogs and sound like alley cats in agony.”

What was the 1960s equivalent of “Okay, Boomer”…? 5

You probably know what happened next: “I Want to Hold Your Hand” went to number one in the U.S., quickly selling a million copies.5 American tastes were not so different than Britain’s after all, and Beatlemania became a cultural phenomenon here too.6

***

Ironically, these music “experts” missed the biggest cultural shift in generations, and it was happening right before their eyes and ears. How did they blow it? In his book “Hit Makers,” 7 Derek Thompson explains Raymond Loewy’s concept of MAYA: New products that are “most advanced yet acceptable.”8

Loewy “believed that consumers are torn between two opposing forces: neophilia, a curiosity about new things; and neophobia, a fear of anything too new. As a result, they gravitate to products that are bold, but instantly comprehensible.” Any innovation too far ahead of the curve gets rejected by much of the public.

But with music, I suspect that MAYA line varies with age. The receptiveness to new music is different for a critic in their 40s or 50s than for teenagers. One group is still in its formative age, embracing new things (while rejecting most of what their parents liked); the others’ formative years were decades earlier. Once your musical taste hardens, you may be less receptive to the latest sounds.

This might explain the bad reviews from Beatles’ critics throughout their career. Many of their albums, including some of the best music ever recorded, were initially panned. Musicologist and Historian Ted Gioia observed that critics “literally were handed the greatest recordings of their era to review, and blew them off. Every classic song on these albums was not only attacked, but actually mocked.” 9

MAYA helps explain why.

Gioia notes that The Beatles were “punished for how quickly they were pushing rock music ahead . . . the critics misunderstood the lads from Liverpool for the worst possible reason – namely, that they were constantly learning, growing more ambitious, and willing to take risks.”

Or as UK rocker Elvis Costello said, “Every [Beatles] record was a shock.” 10

The Ed Sullivan appearance was merely a single episode in an explosive career. Throughout the 1960s, bad reviews of Beatles’ albums such as Sgt. Peppers, The White Album, and Abbey Road would come back to haunt the critics who penned them…

Previously:
HNTI: Never Take Candy from Strangers (May 7, 2026)

How NOT to Invest’s 10 Most Important Ideas (May 6, 2026)

Adventures in Recording an Audio Book (May 5, 2026)

How NOT to Invest Paperback Arrives! (May 4, 2026)

Nobody Knows Anything (Full archive)

__________

1. Some try to make the case for the Rolling Stones in the #1 position through a combination of great songs, great live performances, and sheer longevity. The GOAT case for The Beatles is the unbeatable catalogue of amazing albums, and how their influence changed (and continues to change) music in so many ways. And, they created all of that astonishing music in less than a decade.

2. “The Ed Sullivan Show received 50,000 ticket requests for the 728-seat Studio 50 (now known as the Ed Sullivan Theater) where the band was to perform, far surpassing the previous high (7,000 tickets requested for Elvis Presley’s 1957 debut).” -Ibid, Seawright, Better Letter.

3. Seawright adds: “The broadcast drew a then-record of more than 73 million viewers (60 percent of all viewers), as compared to 21 million on a typical week.”

4. “The Beatles had no U.S. chart presence before February 1964 but sold 2.5 million records in the U.S. in the month after their first Ed Sullivan Show appearance and soon became the first act to hold all top 5 spots in the Billboard Hot 100 chart (they also held spots 16, 44, 49, 69, 78, 84 and 88). By the end of the year, the band had placed 28 songs on Billboard’s Hot 100 Singles chart, 11 of them in the Top 10.”  –Billboard Hot 100 via Seawright

5. See: “What the critics wrote about the Beatles in 1964” By Cary Schneider, LA Times, February 9, 2014

6. Also laughable: Alan Rinzler of The Nation: Headlined “No Soul in Beatlesville:” The Beatles “remain derivative, a deliberate imitation of an American genre” whose “loud, fast, and furious, totally uninfluenced by some of the more sophisticated elements” music was “amplified to a plaster-crumbling, glass-shattering pitch.” It was “vapid,” and “Beatlemania as a phenomenon is manna for dull minds.”

Conservative writer William F. Buckley, September 9, 1964: “The Beatles are not merely awful, I would consider it sacrilegious to say anything less than that they are godawful.  They are unbelievably horrible, so appallingly unmusical, so dogmatically insensitive to the magic of art, that they qualify as crowned heads of antimusic.”

Source: Early Criticism of The Beatles, Steve Silverman  February 11, 2016

7. “Hit Makers: The Science of Popularity in an Age of Distraction,” by Derek Thompson, Penguin Books, February 7, 2017

8. MAYA was first published as “The Four-Letter Code to Selling Just About Anything” By Derek Thompson, The Atlantic, January/February 2017.

9. Why Did the Beatles Get So Many Bad Reviews? An inquiry into how critics stumble, Ted Gioia, January 30, 2023

10. Elvis Costello, Rolling Stone, 100 Greatest Beatles Songs

The paperback of “How NOT to Invest” is out this week at Amazon, Barnes & Noble, Books-A-Million, Bookshop, Hudson, or wherever you buy your favorite books!

If you want to learn more about how the book was made, any related media appearances or background, get unique bonus material, or just ask a question, you can sign up here: HNTI at RitholtzWealth dot com.

The post HNTI: Nobody Knows Anything, The Beatles edition appeared first on The Big Picture.

Also in industry news this week:

• The North American Securities Administrators Association (NASAA) this week adopted amendments to bring four of its model rules in line with the SEC's marketing rule, a key step towards leveling the playing field for state-registered RIAs with their SEC-registered counterparts when it comes to using testimonials, endorsements, and specific performance reporting in their marketing
• A state report indicates that dozens of RIAs, amongst more than a hundred financial services firms in total, have experienced data breaches during the first four months of the year, as advancing artificial intelligence capabilities put a further spotlight on the importance of cyber hygiene for advisory firms, including their staff and clients

From there, we have several articles on tax planning:

• A four-step framework for financial advisors to effectively manage client equity compensation
• How advisors can offer significant hard-dollar tax savings for clients by creating an effective Restricted Stock Unit (RSU) sale strategy
• Why leveraging Net Unrealized Appreciation (NUA) rules isn't always a sure bet and how advisors can offer value for clients by conducting a more personalized analysis

We also have a number of articles on advisor marketing:

• Five ways advisors can help clients make more effective introductions (and drive more good-fit referrals in the process)
• How advisors can reduce any awkwardness around referral conversations and avoid turning clients into (unintentional) salespeople
• Why leaning into value and personalization can help advisors drive referrals from clients in the first few months of the relationship

We wrap up with three final articles, all about greed:

• Why greed can be "good, bad, or ugly" depending on how it's applied and why generosity could be an antidote to some of greed's negative side effects
• The benefits of resisting "lifestyle creep" driven by status-driven purchases
• Why those who have already 'won' the financial game can sometimes be lured into making bets that come with attractive upside but significant downside potential that could threaten their financial security

Enjoy the 'light' reading!

Read More...

The paperback of “How NOT to Invest” drops this week; to celebrate, I am running various stories and excerpts about the book, Today, I want to discuss why we ignore what ourt moms taught us. It’s as applicable on the playground as it is on Wall Street and markets. Enjoy!

I grew up in the generation of latchkey kids: Both parents worked; you came home from school, fixed yourself a quick bite, then ran off to the playground for some stick- or b-ball. We weren’t wildly overscheduled; we didn’t have 20 hours a week of school events, after-school activities, and projects.  We were (mostly) on our own.

This led to a generation of parents who recognized the risks all this unsupervised play created. The results were three simple rules that every kid who grew up in the 1960s, 70s, and even 80s had to learn:

1. Make sure your parents knew where you were going to be after school;

2. Be home for dinner (hands washed and at the table) by 6pm;

3. Never take candy from strangers.1

That was it!

Every other rule was a variation on this theme. Whether you had a sleepover at Brian’s house or were playing hoops with Marc, Chuck, and Ritchie, you had to leave a note or a message at home and/or your parents’ workplace as to what you were doing that day. Dinner was the same time every day, and if you were late, there was gonna be hell to pay for it.

Technology has rendered the rules 1 and 2 obsolete: Parents know exactly where their kids are to within a few feet, courtesy of the tracking apps on their phones. Texting lets them know precisely when they are coming home. But that third rule…

Today, I want to discuss why you should never take candy from strangers. It was true when I was 12 years old, developing a decent pull-up jump shot and studying for my bar mitzvah. It’s true today, perhaps more so. It’s true, even if you are an adult, married with two kids, a dog, and a mortgage.

It’s so obvious and ingrained – at least to my generation – that it’s easy to overlook the simplicity and brilliance of this concept.

Just as your mother used to tell you not to take candy from strangers, so goes it with taking investment advice from strangers on TV, in print, weblogs, and most especially social media.

When a stranger offers you something for free, it should immediately make you ask a few questions: Who are they? What do they want? Do they have your best interests at heart? What’s in it for them?

Always ask yourself: What are these people selling? Is it a newsletter? Some wacky trading scheme or crypto scam claiming it’s gonna make you rich? “Just make 1% per day to turn $100 into millions” type nonsense.

At the very least, they are asking for your time and attention, and that has tremendous value to you as an individual. Collectively, it’s worth billions of dollars to big tech and media.

I devote at least 10 chapters in “How Not to Invest” discussing these exact topics because its that important. See:

Who do you listen to?
Prediction, Inc.?
Forecasting Chaos
What are they selling?
24/7 Financial Advice
TikTokInvestors
Gell-Mann Amnesia
Signal-to-Noise Ratio
Lose the News
Use the News: Reengineer Your Media Diet

Before you accept the investing advice from a random stranger, ask yourself if they are concerned with your comfortable retirement, buying a new house, or paying for your kids’ college. If they don’t know your zip code or tax bracket, how on earth can their advice be geared to your specific circumstances?

Of course it is not. It’s selling something, be it advertisements, investment products, newsletters, or God knows what else.

Most of what you see, hear, and read was not written with you in mind. It was created to sell a product. This blog post, as an example, is exhorting you to buy my book. These sales pitches are not nefarious, but they have become so ubiquitous that we often overlook them.

It’s not realistic to suggest people tune everything out. However, I am making three suggestions for all consumers of financial content:

-Understand what media you are consuming;

-Make intelligent, well-informed choices;

-Prioritize quality over quantity.

I am not suggesting you become a curmudgeon who hates all they see, but rather, be a little less gullible and naïve. When I started out in the finance industry, I believed every line that came my way from every salesman, any fund manager, and each quarterly call (all filled with nonsense). I was an easy mark for any smooth-talking bullshit artist.

This is why my Mom was right to warn me not to take candy from strangers. Her advice applies equally to taking investment advice from people you don’t know and whose process, track record, and temperament you are unfamiliar with. Have they been more right than wrong? Do they have a calm, thoughtful temperament? Lived through a few cycles? Are they worthy of your time and attention?

It took some time and some expensive losses before I figured all that out.

Listen to what mom told you: Taking investment advice from people you do not know in the media in all of its forms is no different than taking candy from strangers…

Previously:
How NOT to Invest’s 10 Most Important Ideas (May 6, 2026)

Adventures in Recording an Audio Book (May 5, 2026)

How NOT to Invest Paperback Arrives! (May 4, 2026)

__________

1. There is a much longer story from 1874 about Charley Ross, the first missing child to make national headlines. It (of course) involved taking candy from strangers. A full century before my generation, and so was not exactly part of the Zeitgeist in 1974. If you want to learn more about it, see “The Kidnapping of Little Charley Ross,” Library of Congress, April 23, 2019.

~~~

The paperback of “How NOT to Invest” is out this week at Amazon, Barnes & Noble, Books-A-Million, Bookshop, Hudson, or wherever you buy your favorite books!

If you want to learn more about how the book was made, any related media appearances or background, get unique bonus material, or just ask a question, you can sign up here: HNTI at RitholtzWealth dot com.

The post HNTI: Never Take Candy from Strangers appeared first on The Big Picture.