​• 25 Years After the Sept. 11 Attacks, Lower Manhattan Is Thriving: The neighborhood’s population has roughly tripled, dozens of office buildings became apartments, and financial services no longer dominates downtown employment. (Wall Street Journal) see also How a Restaurant at the Top of the World Trade Center Changed New York: Windows on the World, over 100 stories up the North Tower, was a culinary juggernaut. (Wall Street Journal)

• What is driving the global rise in long-term interest rates? Rising bond yields are likely down to stronger investment demand, more supply of long-duration debt and less absorption by yield-insensitive investors. ​Gene Frieda’s Bruegel analysis — stronger investment demand, more supply of long-duration debt, and less absorption by yield-insensitive investors. (Bruegel)

​• The Dramatic Story of the Pentagon on 9/11: From the co-author of Firefight, the definitive account of what happened at America’s military headquarters. The momentous terror attacks 25 years ago almost put the Pentagon out of commission. These are the people who kept the military’s nerve center open for business.  (The Pinpoint Press) see also After 9/11, Documents Suggest, New Yorkers Were Misled About Air Quality: The Mamdani administration releases more than 170,000 pages on the air around the World Trade Center site — the mayor says city leaders “lied” about it being safe. (New York Times)

​• Franklin Templeton Turns the Tide as Western Asset Crisis Recedes: Asset manager moves past painful chapter to extend franchise in public and private markets and reach $1.8tn in assets. Harriet Clarfelt on the abrupt denouement — Ken Leech pleaded guilty to obstructing the cherry-picking investigation, after well over $150 billion in redemptions from Western Asset. (Financial Times).

• A Personal Recollection From a Day of Horror: A first person accont of that dreadful day. (The Big Picture) see also Postscript: The follow up, a few weeks later. (The Big Picture)

​• 14 Reasons Robotics Is Hard: AI progress is racing along, but nearly all of it lives inside a computer — a skeptical tour of the parallel race to build broadly capable humanoid robots. (Second Thoughts)

• The Staggering Financial Cost of 9/11: Quantifying in dollar terms the toll taken by a horrific event and its many consequences. (City Journal) see also Trump’s 9/11 Fantasies: Trump has made similar claims in interviews for decades, claiming to have sent 100 or more construction workers to Ground Zero. Trump has claimed he “helped“ clear rubble and “spent a lot of time down there.” There is no evidence any of this is true. Judd Legum on the president marking the anniversary by describing his own role in heroic terms. (Popular Information)

​• The Metta of Mister Rogers: Twenty-five years after his last episode aired, Gayathri Narayanan on Fred Rogers’ enduring practice of loving-kindness and seeing the good in others. (Lion’s Roar)

​• A Long War Will Permanently Damage Oil Demand: Tim McDonnell on the structural shift underway as the conflict grinds on. In other words, rather than being Big Oil’s biggest booster, Trump could be dragging forward the moment of peak consumption. (Semafor) see also Trump Is Preparing for a Long War: The military is doing long-term planning for its force in the Persian Gulf, risking further strain on the Navy. Nancy A. Youssef on the military’s long-term plansand the further strain on the Navy. (The Atlantic).

​• Jimmy Kimmel’s Interview With James Talarico Heading to YouTube to Avoid FCC Hassle: The Texas Senate candidate’s sit-down gets pulled from the ABC broadcast and streamed instead. (Hollywood Reporter)

Video of the day: NFTs Are Still a Thing, Apparently

Be sure to check out our Masters in Business next week with Seth Bernstein, CEO of AllianceBernstein and Head of Asset Management of Equitable Holdings, the 69% owner AB. The firm manages $905.5B. Previously, he spent 32 years at JPMorgan Chase, where he eventually became the Global Head of Managed Solutions & Strategy at JPAM, responsible for all discretionary assets for Private Banking clients, and Global Head of Fixed Income & Currency. He eventually became CFO of JPM’s Investment Management & Private Banking division.

How much of August’s payroll strength was seasonal?

Source: US Economist BofA

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The post 10 September 11th Reads appeared first on The Big Picture.

Also in industry news this week:

• An examination of Form ADV filings finds that firms that disclosed AI use actually saw higher staff headcount growth, indicating that for a subset of firms AI adoption is intended to complement, rather than supplant, human team members
• While the SEC under chair Paul Atkins appears to be less interested in pursuing broad enforcement actions related to advisory firms' use of off-channel communications with prospects and clients than in years past, an attorney and former SEC official suggests that implementing and enforcing policies toward electronic communications (and their storage) could help firms avoid client harm (which could make them subject to an enforcement action) or, in the case of broker-dealers, continued FINRA scrutiny of communication failures (even if no client harm has occurred)

From there, we have several articles on retirement planning:

• An analysis of Social Security claims data and self-reported health amongst retirees finds that those who are in poorer health tend to claim Social Security earlier (in many cases, correctly identifying a shorter expected lifespan)
• While wealthier individuals often are able to delay claiming Social Security benefits (to receive their maximum monthly benefit), those who are particularly wealthy might choose to claim earlier to fund insurance policies that could, amongst other purposes, help heirs pay for estate taxes owed
• How the ability to claim six months of retroactive Social Security benefits after reaching Full Retirement Age can both be an opportunity (by giving a client more confidence in delaying benefits) and a potential trap (by having a permanently lower monthly benefit if retroactive lump-sum benefits are taken)

We also have a number of articles on client communication:

• How financial advisors can support clients in riding the 'waves' of emotion (both positive and negative) that can arise during meetings
• A step-by-step framework for working with a client who has recently experienced the loss of a spouse to both give them space to grieve and to prepare them to make key planning decisions
• Strategies for advisors when working with a client experiencing "ambiguous loss", such as a loved one suffering from dementia

We wrap up with three final articles, all about the tradeoffs of being a 'maximizer':

• How certain tax planning strategies could lead to a lower lifetime tax bill but also less enjoyment of one's wealth
• Why much of one's health and financial success is determined by getting the 'big things' right and how trying to optimize for the rest could lead to greater stress
• The value of jumping off the "hedonic treadmill" and taking a step back to recognize when key goals have already been met

Enjoy the 'light' reading!

Read More...

I’m not a Shark Tank viewer. But I was intrigued by something Kevin O’Leary, aka Mr. Wonderful, said in this podcast (via a post by Nick Magiulli).

O’Leary discusses various aspects of his career, including ideal investments and what many entrepreneurs should strive for in their personal accounts. Specifically, he thinks all entrepreneurs should aim for a liquid $5,000,000 Treasury portfolio.

It’s not that this is terrible advice — it is; I get to why below. Rather, it’s that it’s so specific to O’Leary’s personal circumstances. I suspect — and I’m just speculating — that over the course of his investment career, opportunities have come and gone where the liquidity to write a big check wasn’t there at that moment, and that left its mark.

Perhaps he is projecting somewhat; maybe I am, too. How often does the real world interfere with our liquidity at the worst possible time? A down payment for a house, tuition for college, paying for a wedding — there are a million times when anyone who is not a gazillionaire will encounter demands on their capital. But that doesn’t mean any young entrepreneur should be striving to amass a $5M Treasury portfolio.

The reason why has been shaped by the probabilities of startup success and what happens to entrepreneurs over time. My experiences in multiple start-ups — as a founder and an investor — range from Crash & Burn to almost there to very successful.

In each case, there is a family to consider. The simple math is that for any young entrepreneur starting out, trying to build a company – and not knowing what the end result looks like many years down the road – a $5m treasury portfolio is just silly advice.

Why?

Start-up founders and entrepreneurs should pour all their time, effort, and money into their venture. You likely won’t have spare cash for a Treasury portfolio, much less retirement accounts. Once you get past an A and/or maybe a B round, you can start thinking about de-risking. But until then, it is not a radical concept for entrepreneurs to bet everything on the company – most of you are not buying a house, investing in equities, or buying bonds.1

Founders are all in, no hedges.

Land an A-round and a real salary? Great! Start putting some of your newfound cash flow aside as a good savings habit in an all-equity 401(k). It is a hedge against your start-up failing to beat the odds and eventually finding an exit.

~~~

Beyond the long odds that all start-ups and entrepreneurs face, another challenge is that you don’t know how its all gonna end. Every start-up I have been associated with sounded great!  Nobody puts time, energy, or money into things they think will fail. One of the risks of entrepreneurship is that you don’t know what the future looks like, including how successful your firm will be. This is true as a founder or an investor.

You might launch a firm that never finds an exit; you might not be flush with sudden wealth. What happens is that eventually, you pivot to a job with a salary, 401K, health care, etc. O’Leary’s advice to sit in bonds for your 20s, 30s, 40s, and 50s is especially terrible because he is anticipating an event that is statistically highly improbable.

What anyone with a little scratch should do is put that money into the stock market over those 30 years, building a substantial pile of capital and, at the very least, a comfortable retirement. Because, realistically, you cannot plan for investment liquidity when you have no idea what your real-life needs will be. Whatever you do with your spare capital must anticipate a range of possible outcomes, not merely the best-case scenario.

On the other hand, if you’ve already had that exit and you’ve been successful, well, then you have a pile of capital and a lot of complications. And that is great. In those circumstances, you have many options. To be blunt, Treasuries are NOT my first choice of fixed-income paper today.

For someone who has had that exit and liquidity event, there is a long list of things to do; generating taxable Treasury Bond income is not one of them.

Instead, that person should be discussing with their advisors and tax team how to minimize their capital gains taxes while creating a regular flow of tax-free income.

~~~

O’Leary is 72 years old and is worth north of $100 million. For someone at that stage of their career – really anyone in their 50s, 60s, or 70s – who’s accumulated some capital, enjoyed an exit, and knows exactly what their wealth looks like — that person has very different needs than a young entrepreneur. They likely have complicated trusts and/or estate plans, the usual family issues, complexity, ex-spouses and adult children, capital gains, the headache of K1s, and numerous tax & estate concerns.

I believe the best bet for those circumstances is tax-free municipal bonds. I’m a big fan of Canopy, which is Eric Golden’s version of direct indexing for municipal bonds (I’ll discuss that more in the future); you can personalize your Muni SMA to generate a maximum after-tax yield based on your specific income tax bracket and your state and federal tax rates. It also has the benefit of enabling tax-loss harvesting to offset capital gains realized elsewhere.

But Treasuries for a young entrepreneur who doesn’t know what the future holds? Pass. Or someone who has enjoyed a successful exit and is liquid for 9 or 10 figures? Hard pass. There are simply many better options available for the best use of your capital…

July 2026
Momey Market (Schwab SNAXX) 7-Day Yield 3.63%
T-Bills 4.08% Yield
Munis: 3.58% Yield;  Tax Equivalent Yield 6.38%

September 2026
Momey Market (Schwab SNAXX) 7-Day Yield 3.68%
T-Bills 4.18%
Munis: 4.07% Yield;  Tax Equivalent Yield 7.28%

See also:
Is $5M in Treasury Bills Enough to Be Set for Life?
Nick Maggiulli
Of Dollars and Data, June 30, 2026

Kevin O’Leary’s Shocking Prediction For The Stock Market, Housing Prices, & 2026 Economy,
The Iced Coffee Hour, March 29, 2026

Previously:
The Evolution of Alpha (April 3, 2026)

NOTE: This is the first in a regular series of posts focusing on the Evolution of Alpha.

__________

1. Unless your significant other has a stable, reliable income…

The post T-Bills and Chill? Try Munis & Chill Instead appeared first on The Big Picture.

At The Money: Considering a Career Change? How About FINFLUENCER? With Tyler Gardner (September 9, 2026)

Ever think of a career change? Have you thought about becoming a “finfluencer” on TikTok, Insta, or YouTube? It could be both interesting AND lucrative.

Full transcript below.

~~~

About this week’s guest:

Tyler Gardner is a former financial adviser and portfolio manager who pivoted to a financial-media business, reaching more than six million followers.  His book “Real Wealth: Make Money Work for You” arrives Dec 1, 2026

For more info, see:

Professional/Personal website

YouTube

LinkedIn

Newsletter

~~~

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 Becoming a Financial Influencer, with Tyler Gardner
Host: Barry Ritholtz  |  Bloomberg Audio Studios

BARRY RITHOLTZ: Ever think of becoming an influencer, shifting your career to TikTok, Instagram, or YouTube? It could be both interesting and lucrative. To help us unpack this and what it might mean for your career, let’s bring in Tyler Gardner. He taught economics, eventually becoming a financial advisor and portfolio manager, but then he pivoted to a financial media business, eventually reaching more than 6 million followers. His book, Real Wealth: Make Money Work For You, arrives December 1st, 2026.

So, Tyler, let’s start in the beginning of your career. What pulled you out of education and into finance?

TYLER GARDNER: Oh, I think the easiest way to sum it up is I’ve never been pulled out of education. There was a point — I remember the meeting specifically — it was with our faculty at a school in Connecticut where we had a representative from TIAA-CREF who came to talk about retirement funds. And not one colleague of mine could understand what this person was talking about when they were saying expense ratios or target date funds. And I left saying, there’s a big problem if 110 truly educated adults in this world cannot understand a basic concept of expense ratio.

And so I wanted to add education to the financial component. And I realized at some point along the educational career in high school, I liked talking to my colleagues a little more about money than I liked talking about semicolons in class to 15-year-olds. I didn’t try to eliminate it. I just started to have this vision that becoming a financial advisor or portfolio manager would be education for finance. And I’d get to go teach these things and learn these things. So that was the initial inspiration for the pivot.

BARRY RITHOLTZ: You know, some people would say the complexity and impenetrable jargon is a feature, not a bug, because hey, if you don’t understand what financial people are saying — or for that matter, contractors or doctors or lawyers, what have you — well then you have to pay them for their expertise. But let’s leave that cynicism aside. You eventually become both a financial advisor and a portfolio manager. What surprised you about how wealth management actually operated as an industry?

TYLER GARDNER: Phenomenal question, because that’s all it was. It was a big surprise. I worked with great people, I’ll start with this. It was a small RIA in Vermont. And the reason I was drawn to that specific RIA is that unlike some of the bigger corporate wealth management firms, they really struck me as valuing education. So again, I got brought into this world thinking — I had this real ideal vision that I’d move back to Vermont, I’d get to educate people in my own hometown when I came back. And the biggest surprise was that the majority of people who wanted us to manage their wealth didn’t want to be educated on managing their wealth. They wanted us to manage their wealth.

And there was a great irony in the fact that so many people, particularly high net worth individuals, wanted to give the assets and say, “Don’t call me. I’ll call you. We’re all set. I’m paying for the convenience.” Right. And that surprised me. I was really looking forward to a scenario in which I had a daily class with people or a daily coffee where people would flock to wanting to learn more about index funds and low-cost investing. It didn’t quite work like that.

BARRY RITHOLTZ: So how did the social media experiment begin? You’re a natural teacher. What led you to say, well, if my clients aren’t asking me to educate them, I’m just gonna educate everybody else? How did that really start?

TYLER GARDNER: Yeah, well, I think, again, to give credit to the initial RIA for which I worked, they noticed very quickly just what you just said — they noticed and were drawn to the fact that I loved to educate. And so they brought their marketing team in and we started doing some short-form videos. They, as a firm, said, look, this is a really powerful way to reach an abundance of people beyond a very small state in New England, and we want to get the message out. So we started doing videos, we just weren’t positioning them correctly.

And when I say correctly, I mean, I think we were putting the majority of them on our firm’s website and maybe every now and then putting some on LinkedIn. And they just weren’t going anywhere. There was no real reach or power. And so when I first really saw the power of TikTok and Instagram and Facebook, I go, this is the disconnect. But they knew early on that education combined with the considerable reach of these platforms was very powerful. We just never could hone it as well as I know we all wanted to.

BARRY RITHOLTZ: There are lots and lots of stories of people putting stuff on LinkedIn and Facebook and TikTok and YouTube, and, you know, it doesn’t really generate a response. Doesn’t get a whole lot of follows, a whole lot of likes. At what point was there a specific video or a post that persuaded you, hey, there might be a real audience here?

TYLER GARDNER: Yeah, the number one reason. So I came home after doing — we had probably done 10 videos as a firm. And I came home and my wife was actually scrolling TikTok and she said, you gotta look at this person. They’re talking about a Roth IRA and it’s really funny. And I looked at the video and it was funny, it was engaging, and the person didn’t know what a Roth IRA was. So I look at this, I said, hon, this isn’t actually how a Roth IRA works. And so I started going down the rabbit hole, because there had been 2 million views on this video, and it was complete misinformation. So when I delved a little bit more into the rabbit hole, I found there were a lot of people on these platforms who were very engaging and could speak very confidently and articulately, and they were just flat out wrong.

And then the people who were really accurate and data-driven and who had done all the work, or who had actually been PMs or financial advisors for 20 years, some of them didn’t quite know how to engage. So I looked at it and said, just from a business standpoint, there’s a real gap in social media of someone who actually can educate in a simple way. Somebody who’s used to taking very complex ideas and trying to make them digestible in 30 seconds or less, and is able to also actually bring data points in. And so I almost took it as a big challenge initially of, how can we do this? And I look at it as an art form of how can you package something that most of the world doesn’t want to think about on a daily basis — finance, investing — and make it something fun. So was there a specific video early? No, it was more the gap in the marketplace that made me want to pursue it.

BARRY RITHOLTZ: You know, everybody I’ve dealt with over the years who is both at a regulated shop — be it SEC or FINRA or state regs — and is a creator, blogger, videographer, podcaster, whatever, runs into some issues with their firm. Way back when, some of the big wirehouses, when Twitter first came out, would give their advisors a list of approved tweets, like, here, choose from this menu. You know, that’s gonna get no pickup at all.

I got really lucky. My general counsel back in ’02, ’03 — before that, nobody knew. Nobody understood, nobody cared. I was on GeoCities and then TypePad, and nobody said a word, ’cause what the hell is social media? What the hell is blogging? But I was lucky to have a general counsel who said, listen, about all these posts you’re doing, you could talk about the market, the economy, sectors, whatever you want. You cannot say buy Microsoft. You cannot say sell Dell. No buys or sells and you’re good. I learned that was really lucky. What was your experience like with legal and compliance?

TYLER GARDNER: I won’t say it was quite as loose, and I envy what you just said, because man, do I want to come work for that firm. And I might’ve stuck around a lot longer had we appreciated — or had counsel appreciated — the flexibility of what we might be able to do. But even before I answer that question, just to be fair, I remember when I was studying for both the Series 65 and the CFA, they would always have a section — and this was probably six years back, seven years back — on social media, and exactly what you’re saying: what is the regulation behind social media right now? The punchline every time was, we don’t know yet. We don’t know what this is. We don’t know what to regulate. We’re gonna have to come up with these rules on the fly. Is this person a registered advisor? Is this person a representative? Are they a solicitor? And so the initial draw to produce it obviously was the power that it had. The initial challenge was both on a state level and on a federal level.

We as a small RIA wanted to be very, very careful about what we said and how we said it. And even though, yes, at the end of the day it was probably just a, hey, don’t recommend buying or selling individual securities, we took it so far on the prudent level of just saying, look, let’s make this very, very educational. Don’t ever name specific funds. Don’t ever name specific drawdown rates, because you never wanted to conflate any of this with potential advice. And so I think that the real future for anybody in this space — and again, this is wide open; I mean, there’s only a handful of us who have actually made it to a big platform here — the future is basically anyone who is able to say, I know what to say within limits, I know this is not against regulations, and I’m gonna market myself and how I think. There’s still so much room there to grow.

BARRY RITHOLTZ: No doubt about it. So you began your career as a teacher. I’m curious, what did you learn in the classroom that ultimately made you a better communicator of complex finance ideas?

TYLER GARDNER: Sure. Nobody wanted to be in the classroom. Inherently, I’ll start with that. Other than a handful of students, the beauty of starting, I think, any career as a teacher is that you’re fighting — I won’t say a losing battle — but you’re fighting against a group of people who collectively want their attention to be elsewhere. Which is actually very different, obviously, from social media, because people self-select to go onto social media and to be in a place. And if they’re watching, they want to.

But initially the challenge was, how can I get a room of 18-year-old students who would literally rather be doing anything other than sitting in this chair on this May day in gorgeous rural Connecticut — how can I get them to engage with an essay by Virginia Woolf? And again, it always was a game to me, it always was a challenge and an art of, what can I say and how can I say it? Not just to capture their attention, but to get them to feel like they have some sort of stake in what this is. And that was where it was: once you were implicated — if I could communicate to someone, you are implicated in this class, you have a stake here — then I would find obviously more ownership going forward. But as far as communication goes, it was again just a matter of we had a very scarce resource, which was time, and how do I get as much into this time as possible?

BARRY RITHOLTZ: At what point did you find posting financial content morphed from a side hustle to, hey, this could actually be a real career?

TYLER GARDNER: Yeah, I mean, I’d say the easiest way to say it is when I started making enough money for it to be a real career and when I could actually pay the bills. But when I first pivoted, I left my W-2 job and I took a leap of faith two years ago. And the reason I took a leap of faith is that at that point I had opened up an educational one-on-one coaching option. You could come talk to me for an hour about how to invest, types of investments — never advice, all obviously education, always as general as possible.

What stuck out to me is I couldn’t open up enough slots to fill the immediate demand, and I couldn’t raise my prices high enough, quickly enough to kill that initial demand or to temper it, if you will. So instantly you see, oh my gosh, there is a massive amount of people here who want this type of information and they’re willing to pay a lot of money for it. They’re willing to be present with it. I got out of the consulting part very quickly because, again, back to the regulatory component, I didn’t love it — it seemed like way too much of a gray area. And no matter how many contracts somebody signed saying this isn’t advice, I’m not your advisor, I did not feel comfortable having someone ever leave a conversation thinking that they might be getting advice from somebody. But that was exactly the time when I said, look, this platform — wherever we go and whatever we sell — this platform has so much power now that I’m comfortable leaving the hundred-thousand-dollar-a-year W-2 to really see what we can do with this.

BARRY RITHOLTZ: So you left not one but two very stable, relatively safe, pretty comfortable jobs to sort of jump into something that is risky, and there was no guarantee that it was gonna work. What did your friends, family, colleagues think, and what was your own biggest fear?

TYLER GARDNER: I think now — now that I’ve allowed myself to believe that the endeavor is quasi-successful — now I’ve actually gotten the truth from people about how they felt two years ago when I first made this pivot. And almost everybody thought it wasn’t gonna work, that this was a fad, that the attention economy is so cyclical that you might be the Internet’s favorite person for a week and then fail miserably. And that was obviously the challenge, was trying to think about sustainability and consistency.

But early on they made fun of it. And I think every single person who either considers themself an influencer, or somebody else considers them an influencer, you have to go through what we all call the cringe phase, where you are producing terrible content because you’re just not good yet. Just like anything else, you’ve gotta learn how to do it through trial by error. And most people don’t want to go through that phase. Your friends all make fun of you and they laugh, and it’s very easy in that moment to say, I want to quit. And then all of a sudden things start to shift when you start getting some of the deals. But those don’t come for six months to a year of daily torture and ridicule from the friends, the family. And it’s not that they doubt you as a person, they just kind of doubt that this is a thing that a lot of people are capable of — that if you really just sit down and say, look, we can make this happen — because it doesn’t happen to everybody, you know?

BARRY RITHOLTZ: Yeah, it’s fascinating. Doug DeMuro of Cars and Bids and his own YouTube channel — I think his YouTube channel is six or 7 million subscribers. He’s talked about the first few years of doing video, he had very little pickup, and he was also writing a column and occasionally doing a video review on a column. And one day a reader wrote in and said, Doug, the video reviews are the most interesting part. I don’t wanna read the column. Why don’t you do more of that? And an entire business was born.

Did you have a moment like that where it became clear, oh, if I emphasize this, this will work out? Or was it really just a grind to build those numbers up to a quarter million, half million? At what point is it clear this is a viable, sustainable business? Is it a million subscribers, a half a million subscribers? Where do you hit that number?

TYLER GARDNER: Yeah, I mean, well, just like money — and I think you and anyone listening will understand this as well as anyone — your follower count very quickly becomes identical to your bank account. It’s never enough, Barry. You think you want to hit a million and that will somehow give you that little endorphin hit and you’ll be satisfied. That’s not enough. Once you’re at one, you wanna be at 10. Once you’re at 10, you wanna be better than that competitor who you have always been going after. So as far as, is it enough, what was the moment? There’s never a moment.

And the algorithms now too, just to get a little technical about it — ultimately, on most of these channels, it doesn’t actually matter how many followers you have anymore as far as the reach potential. This is where I’d like to inspire anyone to try it. You can create a TikTok account tomorrow. Your video has an equal chance to go viral as mine. And as you mentioned, I have millions of followers across these platforms, but it’s the best immediate feedback system in the entire world. It beats every type of job I’ve ever had. If you produce crap, you don’t get reach. It’s not a matter of millions of followers. It’s if you don’t make something entertaining and of value and engaging for those 60 seconds — if you don’t earn someone’s 30 to 60 seconds — it doesn’t go anywhere. So it’s kind of a self-selecting process, again, of you’re either good or you’re not. But the people with millions of followers obviously have in some way honed the skill. You don’t get to that level without honing the skill to begin with.

BARRY RITHOLTZ: So let’s talk about that algorithm for a moment. What attracted me to your videos was you weren’t doing anything clickbaity or sexy or outrageous to garner clicks. In fact, you’re very much a salmon swimming upstream against the tide of that sort of stuff. How do you preserve accuracy and nuance when all of these platforms reward speed, oversimplification, outrage? Hey, if you could make somebody furious and angry by manipulating their emotions, you’re much more likely to go viral than by saying, and here’s how you do a Roth IRA conversion correctly. Correct?

TYLER GARDNER: I mean, first of all, you just summed it up flawlessly, absolutely flawlessly. And anyone who’s been doing this for a little while who claims they don’t know that is lying. If I go on and I make a video that just pokes at people a little bit, or nudges people or alienates something, you’re gonna get more attention. Or if you say something that you know is a little bit less than nuanced and is lacking a little information, you know what you’re doing. How I look at it — and I would say how I justify some of the videos in which I know dang well I don’t do due diligence and go down as far as I could on the complexity of this — A, again, it’s a limited resource of 30 to 60 seconds. B, my goal at this point is all social media — from TikTok, Facebook, YouTube Shorts — that’s all top of funnel for me. So even if someone thinks I’m a complete ding-dong who doesn’t do due diligence on TikTok, my goal is to get them to read my newsletter. On the newsletter, I don’t cut corners, because now I’ve got someone who has self-selected into a system where they’re willing to read that nuance and they want that.

So you invite that. That to me is where I try to build more credibility. Same with the podcast, right? So both of those longer form — I just want to get the attention on the short form to get them to a place where I say, look, now can you trust that I didn’t really think that Social Security was something you should decide in 30 seconds after listening to me talk about it and poke you, like everyone should take it at 62. I do want to go through this. But again, if you try to provide nuance in the short form, you’re not going anywhere. So it’s almost like a line I heard in Yellowstone the other day, where they’re talking about politics, and the game of politics before you get the position is you kind of have to poke and alienate and unfortunately be — maybe, I won’t say a lesser version of your moral self than you want to be, but there are corners you have to cut to get the attention that the video will attract, to get where people want to go. Once they’re there, then I think you have the responsibility to say, look, now that I earned a little bit of your attention, trust me, I’ll reward you with real information and not clickbait nonsense.

BARRY RITHOLTZ: What I’m hearing is that you have to adapt your message to each format and make it fit into that in order to work your way down the funnel. So let’s talk about that funnel. You start with short-form videos, eventually a newsletter, a podcast, and now a forthcoming book. Was that a very purposeful, conscious set of decisions to keep the focus on the in-depth education? Or did it just evolve organically?

TYLER GARDNER: It evolves. I’d be creating a narrative where none exists if I pretended that any of this was according to some grand master plan. I heard a great line years back: your choices are half chance, so are everybody else’s. And where this has gone — if you had asked me two years ago, I was creating monthly reflections on where I wanted the business to go. And for one year I would look at my notes and it said, don’t ever do a newsletter, because a newsletter is stupid and it’s a joke. And then I remember reading something from Tim Ferriss where he said, you’re a joke if you don’t do a newsletter, because it’s the only place where you gather the asset of the email address and they can’t take it away from you.

And so when TikTok went through its little temporary 24-hour ban — it actually really shut down in the US for one day, there was no TikTok — instantaneously I went from having built two years of this slightly credible platform that had good reach to nothing, and I had no control. They just shut down the system. And I said, look, if I don’t diversify these digital assets, I’m being just as much of an idiot as I say people are with money when they don’t diversify their assets in an account, in an IRA or a 401(k).

BARRY RITHOLTZ: You have to own your own content. You have to own your own platform. You have to use these other platforms to drive the traffic to something that can’t be taken away. I mean, years ago I was on Six Apart’s platform, Movable Type, and eventually, years after I moved to WordPress, they shut it down. We’ve seen GeoCities shut down. We’ve seen all sorts of changes to different algorithms. If you’re ultimately not driving people to something that you own, that’s it. You are at the mercy of these giant technology corporations, and they could care less about you.

You know, I saw a video of yours recently where you discuss the concept of using your time, and wealth is really about how much time you have to yourself, but you make the case that it’s really knowing what to do with your time that is the big value. And I want to add something to the concept of building your own business, which is agency: the ability to control what you do, how you do it, who you do it with, and how you spend your time and when you do different things. Talk a little bit about how this pivot to social media and content creation has really given you much more agency over your time and your work.

TYLER GARDNER: Sure. I think just building on exactly what you just said, I don’t believe that humans hate work. I don’t buy it. I don’t think I ever will. I think humans don’t like being told what to do and working with people they don’t respect. The second you can get out of that and have your own agency or your own authorship or autonomy — call it whatever you will — instantaneously you now have the capacity to go work with other people that you say, ooh, I really do respect this person, or I’m really drawn to this person’s energy. And then your energy goes up. And again, this is entrepreneurship 101: once you have control over your time, you say, wait a minute, I do wanna be engaged in these projects. And you hear over and over again the people that exit businesses at, let’s say, 35 or 40, and they come into the windfall of a couple tens of million bucks. They don’t go sit on a beach for the next 40 years. Within one year they’re looking for another project. Everybody I know goes through a nice honeymoon where they think they made it, and then they’re looking for another project.

So for me, when I switched to this, the heaven on earth that I created was, again, just being able to wake up and say, if I wanna work on a great podcast script today, I can do that for 10 hours. If I wanna go film 20 videos today, I can do that. And our minds, as we all know — some days we’re on and some days we’re not on. And so when we have our own agency, when I think I’m really on and the energy’s good and I’ve had good positive interactions, I can go out — and I do go out into the woods, and that’s when I film my videos. But just like everybody else, I have very crappy days. And if you’re the W-2 employee, unfortunately, you have a crappy day, you’re still showing up for that same type of work. If you have your own agency, I can say this is a down day. I’m not putting myself out there today. I’m gonna write some more today or think about a chapter today. So really, it’s the greatest gift I’ve ever had — the agency to choose when I work and with what energy.

BARRY RITHOLTZ: Huh, really fascinating. Last question. So someone who’s considering a career change — they wanna become a creator, an influencer, they wanna move from something safe to something risky. What sort of advice do you have for those people?

TYLER GARDNER: Sure. And I think — I know you know this because I’ve read a piece where you talk about this — but a lot of people don’t, in my mind, think about risk in the way that they say they think about risk. So you just set up the polar concept that if I go to a job like this, it’s more risky than if I don’t. Whereas I always try to push people just a little bit to say, look, the biggest risk is you sit in the current job you have for 20 years as a safe W-2 employee. And that’s fine, I get it. You got the bills to pay, but your upside is so capped, you have no idea. And I would just say that the two things I value most in life at this point — obviously the clichéd one is owning my time. But because I own my time, I have the ability to focus on a daily basis on anything I want to focus on. And so the risk to me is that you get your one life taken away for 20 to 30 years and you are not focusing on a daily basis on the things you want to focus on.

And just with the entrepreneurial spirit, I would tell anyone who wants it, the concept of risk is way more applicable in my mind to losing out on what you could have done than if you go try something. And if it doesn’t work out after a year, after two years, after a real effort — what I don’t think enough people understand — you can go back. I trust that you can go back to whatever you were currently hired for. Maybe not at that company, but I trust that you can find another stable type of position where you say, I’m back in W-2 land. But you’d never know unless you went out there. And now the upside is insane. As you know, once you start your own business, I’m blown away with where the upside goes — not just on a monetary level, but also just with time and decisions, and the fact that I get to make these decisions now.

So I’d tell everybody, you gotta try it for at least six months. You gotta get through that initial phase where everybody wants to quit and everybody does quit. Everybody I know who wants to start social media and says, ooh, I could do this too — it’s just like the New Year’s resolution of going to the gym in January. You quit within two weeks because you didn’t immediately get a million followers. And I’ll just say this has been a trek for four years now to get to this point. So none of this is easy, none of this is overnight. Any story about viral sensations and someone just blows up — that’s not how it works. You grind and you grind every day and you learn and you get there, but it has been worth every second. And I would tell anybody, with the power of these platforms and the fact that it’s free — it’s a hundred percent free to market yourself and your brand however you want — if you’re not trying this with your business, you’re missing out on an incredible opportunity that might not be there in 10 years.

BARRY RITHOLTZ: Really fascinating. So to wrap up: if you are in a job where perhaps you’re not being challenged, or you are a little bored, or lack the sort of agency and enthusiasm that you’d like to have, and you are creative and a good communicator and have the ability to educate or inform or entertain people, consider adding social media influencer to part of your repertoire. Who knows, it might become a new career.

I’m Barry Ritholtz. This is Bloomberg’s At the Money.

~~~

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

The post At The Money: Becoming a “FinFluencer” appeared first on The Big Picture.

When a client asks their advisor to place an investment trade or execute another planning action, it typically comes as a result of a consultation with the advisor (and often reflects the advisor's recommended course of action). However, sometimes a client might request that the advisor take an action the advisor believes isn't in the client's best interests (e.g., moving their entire portfolio to cash amidst a market downturn). Which can create a delicate situation, not only with regard to the client's financial wellbeing and compliance issues, but also for the future of the advisor-client relationship.

The Securities and Exchange Commission's (SEC's) 2019 interpretation of the standard of conduct for investment advisers under the Advisers Act highlights that investment advisers and clients have a principal-agent relationship, under which an agent (in this case the advisor) has a duty to follow the lawful instructions of the principal (here, their client). Similarly, CFP Board's definition of a fiduciary, a CFP professional has a duty to follow instructions (along with a duties of care and loyalty), which includes complying with all reasonable and lawful directions of their client.

Amidst this backdrop, an advisor considering a client request that they believe isn't in the client's best interest is required to follow through on it as long as they determine that the client is able to make decisions for themselves (e.g., isn't showing signs of mental incapacity) and the request is lawful (e.g., they have the authority to make trades on the account in question).

That said, advisors can still first offer their recommendation, based on their professional judgment, that the client not follow through with their request, and perhaps pause before making a rash and impactful decision (fulfilling the advisor's duty of care), as well as confirm that the client is making a direct request and isn't merely expressing frustration (which could avoid a costly misunderstanding). Also, documenting the conversation and the final decision made can create a record describing both the client's request and the advisor's response to help mitigate against misunderstandings down the line (and could include an "Against Advisor's Advice" letter signed by the client acknowledging they directed their advisor to implement an action that the advisor did not recommend or outright recommended against).

While stopping at this point would fulfill the advisor's duty to follow the client's instructions, this scenario also raises the question of whether the advisor wants to continue their relationship with the client. For instance, a client instruction to move their entire portfolio to cash could call for a reassessment of the client's risk tolerance and investment policy statement. Going a step further, an advisor who fields regular trading requests from clients (against the advisor's advice) might prefer to change the scope of their engagement with the client to be planning only. And if an advisor feels their relationship with their client has become particularly misaligned, they might choose to terminate the engagement altogether.

Ultimately, the key point is that a situation where a client makes a request against their advisor's recommendation presents two questions: whether the advisor must comply with the instruction and whether the advisor wants to continue the relationship under its current terms. By separating these questions, advisors can make decisions regarding the request in line with relevant compliance requirements and whether the relationship with the client is likely to be productive going forward.

And if you want to go deeper on this topic, hear directly from the author on the Financial Advisor Technician podcast.

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From 2008 through 2022, the 10-year Treasury yield was never above 3.25%; it spent nearly all of 2019–21 under 2%, while the 30-year bottomed at ~1% in March 2020.

What an amazing opportunity to refinance debt at ultra-low rates!

But not every institutional debtor is that savvy. Torsten Slok reminds us how much savvier Corporate America was than the US Government, including Congress, the Treasury Department, and even many “think” tanks.

As Slok observes:

“Corporate net interest payments have fallen to 0.4% of GDP because firms locked in record-low fixed rates during the pandemic. The US government did not extend the maturity of its debt outstanding when interest rates were close to zero and now pays 3.6% of GDP in net interest (chart below).”

This has been one of my biggest pet peeves for the past few decades. 

When presented with a once-in-a-generation opportunity, there was an array of truly ignorant, foolish, or just outright false reasons not to make the carrying costs of long-term debt much cheaper. Treasury nominally lengthened the term of its debt, post-GFC and post-COVID. But it ignored the opportunity to issue 30-, 50-, or 100-year debt. That kind of long-term fixed-rate funding at historic lows only comes along once or twice in a generation.

Treasury did make some minor extensions of duration: The weighted average maturity (WAM) went from ~48 months in 2008 to ~64 months in 2012; by 2019, it was ~70 months — the longest duration since 2001. But issuing truly long-term debt, such as the 30-year or, heaven forbid, the 50/100 year — was off the table.

Why?

Some of the excuses were laughable then, but these three are downright silly now:

– “We do not time the market”
(Geithner, Yellen, Ramanathan, GAO, Office of Debt Management)

– “There isn’t enough demand”
(Mnuchin, Yellen, Lew, Treasury Borrowing Advisory Committee)

– “Rates will stay low”
(Summers, Blanchard, Furman and Mnuchin)

It was apparent then to anyone who looked closely; today, it’s an utterly obvious missed opportunity.

Again, this is not hindsight  bias. As the list below, starting in 2013, shows, this was an obvious opportunity –one that was blown by all the usual fools.

Refinancing America’s Debt:
Fix infrastructure on the cheap while you still can (July 12, 2013)

Do We Need a 50-Year Bond? (May 12, 2014)

The Bonds That Can Cure America’s Ills (March 19, 2015)

Time for a 50-Year U.S. Treasury Bond (May 19, 2016)

Cost of Financing US Deficits Falls (December 18, 2020)

The Greatest Missed Opportunity of Our Lifetimes (October 23, 2023)

A Historic Missed Opportunity (June 3, 2025)

What’s Upsetting the Bond Market? (August 25, 2026)

Sources:
A Missed Opportunity: The Treasury Did Not Term Out Its Debt When Interest Rates Were Near Zero
Torsten Slok
Apollo, September 07, 2026

The Federal Government’s Debt Is Growing Faster Than the Economy. What Does that Mean for You?
GAO, June 11, 2026.

The post Corporate vs Treasury Debt Duration appeared first on The Big Picture.

My guest on today's podcast is Jenna Biancavilla. Jenna is the founder of Pearl Capital Management, an RIA based in Phoenix, Arizona, that oversees approximately $275 million in assets under management for 110 client households.

What's unique about Jenna, though, is how she leverages a ‘scorecard’ that tracks key weekly and quarterly metrics that help keep her on track to achieve company goals, which range from new client growth to days taken off by team members.

In this episode, we talk in-depth about how Jenna’s scorecard starts with metrics that measure engagement with clients (for example, how many client touchpoints an advisor had) and work done to attract new clients (such as meetings with key centers of influence), how Jenna also includes metrics targeted at employee retention (including tracking the number of days team members took off where they weren’t contacted by someone at the firm), and how Jenna tracks other metrics quarterly, including the close ratio on prospects, total AUM, AUM per household, and revenue per household.

We also talk about how implementing practices of the Entrepreneurial Operating System relatively early on has helped Jenna and her team better address business issues that pop up during the week (and run more efficient meetings in the process), how Jenna and her team set and prioritize quarterly "rocks", which typically represent projects that will help the firm grow into the future but might otherwise have been ignored amidst day-to-day responsibilities at the firm, and how Jenna incorporates team member input and the firm’s meeting calendar when setting scorecard targets and rocks to ensure that they are actually achievable.

And be certain to listen to the end, where Jenna shares why she is willing to share planning insights during prospect meetings (rather than waiting for them to become a client), how Jenna’s fee structure has changed over time (including how she found offering a flat-fee model didn’t work well for her firm), and how Jenna has saved time and reduced her stress during her career by recognizing that not every prospective client she meets is the ‘right’ client for her.

So, whether you’re interested in learning about effectively identifying and tracking key firm metrics, using a structured system to organize major firm projects, or how to incorporate team members into the goal-setting process, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jenna Biancavilla.

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The transcript from this week’s, MiB: Bill McNabb, Vanguard former Chairman and CEO, is below.

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

~~~

Masters in Business Bill McNabb, former Chairman and CEO, The Vanguard Group
Host: Barry Ritholtz  |  Bloomberg Radio

(00:00:02) Bloomberg Audio Studios, podcasts, radio, news. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ (00:00:16): This week on the podcast, another extra, extra special guest. Bill McNabb was CEO and chairman at the Vanguard Group. He had been with the firm for 30 years, helping to take them up to trillions of dollars. We’ve spoken to him a couple of times in the past.

He discusses his post-Vanguard career, the boards he’s sitting on, all the fintech startups and venture capital he’s working with. I thought this conversation was fascinating, and I think you will also. With no further ado, my sit-down with William McNabb. Bill McNabb, welcome back to Bloomberg.

BILL McNABB (00:00:55): Oh, thanks, Barry. It’s great to be here.

BARRY RITHOLTZ (00:00:57): So the last two times you were here, you were running Vanguard Group. I’m curious, how does a guy who rowed at Dartmouth, taught Latin and coached at the Haverford School end up running the world’s largest mutual fund company?

BILL McNABB (00:01:16): So there’s an old saying that it’s better to be lucky than smart.

BARRY RITHOLTZ (00:01:21): My mom used to say that to me all the time.

BILL McNABB (00:01:23): And that really did apply. I got very lucky, Barry, in terms of just opportunities that happened to come my way. And I had incredible mentors who sort of helped take those opportunities and make more of them than maybe they would’ve been otherwise. And one thing led to another.

BARRY RITHOLTZ (00:01:43): Huh. Really interesting. So teaching Latin and coaching, what does that teach somebody like you about leadership that you were able to apply across three decades at Vanguard?

BILL McNABB (00:01:56): Yeah, I think there were two big things, and I was very fortunate to work for somebody at Vanguard who really lived this, and I’ll come back to that in a second. But the power of “we” versus “I.” I was coaching a rowing team, and no matter how good the individual athletes were, if they didn’t really exist in order to make the boat go faster, you weren’t going to win. And we had to really get that across to people, and that collective drive for success actually is incredibly applicable in the business world. I think the other thing, maybe a little more subtle, is you lead by example. Some of the people who talk about it, they theorize, and all these fancy sayings.

I’d rather just watch somebody do what they do really well. And if they’re building good teams, just that example of how they do it is really worth emulating. I worked for Jack Brennan, as you know, and I think you’ve had Jack on here before as well. And Jack really lived that. For me, when I got to Vanguard, the “we” versus “I” was very apparent in how he was driving the firm, and no one led by example better than Jack.

And when you’ve grown up in that world as a coach and an athlete, and then you get it reinforced professionally early in your career, it becomes a way of thinking.

BARRY RITHOLTZ (00:03:24): Yeah. Big fan of Jack Brennan. Loved what he did. When you joined Vanguard in ’86, it was obviously a fraction of where it is today.

It was far less than a trillion dollars. And even in the mid-eighties, I mean, that was the beginning of the bull market that started in ’82. You had Peter Lynch and the Fidelity Magellan Fund. Berkshire Hathaway was on the rise, stock picking was on the rise.

I guess I could say indexing was a fringe idea. What did the firm look like back in the mid-eighties? Did you have any idea what was coming your way over the next couple of decades?

BILL McNABB (00:04:05): This is why I said it’s really better to be lucky than smart. I did not see this incredible explosion coming. What attracted me to Vanguard was I was working here in New York for what’s now JPMorgan Chase, and was getting a little frustrated with a lot of things and decided it was probably time to go. And again, one of my mentors said to me, go find a place where the values match your own.

And when I went in and interviewed with Jack Brennan and then Jack Bogle, I found, it was like, wow, this is so different. And there was tremendous appeal. And so I did it really based on gut and intuition at the time. And so when I interviewed with Jack Bogle, the funny story was, he had data pulled out, a bunch of stuff, and he’s like, we just crossed $15 billion under management and I have no idea how we’re going to get to 20.

So I don’t know why you would come here. You’re doing big things on Wall Street. And I didn’t even really have a response. And then he went on, he goes, but of course, and for the next hour and a half, I got a lecture about everything that needed to change in the asset management business.

I go home and my wife says to me, how’d it go? I said, I don’t know. I didn’t say anything. But she goes, well, what are you going to do?

And I said, well, if he offers me the job, I’m going. Because there was just something there, the passion and the drive and the really contrarian view. So the early days, look, we paid as much attention to active management as Fidelity did. So Fidelity had Peter Lynch in the Magellan Fund.

We had John Neff in the Windsor Fund. Arguably one of the two or three greatest value investors in history. And Jack himself was very much making sure that we were competitive.

Money market funds were just taking off. And we got into the money market fund wars. It’s hard for people to imagine today, but yields were 17, 18% at different times.

And Dreyfus, Fidelity and Vanguard were the three money market fund giants. We each had a couple billion dollars, but everybody was comparing yields. And so active management and the yield on the money market fund in the early days, those were like the big drivers.

BARRY RITHOLTZ (00:06:22): So my pet thesis, to put this into context: $15 billion in the early eighties, just about $15 trillion today. That’s just a crazy thousand-fold increase. That’s just an insane run. My theory is the late nineties, the scandals, the crashes, the analyst scandal, the accounting scandal, the IPO scandal, all one after another.

I think a lot of people just threw their hands up and said, you know what, just buy me the whole market. Let me know when I have enough to retire. Is that oversimplifying what happened?

Or is that a real factor?

BILL McNABB (00:07:00): So I would say that’s the psychological part of it. There was also the math part of it, which is on an after-tax basis, index funds beat 90% of active equities over any rolling ten-year period.

BARRY RITHOLTZ (00:07:15): Anything more than a decade.

BILL McNABB (00:07:16): Anything more than a decade. So if you were a long-term investor and you wanted to win, you indexed. And so it was interesting to me, as a participant in the market, I’d listen to our competitors and they’d talk, well, indexing’s having its moment, but it’s going to cycle out, and stock picking will be back any day. And the math was just overwhelming. And the real reason, and this was Jack Bogle’s, again, oversimplified discussion, but essentially if you have two big parts of the market, one that’s actively managed and one that’s passively managed, they have to add up to the market.

So the average on the active side’s going to be the market, because the index side’s going to be the market. And then you take costs into account, and all of a sudden you’ve got arithmetic working in your favor. So for us, there was this: it’s simple.

It’s easy, it’s low cost, and it works. And I think that was such a powerful thing. And our shareholders, Barry, as you know, because you’ve been a student of the game for so long, they stayed with us way longer than other investors stayed with their firms. On average, I think it was three x.

So the average duration of a relationship was three x that of the industry. That’s an incredible advantage in terms of just how you think about your business.

BARRY RITHOLTZ (00:08:43): So you become CEO in August ’08. Two weeks later, Lehman Brothers goes kaput. Remind us what was happening in that era. What was that transition like, stepping into the lead role just as it looks like the world is going to hell, and what was that experience like?

BILL McNABB (00:09:05): Yeah, so look, in the darkest days, I mean, everyone was questioning whether the system would survive. So different than other crises we’ve seen. People really looked at it like, will the market actually survive this? And we had a deep-seated belief it would. And so we kind of had this bifurcated way of looking at the world. Each and every day, what were we doing to better assure our investors that somewhere down the road things would get better and they had to stay the course? Like, the worst thing you could do was to panic, unless you really believed the world was going to end.

So we met twice a day, every morning and every afternoon. And we went through transaction by transaction, fund performance, everything you needed to try to assure our investors. At the same time, we knew that the world was going to be different. Regulation was going to be different, the competitive landscape was going to change, and maybe even some of the business models were going to change. And so we started laying the groundwork for all those changes.

And just to give you a couple of tangible examples, the role of advisors. So at that point in time, the independent advisor channel, which again, you’ve lived this, was a really tiny fraction of advisors. Most of it was the big brokerage firms. And they were primarily commission driven.

BARRY RITHOLTZ (00:10:41): Right. All transaction based.

BILL McNABB (00:10:42): All transaction based and essentially conflicted. Because the more you trade, the more money they make, and the more you trade, the more you lose from a performance standpoint. So we believed this would accelerate the move to asset-based fees and that it would be a very different model. The other one for us, we really thought this would accelerate indexing, for all the reasons that you cited earlier in terms of just, hey, it’s safe.

It’s just buy the market. And again, the math was overwhelming. Even during a downturn, stock pickers did not outperform the index.

BARRY RITHOLTZ (00:11:19): Which is the claim before, right? Just wait till the next downturn and you’ll see how well stock pickers have done.

BILL McNABB (00:11:25): So we started to make moves around those changes. We knew the regulations were going to change a lot. And we also knew the competitive landscape. And frankly, we didn’t get that all right.

We knew somebody would end up with iShares because Barclays Bank was under such duress. I didn’t see BlackRock doing it. I just didn’t anticipate that.

BARRY RITHOLTZ (00:11:50): What a great buy for them.

BILL McNABB (00:11:51): It was spectacular. It was phenomenal. One of the stories we don’t talk much about, we actually were a serious bidder on it until the regulators came in and changed the game. And then we had to back away.

BARRY RITHOLTZ (00:12:03): Really? How come BlackRock would be allowed and Vanguard wouldn’t?

BILL McNABB (00:12:07): We were allowed, but they wanted to pair their institutional business with the iShares franchise. We didn’t want anything to do with that institutional business, because we were all mutual fund, retail based. And again, all the credit in the world to Larry Fink and his team and BlackRock for what they did.

But it was interesting. I had a director come to me after all this, and he says, so you’re six months in the job and you come to us about doing our first acquisition ever. It’s a very large check. And over a beer sometime I can tell you about all the nuances that went into it.

BARRY RITHOLTZ (00:12:28): I’m looking forward to it.

BILL McNABB (00:12:46): It was pretty cool. Yeah. So what does that tell you about ETFs and this advisor channel? And we took that back, and that’s when we really went all in on ETFs and all in on really serving advisors better.

And that was a huge change.

BARRY RITHOLTZ (00:13:03): I want to circle back to advice and target date funds, and just stay with ’08-’09 for another moment. The first time you were on, you told a story about how you had figured out how nervous your employees were. Do you recall what I’m talking about?

Remind us of what that environment was, how it was affecting clients and staff, and what your solution to it was.

BILL McNABB (00:13:32): So all of our competitors were laying people off left and right, because transaction volumes had just gone away.

BARRY RITHOLTZ (00:13:40): Other than selling.

BILL McNABB (00:13:42): Other than selling, you’re right. The classic mutual fund company in those days was probably 65, 70% equity. And the equity market, peak to trough, was down 50%. So your revenue was down 35%.

BARRY RITHOLTZ (00:13:57): I think it was 57, 56, something like that.

BILL McNABB (00:14:00): I think like March 9th, if I recall.

BARRY RITHOLTZ (00:14:01): That’s what I recall, exactly right. It was identical to ’73-’74 in terms of the drawdown.

BILL McNABB (00:14:07): So our people were incredibly nervous. People were wondering. So we went to our people, and we got our board’s blessing to do this, and said, there will be no redundancies, no layoffs. All we want you to do is be flexible, and we may need you to move from one role to another, wherever the client demand is and whatever the need is. So we ended up doubling down on service and doubling down on fixing problems. Everybody has service issues.

If we had excess people, we turned them loose on those problems. And the theory was you couldn’t cut your way out of this. And if you had people nervous about their own jobs, how are they going to reassure clients that the world’s not ending? They were going to feel conflicted.

And I think it really worked.

BARRY RITHOLTZ (00:15:02): Everybody exhaled. Everybody took a deep breath.

BILL McNABB (00:15:05): And we went all in on educating our clients and people. Our service levels were incredible. We got a lot of positive reinforcement back from the clients. So I think strategically it was one of the most important things we did during that period.

BARRY RITHOLTZ (00:15:23): And then out of the depths of the financial crisis, you guys leaned hard into the advisor channel, into building your own advisor space, and then target date funds, which I believe came out of an offsite meeting around the crisis. Tell us a little bit about that redirection, expansion, and the new post-crisis direction for Vanguard.

BILL McNABB (00:15:48): So it really was, we did this very existential exercise with Jim Collins, the great business writer.

BARRY RITHOLTZ (00:15:59): Good to Great, is that right?

BILL McNABB (00:16:00): Good to Great. He had done the two books that were really influential on our thinking: Built to Last, how do you build a company that can be a leading company for a hundred years, and then Good to Great. And so we asked ourselves, in order to be great, we thought the first step was, what’s our why? Why do we exist?

We had a mission statement, and it was very long and a lot of adjectives and adverbs. And we took a team, and we mixed the team. It was a couple senior people, but all the way down to the front lines. And we said, come back with why. Why do we exist?

Why do we have a right to exist? And it was really simple. It was: take a stand for investors, treat them fairly, and give them the best chance for investment success. And that latter one in particular, target date funds. You do the math, we could demonstrably show that investors who went in target date funds did better than those who didn’t. Doing our own advice program, low-cost advice that’s tax sensitive, really focused on asset allocation, and very disciplined in rebalancing and not letting people, in a sense, harm themselves.

That’s where advisors add tremendous value. So build that. So these things, Barry, were in a sense logical outcomes. And the target date thing was interesting.

We had people arguing about, well, it doesn’t really take risk into account, just setting a date. And we’re like, every risk quiz I’ve ever seen gets the same answer: moderate.

BARRY RITHOLTZ (00:17:44): My experience has been, when you do the risk tolerance surveys with investors, what you really find out is what’s been going on in the market for the past six months. So if it’s doing great, they’re much less risk averse. And when it’s in the crapper, suddenly, no, no, I’m not an adventurous investor, I’m a low-risk investor.

BILL McNABB (00:18:02): So when we really looked at the math, those quizzes were adding no value in terms of the asset allocation decisions we were making. So we were like, just take it out, make it simple. Tell us when you’re going to retire, and that’s the fund we’re going to put you in. And again, you track all this, the performance of those funds versus unmanaged accounts in 401(k)s, it’s superior.

BARRY RITHOLTZ (00:18:22): There’s a reason that has become the default holding in 401(k)s. Because before that Richard Thaler-driven behavioral change was made, people would just leave money in cash, and when the market would run away, geez.

BILL McNABB (00:18:38): Guaranteed investment contracts and money market funds were the default options of choice. And I started out as guaranteed investment contract product manager at Vanguard. So I knew this world really well. And it’s funny you mentioned Thaler.

So Shlomo Benartzi and Dick Thaler did all of the seminal work on applying behavioral finance to 401(k) plans. We sponsored a lot of their research. And we actually worked with them.

And that really helped us think about automatic enrollment into 401(k) plans, automatic escalation of your contribution.

BARRY RITHOLTZ (00:19:10): As your salary increases.

BILL McNABB (00:19:11): As your salary increases. And then the default option being a target date fund.

BARRY RITHOLTZ (00:19:15): The more you can automate a process, the less opportunity there is for human bad decision making. And poor intervention.

Totally. So last two Vanguard questions before we move on. So Jack Bogle was at Vanguard pretty much your entire tenure.

What was your relationship like with him? I know he wasn’t necessarily a big fan of things like ETFs or overseas investing. Tell us a little bit about what it was like to work with Jack for 30 years.

BILL McNABB (00:19:48): Jack. I chuckle because I learned so much. One of my early roles, it was my second role at Vanguard, I sort of fell into running product development, which was really: whatever Jack thought up as a new investment product, you went and did the homework and then went and executed. So I got to work with him a lot in those early days.

He was incredibly demanding. Very fair, but incredibly demanding. And I had my share of, do I need to get my resume in order? Because he had, a lot of pen marks on a paper or whatever. But when I became CEO, I got a nice note from him right away.

And then a few months later I got like a 20-page series of things we should be thinking about. And I’d say all well thought out, about half of which I said, nah, we’re going to do something different. But he certainly was not shy. And so you’re right.

ETFs, global funds, international investing in general, he was not a huge fan. However, I had a couple of great people on my staff who just constantly went to see him and talked to him and really took his wisdom. And in the end, if you watch some of his last interviews on ETFs, he’d say, unless you do it like Vanguard does it. And he slowly moved there. I think the other thing, in international, the team in Australia, which was our biggest international presence when I retired, and I think it still is, Jack made a visit there after he’d retired, but he was still running the Bogle Research Center, and it was epic.

They talk about it still to this day, about how impactful it was to have the founder there. And he was so proud that the message was going beyond our borders.

And so, again, there was still—

BARRY RITHOLTZ (00:22:12): Still no real traction in Europe, starting to lean that way. They have just such a different, I don’t know if it’s the fact that their retirements are more or less covered.

BILL McNABB (00:22:25): State driven, and the banks control everything there for the most part. Although in the UK, we’ve had a lot of success.

BARRY RITHOLTZ (00:22:32): The UK, yeah. It’s shifting there before everywhere else. So last Vanguard question. I recall just at the tail end of the financial crisis, you guys crossed a trillion dollars, then $2 trillion. By the time you retire, I don’t know if it was four or $5 trillion. It’s a little over five, $5 trillion. My question for you was, your first day of retirement, what was it like waking up saying, I’m not responsible for millions of investors and trillions of dollars?

BILL McNABB (00:23:05): It was big mixed emotion, Barry. So much of my career was spent in front of clients. I helped build our 401(k) business in the early days. So I got out to see employee groups on behalf of the plan sponsors.

So I probably had more direct interaction than anyone had ever had. I missed that a lot. I just had so many incredible experiences and relationships, and I missed our people. One of the great things, both Jack Bogle and Jack Brennan were so good at this, they did not like hierarchy. We didn’t have executive dining rooms and special parking places and all that kind of stuff, because we believed everybody’s job was really important.

And we all used to love to walk the floors and see what people were up to and talk to them. So I missed that, and I missed the clients. But at the same time, the team that was there, I’d worked with most of them for 25 years. I felt good about that team, and it was like, go knock it out of the park.

BARRY RITHOLTZ (00:24:20): You left the place in good shape. Coming up, we continue our conversation with Bill McNabb, former CEO and chairman of the Vanguard Group, talking about his new roles in the boardroom and working with startups. 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. My extra special guest this week is Bill McNabb. He is the former CEO and chairman of Vanguard. The firm now runs, I don’t know, is it $14 trillion?

Some wild number. So you step down as CEO at 60 with the firm pretty much running on all cylinders, doing great, great team.

As someone who just went through the process of succession planning, I have to ask you, how did you know it was time to step down? How do you think about doing succession correctly? There are so many examples of firms that get it wrong.

BILL McNABB (00:25:31): So one of the things about this, again, I had a great mentor on this, my predecessor Jack Brennan. Jack retired when he was, I think, 54.

BARRY RITHOLTZ (00:25:44): But he stayed as chairman for a few years, right?

BILL McNABB (00:25:46): Just a year. But he had run the firm for 12 years. And I couldn’t believe it when he told me he was going to do this and I was going to succeed him. And I asked him why, and he said, look, somewhere in that 10 to 12 year range, if you’ve done a decent job, people stop pushing you and they stop questioning you, because you’ve been right more than you’ve been wrong.

And he goes, that’s not healthy. And the ability to reinvent the firm or to really push for innovation gets harder, because you really need a collective wisdom to do that. And that’s where the art is, Barry. But I felt like the team was really strong.

I was seeing signs. We’d had a lot of success. So I was seeing some of those signs, and it was, okay, time to let a new generation see what they can do, and leave the place in a good spot. And then go.

BARRY RITHOLTZ (00:26:40): Did you set up like a detailed plan as to your retirement? Or was it just evolving organically?

BILL McNABB (00:26:47): So, a detailed plan as to how we were going to do the transition at Vanguard, and we worked really closely with our board on that. In terms of my own thing, I didn’t want to think about it. I thought I’d wait until I was out.

I had a year where I was board chair still, and I’d originally said I would do that for as long as three years. But after a year it became clear, like, the firm’s really doing great, there’s no need for this. But that year I did a ton of travel for us, all around the world, seeing clients, regulators, whomever. And I also did a lot down in DC, because there was a lot of regulatory stuff going on.

And so I had a lot of travel time. That’s when I started to think about, okay, what am I going to do at this next phase? And I describe this phase as, there’s like three parts to it. There’s family and fun, there’s governance, and then there’s what I call pay it forward: mentoring and helping develop a new cadre of leaders and so forth. And I’ve been, I won’t say systematic, but I’ve tried to be careful.

I’ve probably overcommitted a couple times in different things. But you try to feel your way through that. And the family and fun stuff are the passion things. The governance for me, I had an opportunity to co-write a book on governance with Ram Charan.

And we did the book and we talked to everybody. It was so much fun, talking to Warren Buffett about how does he think about governance. Just incredible. And Dennis Carey was the third co-author, by the way.

So I did that, and that led to co-leading the NACD’s Blue Ribbon Commission on the future of the American boardroom. And I do work with CECP, which is CEOs for Corporate Purpose, Daryl Brewster’s organization, which does incredible work on governance as well. So I had this whole sort of academic thing around governance going on, and then got the opportunity to serve on two very large public boards, where you’re on the other side.

BARRY RITHOLTZ (00:29:18): So let’s talk about those boards. IBM and UnitedHealth Group, two giant companies, so different, and each going through very different transformations.

How do you shift from being a CEO to being a director, and what can a board actually accomplish other than just responding to crises as they come along?

BILL McNABB (00:29:43): I think there are sort of three broad categories that the board has to lean in on. The hardest thing being an ex-CEO is you’re used to running things, and you can’t do that. There’s a line between management and governance for a reason. And so you try to be very aware of that.

But I think where you can lean in is, if you think about it at the highest level, what you’re doing is you’re allocating capital, and you’re allocating financial capital and human capital. So for us, the way we phrased it, and we did this in our book by the way, we said, look, focus on talent, focus on strategy, focus on risk. And from a governance standpoint, it all sort of boils up to those three things. And how do you help the company think through talent and culture?

Do you have the right people to execute the strategy? Most boards want to go right to strategy, but I think you’ve got to really help the CEO and the C-suite team think about that culture and think about talent. Now, the best companies do this really well. Strategy has really evolved. It used to be, I can remember doing this with the Vanguard board early in my career.

You do a strategic plan, a five-year plan, and it was all written down, and okay, this is what we’re going to do. I mean, you’ve got to be so much more agile now.

BARRY RITHOLTZ (00:31:25): That’s the great Mike Tyson quote: everybody has a strategy until they’re punched in the nose. It’s got to be applicable to big corporations as well.

BILL McNABB (00:31:34): So in talking about my Vanguard experience, I got it firsthand two weeks in, in 2008. Because we had a plan, and that plan, we just threw it out. And that plan was one of the coolest sets of objectives and things we were going to do differently. Completely off.

Because the world changed. The world totally changed. And so I’ve tried to bring that mentality into the boardroom. And again, I’m very lucky that the two boards I serve on think that way.

IBM has gone through a lot of transformation. Our current CEO, Arvind, he’s really brought a strategic agility into the company. And if you look at the progress the firm has made since he became CEO, it’s really very gratifying. Look, we had a big sell-off last week or two, but we’ll talk about what’s happening in the markets. I think in the long run, what we’re doing strategically makes a ton of sense.

And again, we’re trying to remain very agile.

BARRY RITHOLTZ (00:32:42): So let’s stay with IBM, which began as a typewriter company, right? People don’t realize how often IBM, one of the few companies that has successfully pivoted time and again, to mainframes, to PCs, and so now the pivot is to hybrid cloud, AI. When you think about all the different things they’re doing, how do you help oversee this giant business model that’s being rebuilt from the ground up?

BILL McNABB (00:33:16): Look, you try to bring what experiences you have, and you try to ask really good questions. And our board has got a breadth. When you look at the breadth in the board, different people bring different perspectives. So I think when I first came on the board, the idea was, oh, you’re going to bring a shareholder perspective, just the shareholder voice in the room.

And that’s true, but I’m also doing all this work now in the venture world. And so I’m living the AI life big time. I’m seeing the pluses and minuses and everything else. So you try to bring some of that experience.

We’ve got other people who are deep, deep, deep in different elements of technology. We’ve got other people who are really deep in terms of financial services, which is a huge part of our customer base. We’ve got some people who will push on the science. We have a former president of a major university, but her whole background was computer science.

And so when we start talking quantum, her eyes light up, and she can go toe to toe with the research team on the quantum stuff. We’re never going to know as much as the management team and the people on the ground. But if you can ask the right questions, I think that becomes really important.

BARRY RITHOLTZ (00:34:39): Let’s talk about your other big company board seat, UnitedHealth. I don’t know any company that’s gone through a rougher stretch due to outside forces. The CEO gets murdered, then there was the guidance issue, big leadership change, the former CEO comes back, Stephen Hemsley, and now they’re in the midst of a turnaround. What is the board’s job in an environment where it’s just one crisis after another?

And nothing that the company has necessarily done. It seems to be almost all random externalities.

BILL McNABB (00:35:16): So this is again going back to that agility thing. A lot of business writers have talked about the need for management teams to have a more venture, more startup mentality, be quick to pivot. Boards now have to be quicker to pivot. So we’ve had to pivot. We’ve had to think about leadership differently. Steve coming back, huge blessing for us that he’s ready and able and willing to do that.

One of the greatest CEOs of our time. Most people don’t know his name, but his ability to see around corners and make hard decisions and then go and execute, it’s incredible. But that wasn’t in the plan, Barry. We had to adjust pretty quickly.

And what you try to do is you try to ask the right questions. You try to probe, you try to be supportive where you need to be supportive, and you try to be challenging where you need to be challenging.

BARRY RITHOLTZ (00:36:19): So it’s so fascinating to me that you’re on these two giant publicly traded companies’ boards. Vanguard is mutual. They have no outside shareholders. All their mutual fund investors are effectively the owners.

There’s no stock price to worry about. How different is it stepping into this world of public company directors? It seems like such a giant shift.

BILL McNABB (00:36:48): Yeah, it is. And look, I think there are people who in a lot of ways are way more qualified than I am. And you try to be as helpful as you can be. I think the one thing that Vanguard actually really trained me well for was to think long term.

And yet at the same time, our performance was measured every day, every week, every month. So we had this ability to do both. And again, Jack Brennan, Jack Bogle really drilled that into us. And I think our team did it exceptionally well.

The biggest aha is the pressure on the quarter, right? You’re giving guidance. You’re really thinking hard about your earnings calls and so forth. That was a new thing for me.

Because again, I never had to do that. But the analogy is, long-term performance is made up of a lot of short-term performance. So I paid a lot of attention to short-term performance. I didn’t obsess over it, but I paid a lot of attention to it, because cumulatively it leads to long-term.

So I’ve had to bring that same mentality, and I’ve had to learn that here it’s a little bit different, but how to be very focused on quarter by quarter by quarter and what we’re doing and executing. But also the one part I do try to push is, let’s not forget the long term.

BARRY RITHOLTZ (00:38:18): So I don’t know anybody that’s either on a board or is an investor that is remotely enthusiastic about, let’s stop reporting quarterly numbers. It seems kind of absurd. But at the same time, there’s an increasing number of companies that say, we don’t know the future. We’re not going to give you guidance. That’s your job as an analyst. Our job is to run the company. Reconcile those two with us.

BILL McNABB (00:38:49): So I think the move away from quarterly reporting is, frankly, a false move. It does not accomplish anything.

BARRY RITHOLTZ (00:38:58): I know they tried it in the UK and it did nothing.

BILL McNABB (00:39:01): Did nothing. Could you simplify reporting? Sure. There’s things we do that don’t add any value to the investment community, and simplify it.

I actually think quarterly reporting is very important. I think transparency about what’s happening is incredibly critical. If the regulators were really serious about the issue, guidance is where they would go. They would say, okay, we’re not going to allow guidance.

What’s interesting is, and I would’ve been in that camp 10 years ago. I went into probably a hundred boardrooms my last couple years at Vanguard, because we were the largest shareholder. And people would ask, should we give guidance or not? I’d say, no, you don’t need to give guidance. What you do see, though, is there are situations where the Street gets it so wrong that you’re giving guidance to actually protect yourself from the Street getting it so wrong.

And that’s the part that I’ve had to sort of balance in my own head, because I never really understood that until I was in the boardroom. And then you see the conclusions some of the sell side in particular come to, and you’re like, whoa, that’s not even remotely true. And then you have to guide them. But look, to me, the single biggest thing we could do, whether you give guidance or not, would be to really hold companies accountable for providing long-term outlook.

So what if you took one earnings call a year? I’m making this up, but we’ve talked about this at CECP quite a bit. And you report on the quarter, but you devote it to, here’s where we are against our five-year aspirations, or our 10-year aspirations, whatever the right timeframe is. Here’s how we’re doing.

Here’s, by the way, we told you last year that five years from now we want to do X. The world’s changed a little bit. We’ve got to pivot. So we’re not going to do X, we’re going to do two X. That, to me, would be a lot more productive in terms of getting people to think long term.

BARRY RITHOLTZ (00:41:14): Hmm. Really interesting. Last question on the boardroom. Are you ever in a meeting where somebody that’s on the board realizes, oh my God, this is the former CEO of Vanguard.

Hey Bill, I got a question on my 401(k). How often does that come up?

BILL McNABB (00:41:33): Actually, it happened a couple times. A couple of my colleagues on different boards were actually big 401(k) clients. So we did have good chats about that, but most of these guys are pretty sophisticated.

BARRY RITHOLTZ (00:41:47): I can imagine.

BILL McNABB (00:41:48): They don’t need my help.

@BR 00:41:49

Coming up, we continue our conversation with Bill McNabb, former CEO and chairman of the Vanguard Group, talking about startups and the future of advice. 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.

My extra special guest this week is Bill McNabb, former CEO and chairman at the Vanguard Group, now sitting on a few boards and advising private equity, venture capital and startup firms, which is really quite the pivot, from a mutual fund guy to a VC and PE sort of guy. What attracted you to those fields and some of the younger companies that you’re advising?

BILL McNABB (00:42:49): So two things I would say. One, I had no experience in the private markets. Private markets are growing dramatically. And I just felt like I need to understand this better.

And for me that was the chance to learn something new and hopefully help while you’re doing it. But selfishly, I thought I was going to learn a lot, and I’ve been overwhelmed by how much I’ve learned and how much more I have to learn. Second, during my last couple years at Vanguard, we established a research group, and we began to talk about doing some venture investing ourselves. Not about making money or on behalf of our clients, but more just being in the ecosystem. And that all came about because we did a trip to Silicon Valley, took the whole leadership team, met with every large VC there, a bunch of their portfolio companies, and we walked away blown away by what we didn’t know about our own business and what the future might look like.

And so to me, no matter where you are in the investment arc, if you will, understanding what goes on in the startup world is, I think, just important to understanding the bigger picture. And then the last thing I’d say, and this is just a passion play. Our mission, if you boiled everything down at Vanguard, we wanted to make the world a better place for investors. I mean, we got up every morning and afternoon. I’m lucky I get to do that.

And the startups I’m working with, I believe very deeply that they have the potential to make the world a better place for investors. And if I can keep doing that for the next 20 years, I’m going to be really happy.

BARRY RITHOLTZ (00:44:35): So you’re a senior advisor to Venrock. Are you helping them vet startups or ideas or founders? What’s your role with a fairly well-known venture fund like that?

BILL McNABB (00:44:50): So the partner with whom I work the most is this guy named Nick Beim. He’s incredible. He just sees around corners. He’s got 25 years of experience doing this.

I learn something every time I talk to him. So Nick will get approached by a lot of different people. He will meet a lot of different people. When he gets something that’s interesting, I often get a call and it’s like, hey, would you talk to these guys and see what you think? And so you and I both have good connections with Jason Wenk at Altruist, and that’s how my—

BARRY RITHOLTZ (00:45:28): A recent guest, and full disclosure, by the way, Ritholtz Wealth Management uses Altruist as a custodian. The firm’s venture arm is an investor in it. I personally am an investor in it.

I always like to get those disclosures out so nobody misunderstands what we’re talking about.

BILL McNABB (00:45:46): And I’m an investor there too. So Nick calls me after we first met and he says, there’s this guy I want you to meet, and just tell me what you think. He goes, we’ve invested. So Venrock had actually already invested in this case.

So I meet Jason and I’m like, he had me at hello, right?

BARRY RITHOLTZ (00:46:05): Super impressive, right?

BILL McNABB (00:46:06): Incredibly impressive. So in the early days it was Nick, Jason, and me in the boardroom. And I would say my role there was really twofold. One was just, Jason was a student of Vanguard, and like, what did we get right?

What did we not get right? How did we think about scaling? So I tried to bring that to the discussions in the boardroom. And then very importantly, over time, Jason particularly asked me, can you just talk to some of my senior team on a regular basis?

And so I do. And that’s the mentoring part. And I think that’s a big part of what, in a sense, I’m there for. I’ve made a lot of mistakes. I’ve sort of lived a lot of different movies that they’re now going to watch and live through, and where is it relevant and where is it not relevant?

There are situations where new ideas get presented, and then I will be part of the vetting process as well. So Vanilla, which is a software product to help with estate planning. There’s Steve Lockshin, who, personally, is an incredibly brilliant planner around all this. And it’s like, let’s take his brain and codify it.

BARRY RITHOLTZ (00:47:35): Turn it into software.

BILL McNABB (00:47:36): Turn it into software. And I got a chance to interact. And we knew Steve a little bit from Vanguard and serving him through the investment side. We started an RIA from scratch.

So I don’t know if we’ll ever be able to compete with you, but—

BARRY RITHOLTZ (00:47:56): We’re still under $10 billion, which I have to explain to family members is walking-around cash. It’s not real money.

BILL McNABB (00:48:04): It’s real money. You guys have done a great job. But what if you had a blank sheet of paper and could create a firm from scratch? So we’re going to do that.

And we’re in the process. It’s called Arca. You may have seen some of the press releases on it. I got a chance to work with two co-founders of three. There are three co-founders of the firm. Finny.

Finny’s a little different, because what Finny’s trying to do is really help firms do a better job matching prospects and clients, and turning the right prospects into the right clients. This is a huge problem in the RIA space.

BARRY RITHOLTZ (00:48:45): People don’t understand how important fit is. And we’ve been fortunate to build that into our process. Because it’s disruptive for someone to come in.

They’re the wrong fit, they transfer everything in. It’s so much time and effort, it’s such a lift. And then six months later everybody realizes, oh, we’ve made a mistake. And then it’s a divorce, and it’s disruptive on the way out.

BILL McNABB (00:49:09): We actually were really strict on client selection in my time at Vanguard. And so when I met two of the co-founders in particular, I talked to them a lot, and they’re describing this to me, I’m like, oh my God, I love this stuff. This is exactly how, it’s one of the most important things you learn in terms of building a great business, is that fit.

And they were thinking about things from a technology standpoint that were way beyond me. I mean, they’re a bunch of AI engineers. It didn’t exist 15 years ago, 10 years ago even. And so watching that, watching their thinking on that.

But very importantly, one of the cool things, and again, I’m getting tactical here with Finny, but it’s just interesting to me, because they developed a way, they’re going to price this in a way that aligns outcomes, much more structurally sound. So at Vanguard, one of the cool things we did was where we had active equity, for example, every active equity manager was on an incentive scheme where if they outperformed over a long period of time, we would actually pay more, and the expense ratio would go up. But we were happy with that. And, by the way, if they didn’t—

BARRY RITHOLTZ (00:50:30): It goes the other way.

BILL McNABB (00:50:30): They went the other way. We’re the only firm who did that across every active equity portfolio. And we did that very early. Finny’s doing a similar concept, an analogous concept with, like, we’re not going to be your traditional SaaS company where we charge these really big seat licenses and we’re negotiating on who’s using what.

We’re going to do it all on success. If you get the right clients, we will earn more money. And if you don’t, that’s on us. That’s a really cool concept.

And so again, I got tactical there, but it makes a point that, what you’re really looking for: if they get it right, it changes the industry in a really positive way. Altruist gets it right, it changes the industry in a really positive way.

BARRY RITHOLTZ (00:51:18): So let’s dive down into that a little deeper, for each of those. I had always been told, hey, custody is razor-thin margins, there’s nothing you can do there. And besides Schwab and Fidelity, the giants in that space, no one’s going to take them on.

You have to be a little crazy to say, I’m going to take on the two behemoths. But Altruist has become the third largest custodian for RIAs, at least if we’re going by advisors served. I don’t know how it looks by dollar amount. What did you see when you first started talking to Jason Wenk about what has always been such a challenging, low-margin business?

BILL McNABB (00:52:06): Jason had this vision that the legacy players do a fine job, at a level. But in a sense, these businesses had become, I hate the term cash cow, but there’s not a lot of innovation, not a lot of new technology being brought to bear.

BARRY RITHOLTZ (00:52:25): I want to say two years ago, and I hope I’m not getting this wrong, I think it was Schwab was generating 57% of their revenue just from the cash sweep that they’re paying a few bips on, but earning three, 4% on spread.

BILL McNABB (00:52:41): Spread’s everything there. That’s exactly right. So he had this passion, and he had been an advisor. And so he’s like, what do I really want?

And so the way we thought about it was, yes, there’s custody, and we can digitize it and we can make it much more efficient. We can make it much better, lower cost, frankly, for the advisor so they can pass on value to the client. You can, though, actually make it a platform that’s more than just custody. So we introduced Hazel, which is this great tax planning capability, as you know, AI driven, and it’s taken the—

BARRY RITHOLTZ (00:53:23): Everybody in my firm loves it. And PS, Jason was more than an advisor. He’s an engineer.

So he brings sort of that coder mentality to how can we use technology to make this faster, better, cheaper.

BILL McNABB (00:53:36): So the way I always envisioned the direction we’d go was, this is going to be the platform of the future for advisors, and we will make it so much easier for them to do what they need to do. And Jason’s got that engineering mentality, he’s got that drive. He’s incredibly passionate. If you look at the Altruist flywheel, it looks a lot like the Vanguard flywheel did, in terms of just this, if it works, this self-reinforcing perpetual improvement, perpetual driver of good outcomes has been created.

BARRY RITHOLTZ (00:54:19): What’s the old line? I think this was Jeff Bezos. Your margin is my opportunity.

That seems to be what’s happening there. Tell us a little more about Vanilla. What are they doing, and where is the disruptive opportunity there?

BILL McNABB (00:54:34): So with Vanilla, if you think about the high net worth and ultra high net worth, which is a significant amount of assets in the industry, we talk about asset allocation, we talk about cost. And at Vanguard we really talk about cost a lot. The single biggest opportunity for value add is in estate planning. I mean, you can save people millions of dollars. There’s no other category that can do that.

And Vanilla changes the experience dramatically for the advisor providing that estate planning. Rather than whiteboards and stickies and hand-drawn flow diagrams, it just gives you this incredible automated output. And I got a chance to be kind of an early pilot, because Vanguard was actually an investor in Vanilla.

BARRY RITHOLTZ (00:55:30): Vanguard itself. Oh, really?

BILL McNABB (00:55:32): Yep. And they were running pilots. So I raised my hand. It was the best conversation I’ve ever had with the advice team that does our family. By far.

Because it built this whole balance sheet in one place. All the family trees, if you will, were all right there, all done in an automated fashion.

BARRY RITHOLTZ (00:56:01): And Vanilla is a product that is not necessarily for the end investor, but the advisor in between.

It’s a little complex for the average person to just log on on their own.

BILL McNABB (00:56:12): The whole estate planning process. It really is a business. It’s really being sold to advisors.

So you’re seeing wealth management firms adopt it. So the Vanguards of the world and other big firms you would know well, bringing it in and saying, this is going to be the platform where we do estate planning.

BARRY RITHOLTZ (00:56:31): So I’m hearing a very consistent theme, which is all of the disruptive fintech that you’re involved with, Finny, Altruist, Vanilla, seems to be all marketed to the advisor, which is so different from what you’re doing on the board seats. Any other startups or other technologies you’re looking at, either to the advisory community or anywhere else?

BILL McNABB (00:56:59): Yeah, so I’ve been involved in a couple of others. One, there’s a company called Moment, which is some ex-Citadel guys who really are reinventing the way fixed income gets traded. And I’m not an investor there, but I like to think of myself as a friend of the firm, and Venrock is an investor there.

And so I have those conversations. Again, the theme is not dissimilar in that you’re making the world better, because they’re doing things with fixed income trading that have been done on the equity side for years. Fractional trading of bonds. They make it like that, and they’re really having a pretty significant impact.

There’s one that we’re involved in, again, I’m not an investor in this one either, but I talk to them a lot, around litigation. So that’s a little bit different. It’s my one non-investment-oriented thing.

BARRY RITHOLTZ (00:58:03): What’s the name of that firm?

BILL McNABB (00:58:05): Syllo.

BARRY RITHOLTZ (00:58:05): Okay.

BILL McNABB (00:58:06): And again, what’s really cool about them is it’s a marriage of incredible legal talent with an engineering mindset. So imagine the Jason Wenk of litigation lawyers. This is people who write code but have deep litigation experience.

BARRY RITHOLTZ (00:58:26): There have been a handful of funds over the past few years that literally are making investments based on litigation outcomes, class action outcomes. And they’re truly non-correlated, because the outcomes have nothing to do with the market or the economy.

It’s a really interesting space.

BILL McNABB (00:58:45): And this company will do things that, this is going to disrupt this industry as much as anything we’ve talked about. So for me, the fun part is all these entrepreneurs. You’re getting a chance to work with some of the brightest minds in the country. They’re all super passionate about what they do, and they’re incredibly talented. And you’re not going to get it all right, and some of them are going to be more successful than others.

But if you can sort of help them along a little bit with lessons learned and whatnot, it’s incredibly gratifying.

BARRY RITHOLTZ (00:59:28): You give them the best chance for future success. So the future of advice going forward. You’ve mentioned some of the robo-advisors like Betterment and Wealthfront, and in fact, the robo-advisor that Vanguard set up under your leadership quickly scaled up to a hundred billion plus and then kept going.

Now, by far the biggest robo in the world. But it doesn’t sound like you think that the future of advice is just going to be automated or technology. What does the future of advice look like, for both the average mom-and-pop investor who needs some help planning their retirement or paying for kids’ college, or the higher net worth that’s thinking about what am I going to do with this extra capital in terms of philanthropy or generational wealth, straight up to the multifamily offices and big numbers?

BILL McNABB (01:00:31): Look, I think there’s going to be a spectrum. I do think there will be people who go the automated way, fully automated, the original Wealthfront model, if you will. But increasingly, I’m pretty convinced that the bulk of the people, investors, are going to go with advisors where there’s a human touch. I think that human touch is incredibly important.

And so all the technological advances that we’re seeing, whether it’s Vanilla’s software planning, whether it’s the platform that Altruist is developing, whether it’s Finny’s ability to help you grow your business more effectively and organically, those things free up the advisor to do the personal stuff. And so I don’t know at Ritholtz what your average number of clients per advisor is, but let’s just say it’s a hundred, which in the industry is kind of a norm. I see no reason why somebody can’t serve 300 more effectively than they serve the hundred today with the technology that’s coming. And the reason I think it’s important to have that person is I think that the really thoughtful advisor can really prevent you from getting off the reservation.

The automated programs are great, but people can opt out of them pretty quickly. And we do see that. And again, you said the last six months are always indicative. One of the things that we didn’t talk about, but it’s incredibly troubling to me, is the over-gamification of investing that’s going on right now, and the amount of day trading. We’re back to day trading.

BARRY RITHOLTZ (01:02:15): I started in the nineties when that was going on. I remember the E-Trade commercials and the tow truck driver who owned an island, he just likes to help people who get flat tires. So he’s still doing it.

And it’s full circle, between the prediction markets and then all the gambling apps. We’re right back to where—

BILL McNABB (01:02:39): And you actually see it in trading volumes.

BARRY RITHOLTZ (01:02:43): End-of-day options, single-day options.

BILL McNABB (01:02:46): It’s not all being done by algos and hedge funds. There’s a retail element now that’s incredible. You take an S&P 100 stock that might have traded 10 million shares a day. Now it’s trading 50, 60, 70 million shares a day.

And it becomes this self-perpetuating thing. The more volatility there is, the more the day traders come in. The more they come in, the more volatility there is. And at the end of the day, you know that only the house wins there. The house will win.

BARRY RITHOLTZ (01:03:22): Same is true with the prediction markets, right? There’s a tiny percentage of consistent winners, and 90-something percent of people are making donations.

BILL McNABB (01:03:31): That’s right. So that’s why I think the person remains incredibly important. It was interesting, in a venture capital conference I was at, somebody asked the question, they said, do you think that all the AI and all the technology that’s coming is going to replace humans or enable humans? And I think there are places where you can say it’s replacement. It could be both.

Yeah, it could be both. I think here the majority of it’s going to be enable.

BARRY RITHOLTZ (01:03:58): So just to share a little bit of what we’ve been seeing, it’s not that we’re creating new information. We’re finding ways to take notes and keep a running dialogue of everything that’s going on with AI, but then access it and use it in a way that is just enormously helpful to clients. And very often, if you’re having a conversation with a client that’s an hour, you’re doing a year-end review, or maybe it’s a quarterly review or anything like that, lots of stuff goes by that you may not pick up in that moment. But if you have a tool taking notes and reviewing it and summarizing it and remembering that two years ago they said, we’d really like to buy a vacation property now that the kids are out of the house, but we’re not sure what we can afford. Hey, if you can access that and not forget it, if you have a permanent memory, not only can you successfully manage more clients, but you’re going to do a much better job of it.

And so the fear of all this job loss, I mean, it’s certainly not showing up in much of the data yet. You still have relatively low unemployment, and relatively low unemployment for people under 25, which usually runs about double the traditional U-3 unemployment. So I’m fascinated by this.

Do you recall in the mid-2010s, the assumption was, oh, these robo-advisors, they’re going to put all the humans out of business. Is this just an ongoing Luddite fear that every new technology leads to?

BILL McNABB (01:05:48): I think so. Because look, there is disruption. For sure.

BARRY RITHOLTZ (01:05:52): And certain jobs are going to go away.

BILL McNABB (01:05:54): Right. And when you’re in the middle of that, it’s overwhelming. But I do believe that the creation of new categories of jobs we can’t even imagine is going to continue.

I do think there are areas where the technology just allows you to do more, like you described. It’s interesting, we had an interesting thought experiment. So when the robos started, our idea was to take the best of Wealthfront technologically, but to have a certified financial planner at the end of the telephone or video screen to interface with the client. And my chief of staff, who was a twenty-something software engineer at the time, said, like, no, who needs a person?

And I said, well, how much? So we formed a little focus group. This is completely unscientific, but this is again, sometimes how I like to do things. And so we sat around and we said, so I give you $25,000, but you want a little bit of advice. They all wanted robo.

Like, I don’t want to talk to somebody. I said, it’s 150,000, which for them at the time was probably equal to a year’s pay. Four or five out of the six were like, I’ve got to have a person. Technology can be helpful, but I need to be able to talk to somebody for that amount of money.

And it really stuck with me. There is a comfort. And again, you’ve done a lot with Morgan Housel over the years. The psychology of that and that need for human interaction I think is very powerful.

BARRY RITHOLTZ (01:07:41): So I always hated the idea. Listen, I’m a middle-class kid from suburbia. I didn’t grow up with any money or any thoughts of an inheritance or anything like that. The idea of having a $10 million or even a $1 million minimum, I was never comfortable with. So we set up two digital platforms, one driven by Betterment, which is under a quarter million dollars.

And there is a group of advisors that come along with that. So if you are at $50,000 or $100,000 or $5,000, it doesn’t matter. There’s no minimum. If you are up to a quarter million dollars, the whole platform is digital.

Everything from the onboarding to the allocation. But there is a live human being there if you want to talk to somebody. And then the platform that we built from a quarter million to a million was based on buying BlackRock’s FutureAdvisor, which they figured out, oh, this isn’t the future of ETFs, we don’t need to own this. And so we ended up purchasing that from them.

Not only is that 250 to a million, but it also comes with a specific advisor. And as much as people say, I love the digital platform, I don’t need to deal with anybody, I just want to log on to the website or app and deal with it, as soon as there’s any volatility, they just want someone to talk them off the ledge and say, hey, it’ll be fine. We go through a 10% drawdown, I want to say it’s three times every two years, something like that.

So this is normal. And if you look at here’s how many drawdowns we’ve had over the past 20 years, they may not know that, they may not have access to that. But if a person says, hey, we can’t guarantee you that the market’s going to keep going up forever, but here’s what the history looks like, it’s just a huge comfort for people. And they can stay out of their own way.

BILL McNABB (01:09:43): Absolutely. So I think it’s really powerful. And again, thematically, certainly everything we’re working on in a lot of our startup land is exactly that. It’s taking that concept.

BARRY RITHOLTZ (01:09:57): Using the technology to make it faster, better, cheaper, but making sure a person is in the loop for that comfort level.

BILL McNABB (01:10:03): Faster, better, cheaper, way more personalized. Way more personalized.

BARRY RITHOLTZ (01:10:06): So we’ve covered so much stuff. Before I get to my favorite questions, is there anything we haven’t covered yet? I think we’re good. We touched a lot of stuff, so let’s jump to those questions.

And I’ve asked you these 10 years ago, but I want to circle back to them, see—

BILL McNABB (01:10:25): If I’m consistent.

BARRY RITHOLTZ (01:10:26): Right. Well, we’ll see what’s changed over the past decade. So I’m going to assume your mentors are all fairly much the same. Tell us, Jack Brennan clearly one of those people. Who were the mentors who shaped your career?

BILL McNABB (01:10:40): So Jack Brennan certainly, and I talked about that earlier, but lead by example and the power of “we” versus “I.” I had a rowing coach post-college, and his big thing to me when I was thinking about leaving New York and going to Vanguard was, find a place that matches your values and you’ll be happy. And I dedicated my last annual report at Vanguard, the Vanguard funds, a section of it to him, because that advice actually was what put me over the top in terms of, I’ve got to go to Vanguard. There were so many other mentors. One I’ll mention, though, we had a great board early in my career, and Charlie Ellis, the great author of Winning the Loser’s Game, Charlie was on our board. And Charlie was actually a real mentor to me, because when he was at Greenwich, he would come and present to us how we did competitively in the 401(k) market, and I was running that business.

So we developed a pretty good bond. Then when he came on the board, he just was always there to sort of push and prod a little bit and help shape me. And again, the way he thought about investing just absolutely resonated, obviously, with what we were doing.

BARRY RITHOLTZ (01:12:05): He just wrote a new book, just dropped a few months ago. He’s still active in his eighties.

BILL McNABB (01:12:10): It’s incredible. It’s incredible.

BARRY RITHOLTZ (01:12:13): Speaking of books, what are some of your favorites? What are you reading currently?

BILL McNABB (01:12:16): So right now I’m reading Jim Collins’ What to Make of a Life, which is very different for him. It’s not a business-oriented book. As I mentioned to you at other times, Good to Great and Built to Last, Jim Collins classics, they’re the first business books I go to. But this is, what he does is he takes lives of people we know in sort of pairs, and he just asks, what were the key events that made them do what they do?

So he uses, like, two football players from when I was growing up, Carl Eller and Alan Page, Minnesota Vikings. One of them went on to have a real drug problem and then become an incredible champion of rehabilitation and did so much for his community. The other one went on to be a Supreme Court justice in Minnesota.

BARRY RITHOLTZ (01:13:15): Wow.

BILL McNABB (01:13:16): And what were the key decisions? What allowed them to go from this great football career to a second act? So anyway, I’m reading that. I’m partway through it. It’s phenomenal.

And I always have a fun book or two I’m reading too. I’m still a big science fiction collector. So The Will of the Many and The Strength of the Few. It’s two parts, there’s a third one coming. Imagine ancient Rome meets The Matrix.

That’s all I’m going to say. Only a weird brain like mine could find that fascinating.

BARRY RITHOLTZ (01:13:48): That’s intriguing. I watched and read Project Hail Mary, written by the same author as The Martian, Andy Weir. Really fascinating book. He’s such a great writer.

BILL McNABB (01:14:01): He’s phenomenal. One of my favorites.

BARRY RITHOLTZ (01:14:05): Speaking of movies and videos or podcasts, what are you streaming, listening to, watching these days?

BILL McNABB (01:14:14): Not a ton. The most recent podcast was the Acquired podcast. They did a huge thing on Vanguard, mostly on Jack Bogle. It was great.

It was really, really worth doing. Ben Gilbert and his partner, they just did a fantastic job. Most of the other things, the streaming, I just rewatched, Netflix did this three-year series on the Tour de France, which I’m fascinated by as a sport, called Unchained.

And it’s really good. So that was sort of a fun one.

BARRY RITHOLTZ (01:14:51): Our final two questions. What sort of advice would you give to a recent college grad interested in a career in either financial advice, wealth management, or fintech startups?

BILL McNABB (01:15:06): Well, so on the latter, there’s never been a better time to start a company. With technology being as ubiquitous as it is and cheap, frankly, you can take an idea and you can build something pretty quickly without a ton of money. And then if it’s a really cool idea, there are people ready to help you and write a check. And so I’m encouraging people who have that entrepreneurial itch.

This is a great time to scratch it. Don’t wait. But think about what you’re trying to do. Don’t do it just because you want to, quote unquote, get rich. Do it because you have an idea that really matters.

And something I always apply, it’s a Jim Collins phrase, the hedgehog concept. What are you passionate about? What can you be great at? And I mean great.

And then how does it drive the economic engine? And so you want to have a passion, you want something that you truly believe you can be world class at, and economically, there’s got to be an engine that it drives. And today it’s just a great time to be doing that. If you’re going into the asset management, investment world, I think the two places that are going to be the most interesting, I continue to think the venture world’s really interesting, because, whatever anybody’s politics are, whatever, all this stuff—

BARRY RITHOLTZ (01:16:37): It’s cutting edge. It’s the latest and greatest.

BILL McNABB (01:16:39): There are so many cool things going on right now, and the chance to actually go explore that and invest in that is kind of fun. But I think wealth management, I think this advice thing has got a long way to run. And if I were a young grad, rather than going into traditional asset management, I would be thinking much more about individual wealth, and how to start my own advisory firm or how to be part of a Ritholtz Wealth or something like that.

BARRY RITHOLTZ (01:17:17): Our final question. What do you know about the world of investing today that might have been useful back in 1986 when you first joined Vanguard?

BILL McNABB (01:17:28): Well, so much. The long term really is the way to think about things. I think even though I joined a firm that was famous for it, I don’t think my own brain was set around long term. And the ability to sustain your beliefs and your discipline over the long run is a singular differentiator.

And I’ve had the privilege of being inside of a lot of different firms, and it’s amazing how many people still don’t actually get that. So I think that, and it took me a while before I got there, so I wish I’d had it right away. Second, for me, is really pay a lot of attention to things that nobody’s talking about. And this is much harder.

So, as you know, when you started The Big Picture, I actually started every morning with reading The Big Picture, because you did a really good job curating what was out there and getting rid of a lot of stuff.

BARRY RITHOLTZ (01:18:36): Right. There’s a long history there, which we will discuss offline. But when Brennan said to me, hey, I’ve been a reader of your stuff, when I first met him at some large conference room lunch 20 years ago, my head exploded.

BILL McNABB (01:18:56): I might’ve been one of the people who pushed it that way. But to me it was a really important thing. And I think, like today, people aren’t talking about leverage that much. And I worry about leverage. When you look at what the hyperscalers are doing in terms of the bond market right now, and a couple of them are not net cash flow positive because of all the infrastructure that they’re building, the leverage in the system. Private credit had its moment a year ago or whatever, six months ago, and that was one you could see coming.

I worry a lot about leverage. No one’s talking about it. When I first started out, that way of thinking, that contrarianness, was not part of how I had been trained or brought up. But again, this is where Jack Bogle, Jack Brennan, John Neff, the great value investor, they were really impactful.

BARRY RITHOLTZ (01:20:01): I was going through an old piece I was writing and never finished, and I found some notes, and I can’t figure out whose line this is. It feels like I’m stealing it from somebody. Equity crises bruise, debt crises maim. And I’ve been unable to track that down, and it doesn’t sound like something I would’ve written.

But anytime I use something from someone, I’m usually very, very fastidious about making sure the quote is attributed correctly. But it just reminds us that leverage kills. Look at what’s going on in Korea with their three x and five x funds as those unwind. Man, they’ve had a great run, and they’ve given a ton of it back.

Because of the leverage. Bill, I could talk to you for two more hours.

Thank you for being so generous with your time. This has been utterly fascinating. We have been speaking with Bill McNabb, former chairman and CEO of the Vanguard Group, board member at IBM and UnitedHealth, senior advisor to Venrock, as well as board member and advisor to so many startups. If you enjoy this conversation, well, check out any of the 654 we’ve done over the past 12 years.

You can find those at Apple Podcasts, Spotify, YouTube, Bloomberg, 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 Alexis Noriega. 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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• This data has helped fight workplace discrimination for 60 years. The Trump administration plans to delete it: The move marks a fundamental shift for the Equal Employment Opportunity Commission (EEOC). Without this data, it will be much harder for the agency to identify widespread cases of discrimination in hiring and promotions, experts and former employees of the commission say. And, they warn, it will bring the Trump administration one step closer to reshaping the commission from an independent watchdog into an arm of the executive branch narrowly focused on advancing the political grievances of Donald Trump’s base. Amy Qin on the EEOC data experts say the agency can’t police hiring discrimination without. (The Guardian)

​• Labor Day on Track to Set Record at the Pump: The national average hits $4.14 — the highest ever for this time of year — with Strait of Hormuz volatility keeping crude around $90. (AAA) see also Imperialist Delusions and the Price of Fuel: Paul Krugman on the Venezuela adventure and what it’s doing at the pump. (Paul Krugman)

​• Should You Buy Alien Abduction Insurance?: Joseph Moore on the 100,000-plus Americans holding coverage — GEICO sold some, Lloyd’s underwrote 20,000, and two claims were paid. Behavioral economists would hardly be surprised. (Joseph Moore).

​• Paid Actors, AI Writing: How a New Kind of Video Business Cashed In on America’s Divided Politics: Max Tani on “William,” whose AI-scripted kitchen-table video — Mayor Mamdani Panics as Taylor Swift Triggers a $2.3 Billion Celebrity Exodus — racked up 474,000 views. (Semafor)

​• Humans Did Not Invent Art. It Was the Other Way Around: In 1940, four teenage boys chasing rumors of secret passageways near Montignac found chambers bejewelled with horses, elk, ibex, and bulls instead — Lascaux, almost perfectly preserved. (Aeon)

​• In Red States, Law-and-Order Republicans Turn Against Flock Cameras: David Ovalle on the governors of Texas and Florida moving to curtail license-plate readers, even as police say they help solve crime.. (New York Times)

• USPS ‘carefully reviewing’ whistleblower claim on plan for Trump’s mail in voting order: “USPS leadership, it appears, has discarded all best practices as they speed the project to be ready for a September 1 implementation — raising questions about whether catastrophic failure would be a feature rather than a bug,” said the disclosure, prepared by Whistleblower Aid, a nonprofit organization representing the anonymous federal government official with direct knowledge of the Postal Service’s development of the new system. ​Hansi Lo Wang on the disclosure warning that Postal Service leadership “discarded all best practices” racing to a September 1 launch — “raising questions about whether catastrophic failure would be a feature rather than a bug.”  (NPR)

​• More Than Half of Americans in Their 40s Are ‘Sandwiched’ Between an Aging Parent and Their Own Children: Juliana Menasce Horowitz with Pew’s numbers on the generation squeezed from both directions. (Pew Research)

​• Behind Closed Doors, John Fetterman Shows Little Interest in the Work of a Senator: Former staffers and lawmakers describe a light daily schedule, canceled constituent meetings, skipped hearings, and a focus on conservative media ties. Poised to be a possible swing vote in a divided Congress, he churns through staff as he dodges constituents, alienates fellow Democrats and courts Israel lobby (Wall Street Journal)

​• A Little League Coach’s Advice to His Team Went Viral. Anyone Can Appreciate the Message: Cory Edwards saw the fought-off tears and finger-pointing as his Henderson, Nevada team’s run ended — and didn’t want his players going out sullen. (The Athletic)

Video of the day: Aaron Sorkin on Why AI Will Fail, Facebook & The Future of America | What I’ve Learned

Be sure to check out our Master’s in Business this week with William McNabb, former CEO and Chairman of the Vanguard Group from 2007-17. He is also an advisor to Venrock, and was an investor and advisor to Altruist, which was just sold to VG for $2 billion.

More Americans Are Identifying as Democrats Ahead of Midterms

Source: New York Times

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This month's edition kicks off with the news that Altruist has been acquired by Vanguard, representing a major shift for an RIA custodian that had previously been untethered to a retail financial institution – but the bigger industry implication is that by owning its own custodian, Vanguard can undercut and effectively push back on the insistence of other custodians to charge revenue sharing payments on ETF assets, which could have a profound impact on those custodians' revenue models and potentially trigger another round of consolidation in the custody business.

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

• The AI prospecting solution FINNY has revamped its pricing model, switching from a flat-fee annual subscription to primarily a 20bps revenue share for new client revenue brought in through the platform – which shows how FINNY sees itself as more of an automated business development 'employee' than a SaaS platform, but the question remains how much of the prospect sourcing and cultivation process FINNY can truly automate (since advisors have proven willing to pay a revenue-share percentage to people or platforms that can reliably get prospects on their calendar, but may not be willing to do so if they're still responsible for doing most of the work of sourcing and developing those prospects)?
• Startup CRM providers Slant and FinTurk both launched new forms-related tools – Slant's for building forms, and FinTurk's for filling forms out – that eliminate the need for their users to buy standalone tools for those purposes, and reaffirm how CRMs can still be useful in the era of AI by building new functions that help advisors better leverage the data they have
• Pontera, the platform aiming to enable advisors to directly manage their clients' assets within 401(k) plans, has announced a new non-discretionary 401(k) advice tool for advisors who can't or prefer not to manage their clients' 401(k) assets directly (perhaps as a response to state regulators and 401(k) recordkeepers like Fidelity cracking down on Pontera's original technology)

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

• Wavvest, which built an 'all-in-one' AI technology solution for financial advisors, has also launched an in-house RIA based on that technology, which in light of the growth and funding success of 'digitally native' RIAs like Savvy and Farther (which are built on their own proprietary technology platforms) suggests that the economics of running an RIA might be better than those of selling all-in-one technology to RIAs
• Even as surging AdvisorTech categories like AI notetakers have raised hundreds of millions in investment capital over the last two years, platforms related to alternative investment distribution and support for RIAs have raised over $2 billion – showing that even though advisors may only allocate a small amount of clients' portfolios to alternatives, the revenue opportunity of participating in asset distribution still far outpaces that of selling SaaS solutions

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 speak with William “Bill” McNabb. He’s the former chairman and CEO of Vanguard and now sits on the board at UnitedHealth, IBM, Axiom, and Altruist. We discuss his 30+ years at Vanguard and his career after leaving the company, working in the boardroom and with startups in fintech and more.

He explains how Vanguard ran from under a trillion dollars before the financial crisis to over $13.3 trillion today. Bill also emphasizes the power of “We” versus “I” at the corporation level. We also discuss his corporate governance book, “Talent, Strategy, Risk: How Investors and Boards Are Redefining TSR.”

A list of his current reading/favorite books is here; A transcript of our conversation is available here Tuesday.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, 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 Seth Bernstein, CEO of AllianceBernstein and Head of Asset Management of Equitable Holdings, the 69% owner AB. The firm manages $905.5B. Previously, he spent 32 years at JPMorgan Chase, where he eventually became the Global Head of Managed Solutions & Strategy at JPAM, responsible for all discretionary assets for Private Banking clients, and Global Head of Fixed Income & Currency. He eventually became CFO of JPM’s Investment Management & Private Banking division.

Current Reading/Favorite Books

Authored Book

Books Barry Mentioned

The post MiB: Bill McNabb, Vanguard former Chairman and CEO appeared first on The Big Picture.

Also in industry news this week:

• A significant increase in the minimum asset size for referrals in Charles Schwab's Advisor Network program could lead some firms to reevaluate their participation (and perhaps their overall custodial relationship with Schwab)
• The SEC this week submitted a proposal that would expand retail investor access to private market investments that have long been the purview of institutional and wealthier investors

From there, we have several articles on retirement planning:

• How safe withdrawal rates can increase significantly as retirees' time horizons shorten
• How putting a financial plan for a retired couple through a 'widowhood stress test' could identify potential weaknesses when one spouse (unexpectedly) passes away
• Why some retirees might gain peace of mind by creating an asset 'bucket' for potential long-term care expenses

We also have a number of articles on practice management:

• A five-step process to better delegate 'outcomes' within an advisory firm (and why doing so could be more impactful than 'just' handing off individual tasks)
• Ways advisory firms can integrate new planners into client meetings, from identifying good-fit clients to leaning into their cash flow expertise
• Six ways firms can get a faster return on investment from a new associate advisor, including by delegating responsibilities in areas such as client onboarding and plan updates

We wrap up with three final articles, all about the costs of home ownership:

• How financial advisors can help clients consider whether to follow through with a major home remodel, from identifying the tradeoffs from making such an outlay to determining the best source of assets to pay for it
• While many homeowners enjoy having green space on their property, lawn upkeep can come with significant 'hidden' expenses
• How prospective home buyers can conduct due diligence on a homeowners or condo association to avoid stress and save money down the line

Enjoy the 'light' reading!

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Heading out the door for the Labor Day weekend, with blue skies and 85° temperatures, I had to share a chart. It’s from the San Francisco Federal Reserve (via Torsten Slok of Apollo) and shows Wall Street expectations for Federal Reserve rate action.

It’s the perfect explainer for why forecasts tend to be so inaccurate.

As you can see, as recently as February 2026, market participants expected a series of ongoing rate hikes—a simple extrapolation from the prior trend.

Then the war began sending food and energy prices higher.

But the Middle Eastern adventure was promised to be short and indeed already over, so the next set of expectations were flat. A few months later, the “short military operation” turned into a war; inflation remained sticky, and expectations were for modestly higher rates.

Now we are six months into a war that shows no signs of ending, voters are angry, and a bad actor is in control of the Strait of Hormuz, with the likelihood of an ongoing tax on Middle Eastern oil. Once again, expectations were adjusted upwards, and now we see “higher for longer” as the consensus.

Unless, of course, something else unanticipated occurs…

Forecasts are for the most part simple extrapolations of the status quo or the current trend; they also fail to include random or unanticipated events – the kind that happens all the time in the economy, markets, and geopolitics.

When you stumble across a forecast that turned out to be more or less correct, it usually means nothing happened, and the extrapolation proved to be randomly correct.1 

But most of the time, $h*t happens: wars break out, Pandemics occur, terror attacks happen, new technology comes along and fails or succeeds, and governments fail to fund their annual budgets or wildly overspend their fiscal limits.

The parade of endless random events derails even the most thoughtful of predictions. A year is simply too short a time to guarantee that the dominant secular trend asserts itself, and too long a period to avoid random events.

Previously:
The Folly of Forecasting (June 7, 2005)

Nobody Knows Anything (Archive)

Source:
Productivity -Driven Growth Confronts Elevated Inflation
Huiyu Li
Federal Reserve Bank of San Francisco, September 3, 2026

__________

1. Please note that I said randomly correct — that is not he same as being prescient.

The post Nobody Knows Anything, Rate Expectations Edition appeared first on The Big Picture.

I have been fascinated by Victor Niederhoffer for decades.

I first learned about him in a New Yorker piece titled “The Blow-Up Artist;” I was intrigued by his unique strategies and by his tendencies to repeatedly boom and bust. That led me to have him on the podcast in 2017, after a recent crash, rebuilding, and crash (again) for the third time. He passed away this past summer, and I thought it was worth sharing some background.

Between when he was booked to appear on the show at Bloomberg and the actual recording date in 2017, the 3rd crash occurred. To his credit, he honored his commitment and showed up. This, despite his being clearly and deeply distraught. I’ve never told the podcast story while he was alive, but now that he has shuffled off this mortal coil, he won’t be offended.

I began with innocuous background questions – about his education, squash and teaching – and was surprised by his responses. From the very first question, it was obvious that he was not OK. Whatever I would ask would be greeted by a loud and heavy sigh, followed by a lengthy pause – and then a thoughtful response.

This pattern — question, sigh, pause, response — occurred after every single query. Some pauses were long; some were longer. The producer was in my ear the whole time, yelling, “This is awful, none of it is usable, let’s tap out.”

But I waved her off. I KNEW that this was going to be valuable… It was a once-in-a-lifetime opportunity to hear a legendary trader discuss his career and own his own errors. I recall we recorded for over 90 minutes, maybe closer to two hours. In its raw form, the pauses would have made for terrible radio – too much dead air. But I also suspected it would be incredibly valuable.

The only way to make it usable was to edit out all of the pauses and blank spaces.1 What was left was 54 minutes of me trying to urge him on, and Victor telling stories from memory. It was not smooth or slick, but it was important.

RCM Alternatives2 wrote up a lovely history of Victor and the lessons we can learn from his career, presented below:

The Lessons of Victor Niederhoffer

Being right is a luxury good. Solvency is a necessity. Path dependency is the most underrated concept in finance — the sequence of returns matters as much as the returns.

Your risk tolerance is irrelevant; your clearing broker’s is the one that counts. You can have diamond hands all day. Refco doesn’t care about your hands. When the margin clerk calls, you’re not a Chicago PhD with a seventeen-year record — you’re a line item getting hit at whatever the screen says. Leverage doesn’t just amplify losses. It hands the exit decision to somebody else.

A long winning streak isn’t proof of safety. Sometimes it’s the measurement of hidden risk. Sharpe sees the volatility of returns. It doesn’t see the shape of the tail. Make a nickel ninety-five times and lose ten bucks once, and Sharpe will call you Warren Buffett right up until the ambulance arrives. Same movie as LTCM. Same movie as XIV in February 2018. Same movie most cycles.

Know which bet you’re actually making. Vic used the same instrument for both legs in 1997, on two continents, for the same underlying reason. If you’re a contrarian expressing it through short options, you own the view and the funding risk and the convexity — all at once, all pointing the same direction. Size for the trade you have, not the one you’d describe on a call.

Drifting into areas where you don’t have much expertise is about as red as flags get. Vic’s own words. A short-horizon statistical trader made an illiquid, levered, fundamental EM bet partly on the basis of cigarette-butt length. When the edge tightens and the capital’s still there, the pull toward finding risk somewhere new is enormous. That’s usually where the body’s buried.

Nobody sets a stop-gain. This is his best line, from a 2010 Slate interview, and almost nobody quotes it: “If they go to Vegas with $10,000, they say I’m not going to spend more than $5,000. But they never say, ‘Hey, when I win a certain amount, that’s when I’m going to quit.’ I’d had this incredible string of successes where I made 50, 100 percent, year after year… but I didn’t take account of this. I didn’t have a stop-gain, if you will.” Every risk framework in the industry is built around losses. His diagnosis was that the winning is what got him.

And the footnote nobody mentions. After 1997 he sued the CME in federal court in Illinois, on behalf of his customers, alleging floor traders colluded to mark options against him at far above market prices to force him out. The exchange settled. He distributed the entire settlement to his clients without deducting a dollar for the substantial legal fees he’d run up. That’s not a risk lesson. That’s a character lesson, and it’s worth more than most of the risk lessons.

All of these are hugely insightful rules for anyone trading professionally.

That first rule is a thing of literary beauty: “Being right is a luxury good. Solvency is a necessity. Path dependency is the most underrated concept in finance”

For me personally, there is an even bigger takeaway from his professional experiences, and it’s this: If you set the course record on the straightaway but crash into the wall at the first turn, your record for the course does not count.

Previously:
MIB: Victor Niederhoffer on Making and Losing Fortunes (September 19, 2017)

Sources:
Right, But Not Solvent: The Lessons of Victor Niederhoffer
Attain Alternatives Blog , September 2, 2026

The Blow-Up Artist
By John Cassidy
The New Yorker, October 8, 2007

Blowing Up: How Nassim Taleb turned the inevitability of disaster into an investment strategy.
By Malcolm Gladwell
The New Yorker, April 15, 2002

__________

1. Bloomberg noted when it was published, “Edited for length and clarity,” but that doesn’t begin to explain what it was like fighting through those pauses during the actual recording process…

2. I found this article via a Google alert — the piece quotes me; I found it so compelling it was worth excerpting.

The post Lessons from Victor Niederhoffer’s Life appeared first on The Big Picture.

Given that firm revenue (and valuation) can have such meaningful consequences, advisors may be reluctant to slow their firm growth. After all, even if they personally feel that they have 'enough', advisors may (reasonably) be reluctant to leave money on the table.  In this 198th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how to navigate the urge to grow for just a 'little' longer against the real-world multiples. After all, the issue is less maintaining growth for a year or two… but that advisors may continue to move the goalposts to justify growing for a "little more" before they dial their work back. This can create a perpetual cycle where the advisor is 'almost' to the end all the time.

Advisors can start with clarifying their business purpose and their end goal. There is nothing wrong with continuing to build a larger business – or even enjoying the challenge of growth – so long as advisors are clear with themselves as to what they are building towards. There can always be another tier of clients, fees, team, and revenue to reach – so advisors must carefully consider where they direct their energy. This mindset can be especially clarifying when presented with new business opportunities as advisors consider what will move them closer or further from their goal.

Ultimately, after a certain point, advisors must clarify within themselves what purpose their business growth ultimately serves. Whether that purpose is building a legacy, helping as many families as possible, or spending more time in the community, that in turn can be used as a guiding light… not the promise of 'more'. In the end, advisors who can be discerning and consistent may find themselves building a practice that enables them to live more of the life they imagined!

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I am a sucker for infographics like these:

In 2025, Global GDP hit an all-time high of $118.4 trillion — about $14,406 per person worldwide.

To reach $150T by 2030 — 26.7% higher than where we are now — would require 4 years of gains averaging 4.86%. Any combination of nominal growth plus inflation gets us there. 3% annual GDP growth with a 2% inflation rate hits $150T in 2030.

China, which was half of the US GDP not too long ago, is now 68.9% of our economy’s size; Europe, at $37 trillion, is about the same size as the United States’ economy.

$150 trillion is not a reach, and at current growth and inflation rates, if sustained, the world would reach $300 trillion sometime in 2044…

Source:
World Economic Outlook via Visual Capitalist

The post $150 Trillion Global Economy (2030) appeared first on The Big Picture.

In practice, this type of intentional giving tends to fall into one or more 'eras' according to when the funds are intended to be spent by the child. Many parents focus on higher education savings or supporting their children's lifestyle expenses during young adulthood. A smaller number of higher-net-worth families are focused on dynasty creation, i.e., setting aside funds to be used by multiple future generations. And nearly all parents do some amount of small-dollar giving to their young children, from allowances to birthday gifts to visits from the Tooth Fairy.

However, few parents tend to focus on saving for their children's retirement – often because the parents themselves won't necessarily be around by the time their children reach retirement age. This is notable given the recent launch of Sec. 530A "Trump Accounts" (TAs), which are explicitly designed for retirement savings on behalf of young children (given their rules that closely mirror those of IRAs, other than the ability to contribute regardless of whether the child has any earned income). Government promotional efforts have emphasized how much can be accumulated in TAs over decades of saving and compounding, and planners have noted the option for Roth conversions after the child's age 18, allowing for many decades of tax-free growth – raising the question of whether parents should think about saving for their children's retirement, in order to take advantage of the tax benefits of TAs.

However, the reality is that despite the potential for significant asset accumulation by the child's eventual retirement age, TAs remain just one of a variety of account types available for intergenerational giving. And because each account type has its own set of tax characteristics and incentives for specific types of savings, the 'best' account for giving depends more on what type of giving best aligns with the parent's philosophy of how to invest in their child's future happiness and wellbeing, rather than which one will result in the highest after-tax dollar figure.

For example, some parents may be convinced that a college and/or postgraduate education is the best way to set their children up for a career that will be financially rewarding and personally fulfilling (at which point they'll be able to adequately fund their own retirement savings) – suggesting that a 529 plan and its tax-free withdrawals for higher educational expenses may be the most tax-efficient way to fund that goal. But other parents might see more value in 'pre-funding' their children's retirement, which gives them the ability to take risks and/or pursue more personally fulfilling (though perhaps less lucrative) careers without having to worry as much about financial security – in which case TAs might really be the 'best' option available.

The key point is that there really is no single 'best' account for intergenerational giving, as different accounts – from 529 plans and TAs to UTMA/UGMA taxable custodial accounts to child-owned Roth IRAs to irrevocable trusts – are each tax-advantaged for certain goals, but may be tax-disadvantaged for others. And so the decision to use one (or more) account type is ultimately more about what the parent hopes the child will eventually do with it, rather than which one could (theoretically) accumulate the highest balance in the end!

And if you want to go deeper on this topic, hear directly from the author on the Financial Advisor Technician podcast .

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The transcript from this week’s, MiB: David Booth, Dimensional Fund Advisors Founder & Chairman, 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:  David Booth
Founder & Chairman, Dimensional Fund Advisors

Bloomberg Radio — Transcript

ANNOUNCER (00:00:02): Bloomberg Audio Studios. Podcasts. Radio. News.

BARRY RITHOLTZ (00:00:07): This week on the podcast — what can I say? Legendary investor and founder of Dimensional Funds, David Booth, talks about his entire career, his philosophy, philanthropy, how he helped build DFA into a trillion-dollar fund, and why people refuse to just manage what they can and stay calm in the face of volatility and market events. I thought the conversation — and the book, Stay Calm — was fascinating, and I think you will also. David Booth, welcome back to Bloomberg.

DAVID BOOTH (00:00:53): Well, thanks for having me. It’s always a pleasure.

BARRY RITHOLTZ (00:00:56): I was gonna say the same — it’s always a pleasure. I know your background, but I’m gonna assume a lot of listeners may not be familiar with it, so I wanna start by going all the way back to your college and grad school education. You get a bachelor’s in economics from the University of Kansas, then you get a master’s degree focused in business, and then you go to the University of Chicago for a PhD. That very much sounds like academia was the future.

DAVID BOOTH (00:01:27): It really was, in the sense that, like a lot of kids, when you’re in college or even high school, you think, boy, I’d like to be a professor — ’cause that’s all you know.

BARRY RITHOLTZ (00:01:38): And it’s a great job. You’re on a campus, it looks like fun.

DAVID BOOTH (00:01:42): Back in those days, it was a good profession. I mean, there is a thrill of teaching kids, seeing the light go on. Kind of the same thing we have in business, when you have a client and finally —

BARRY RITHOLTZ (00:01:59): When they get it.

DAVID BOOTH (00:02:00): When they get it, you know, it’s very cool.

BARRY RITHOLTZ (00:02:03): So at Chicago, you pivot from a PhD to an MBA, and eventually you become the assistant, researcher, TA to some young professor who was not that much older than you — Gene Fama. Tell us a little bit about what led to that pivot.

DAVID BOOTH (00:02:19): Well, the backdrop is, in that period of time — the late sixties, early seventies — that’s when finance really emerged as a science, and it has continued to evolve, even today. And by that I mean, for something to be a science, you need testable hypotheses — don’t worry, I’m not getting too heavy into this. And before 1960, they just didn’t have the data to test things out. So in the early sixties, the University of Chicago developed this research-quality database, CRSP. The CRSP data started in 1926, and they’ve updated it, so now we have over a hundred years of data.

BARRY RITHOLTZ (00:03:05): When did Chicago first roll that out?

DAVID BOOTH (00:03:08): About ’63. Fama, my mentor and Nobel laureate in 2013, was in the PhD program at Chicago when Jim Lorie and Larry Fisher developed this database, and they turned it over to Gene and said, look, do some papers, do something with this data. So he had a head start on everybody, and for the next 20 years he was the most cited academic —

BARRY RITHOLTZ (00:03:38): Still one of the most cited academics.

DAVID BOOTH (00:03:40): Maybe the most ever, really, in finance.

BARRY RITHOLTZ (00:03:44): First mover advantage, for sure. So around the time you finish your PhD, Fama’s Efficient Market Hypothesis — that thesis was starting to gain traction, at least in academia, if not yet on Wall Street. Tell us a little bit about what was so attractive about EMH.

DAVID BOOTH (00:04:06): Well, it was incredibly exciting. First, let me just make a slight correction — I actually didn’t get a PhD.

BARRY RITHOLTZ (00:04:12): Right — you were working on your PhD, and then you got an MBA.

DAVID BOOTH (00:04:16): Yeah. And eventually I decided the world would be better served if Gene Fama did research and I tried to apply the ideas, rather than the other way around. So I walked into his office one day and said, look, I think I’d like to leave the program. So he calls up Mac McQuown out at Wells Fargo in San Francisco. Mac was in charge of applying quantitative methods for the bank, and one of the areas he worked on was investing. Mac had always wanted one of his students, so he recommended me, and Mac and I hit it off, and he invited me to come work for them. And so I decided to leave the program.

BARRY RITHOLTZ (00:04:57): So, the first job — did you ever get your MBA, by the way?

DAVID BOOTH (00:05:00): I got the MBA on the way out. They gave me an MBA.

BARRY RITHOLTZ (00:05:03): That was nice — that was a good investment on their part. You worked for Mac at Wells Fargo, right? In San Francisco. I didn’t realize you were on the West Coast for a while.

DAVID BOOTH (00:05:13): Right. I mean, this is the early seventies, so it was still kind of a Haight-Ashbury kind of thing.

BARRY RITHOLTZ (00:05:20): For sure. So Mac is the guy who’s often credited with creating the first version of an index fund. I think, if memory serves, it was for an institutional client’s pension or something like that.

DAVID BOOTH (00:05:33): Yeah, right. It was Samsonite.

BARRY RITHOLTZ (00:05:35): Samsonite, that’s right. Walk us through that. What was it like?

DAVID BOOTH (00:05:40): It turns out it was really pivotal in the history of finance, for a couple of reasons. One is, in doing all this research in finance, the fundamental question became: if you can’t outguess the market, how are you supposed to invest? Most people grow up thinking — and back in those days, everybody thought — that investing was about trying to pick the next winner stock, and time markets, and that sort of thing. And beginning in the mid-sixties, all of a sudden, with this burst of data, they could examine things like: are the professional managers that try to outguess the market worth the cost? And they’ve been doing this research for years, and there’s no compelling evidence that they’re worth the cost. In fact, I think the most practical assumption for all your readers is that the professional investors don’t seem to be able to beat the market. And that has a profound implication. And in fact — we can get around to more of the personal story — my parents grew up in the Great Depression and then fought World War II and so forth, and never had much money. But they never invested in public markets, ’cause they thought of themselves as outsiders, and the insiders would make all the money and just take advantage of them. So they never invested, and they had a little tougher time in retirement than they probably should have.

BARRY RITHOLTZ (00:07:18): And to be fair, the history before the post-World War II era was — they weren’t so wrong.

DAVID BOOTH (00:07:26): That’s right, they weren’t so wrong. So now, that’s the breakthrough. One of the implications of the new science is that the outsiders can do as well as the insiders — maybe better, once fees are considered — ’cause you can buy market portfolios very easily and very inexpensively now, and the pros don’t seem to be able to beat that.

BARRY RITHOLTZ (00:07:45): Well, the data on the pros — it doesn’t matter if you’re looking at Morningstar or SPIVA or DALBAR or any of the annual studies — is that in any given year, less than half of professionals beat the index. And I think that’s net of fees.

DAVID BOOTH (00:08:02): In fact, just yesterday there was a front-page article in The Wall Street Journal — only 27% last year.

BARRY RITHOLTZ (00:08:11): In the last 12 months. It was a particularly bad year, because one sector dominated, and if you didn’t have exposure to that sector, you badly lagged. Then the year before, the sector didn’t dominate. So you had to pick the sector, time it right, and stay invested.

DAVID BOOTH (00:08:25): Of course, if you do all of that, you don’t need our help.

BARRY RITHOLTZ (00:08:28): That’s exactly right. So Mac creates the first index fund — or one of the first. I’m curious, was there much of a reaction or any pushback from Wall Street, or did it just kind of slip by unnoticed?

DAVID BOOTH (00:08:43): No, there was a huge pushback. It was stuff they didn’t want to hear. I mean, they’d been claiming for years — oh yeah, we can beat the market, we can do 15 or 20% regardless of markets — all these claims. It turned out, unfortunately, they couldn’t be backed up by the data. That’s a very powerful lesson in developing arguments: if you have data and the other side doesn’t, it’s kind of an —

BARRY RITHOLTZ (00:09:09): Unfair fight.

DAVID BOOTH (00:09:10): Unfair fight. But it gets into a lot of issues we’ll cover as to why I’m still out trying to deliver that message.

BARRY RITHOLTZ (00:09:20): It’s so hard to believe. So let’s talk a little bit about that message. You and some of your Chicago classmates — Rex Sinquefield is one, and he had worked on an S&P 500 index fund at American National Bank. And then Larry Klotz was also a Chicago —

DAVID BOOTH (00:09:39): No — we worked together at A.G. Becker.

BARRY RITHOLTZ (00:09:42): And that was also in Chicago — in Chicago, but not the university. Right. And then Mac basically helped fund this: hey, we wanna apply everything we learned at Chicago and express the insights of Fama in an investible thesis. Right?

DAVID BOOTH (00:09:59): And the interesting thing there was that there were really two avenues being explored simultaneously. We had one group that I worked in, and we used as our primary outside consultants Fischer Black and Myron Scholes.

BARRY RITHOLTZ (00:10:14): More Nobel laureates.

DAVID BOOTH (00:10:16): Two more. It turns out, in working on our project, they developed the Black-Scholes option pricing model, for which Myron became a Nobel laureate — Fischer, unfortunately, had passed away, so he didn’t get it. The idea of our group was: okay, we accept that Michael Jensen and the work of others says these pros can’t seem to beat the market — so what are you supposed to do? By then we’d developed quite a bit of the science, and one idea, based on the models at the time — sounds silly now — was, well, if you have a portfolio that has a higher beta than the market, it should outperform.

BARRY RITHOLTZ (00:10:58): What does that mean — you’re just taking on more risk?

DAVID BOOTH (00:11:01): You’re just taking on more risk. That’s one way to beat the market: take more risk, but still being diversified. So that was the Samsonite account. They figured out a way of creating a higher-beta portfolio. Basically, they would start out with equal positions in all the stocks — they bought equal dollar amounts — and a portfolio like that should have a somewhat higher beta. Let me just refresh people’s memory: the market has a beta of one. So if you fluctuate more than the market, you have a beta greater than one, and if you fluctuate less than the market, your beta is less than one. And if you have a higher beta, you should outperform — that was the thinking. Incredibly naive. And we were kind of geeky back then.

BARRY RITHOLTZ (00:11:55): I think you guys are still a little geeky.

DAVID BOOTH (00:11:57): Still — well, yeah, I’ve learned to kind of appreciate that, actually. So that was one of the groups. The other group at Wells was the trust department. Mac hired somebody to head up trust investments, and he wanted to do an S&P 500 index fund.

BARRY RITHOLTZ (00:12:21): Still early seventies or so?

DAVID BOOTH (00:12:22): Yeah, still.

BARRY RITHOLTZ (00:12:24): So this is decades before BlackRock, years before Vanguard. This is very, very early.

DAVID BOOTH (00:12:30): So that’s what they wanted to do. And we go, look, as a scientist, you wouldn’t do an index fund. But I think it was some marketing genius who came in and said, no, you want an S&P 500 index fund — everybody can understand that, you can track the index. And here again, the pros don’t seem to be able to beat that index, so you can at least get the index return.

BARRY RITHOLTZ (00:12:53): Can’t get alpha if you’re not at least getting beta, right?

DAVID BOOTH (00:12:56): Yeah, right. So now, those are two different points of view. And the reason I emphasize that is that the S&P 500 index fund idea took off. That group left and changed hands a couple of times, and now that’s the cornerstone of BlackRock.

BARRY RITHOLTZ (00:13:14): It worked its way eventually to Barclays, and then BlackRock bought that whole business. And what are they — 14, 15 trillion, something like that?

DAVID BOOTH (00:13:22): No, I mean, it’s phenomenal success. I’m not arguing.

BARRY RITHOLTZ (00:13:27): And they basically proved the point: hey, it’s really hard to beat the market.

DAVID BOOTH (00:13:31): Beat the market, yeah. So hats off to them. Now, keep in mind — let’s go back to the other group, the one that I was working on that really became the basis for Dimensional. Eventually our group ended up irritating the trust department enough that they got rid of us.

BARRY RITHOLTZ (00:13:47): So this was you, Rex —

DAVID BOOTH (00:13:49): No, Rex wasn’t there at the time.

BARRY RITHOLTZ (00:13:50): He wasn’t? So who was the initial group?

DAVID BOOTH (00:13:53): Well, Rex was part of the initial group of Dimensional, sorry. And we brought people in to help us out — the first two people we talked to were Gene Fama, my mentor, on the research side, and Mac McQuown, who by that time had left Wells as well. Then we pulled together the other leading academics we worked with — people like Merton Miller, the 1990 Nobel laureate, and Myron Scholes, ’97, along with Fama.

BARRY RITHOLTZ (00:14:27): So out of all of this, the first fund that you launched when DFA began in Brooklyn was a small cap — or micro cap — strategy.

DAVID BOOTH (00:14:37): Right. We were the first people to use “small cap” as a term, meaning smaller companies.

BARRY RITHOLTZ (00:14:41): And this was based on some of Fama’s initial factors — small seemed to have persistent performance attributes.

DAVID BOOTH (00:14:50): Yeah — that was documented about 10 years later. So here we are, in some ways flying blind. We had a compelling argument, because in 1981, if you looked at large institutional investors, they weren’t holding the stocks of smaller companies in any meaningful way. So if you wanna be diversified, you want large and small, not just large.

BARRY RITHOLTZ (00:15:11): So was that the pitch to institutions? Small cap will diversify against the rest of your holdings?

DAVID BOOTH (00:15:18): Right. And so we got our first clients with that. So we’re off and running with a small cap fund, we had clients, and in talking to Fama, he goes, well, you know, we have a student here that did his PhD dissertation on just what you’re looking at — Rolf Banz. Rolf had done a study breaking down stocks on the New York Stock Exchange into size quintiles, largest to smallest, and the smallest quintile outperformed all the others by quite a bit over time. So, putting my marketing hat on, I think we’ll define small to be the smallest quintile of companies on the New York Stock Exchange — Mama didn’t raise a complete idiot here, you know. So that was how we got started. And there really wasn’t a counterargument, ’cause people couldn’t say, oh, I’ve got that covered — they knew they didn’t have small cap covered. So what we were able to do is provide access to small companies, and that’s really the basis of Dimensional. And about 10 years later, Fama, along with his colleague Ken French, developed this multifactor model. Back when I was at Wells, we just had the single factor, beta. So now we had a couple more factors.

BARRY RITHOLTZ (00:16:39): So Fama-French started with three, then it was five, and arguably there are just hundreds, most of which are tiny.

DAVID BOOTH (00:16:46): Yeah, most of which are tiny. And they kind of collapse to —

BARRY RITHOLTZ (00:16:51): Five to seven is plenty.

DAVID BOOTH (00:16:53): Well, three is plenty. We really have four or five now. But you get your big bang out of the first one, the market —

BARRY RITHOLTZ (00:17:01): The beta.

DAVID BOOTH (00:17:02): The beta. And the second factor, say value versus growth — that picks up a lot, not as much as the first. And then you get into size — small, that adds a little. Then you can add — pretty soon it’s just diminishing marginal utility, like everything in life.

BARRY RITHOLTZ (00:17:19): Quality, momentum — as you work your way down, each generates less and less of a bang. But what’s so fascinating to me is nobody had taken the approach that, hey, there is plenty of quantitative data to back this up, here is a testable thesis, a falsifiable thesis, and we can express these ideas in a portfolio. That, to me, was what set the launch of Dimensional apart from everybody else. Am I stating that correctly?

DAVID BOOTH (00:17:50): You got it. That’s it. And it shows you how powerful an idea it was, ’cause here we are starting a firm — we have no track record, I’m the first portfolio manager, I’d never managed stocks or even bought stocks before, and we’re operating outta my spare bedroom in downtown Brooklyn Heights. So you figure, how can you pull that off? Well, you can pull it off if the idea itself is so profound and backed up with incredible research. That’s hard to refute.

BARRY RITHOLTZ (00:18:28): So here’s the key question. Given how powerful that is — but at the time, fairly novel — what do you think Wall Street just missed about index investing? Because clearly there’s a financial opportunity, right? Whether or not your particular fund at the moment is selling performance and active selection, no one else looked at this and said, hey, there’s a business to be had here.

DAVID BOOTH (00:18:56): Well, back in those days — and fortunately this is changing now — basically nearly all financial services were distributed through commission salesmen. So Wall Street — basically, if you have a commission broker managing your money, I dunno what you’re gonna do, but you’re gonna be trading a lot, I can assure you. And if there’s anything that all this research pointed to, it’s that you don’t wanna trade a lot. Trading is a negative expected outcome, kind of like gambling in Vegas. But that’s the cornerstone of Wall Street. So they go, what do you mean, you’re telling me I shouldn’t be trading a lot? You’re ripping my eyes out. This can’t be true. And you go, hey, look, all I can tell you is we have logic, reason, and empirical evidence on our side. You have no data — all you have is bluster on your side. And over the long haul we’re winning, but it’s taken 50 years.

BARRY RITHOLTZ (00:19:54): Hard to make somebody understand something when their income is depending on them not understanding it, to paraphrase.

DAVID BOOTH (00:20:02): Right. And if you don’t have data to support it, then all you’re doing is bluster. And look, Wall Street firms in those days were very good at shoving product down people’s throats.

BARRY RITHOLTZ (00:20:13): Oh, for sure. I would tell you they’re still pretty good at it.

DAVID BOOTH (00:20:17): Well, I’m softening up, because along the way there was a development — an incredible development, almost as important as the development of the science — the fee-only financial advisor, which we started working with in the late 1980s.

BARRY RITHOLTZ (00:20:36): We are gonna get to that question. I wanna stay with Fama’s insights and your ability to express them in a portfolio. The fascinating thing about DFA to me is that it’s not simple market-cap-based indexing. The approach that you embraced early on was: how can we express something that’s a combination of what indexing would eventually become, married to a systematic, factor-based investing strategy?

DAVID BOOTH (00:21:12): Right. And by the way, early on, even going back to the days at Wells, we had these two groups — you know, you ought to index — and then the scientists saying, no, you can do better than indexing. And that’s 45 years — that’s been our message. As a scientist, you wouldn’t index, for a lot of reasons. One is you’re putting a constraint on yourself: I want to track an index. Constraints cost — in economic terms, that’s costly, and we can get into where the cost is. The other part of it is the silly way that index funds have to behave.

BARRY RITHOLTZ (00:21:54): Because of the announcements of additions and deletions — they telegraph it, right?

DAVID BOOTH (00:21:58): Telegraphed. Standard & Poor’s — if they add a new stock into their S&P 500 index today, it’ll go in at tonight’s closing price. If you are an S&P 500 index fund manager, then you want to buy that stock today at tonight’s closing price.

BARRY RITHOLTZ (00:22:15): Even though you know it’s gonna run up in anticipation.

DAVID BOOTH (00:22:18): Right — and even though you know that every other S&P 500 index fund manager out there is also gonna want that stock at tonight’s close. So that’s where — and probably all sciences are this way — there’s the science, and there’s the art of the science. You go to medical doctors, let’s say. They all study the same textbooks; well, some of ’em are just better at execution than others. And that’s what we’re talking about here. The simplest of all ideas: if you’re trying to buy a stock at the same time everybody else is, that’s probably not a good trade. Intuition would tell you that. And I think our most recent study shows that the runup is about 4% — when it goes into the index, the index pays about 4% more than a fair price.

BARRY RITHOLTZ (00:23:11): And the flip side is, the deletions have a tendency to outperform the S&P over something like 12 or 24 months. Same thing — people sell in advance, and by the time it’s actually deleted, it’s appreciably cheaper, and maybe that becomes a value.

DAVID BOOTH (00:23:28): Well, let me give you the downside of our approach, which is you have to have a certain amount of trust in the manager, because we’re not slavish. I mean, with indexing, you know exactly what they track — the gosh darn index. That’s what they said — that’s all they said they would do. And our idea is saying, look, we will use a little flexibility, a little bit of human judgment along the way. Not a lot — not like the old days of wild stock picking —

BARRY RITHOLTZ (00:23:56): Throwing darts.

DAVID BOOTH (00:23:57): Darts, or whatever. But we’ll use a little bit of judgment, and that requires you to have a little confidence in our ability to execute. So when we started, a lot of people said, look, how do we know you can execute? Because when you go out and buy or sell, you’re gonna be trading against professional investors. They think they have undiscounted information, if you will — something special, special knowledge — and you don’t. Okay, well, it turns out there’s a flip side to that, which is: if you’re an active manager and you think you know something special, you also realize the half-life of that is really short. Minutes, probably.

BARRY RITHOLTZ (00:24:43): Today it’s probably milliseconds.

DAVID BOOTH (00:24:45): Probably milliseconds. So if you wanna get rid of a stock, you want to get rid of it right now — at least by the end of the day. And so we come along, and we’re kind of indifferent. We buy 10,000 stocks — you know, on any given day, we don’t buy all 10,000 of ’em. We focus a lot on what’s trading easily that day. Even a small company stock, 20% of the time it trades a lot.

BARRY RITHOLTZ (00:25:12): In other words, you can use execution and volatility as a source of better pricing.

DAVID BOOTH (00:25:17): Better pricing, yeah. And that’s worked out over 45 years — the first 45 are the toughest, I realize. But still, people slap their forehead — that’s hard to believe, that there’s this professional money manager out there trading against you. It’s not that we take advantage of them. We provide liquidity, and our clients get the benefit of providing that service.

BARRY RITHOLTZ (00:25:47): And by providing liquidity, it means you’re willing to be a buyer at times when many other people are not.

DAVID BOOTH (00:25:54): But we’re not gonna pay retail for that stock. I mean — if you can talk to me, can you do something for me on the price?

BARRY RITHOLTZ (00:25:59): Take a little something off. Really, really interesting. Coming up, we continue our conversation with David Booth, founder and chairman of Dimensional Fund Advisors, talking about his brand-new book, Stay Calm: Learning to Embrace Uncertainty in Investing and Life. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

BARRY RITHOLTZ (00:26:17): I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is David Booth. He is the founder and chairman of Dimensional Fund Advisors. His new book is out — probably by the time you’re hearing this — Stay Calm: Learning to Embrace Uncertainty in Investing and Life. So I wanna sum up the book in a sentence, and then we’re gonna really delve into it: “Uncertainty isn’t something to fear — it’s where possibility lives.” Ooh. Explain that.

DAVID BOOTH (00:26:59): That is a good question. Every now and then, you know, you write something down —

BARRY RITHOLTZ (00:27:02): By the way, I have a dozen fantastic quotes, and I’m gonna try and click through all of them.

DAVID BOOTH (00:27:07): No, it’s funny, ’cause you write it, and then you forget you wrote it, and then you go back and look at it and go, hey —

BARRY RITHOLTZ (00:27:11): That’s not bad.

DAVID BOOTH (00:27:12): That’s not bad, yeah. And let me tell you about a breakthrough that happened to us about 10 years ago. We realized that there are a lot of parallels between investing and your life experiences, and a lot of that has to deal with how you deal with uncertainty. You know, as you grow, you learn how to deal with uncertainty, and what you realize is uncertainty is what creates opportunity. If there were no uncertainty, you wouldn’t have the ability to progress. So it’s not about eliminating uncertainty — it’s about managing uncertainty. That’s true in life, and the reason I bring that up is ’cause that’s also true in investing. If there were no uncertainty — in other words, if all investing was riskless —

BARRY RITHOLTZ (00:28:12): I got some 10-year Treasuries at three and a half percent that you can hold and barely keep up with inflation.

DAVID BOOTH (00:28:19): Well, if there were no uncertainty in investing, every investment would have the same return — the riskless return, whatever that is. So in investing as well, it’s uncertainty that creates opportunity. And once people start to realize that, we go — let’s go back: how do you deal with uncertainty? Well, first off, you realize that life is not totally predictable. I mean, think back 20 years ago. Could you have predicted where you are today, or where you’ll be 20 years from now?

BARRY RITHOLTZ (00:28:57): Nobody in December 2019 was predicting a pandemic the next year — in a market that would scream higher. You could show it in every annual forecast we see — and we’ll talk a little bit about predictions in a minute — but the future is inherently unknowable.

DAVID BOOTH (00:29:13): And so embrace that uncertainty. That’s what gives us the opportunity in life and investing.

BARRY RITHOLTZ (00:29:20): So what do you say to people who are investors — hey, uncertainty creates opportunity — but how does the average mom-and-pop investor live through the regular 15, 20, 25% drawdowns we see all the time in equity markets?

DAVID BOOTH (00:29:41): Well, the quick answer to that is stay calm — that’s why we call it that; it’s the name of the book. So let me give you an example of the fundamental problem we have with helping people stay invested. Let’s say bad news comes into the market — the pandemic, or a particular stock. And then you look at the stock or the market and you see it’s down 20% or whatever, and you go, holy cow, I gotta get out. There’s bad news and the market and things are dropping — that is human nature. What we’d like to have people think is: look, okay, the pandemic — bad news — came into the market, and the market’s down 20 or 30%. And people were saying, what are we supposed to do? What do you think is gonna happen? I go, hey, look, I don’t know what’s gonna happen — and anybody that thinks they can predict what’s gonna happen, I’d be a little suspicious about. But here’s what I believe will happen: people aren’t just gonna sit there and take it. Kind of the cornerstone of all of my belief in markets and how they work is human ingenuity. That’s what ends up bailing us out. When bad things happen, you don’t just sit there and take it in life — you figure out how to get back on track. And I go, so here we have the pandemic that’s hit — that’s a big smash in the mouth to these firms. They’re not just gonna sit there and take it. They’ll figure out how to get back on track. They’ll try something new and different, and along the way there’ll be winners and losers, and I dunno who the winners will be and the losers. But what I do believe is that effort, that human ingenuity, will likely get us back on track faster than most people think. Which is what happened.

BARRY RITHOLTZ (00:31:38): We saw that during the financial crisis. The pandemic was less than a quarter — down 34% — and from that end of the first quarter in 2020, the S&P was up 69% for the rest of the year.

DAVID BOOTH (00:31:52): Unbelievable. So that’s what we’re getting at. I mean, what was going on — and this is what I get back to: what do you tell people to get through the tough times? Go back to first principles. Okay, we have the pandemic, and there were all kinds of forecasts, but the consensus, I remember at the time, was it’s likely to be a two- or three-year kind of phenomenon. And so the market’s down about 20 or 30%. That seems about right to me. I mean, I don’t know.

BARRY RITHOLTZ (00:32:22): So in other words, it’s already in the price, and trying to act in response to something everybody knows seems like a waste of time.

DAVID BOOTH (00:32:29): Yeah. I learned that really in the late nineties. I was on an investment committee — I used to sit on investment committees; I don’t anymore, other than our own. And the chairman of that investment committee went around the world. This was 1998 — I dunno if you remember —

BARRY RITHOLTZ (00:32:47): Sure — Long-Term Capital Management. I was on a trading desk. I remember that vividly.

DAVID BOOTH (00:32:51): Right. And you had the Russian default, you had the Asian contagion. He goes around the world — the chairman of the committee — and eventually talks about all the problems around the world, and he concludes: so why should we invest in stocks at all? And I said, well, you know, I think you’ve characterized what was going on in these different countries. Okay. But I think all you’ve done is explain why the market’s down 35%. And he goes, ah — and we stayed invested, and of course we were amply rewarded. So if people could just go through first principles — and by that I mean: bad news comes into the market, they look and they say, aha, the stock is down, now I want to get out ’cause I’m stressed. If we can get them to change their opinion and say, look, the market’s down — I mean, the price is down quite a bit — and that’s probably about right, given the bad news that we have, then: therefore, I need to stay invested. I was thinking the other day, if I come out with a second book, maybe I’ll call it Stay Invested. So we’d have Stay Calm and Stay Invested.

BARRY RITHOLTZ (00:33:57): I think your second book should be named What Would Gene Fama Say?

DAVID BOOTH (00:34:01): There you go.

BARRY RITHOLTZ (00:34:02): If the market’s down 30%, what would Fama say? He’d say, it’s in the price. And just sit there and relax and stay calm.

DAVID BOOTH (00:34:09): And that’s the science, you know.

BARRY RITHOLTZ (00:34:11): That’s really interesting. So you mentioned some forecasts and predictions. Another aspect of the book is: plan, don’t predict. You can’t foresee the future, so making decisions based on predictions — you’re essentially engaging in wishful thinking.

DAVID BOOTH (00:34:30): Well, that’s right. I mean, you need to have a plan for going forward in life and investing, but don’t waste the time on trying to predict the unpredictable. Markets are unpredictable — that’s why the pros can’t beat the market, ’cause markets are unpredictable. And yet over the long haul — if you go back, we haven’t talked about the history, but a hundred years of returns that covers the Great Depression, World War II, the Korean War, high inflation, the Great Financial Crisis, the pandemic — through all of that, 10% a year. I think a lot of what I do now, particularly talking to students, is talk about the miracle of the stock and bond markets. These public markets are truly miracles.

BARRY RITHOLTZ (00:35:19): Really, really fascinating. Here’s another thesis that I think is really very, very insightful: control what you can, manage what you can’t. You can’t control crashes, recessions, interest rates, or any of that century of terrible events — but you can manage yourself, your allocation, your ongoing saving. Discuss that a little bit.

DAVID BOOTH (00:35:44): Well, that’s right. In terms of dealing with it — it’s all about managing uncertainty. So control what you can, and manage what you can’t — manage the uncertain part as best you can. Hey, you can’t eliminate it, but you can manage it.

BARRY RITHOLTZ (00:35:59): And by managing it, you’re talking about having a financial plan and sticking to it, continuing to dollar-cost average into it. Like, there are things within your control — that’s what you should be managing. And the things outside of your control, just accept. You can’t control what the Fed does, or what’s happening in the Straits, or who moves.

DAVID BOOTH (00:36:20): Yeah. A lot of people, they make portfolio decisions based on their forecast of what the market’s gonna do. That’s a waste of time. You wanna pay attention to what’s going on, because over your lifetime there are gonna be situations when you need to change your investment policy around — but it’s not based on what’s going on in the market. You need to change — you know, you get a new job, you wanna retire, you have a family. All these things can cause you to invest differently. But at every point, you want to have a long-term plan in place and manage to that. So you can’t control the stock market. You can control how much risk you take, basically. There are two basic decisions as you go down the path. First is the split: how much do you have in stocks at all, versus relatively riskless assets like a money market fund or a bond. So you get that right. And then the second part is, to the extent you’re investing in stocks, buy the whole market. That makes you as good as the insiders — people that think of themselves as outsiders. That’s another miracle of markets: right now you have it, unlike my parents, who never had that available to ’em. Now everybody has access. The market is good for everyone.

BARRY RITHOLTZ (00:37:40): So let’s talk a little bit about financial media, which you write extensively about in the book. Another quote of yours: “Modern financial media is designed to capture your attention, presenting commentary, stories and expert forecasts that are nothing more than distracting noise.”

DAVID BOOTH (00:38:00): Yeah, that’s right. I mean, today, undoubtedly, we have a lot more data thrown at us than ever before. I don’t know that we have a lot more meaningful information, but we have a lot more data, that’s for sure. And so it’s important these days for people to think critically — always go back to first principles. This year in particular, there’s been a lot of anxiety. We have, you know, some wars, we have all kinds of things —

BARRY RITHOLTZ (00:38:28): Tariffs.

DAVID BOOTH (00:38:30): Any number of things you could be anxious about. But I tell people, look — do you think you have more anxiety today, or people have more anxiety today, than during the Great Depression, or during, say, World War II, when it looked like we were losing at first? Those were real, serious anxieties. So I’m not making light of the anxiety, but what the hundred years of data shows us is the market does a really good job of pricing all that uncertainty and the risks.

BARRY RITHOLTZ (00:38:59): So another quote in the same section: “In investing, success often comes not from doing more, but from tuning out more.” So I have to share this with you, ’cause every time I write “tune out the noise,” I get a ton of pushback. Hey, you can’t just ignore all this. You can’t tune it out. It’s really difficult, and just telling people to tune out the noise is a waste of time. What’s your argument back?

DAVID BOOTH (00:39:29): Well, first, I’m glad to see you get your share of that — just like I do. I go: basically, what we’ve outlined is you want to have sensible portfolios — on the equity side, buy the whole market. And the market does a great job of pricing. So all the anxieties that you can express — and there are plenty of things to be concerned about; I’m not making light of ’em at all — that’s why the prices are doing whatever it is they’re doing. And so, unless you’re faster than the market, unless you think you’re smarter than the market, you just have to assume that whatever it is you’re concerned about, it’s already been priced in. You’re too late. By the time you get a certain piece of information, the market’s already reflected it.

BARRY RITHOLTZ (00:40:22): It’s already in the price.

DAVID BOOTH (00:40:24): It’s already in the price. You’re too late.

BARRY RITHOLTZ (00:40:26): So this quote might be one of the most profound things I read in the book — you read it and you’re like, wow, that’s really insightful; at least that was my response: “This isn’t a book about how to invest. It’s a book about how to think about investing. It’s not about picking stocks; it’s about taking stock of what really matters.” Ooh. Right? I mean —

DAVID BOOTH (00:40:52): That’s an example of — you go back and reread it, and I’m like, I wrote that? That’s really, really good. That’s not bad.

BARRY RITHOLTZ (00:40:58): No, that’s damn fine. And it’s because you are implying, hey, this is about securing your family’s future — but it’s not just about money, it’s about all the things that really matter.

DAVID BOOTH (00:41:12): Well, yeah. We have a segment in there about what true worth is about, rather than true wealth. My parents I describe as being wealthy — they just didn’t have much money. So you want to focus on what’s really important to you.

BARRY RITHOLTZ (00:41:33): “The quiet dividend of patient compounding, in both life and investing.”

DAVID BOOTH (00:41:38): Yeah. I mean, one of the first things you’ll learn about in finance is the magic of compounding. If you get that 10% return, it means your portfolio doubles every seven years. And you double it six times if you have a 42-year horizon — that’s six seven-year periods. And life is the same way. You are the result of the effects of the compounding of decisions that you’ve made in life all the way through. And maybe that’s where wisdom comes from — the compounding of the effects of decisions.

BARRY RITHOLTZ (00:42:21): Really, really interesting. I really enjoyed the book — Stay Calm: Learning to Embrace Uncertainty in Investing and Life. Coming up, we continue our conversation with David Booth, author of Stay Calm and founder of Dimensional Fund Advisors, talking about philosophy and philanthropy. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

BARRY RITHOLTZ (00:42:41): I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is David Booth. He is founder and chairman of Dimensional Fund Advisors and author of the new book, Stay Calm: Learning to Embrace Uncertainty in Investing and Life. So I wanted to talk a little bit about both your philosophy — and how it developed — and philanthropy. We’ll circle back to philanthropy in a minute, but let’s talk a little bit about Dimensional. You guys didn’t want to participate in ETFs for a long time, ’cause you preferred to offer your products through advisors to investing customers. What was the idea of working through the advisor side of it, as opposed to marketing directly to Main Street?

DAVID BOOTH (00:43:42): Well, first off, in any business, the marketing is a big component. Now, you have to understand, we’re starting outta my brownstone — in my apartment. It wasn’t like we had a big marketing machine, and we didn’t know anything about selling to the retail public. We did know institutional investors, and so our first clients were large — typically pension funds, insurance companies, sovereign wealth funds. That was the first eight years or so; that was who we talked to. And then one day Dan Wheeler came along. He was a financial advisor in Sacramento —

BARRY RITHOLTZ (00:44:29): In California, right. I know the name.

DAVID BOOTH (00:44:32): And he said, I’d like to have access to your funds. Now, at that time it was kind of unusual for a firm like ours to get big institutions to invest in a mutual fund, but we had created a mutual fund, and because they were institutional clients, our fees were very low — institutionally priced. And so it made it ideal for a fee-only financial advisor — a fee-only advisor being one where we don’t pay them any money and they don’t pay us. I mean, it’s strictly arm’s length.

BARRY RITHOLTZ (00:45:10): What year was that, with Wheeler?

DAVID BOOTH (00:45:12): About 1989.

BARRY RITHOLTZ (00:45:15): So that was long before advisors had taken over from stockbrokers. The fiduciary side of the business was still relatively tiny.

DAVID BOOTH (00:45:27): It was tiny. But these were highly energized financial advisors. I mean, typically the advisor would have come from a wirehouse and felt really dirty about themselves — and I’m just repeating what they told me.

BARRY RITHOLTZ (00:45:40): Oh no, I’ve heard it a million times.

DAVID BOOTH (00:45:42): And to see this approach, which is based on science — you have all the data you could ever want backing up what we do, and you could come up with a sensible investment approach that undoubtedly would work over the long haul —

BARRY RITHOLTZ (00:46:00): It feels good. I had someone leave a wirehouse to become an advisor, and I asked them why — this is, I don’t know, the early two thousands. And I’ll never forget the line I was told: they’re called brokers because they make their clients broker. And I’m like, wow — talk about feeling like, I gotta get out of this side of the street.

DAVID BOOTH (00:46:22): Yeah. It doesn’t have to be that way. But to observe — the ability to beat the market is such a narrow advantage that it takes an incredible firm. I mean, we’re a professional manager, and we can do things that a retail client can’t do — and it has nothing to do with picking stocks, let’s keep in mind, but dealing through market mechanisms: the way you trade, securities lending, so on and so forth. There are things we can do, but the margins are very, very slim. The idea that somebody way down the food chain — a broker at a retail firm — would have some of that magic is hard to accept.

BARRY RITHOLTZ (00:47:12): So when you guys began working with advisors, it wasn’t to design portfolios. The advisor was there essentially to keep the client from abandoning their portfolio and getting in the way of compounding.

DAVID BOOTH (00:47:26): Yeah, absolutely. One of our advisors said it right. He said, you know, I don’t have clients with investment problems, I’ve got investments with client problems.

BARRY RITHOLTZ (00:47:38): That’s a great line.

DAVID BOOTH (00:47:39): But the difference between the two is education. And we’ve always sold through education — we bring people in for seminars and stuff. And the book — I mean, that’s why you would do the book — is to help people better understand how markets work, so they will be more confident that they can have a good investment experience.

BARRY RITHOLTZ (00:48:00): You guys have done a good job on the education side. I’m kind of curious if that’s the reason why you stayed out of ETFs for so long. And for people who are trying to put this in context: DFA launched in 1981, in 2020 was your first ETF, and today you are the largest active ETF issuer in the country. So why leave all that money on the table for 40 years?

DAVID BOOTH (00:48:30): Well, I don’t know — must have been a pandemic, you know, something. Anyway — no, it’s because early on, our advisors said they didn’t need the ETF. The beauty of a regular mutual fund is you go in at net asset value at the end of the day. That’s about as clean as you can come up with. If you buy an ETF, you’re buying it in the open market, and for some people that’s a little scary.

BARRY RITHOLTZ (00:48:58): Whatever the open market cost might be, the offset of the tax advantage has to wildly outweigh it. In a non-qualified account, ETFs are vastly superior to a mutual fund most of the time, for that tax reason.

DAVID BOOTH (00:49:14): Well, to a conventional mutual fund, I agree with you. But we’ve been able to use —

BARRY RITHOLTZ (00:49:19): Use a dual class.

DAVID BOOTH (00:49:20): Yeah. We’ve been able to eliminate a lot of the tax advantage of ETFs.

BARRY RITHOLTZ (00:49:28): By the way, you and Vanguard seem to be the leaders in that space, for having an ETF and a mutual fund essentially track the same holdings.

DAVID BOOTH (00:49:39): And now, coming out this summer and into the fall, we are innovating even more. Right now, we have mutual funds and ETFs that do the same thing — two pools of money doing the same thing. The SEC has given us approval to merge those two, so it’ll just be one pool of assets with two ways of accessing it.

BARRY RITHOLTZ (00:50:04): Two different wrappers, same pool of money.

DAVID BOOTH (00:50:06): Same pool of money. So that will take away the argument — you don’t have to worry about it anymore.

BARRY RITHOLTZ (00:50:14): That’s really good. Isn’t that cool?

DAVID BOOTH (00:50:17): That actually speaks to how science is developing. It’s not like we sit on our hands — we’re continually trying to work through things and become more efficient.

BARRY RITHOLTZ (00:50:29): So let’s talk about another philosophical belief from you guys that I’m fascinated by. People have had a hard time wrapping their heads around: is DFA an indexer? Are they an alpha chaser? And the way I kind of explained it to myself was: no — when you look at traditional indexers, they’re just using one factor of the many Fama-French factors, and what Dimensional has said is, hey, we’re going to use three, four, five factors. So we are indexers, plus the next four factors on the list. Is that a fair philosophical breakdown?

DAVID BOOTH (00:51:10): Yeah, that’s part of what we do — exactly that. And there are some people that don’t want to have a bias towards value or small cap, and for those we have kind of plain vanilla funds too, that aren’t biased. But in both cases, it’s about execution. We talked about how an index fund has to trade in a bizarre sort of way — and we don’t do that. We apply that thinking to all the funds. So that, here again, what we’re trying to do is apply the science, and by the way we structure portfolios, we think we can do better than index providers. And then secondarily, the way we trade, relative to the way index funds trade — that’s true in everything we do. But then, some clients like to have a small cap bias, some don’t. It’s their money — we try to come up with whatever they think is sensible.

BARRY RITHOLTZ (00:52:20): So let’s talk a little bit about philanthropy, ’cause I know part of the book discusses legacy, and you’ve been very involved philanthropically. A decade ago you signed the Giving Pledge, and — I go back two decades — right around the time of the financial crisis, you made a gift in ’08 to the University of Chicago’s business school, which I think was the largest gift ever in the country, or to Chicago, at that time: $300 million. And now it’s the Chicago Booth School of Business. Tell us a little bit about what motivated a gift of that size to that recipient, and what are your thoughts 20 years later?

DAVID BOOTH (00:53:04): Well, okay, first lemme just say it was kind of funny. The announcement for that was made in November of 2008 — like, the week after Obama got elected for the first time. And so there was a big announcement at the school — they said, big announcement coming tonight, free food, come on in — and they thought it had something to do with Obama. He’s a Chicago guy. So that’s when they announced that the school’s name was changing.

BARRY RITHOLTZ (00:53:35): Which, by the way, wasn’t a requirement of your gift. You argued against it.

DAVID BOOTH (00:53:40): Well, I didn’t argue against the Obama part.

BARRY RITHOLTZ (00:53:42): I heard through several people that you pushed back initially.

DAVID BOOTH (00:53:46): Well, I pushed back a little bit, but not a lot. What happened was, I approached the dean of the business school and said, you know, it’s time for payback here — for what the university has done for me, and the faculty. And not only training me in school, but then following up over the years — over the now decades, 45 years. You know, we’ve had five Nobel laureates work very closely with us; all of ’em have been significant directors of our mutual funds or the company, Fama being a founder as well. It’s time for me to pay back, and it’s gotta be a big chunk of what I have. So this is what I’m willing to do. And the dean looks at it and goes, you know, we were thinking about naming the school, and we weren’t asking for nearly this much — we’ll name the school after you. I go, okay, well, whatever. But it was about me wanting to feel good about me.

BARRY RITHOLTZ (00:54:46): Well, you feel a sense of obligation to the University of Chicago ’cause of everything they gave you. Undergraduate and pre-PhD, MBA — you were at Kansas, and you gave them a similar number last year: $300 million to the University of Kansas athletics program. Why focus on sports there? What’s so significant about Kansas athletics? ‘Cause, by the way, as a school, they’ve been doing pretty good.

DAVID BOOTH (00:55:18): Oh yeah, yeah.

BARRY RITHOLTZ (00:55:19): Athletics-wise.

DAVID BOOTH (00:55:20): Yeah. Well, first off, Lawrence, Kansas, where the University of Kansas is, is my hometown. I went to Lawrence High School and then the University of Kansas. So, with all the relatives, it’s in my blood. And for a big state school like that, what’s really important is to have a great, competitive athletic program. I mean, I know the arguments — some people go, you know, they’re not so sure about that —

BARRY RITHOLTZ (00:55:51): It doesn’t hurt their marketing, their ability to recruit professors, students. It makes the town better. I mean, it just multiplies across everything, regardless of how you feel about big football in college.

DAVID BOOTH (00:56:06): Right. But I happen to love it, and I particularly love college basketball. Kansas has always been really good at basketball, and it’s getting better in football. And then with NIL — a little dollop of NIL coming down the pike —

BARRY RITHOLTZ (00:56:20): Name, image, likeness. Get some money to the students.

DAVID BOOTH (00:56:24): To the students. So it puts great financial pressure on the schools, and it’s difficult for a state school to have a big budget for athletics when their professors are making what they’re making. So it’s important for private money — for alums and whatever — to step up in order to help them be successful.

BARRY RITHOLTZ (00:56:53): And I’m gonna assume that this isn’t the end of your academic gifts — you’re gonna be doing other stuff in the future, and obviously the Giving Pledge is a part of that. But I have to ask about a purchase you made in 2010, which is: you bought Naismith’s original document of, essentially, here are the rules of basketball — this is where basketball was invented. And I think you paid over $4 million for it, and then you gave it to the University of Kansas athletic department. Explain — tell us about that.

DAVID BOOTH (00:57:30): Well, it was really kind of an interesting auction. James Naismith invented basketball in 1891 — if you think about it —

BARRY RITHOLTZ (00:57:40): The peach crate.

DAVID BOOTH (00:57:41): Yeah, the whole thing. It’s the only major sport that I can think of where we know who invented it. It was a class assignment for him in school, at the YMCA in Springfield, Massachusetts. So the rules stayed in the family, and as things happen over time, they just decided that they wanted to sell it. So I decided — here again, basketball is so important; if you live in Lawrence, Kansas, you realize that the rules of basketball, those two typewritten pages, need to be in Lawrence, Kansas. ‘Cause Naismith, after he invented the game, goes to teach at Kansas for 40 years; he’s buried in Lawrence. So I realized that —

BARRY RITHOLTZ (00:58:31): Perfect match.

DAVID BOOTH (00:58:32): Match — had to buy it. So it started off, they thought it would go for about $2 million, but along the way — I was bidding over the phone, and there was somebody else bidding over the phone, and it kept ratcheting up, and I ended up paying about four and a half million. The person on the other end of the phone was David Rubenstein.

BARRY RITHOLTZ (00:58:52): Get out! Oh, that’s hilarious.

DAVID BOOTH (00:58:53): Your Bloomberg —

BARRY RITHOLTZ (00:58:55): Co-host — fellow host. That’s amazing. Did you explain eventually to him why you bought it and why it went to Kansas?

DAVID BOOTH (00:59:03): No — once I paid for it, it was announced who bought it. So he sent me an email the next day saying, hey, I think I cost you some money. Which is funny. So we still have a good chuckle about that.

BARRY RITHOLTZ (00:59:18): So, the last piece of philanthropy I have to ask about before we get to our favorite questions: you’re known as an avid art collector. If you go down — I don’t know what river that is in Texas, but I’ve been on that boat — you can see some of your sculptures right from the river, if you’re in a boat. You’ve endowed a conservation center at the Museum of Modern Art, and — as opposed to just donating a sculpture or a painting — you’re essentially helping them preserve their entire collection in perpetuity. Tell us a little bit about that.

DAVID BOOTH (00:59:55): Well, I mean, preserving your patrimony is important for any country, and art is such a big deal, and MoMA is such a great museum —

BARRY RITHOLTZ (01:00:06): Spectacular collection.

DAVID BOOTH (01:00:08): Spectacular.

BARRY RITHOLTZ (01:00:08): Of which, like, 3% is displayed at any time. It’s an enormous, enormous collection.

DAVID BOOTH (01:00:18): It’s complicated. So I’ve sat on the board there for about 10 years now, and it’s just really been tremendously exciting. And then I endowed the conservation lab, because conservation is easy to overlook. But taking care of, particularly, modern art — which could be some fiberglass or something — who knows what kind of stuff goes into it —

BARRY RITHOLTZ (01:00:41): To say nothing about how paint decays, how canvas, paper — all that stuff is problematic over time.

DAVID BOOTH (01:00:51): In the old days, conservation was probably somebody kind of having a couple sips of alcohol and dabbing some paint on a painting and trying to clean it, or whatever. That’s changed. Now it’s incredibly sophisticated — you take X-rays of the painting or whatnot, you study the chemistry of it. So I’ve headed up that conservation committee for quite a while now. It’s very exciting to see what they’ve done to maintain the art.

BARRY RITHOLTZ (01:01:21): Huh, really interesting. All right — I only have you for a couple more minutes, and you and I can continue this conversation in Southern California, in Huntington Beach, in a few weeks. For now, let’s jump to our favorite questions that we ask all of our guests, starting with: tell us about the mentors who helped shape your career. And I have a pretty good idea who they are.

DAVID BOOTH (01:01:44): Well, no, that’s right. Let’s just start with the Nobel laureates: Merton Miller and Gene Fama, Myron Scholes, Bob Merton and Doug Diamond. Kind of an impressive group of characters.

BARRY RITHOLTZ (01:01:56): That’s a Murderers’ Row right there.

DAVID BOOTH (01:01:58): Murderers’ Row, yeah. Then you had Mac McQuown, who really started indexing —

BARRY RITHOLTZ (01:02:06): And he really was the initial — was he the first check into DFA?

DAVID BOOTH (01:02:11): No, he was a founder. In fact, more importantly — besides investing in the funds, he helped us raise the money, the risk capital, for the firm. And then I always have to throw in my parents. I mean, it ties into what True Wealth was about. They never had much money, but they were wealthy — they had figured out what life was about.

BARRY RITHOLTZ (01:02:40): Huh — really, really interesting. Let’s talk about books, in addition to yours. What are some of your favorites? What are you reading currently?

DAVID BOOTH (01:02:48): Well, I just finished 1929, Andrew Ross Sorkin’s new book. That’s very, very interesting.

BARRY RITHOLTZ (01:02:54): That is on my nightstand — it’s up in a few books in my queue.

DAVID BOOTH (01:02:59): Then, in the last couple years, the book I’ve really liked a lot was Paris 1919 by Margaret MacMillan. And she takes us through what became known as the Treaty of Paris. When the Armistice was signed at the end of World War I — that’s just when all kinds of crazy things happened, because the Ottoman Empire collapsed, the Russian Empire collapsed, the Austro-Hungarian Empire collapsed. So you had to create new countries all over the place — all through Central Europe and the Middle East. It took about six months to develop the Treaty of Paris. The first five or so, they didn’t do much, and then all of a sudden, the last month, they just got together. I don’t know if they could have done much better, but it was pretty chaotic.

BARRY RITHOLTZ (01:03:51): Really interesting. I’m gonna add that to my list. Tell us — are you streaming anything? What do you do to relax? Podcasts, movies — what entertains you?

DAVID BOOTH (01:04:02): Well, I mean, your podcast. But — no, we have a new season of Ted Lasso, which I’m really all over.

BARRY RITHOLTZ (01:04:09): My wife and I are waiting for there to be more than three or four in the queue. It’s just too frustrating to watch one a week.

DAVID BOOTH (01:04:16): By the way, he’s a KU alum as well.

BARRY RITHOLTZ (01:04:18): Yes, yes — I knew that.

DAVID BOOTH (01:04:20): And we have any number of series. You know, what happened was, when the pandemic hit and we couldn’t go out much, I watched more TV in that two-year period than I ever watched before — or since.

BARRY RITHOLTZ (01:04:34): Same — absolutely the same. I was mentioning the other day that 6:30 is the new 7:30. It used to be, if you tried to make a dinner reservation around 7 or 7:30, it was the toughest reservation to get. And now it seems the hard reservation to get is 6 or 6:30. And it’s not just that we’re aging and heading towards the early bird special. I think people want to go to dinner and then come home and watch whatever it is — Ted Lasso or Lioness or Yellowstone, whatever their thing is. It’s so funny you say that, but the pandemic was absolutely the most TV I’ve watched in my life.

DAVID BOOTH (01:05:15): Yeah, right.

BARRY RITHOLTZ (01:05:16): Our final two questions. I think this book offers a lot of interesting advice, but I want to ask you specifically: for a recent college grad who is interested in a career in either investing or wealth management or anything along those lines, what sort of advice would you give them about building a career?

DAVID BOOTH (01:05:39): Well, first off, I don’t give advice — but here are some thoughts. First are the thoughts that probably everybody will tell you: figure out where you have some skill — some comparative advantage or competitive advantage — and what you are passionate about. So marry those two things, passion and skill, and work really hard. Now, the part that I don’t think is emphasized enough is: by the time you get outta school, you’ve developed a set of values — your personal set of values. Pay attention to that. So find something you’re passionate about, that you have a skill in, that kind of maps into your values — and pay attention to those values, and don’t deviate from them in pursuit of just a short-term job. I mean, when you get outta school — like when I got outta school, most people, you’re just lucky to find any good job. But over time, you kind of iterate towards what you think is really valuable.

BARRY RITHOLTZ (01:06:57): Good advice — or good insight; I know you don’t like to call it advice. Our final question: what do you know about the world of markets and investing today that might’ve been useful back in 1981, when you were first launching Dimensional Funds?

DAVID BOOTH (01:07:16): Well, I think one of the big things there is that I didn’t realize how difficult it would be to persuade people about this new way of thinking about investing. I mean, because I’m sitting there — of course, I’m totally wound up with all the University of Chicago stuff. I have all the science, the data and so forth. I go, once you explain that to people, they’ll flock to it. You know, I’ve been doing this for 55 years. People don’t flock to new ideas just based on new research or new ideas. You have to soak the ground down around ’em, let ’em sink into it. So I guess if I’d known how hard it was, I don’t know if I would’ve pursued it. But I think we’re getting close. So now I’m at the phase where it’s exciting to explain all this stuff to people, ’cause they’re starting to respond to it, and I really find it great.

BARRY RITHOLTZ (01:08:10): You’re getting close — keep at it. Eventually you’ll convince a few people. David, thank you for being so generous with your time. This has been absolutely delightful. We have been speaking with David Booth. He is the founder and chairman of Dimensional Funds and the author of Stay Calm: Learning to Embrace Uncertainty in Investing and Life. I would be remiss if I didn’t thank the crack team that helps put this conversation together each week: Alexis Noriega is my video producer, Sean Russo is my researcher, Anna Luke is my podcast producer. And before I say so long, I just want to thank Alexis for being a fantastic video producer and helping to put this podcast into the world of YouTube and videos. She’s departing to take a full-time gig — that’s a big promotion for her, and we wish her the best of luck going forward. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

~~~

The post Transcript: David Booth, Dimensional Fund Advisors founder and chairman appeared first on The Big Picture.

In this article, Sydney Squires, Senior Financial Planning Nerd, discusses the challenges – and opportunities – of various fee-only models, and what advisors who are looking to scale these models can do. "Fee-only" can comprise many different things: advisors who bundle AUM fees to include financial planning and investment management; flat-fee advisors who charge a combination of retainer, hourly, and project-based fees for their work; and advice-only advisors who do no investment management whatsoever. Flat-fee, subscription, hourly, and project-based models offer an alternative by more directly connecting what clients pay with the advice they receive. For that reason, flat-fee models can be particularly well-suited to clients with more investable assets, who may be more sensitive to AUM fees overall.

At the same time, the fundamental challenge is that relative to AUM-model advisors, flat-fee advisors often do a comparable amount of work – while generating substantially less revenue per client. Hourly pricing illustrates the gap particularly well: advisors charge an average of approximately $300 per hour, yet spend nearly 2 hours on unbillable activities for every billed hour. Meanwhile, an advisor who charges around 1% and spends roughly 21 hours annually servicing a $1 million AUM client effectively earns about $500 per hour. Accordingly, the viability of a flat-fee model depends less on whether advisors can charge flat fees, and more on whether those fees are priced appropriately. After all, a flat fee must not only cover client meetings and plan preparation, but also prospecting, marketing, compliance, administration, implementation support, and other unbillable work. Tracking time – even for a month – can reveal how much work actually goes into servicing each client (especially new clients).

These issues are part of why many fee-only advisors end up incorporating AUM into their pricing, as it can be a useful proxy for client complexity and help the advisor ensure that their revenue increases over time as their experience grows. If advisors want to avoid this and remain completely flat-fee, doing so may require adjusting fees to reflect client complexity – especially as the value of their expertise (and time!) grows and client needs shift.

Ultimately, flat-fee advice does not need to mean lower-fee advice, but advisory firms must be thoughtful about implementing mechanisms for revenue growth within their own practices. As a starting point, advisors can ensure that they set consistent business practices about how frequently price increases take effect, and how those adjustments are calculated. This is especially important in years when the advisor implements new service offerings, but also included in this value is their growing experience and domain expertise. In short, advisors who accurately understand the true cost and value of their work, price to reflect client complexity, periodically raise their fees, and protect against uncompensated scope creep can build a flat-fee practice that is both financially sustainable and aligned with delivering valuable advice to the clients they are best equipped to serve!

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My guest on today's podcast is Andrew Rosen. Andrew is the executive chairman of Diversified, LLC, an RIA based in Wilmington, Delaware, that oversees approximately $3.6 billion in assets under management for 2,500 client households.

What's unique about Andrew, though, is how he has navigated career and business decisions using what he calls a "pillow test" that helps him assess all angles of a given choice and ensure that his ultimate decision aligns with his or his firm's values.

In this episode, we talk in-depth about how Andrew not only considers the implications if a particular decision goes 'wrong' but also what would happen if it goes 'right' (including the follow-on effects for the business), how Andrew applied this framework earlier in his own career by choosing to accept a job offer from a smaller RIA (which offered a much lower salary but significant professional and financial upside) rather than one from a larger financial firm (which offered a higher salary to start but might have come with a more limited set of professional opportunities), and how Andrew has also applied his "pillow test" when thinking about potential private equity investments in a firm (as even if everything goes 'right' with the transaction, it could still involve a loss of control and a potential clash of values).

We also talk about Andrew's journey towards ownership at Diversified, which started with him working as an advisor before eventually buying out the firm's founder alongside other advisors on the team, how Andrew and his partners have adjusted the firm's ownership structure over time to ensure fairness to all parties (and how working with industry consultants has helped the firm shape its approach), and how Andrew's firm has incorporated acquisitions into its growth strategy (and how he applies his "pillow test" to them).

And be certain to listen to the end, where Andrew shares how he decided the time was right to hire an external CEO who could focus on running the business so that he and his partners could focus on what they do best in working with clients, how employing "radical candor" has allowed Andrew to support team members' development, and how Andrew has found that relationship skills can be just as important as technical skills when it comes to winning the trust of prospects and clients.

So, whether you're interested in learning about a framework to make hard career and business decisions, navigating equity ownership with multiple partners, or making the decision to hire a CEO to take charge of business operations, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Andrew Rosen.

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1. What you’ve got to know is she WROTE those songs!

So it’s October 1973. I’m driving with the top down on my 1963 Chevy Impala trying to get something on the radio.

This was before cassette decks. Sure, you could buy an aftermarket 8-track, but they sat under the dash and were notorious for getting stolen. Furthermore, the 8-track format itself was wonky. With the movement of the heads from track to track…tapes wore out quickly and thus were a bad investment. Which is all to say when you were in the hinterlands, long before the days of Bluetooth, never mind satellite radio, you’d drive down the highway with your right hand on the radio dial, trying to pull in a listenable station.

Now this was in the hinterlands of Vermont. Needless to say, this ’63 convertible didn’t have FM, not that there was a station broadcasting in the backwoods. But AM signals travel further and…

What you notoriously got was rural news, the farm report, and country music. In an era where no proud rocker followed what was going on in Nashville.

Sure, Ringo made a record in Tennessee. But most of us in the north had never even been south of the Mason-Dixon Line, unless it was the hop, skip and a jump to Florida. We wrote off the south, that’s where you went with your long hair and got attacked by rednecks.

Now don’t confuse today’s country music with yesteryear’s. Today’s country is the rock of the seventies. Back then, it was people with high hair singing twangy songs…

Sure, there was a TV show, “Hee Haw.” But this was long before the average fan of the Fab Four gave props to Roy Clark for his picking ability. As for Buck Owens…we couldn’t find Bakersfield on a map, never mind name a single song of his.

Sure, we knew Roger Miller from the AM radio of the sixties. “Trailers for sale or rent…” This was what we endured to get to the Beatles.

But I’m in a pensive mood, wondering how I’m going to endure another year of college, it’s a brisk day and I stumble on to a station and what comes out is “Jolene.” It was not only the first time I heard the song, it was the first time I’d ever heard Dolly Parton. She hadn’t crossed over, she wasn’t featured on Top 40 radio in the metropolis. But rather than continuing to mosey down the dial, looking for some rock, I listened.

“Jolene, Jolene, Jolene, Jolene”

This was rootsy. Not that different from those Bonnie Raitt albums I was enamored of. This was not drippy drama, songs to sleep to. I could relate. And I never forgot it.

2. Now we knew who Dolly Parton was. I mean how could you not? With that hair and those boobs?

But the real breakthrough into the mainstream was “9 to 5.” Back when Jane Fonda could open a movie and a flick like this could garner an audience. “9 to 5” was a staple. Everybody saw it. And what they saw in Dolly Parton was someone who didn’t deny her roots, but was in on the joke. That was the thing about Dolly Parton, she had a sense of humor, she could make fun of herself. Not to mention writing the title song, which went all the way to number one and earned her an Oscar nomination.

Dolly Parton was now part of the firmament.

From the holler, but never lumped into the same bucket as Loretta Lynn and George Jones, no matter how talented they might have been. Dolly Parton was now mainstream, when those other acts were not. They were still inhabitants of the country ghetto, Parton had transcended that.

And she maintained this status for the next half century. To this day! Most people have ups and downs, their careers wax and wane. People change their opinions on them. But not Dolly Parton. Somehow by being aw shucks and exhibiting all that talent, she was embraced.

And, once again, she was in on the joke. She’d go on late night TV and play the role. You’d think she was ditzy, almost a bimbo, and then she’d let out a zinger showing that she was as sharp as you and me and to underestimate her was a mistake.

3. But Parton’s crossover appeal, the cementing of her credibility amongst those who were not country fans, was the 1987 “Trio” album, which she made with Linda Ronstadt and Emmylou Harris.

I bought that album, played it too. It was a natural extension of the country rock that began with “Sweetheart of the Rodeo,” which always had a place in the firmament, it never died.

Now the funny thing is the true star, the person who could make it happen, was Linda Ronstadt, who was a superstar in the seventies and then broadened her purview to the stage with “Pirates of Penzance” and then cut three albums of standards with Nelson Riddle. If Ronstadt’s name was on it, it sold.

And in truth, Linda had much more broad-based musical success than Dolly, more hit albums, but now, nearly forty years later…

Linda’s star in the public firmament has faded, yet Dolly’s shines as bright as ever.

Because Dolly wrote.

That’s what makes it so you’re remembered. The songs.

And Dolly’s songs were personal. And her story from there to here was one of lifting herself up by her own bootstraps. Gloria Steinem may have gotten all the ink, but Dolly was just as much of a role model for women’s liberation, if not more.

Dolly wrote for herself. And the personal is universal, when you do it right.

And she was so damn likable. Without being syrupy sweet, without shaving off all of her rough edges. She played the game with a wink. And those who play and can beat the odds doing it their way…we cotton to them.

4. And then there was the whole kerfuffle with the Rock & Roll Hall of Fame.

Unlike the desperate with a chip on their shoulder, looking for the accolade as a victory lap they can put on their résumé, Dolly thought she didn’t deserve induction, because she wasn’t really a rock artist.

But if you’re going to induct Whitney Houston…

And, of course, Dolly wrote Whitney’s signature song, “I Will Always Love You.” An outstanding performance, but it’s the song that will live on, not Whitney Houston. Look at history, rarely are interpreters remembered, but writing, when done right, is forever.

So Dolly Parton, of all people, is calling the Hall on its B.S. Ironically, she’s standing up for the leather jacketed crowd pissed that pop, never mind hip-hop, is now part of the Hall. She was more interested in the integrity of the institution than the award.

But when Dolly finally acceded, she took the stage, played the guitar and ROCKED! I was there. You couldn’t watch it without a smile on your face. If this was the Rock Hall, she was going to deliver, and she did!

5. Now if you want to know every facet of Dolly’s career, there are plenty of obituaries to fill that need. You can go on Spotify and listen to her catalog. I’m no expert.

I’m just like so many of you. Country music of the sixties and seventies was not my bag (Although I did love Charlie Rich’s “The Most Beautiful Girl”… Then again, do youngsters even know that classic? I don’t see any of them covering it. But young acts continue to cover “Jolene” and other Dolly Parton songs.), but Dolly Parton was an exception. We all knew her, she was embedded in our hearts and minds. As much as she appeared, she was never overexposed, we were always glad to see her. She was like someone from down the street, dropping by for a cup of coffee, gossiping with relish. She was more than a performer, she was a person!

I know you know what I’m talking about.

Which is why there’s a national, international outcry over her passing.

Old rockers? They’re dropping like flies. Then again, when they’re not on the road…out of sight, out of mind. But Dolly Parton never left the news. And she’s left a hole that cannot be filled, because she was sui generis, there was only one Dolly Parton.

And there will never be one again.

Just like the Beatles were a product of post-war Liverpool…

Dolly Parton was a product of a rural America that has expired with modernity. Sure, there’s still poverty, but there’s also flat screen TVs and smartphones and the internet…

Actually, all you can really do is marvel. At what Dolly achieved, and she never rested on her laurels, she continued to march forward.

Wow.

~~~

Visit the archive:   http://lefsetz.com/wordpress/

@Lefsetz  http://www.twitter.com/lefsetz
–
If you would like to subscribe to the LefsetzLetter

~~~

Originally published by Bob Lefsetz at the Leftsetz Letter

The post Dolly Parton appeared first on The Big Picture.

This week, I speak with David Booth, founder and chairman at Dimensional Fund Advisors (DFA) and author of the new book, Stay Calm.

We discuss his time at the University of Chicago Booth School of Business, where he was the research assistant to American economist and Nobel Laureate Eugene Fama, before leaving to start DFA. We also discuss his embrace of the uncertainty of markets and the importance of staying the course. His philanthropic history and giving back to the places that shaped him.

A list of his current reading/favorite books is here; A transcript of our conversation is available here Tuesday.

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 Seth Bernstein, CEO of AllianceBernstein and Head of Asset Management of Equitable Holdings, the 69% owner AB. The firm manages $905.5B. Previously, he spent 32 years at JPMorgan Chase, where he eventually became the Global Head of Managed Solutions & Strategy at JPAM, responsible for all discretionary assets for Private Banking clients, and Global Head of Fixed Income & Currency. He eventually became CFO of JPM’s Investment Management & Private Banking division.

Newest Authored Book

Current Reading/Favorite Books

Paris 1919 by Margaret McMillan

1929: Inside the Greatest Crash in Wall Street History–And How It Shatteredâ a Nation

The post MiB: David Booth, Dimensional Fund Advisors Founder & Chairman appeared first on The Big Picture.

My professional focus has been identifying and trying to correct the common behavioral errors we all make as investors.

One cannot help but notice how similar mistakes are made by these collections of people operating within large organizations. It is a side effect of observing markets and the economy: giant institutions making errors. The Federal Reserve, Treasury, Congress, corporations, and other institutions can – and too often do – engage in the same behavioral mistakes we see individuals make. After all, large institutions are essentially a collection of individuals in a hierarchical structure, acting on behalf of their owners, patrons, and constituents.

The difference between individual errors and institutional ones is in magnitude. When Congress screws up, we may get a financial crisis; when the Fed makes a big mistake, unemployment may rise, or inflation may get out of control. The stakes for institutional errors are so much greater than the regular snafus each of us falls prey to.

Today was Fed Chair Kevin Warsh’s first speech as chair at Jackson Hole. The line that stood out to me was not his discussion of AI, but rather, “The Fed should be humble and never naïve.”

I, too, would like to see a more humble Fed. I’d like to see less certainty in their beliefs, fewer forecasts, reduced reliance on surveys and inflation expectations, and even less reliance on their belief that they are the dominant player impacting prices. And I’d like to see a greater acknowledgment that their models, while often useful, are also wrong.

Worse, we see little evidence of that humility in the Fed’s 2% inflation target: “The Fed’s price-stability objective of 2 percent, as measured by the personal consumption expenditures (PCE) price index, is a firm, fixed target.”

I have discussed this before, but rather than repeat those complaints, let’s consider the target from the perspective of institutional error and correction.

–2% Inflation Target History: As former Fed Vice Chair Roger Ferguson explained, it is an anomaly that traces back to an offhand political remark by Finance Minister Roger Douglas on New Zealand television in March 1988, in which he said he wanted inflation brought down to “around 0 to 1 percent.”

Thus, the 0–2% band was born and codified by the Reserve Bank Act of 1989. It was adopted by Canada in 1991, the UK in 1992, Sweden, Australia, and Finland in 1993, the ECB in 1998, and, finally, by the Fed at the July 1996 FOMC meeting.1 On January 25, 2012, then Fed Chair Bernanke made it official.

–Evidence for 2% is non-existent: Little in the academic literature suggests the 2% inflation target is anything other than an arbitrary number. 2 I will spare you the tedious exercise of reviewing a spate of papers, and instead point you to a survey of 600 economists: more than half would keep the current 2% target, citing the “credibility cost” of changing the target – not what target number is optimal. 3

This is classic institutional behavior: refusing to correct an error for reputational or credibility reasons is simply ego over substance.

– The Post-Pandemic Regime: The largest U.S. pandemic in over a century was followed by the biggest post-World War II fiscal stimulus. This changed everything: It scrambled supply chains, shifted consumption habits, and upended inflation. In light of massive regime change, one might imagine the Federal Reserve would adapt to the new conditions.

Yet they have failed to do so…

~~~

All good traders know that their cheapest mistake is their first one — and it should be unwound immediately. Doubling down, refusing to fix a bad trade, failing to acknowledge that conditions have changed — these are recipes for expensive failures.

The 2% inflation target is an accidental anomaly, a political improvisation from New Zealand circa 1988. Hardening it into monetary policy orthodoxy is a classic form of institutional error. The sooner the mistake is unwound, the better off the global economy will be.

We all suffer from cognitive judgment errors. It is an unavoidable aspect of the human condition. If we can better understand how and why these errors occur, we have a fighting chance to correct them. It would be enormously productive for society if our largest, most influential, and most important institutions could do the same.

Previously:
2% Inflation Target is Silly (July 26, 2023)

3% Is the New 2%… (August 3, 2026)

What’s Upsetting the Bond Market? (August 25, 2026)

Five Ways the Fed’s Deflation Playbook Could Be Improved (Businessweek, August 18, 2023)

What Models Don’t Know (May 6, 2020)

Source:
In Our Time Chairman
By Kevin Warsh
Fedewral Reserve, August 28, 2026

__________
1. Greenspan insisted the number stay secret: “If the 2 percent inflation figure gets out of this room, it is going to create more problems for us than I think any of you might anticipate.”

2. Claude tells me the following: “No paper derives 2% as the optimal inflation rate. The number preceded the research, and the literature since points in every direction.”

The specific examples include The Boskin Commission, Akerlof, Dickens & Perry (1996), Blanchard, Dell’Ariccia & Mauro (IMF, 2010), Ball (2014).

3. See “The optimal inflation target: Views from 600 economists,” by Kim Ristolainen, Andrea Ferrero, Esa Jokivuolle, Gene Ambrocio, 21 Jul 2022.

The post Wanted: A More Humble Fed appeared first on The Big Picture.

Also in industry news this week:

• Consumers are prioritizing trust when it comes to selecting a wealth management provider, according to a recent survey, with service and fee transparency, as well as identity and account security, being key contributors to demonstrating this attribute
• Member satisfaction with Medicare Advantage plans dipped for the second straight year, according to a recent survey, highlighting the value of financial advisors in helping clients select the best Medicare option for their needs (and in making a change when necessary)

From there, we have several articles on investment planning:

• Evaluating the types of clients who could benefit the most from investments in Treasury Inflation-Protected Securities (TIPS) at a time when long TIPS offer real yields greater than 3%
• Why it's important to keep a client's investment time horizon in mind to avoid surprises when choosing individual TIPS or investing in a TIPS fund
• How advisors can incorporate inflation trends into portfolio management conversations with clients

We also have a number of articles on advisor marketing:

• How Facebook advertising campaigns can provide flexibility and data to inform a firm's broader marketing approach (but might not produce instant leads)
• How firms can use geographic market data to determine whether to emphasize a local SEO strategy or one focused on an ideal client type
• Four ways advisors can appear more often (and authoritatively) in AI answer engine search results

We wrap up with three final articles, all about next-generation wealth:

• Why some wealthy parents are sending their young adult children to retreats where they can learn about wealth stewardship and compare experiences with peers
• The growing popularity of (sometimes high-cost) 'gap years' and how they fit alongside college plans
• While many parents are worried that financial transfers to adult children might reduce their motivation, creating an income 'floor' could help them pursue a meaningful life path

Enjoy the 'light' reading!

Read More...

At The Money: Dividend Growth with David Bahnsen (August 25, 2026)

Dividends are among the oldest and most highly regarded forms of equity investing. But in an era of mega-cap growth, should you own dividend-paying equities?

Full transcript below.

~~~

About this week’s guest:

David Bahnsen is founder, managing partner and chief investment office of The Bahnsen Group, a national private wealth management firm. His new book is “Profit from the profit: the past, present, and future of dividend growth investing.”

For more info, see:

Personal Bio

Professional website

LinkedIn

~~~

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: David Bahnsen: Profit from the Profit — Part 1
Bloomberg  |  Host: Barry Ritholtz

BARRY RITHOLTZ: How often do you think about dividend investing and, in particular, dividend growth investing? Dividends are one of the oldest and most highly regarded forms of equity investing. But in an era of mega-cap growth, should you be chasing dividends or buying growth? David Bahnsen is the author of a new book, Profit from the Profit: The Past, Present and Future of Dividend Growth Investing. He’s also the founder and chief investment officer of The Bahnsen Group, managing over $10 billion.

So David, let’s start with just the title of the book, Profit from the Profit. Explain the difference between profiting from a company’s underlying economic activity versus merely profiting from a change in stock price.

DAVID BAHNSEN: Well, my view, Barry, is that all investing comes down, at some form or another, to the underlying profits of what is being invested in. And you could say, well, what about pre-profit companies, pre-revenue, venture capital? All of those things still are being invested in out of some outlook on future profitability.

And to the extent you want something that’s more liquid and a little more stable and diversified, the types of things that usually are found in public markets, then you’re dealing with underlying profits and some sort of discounting of those future profits into a present valuation. And what I’m suggesting here in the prepositional phrase, “profit from the profit,” is I’m saying, let’s take those profits that we own the company for and let’s allow the individual investor to participate in those profits in the way that, throughout history, they often did, which is the receipt of a dividend.

Now, of course, I recognize companies cannot pay all the profits out to their risk-taking investors. They need to hold onto some profits and retain some for a rainy day. They need to pay down debt. They need to reinvest in CapEx and growth of the company. But there has to be some reward to the risk-taker, and dividends represent a palatable, tangible, repeatable profit from those profits.

BARRY RITHOLTZ: So let’s dive into that philosophy, which you describe as really a philosophy of ownership rather than simply an investment strategy or even a tactic. I really like that framing. Explain the foundation of thinking of your ownership of a stock as owning a company. I believe it’s an underlying business that has a market strategy, that has a management team, right?

DAVID BAHNSEN: It’s a real company. Every company we own is effectively a lemonade stand, and there’s different levels of complexity and all of those things, and it’s goods or services or both. But at the end of the day, it’s a business. And one of the problems with the success of index investing is we do start to think something that isn’t true: that we made our money from the market, from the index going up.

Companies go up, and you can aggregate that, and the math gets very complicated, but there’s only value being created when there are underlying businesses that are adding value, and there are customers of businesses that are buying goods and services that meet the needs of humanity. So this underlying first principle drives what I believe about value creation, and therefore the generation of profits, and from the generation of profits, the ability to reward shareholders with those.

BARRY RITHOLTZ: So some of the writings you’ve put out over the years that I’ve seen really draw a distinction between what you just described as value creation, as opposed to buying a couple of numbers on a screen and the numbers go up. And you’ve been pretty blunt about describing that there is a difference between owning a company and speculating in the market. Discuss that difference. How do you draw the line between economic investing and just speculation and gambling?

DAVID BAHNSEN: Well, I think that, by definition, the easiest line is things that are zero-sum versus things that are not. And so when you place a wager with your friend on the Mets game, first of all, if you took the Mets, you’re probably gonna lose the bet. Second of all, there’s one winner, one loser. But when you invest in Procter & Gamble, I don’t believe that’s the case. You’re investing in them creating new wealth, new profits, new opportunities, et cetera. And so that, by definition, de-speculates the investment to some degree. But also there’s just a lot of investing that is based on a guess of a price in a certain period of time.

One of the reasons that we don’t do option investing at my firm is because even if I have a lot of conviction in a company, and I can go buy a call option on it, I can’t make any money doing that unless I also attach the time value to it. But I’m not interested in speculating on when an announcement may come or when the company may be honored in the market with a higher valuation. Long-term value creation is not necessarily gonna be within a timeline. And so, you know, there’s different ways people can get to this, but our view is that speculation, you know it when you see it.

And at the end of the day, we’re right now in a speculative mode. I never thought I’d see speculation like we saw in the ’90s when I was starting my investing career, and what we saw going into real estate with the pre-’08 period. There’s been a lot of moments of speculative mania and fervor in my career. Right now, the instrumentation that exists for speculation, with literal speculation in DraftKings and sports markets, and now these prediction markets, single-day option ETFs, all of this stuff, it’s unbelievable. They’re all consciously geared towards speculation.

A dividend portfolio is saying, “Hey, I really believe people are gonna buy soda pop,” or they’re gonna continue needing oil and gas to heat their homes, et cetera.

BARRY RITHOLTZ: Yeah, it’s really becoming a problem, especially to the current generation of young men.

DAVID BAHNSEN: Yeah.

BARRY RITHOLTZ: Who pretty much have become gambling junkies. It was bad enough when people were betting on the outcome of games, but if you’re betting on, is he gonna hit this free throw? Well, you know, you’re just throwing dice. You might as well go to Vegas.

Related to this, you’ve discussed in the book the difference between endogenous and exogenous returns. Dive into that a little bit and explain what those differences are, and what it means to an investor, not a speculator.

DAVID BAHNSEN: Well, essentially, we’re just talking about the difference between trying to get your return from factors that are external, that are outside of your control, that are outside the underlying reality of the business. So, in this particular case, we’re sort of referring to what you believe others’ psychology will be, how other investors are gonna respond. I think the P/E ratio’s gonna get bid up because this stock is going to be popular. That would be an example of an exogenous factor, and I think it is by far the most, shall we say, prevalent way of thinking about investing.

But when you’re talking about stuff that is within the business, that my return is gonna come from the performance of the company, from their success in growing profits and competing and creating value, then that’s endogenous. And it is an entirely different mentality and approach. I do not suggest everyone’s self-aware of this. I don’t think it’s totally self-conscious. But I think that the implicit mentality or objective of many investors today is that they’re betting on what others are gonna do, as opposed to betting on how a company is gonna perform.

BARRY RITHOLTZ: Really, really interesting. So this book, Profit from the Profit, is a follow-up to your 2019 book, The Case for Dividend Growth. It’s been seven years. I’m curious, what has changed, either in the economy, the markets, or your own thinking, that made an update of the book necessary?

DAVID BAHNSEN: I think that you had basically the S&P nearly triple in seven years.

BARRY RITHOLTZ: Which is crazy, by the way. Crazy to think about.

DAVID BAHNSEN: But we had had a bit of a dip in 2018, and so there’s a little bit of convenient timing here. The S&P, I think, was down 5% in 2018 from the combo of a little bit of Fed tightening and President Trump’s trade war then. And then it rallied huge at the very beginning of 2019. We had a hiccup in COVID, but then really that only lasted about a month, and ended up having a very robust period. There was one bad year. It’s really the only bad year we’ve had since the financial crisis, in 2022. But then Nvidia, three 100% years in a row, you just have had a massive rally.

So it’s worth saying, “Hey David, your thesis from seven years ago, has it become antiquated?” And you look at it and say, well, actually, Barry, I don’t wanna jinx myself for 2026, but when dividend growth was up 5% in 2022 and the S&P was down 18, and dividend growth did fine in the three years in between, not as much as the Nvidia stuff, but still did fine. And now a year like this year, where dividend growth is beating the market by 400, 500 basis points, I think you’re gonna end up with a five-year number that’s better than the market, but that’s because of that first 2022 year. This story, to me, is very probable for the next three, five, seven years.

At a 23 times entry multiple on the S&P, earnings growth is great, but unless you think you’re gonna get a 29x, if you’re gonna actually have to fight against multiple contraction for the next few years, the math of the index return is what it is. I’m not being bullish or bearish here. I’m just being a mathematician. It’s gonna be very hard for the S&P to deliver continued 15% returns.

BARRY RITHOLTZ: Yeah. In the past few years we’ve had 25% returns. Good luck keeping up with that.

DAVID BAHNSEN: Exactly. And I think that the story of my first decade professionally managing money is what I’m now coming back to, saying, look, the market can retreat here even with good underlying fundamentals. It’s just that the Intels, Microsofts, Ciscos of the 2000s, all of them grew their earnings, their profits, their cash flows. All of them were lower at the end of the decade than the beginning of the decade. And I don’t know that that’s gonna happen with Nvidia. I’m not making a bearish AI call. But I am asking investors to realize that things are not as easy as they might have seemed the last three or four years.

And I think that the update of the book was my attempt to restate, update the argument. New charts, new numbers. But then also, Barry, I think it’s a little bit more philosophical. I’m adding a little more as to where I think about doomsday investing in dividend growth. And then I am encountering some of the objections. There’s folks like Meb Faber that notoriously talk about how a dividend is totally worthless, that all you’re doing is taking from one part of the company, the balance sheet, and giving it to someone else. It’s zero-sum. And I’m contending with that argument, contending with stock buybacks, contending with tax efficiency. Some may not find my arguments persuasive, but I am making an argument on all of those points.

BARRY RITHOLTZ: So typically dividend-paying stocks are often concentrated in mature sectors: financials, energy, utilities, staples, things like that. How do you prevent a dividend growth portfolio from being an unintended sector bet or value factor bet?

DAVID BAHNSEN: Well, the value factor bet is harder to avoid than the sector side. For us, it is true that we’ve always been very limited in our exposure to consumer discretionary because the consumer discretionary names, by definition, it’s hard to pay a sustainable dividend when you’re depending on 16-year-old girls liking your clothes at the mall. It’s just a very discretionary sector.

BARRY RITHOLTZ: A little bit fickle, yep.

DAVID BAHNSEN: Exactly. But there’s actually a lot of durability. And all of the cool kids from the ’90s are now dividend growers today. You know, your Qualcomms and Ciscos and even Microsoft; it looks like a low yield ’cause the stock price has gone up so much. But after George W. Bush’s second tax cut changed the tax rate on dividends, Microsoft all of a sudden became a great dividend payer. So I suspect that a lot of these tech names could end up becoming good dividend growers, and some of them already are. Texas Instruments, Broadcom. But they’re kinda old tech. They’re not the cool tech stuff.

But you wanna keep a benchmark agnosticism, in my opinion, but you still wanna be sector diversified. So we own basically every sector to some degree or another, but my weightings to those sectors, I’m agnostic to what the benchmark is. We’ve been overweight energy and underweight consumer discretionary for most of my career. It’s worked out just fine.

BARRY RITHOLTZ: Yeah, to say the very least. Let me throw an interesting curveball at you. One of the most interesting companies that does not pay a dividend has been Berkshire Hathaway. They’ve created enormous value without ever paying a dividend. They occasionally, when the stock gets, quote-unquote, cheap, they’ll do some buybacks. And they’re sitting on this massive, what is it, $300 billion cash pile. How do you distinguish between a company that should retain its earnings so it can make those opportunistic acquisitions versus one that really should be paying its shareholders some form of dividend?

DAVID BAHNSEN: You know what’s fascinating, Barry, is that Berkshire Hathaway is the company that proves my point, not the exception to the point. They are not a company. They are a holding company, and what do they hold? A whole bunch of companies that pay dividends to them. Now, they may choose not to return that cash to the shareholders because that’s what the investors consciously bought: a hold co where you are asking Mr. Buffett and Munger in the years past, now a new management team, to invest that capital. It’s much more like a mutual fund of private and public companies. But the Coca-Colas and Wells Fargos and Apples and, by the way, even the private businesses, the railroads and See’s Candies, have made massive cash payments to the hold co. So it isn’t really contradictory to it.

There are companies out there that are operating companies that also have not been dividend growers that have been very successful. But I would argue that I could find 100 examples of ones that didn’t return capital to shareholders and set money on fire for every one I could find that proved to be a better steward of that capital. In the appendix of the book, I talk about the comparison of Viacom, and now that Sumner Redstone’s no longer with us, I make him the foil, because the amount of money these people set on fire over the years. They wouldn’t pay a sustainable dividend. A lot of their competitors did, and then they just did these media M&A orgies, and all of them were capital destructive. That, to me, is much more common than a company that, by not paying a dividend, is creating more value.

BARRY RITHOLTZ: When we go to lunch, remind me to tell you the story of a company I was affiliated with that had an opportunity to do a special giant one-time dividend, and instead they lit the money on fire.

But Berkshire, as the exception that proves the point, raises an interesting question. Do dividends, continually paid and actually increased dividends, does that impose a discipline on management? And how could you distinguish when having to meet the dividend is a positive thing versus when it might discourage investment or innovation or intelligent risk-taking?

DAVID BAHNSEN: You know, it’s such a thoughtful question, and I’m not just saying this to blow smoke here, but I very much doubt that very many other interviewers are gonna ask that to me, ’cause it’s really an important question, and you get it. Barry, that’s a trade-off that exists, right? There is a sense in which an opportunity might get missed because the faithfulness to the dividend causes someone not to pursue a risk that might have ended up paying out.

What I would suggest is that’s a risk worth taking for most investors. Not those with a highly speculative or high-risk, high-beta, high-octane part of their portfolio. But ultimately, if someone had said, “You know what? I’m not gonna do this AOL-Time Warner merger because we’re not gonna be able to sustain the dividend doing it,” that would have protected about $300 billion of capital. And I could go on and on. Those are not nut-picking examples; they’re the norm.

Now, there’s been plenty of good and healthy M&A. Exxon’s deal with Pioneer, Chevron’s deal with Hess, Exxon’s deal with Mobil. They didn’t cut the dividend during COVID, for God’s sake, when oil was negative. They didn’t cut the dividend during Valdez, during the financial crisis. Having the social contract where your cash flow, your payout ratio, your balance sheet enabled you to sustain it doesn’t mean you can’t do M&A, but it should mean you can’t do reckless M&A. And I would suggest that Comcast has been a more faithful user of M&A than Viacom and Paramount were.

BARRY RITHOLTZ: Huh. I saved my favorite question for last, which is you argue dividend growth allows investors to benefit from volatility rather than merely having to endure it. Explain what you mean by that. What’s the philosophy behind benefiting from volatility?

DAVID BAHNSEN: So when we say endure volatility, an S&P investor who is an accumulator, not a withdrawer, does not suffer from the volatility. And ultimately the premium return they get is a trade-off to the volatility that they’re expected to deal with. So that’s all what it is.

However, a dividend growth investor has an automatic purchase going on across a diversified portfolio. You assume volatility is a given. It’s going to happen, so there is therefore no way to escape the fact that you are mathematically benefiting because you are already compounding. Your return goes where it goes, and then you’re getting more the next year, the next year. Now you’re getting more purchases of the thing that is compounding. So it creates an automated compounding machine within a compounding investment.

And that leverage over time is monumental, and it ought to excite people that are 30, 40, 45 years old accumulating long-term, because you can say to yourself, “Every time the market’s down, I am buying more shares of the things that are, in the future, gonna be creating cash flow for me.” And that’s how you end up with the sort of stocks that are paying 30, 40, 50% of the original purchase price annually, which sounds crazy, but the math makes sense.

BARRY RITHOLTZ: Yes, sir. That’s exactly right. So to wrap up, if you’re interested in dividend growth investing, if you’d like to try and generate market-equaling portfolios with less volatility and higher wealth creation, check out the new book, Profit from the Profit: The Past, Present, and Future of Dividend Growth Investing by David Bahnsen.

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: Dividend Growth with David Bahnsen appeared first on The Big Picture.

This question keeps coming up — first Cash, now Bonds — so it’s probably time to address why the fixed-income market seems to be having a rough go of it lately…

This has been a confusing couple of weeks (years?) for market watchers and bond investors: Yen interventions; announced (but not yet executed) Treasury buybacks; sticky inflation; more (illegal) tariffs; a confusing muddle in the Iran war’s 6th(?) inning; a record $40 trillion debt. Perhaps we have even seen the return of the Bond Vigilantes! 1

What’s a bond investor supposed to do?

The short answer is to find ways to take advantage of higher yields – my preference is Munis and TIPs – but your answer will be dependent upon your specific age, income, tax bracket, and residence. While you think about that, perhaps an overview of the five 2 biggest crosscurrents currently impacting bond markets might help sort that out.

Inflationary Policies: Everybody has been tiptoeing around this; let’s just say it:

Tariffs + War = Inflation

The Tariffs I (before being struck down as unconstitutional at every level) raised prices on numerous imports, from food to finished goods; this is on top of the increase in grain prices caused by the Russian invasion of Ukraine. Then the U.S. war on Iran hit energy prices hard, followed by Tariffs II.

None of these policies show any signs of abating anytime soon. When inflation is sticky, it is all but impossible for the Fed to cut rates.

Federal Reserve Disruption: Historically, markets seem to challenge the FOMC whenever a new Fed chief takes over. In the current case, Kevin Warsh seems intent on disrupting the way the Fed does its job. From the five task forces Warsh created to review the Fed’s inner workings (!), to changes in how the Fed analyzes economic data, to reducing the number of meetings and dropping forward guidance, the new Fed chief has been antagonizing the bond market.

The tools at the Fed’s disposal include 1) higher federal funds rate, 2) size of the Fed’s balance sheet, 3) tighter financial conditions, or 4) some combination of all three. Now add two new strategies: changing the economic indicators the Fed relies on and dropping forward guidance.

The bond vigilantes’ response? Hitting the sell button on Treasuries, sending yields higher.

What is Neutral?: In case you forgot, the 2% Fed target was a made-up number with no academic or statistical significance that traces back to New Zealand in the 1980s. It made no sense in an era of fiscal not monetary stimulus, and is why I have been saying 3% is the new 2%.

For a variety of silly reasons – Credibility! Legitimacy! Change is scary! – the Fed has refused to revisit this simple truth. Rather than admit the error and move forward, the Fed has doubled down on an inflation target that will not be hit until there is a broad, deep, and painful recession. No thank you.

Bond Buybacks? If you think the financing of AI is circular, then what are your thoughts about the biggest issuer of sovereign bonds in the world buying back some piddly percentage of its own debt? At most, it barely impacts the short end of the curve; at worst, it is an admission of losing control of the narrative.

It is especially annoying to me since I spent most of the 2010s begging Congress to refinance the outstanding debt into 50- or 100-year Treasury bonds at the once-in-a-lifetime close to zero interest rates (See this, this, this, and this).

The bond market sets long-term rates—not the FOMC, not the Treasury Department, not Congress. James Carville was right…

$40 trillion in Federal Debt: Normally, I don’t pay much attention to deficits. After a half century of warnings, with none of the sky-is-falling dangers ever occurring, I have tuned out what is usually a partisan maneuver.  For my entire adult life, as ginormous as the debt seemed, it was innocuous.

Two things make today’s version somewhat different: First, all of the elements discussed above have taken borrowing costs from historically inexpensive to suddenly pricey. On top of that, the profligate spending and tax cuts have accelerated how fast the debt level is increasing. Rapid debt growth and pricier servicing costs are a one-two punch that makes people nervous.

via Bloomberg

The Bottom Line: Pardon me for stating the obvious, but:

Disruption is Disruptive.

Despite clearly stated goals of price stability, lower interest rates, and slowing the growth of inflation, the bond market seems to be bearing the brunt of a series of self-inflicted wounds. From the Fed, there has been a series of questions about a lack of clarity; the Treasury is engaging in gimmickry; White House policies, as enacted, have been counterproductive.

Markets approach all of this from the perspective of Ralph Waldo Emerson, who said, “Your actions speak so loudly, I cannot hear what you are saying…” 3

Previously:
Let’s Talk About Cash… (August 12, 2026)

How Wealth Is Created in America (August 19, 2026)

The Evolution of Alpha (April 3, 2026)

Refinancing America’s Debt:
Fix infrastructure on the cheap while you still can (July 12, 2013)

Do We Need a 50-Year Bond? (May 12, 2014)

The Bonds That Can Cure America’s Ills (March 19, 2015)

Time for a 50-Year U.S. Treasury Bond (May 19, 2016)

Cost of Financing US Deficits Falls (December 18, 2020)

The Greatest Missed Opportunity of Our Lifetimes (October 23, 2023)

A Historic Missed Opportunity (June 3, 2025)

See also:
The Most Hated Asset Class in the World
by Ben Carlson
Wealth of Common Sense August 23, 2026

Druckenmiller: Let the Bond Market Speak:
Rising interest rates are a signal of trouble ahead. Artificially suppressing it heightens the danger.
WSJ, Aug 25, 2026

JPMorgan says Warsh failure to buttress Fed credibility may force a rate hike before year-end
by Dow Jones  Aug 3, 2026,

The Government Report That Made Me Stop Trusting Our Statistical Agencies
Jared Bernstein Aug 22, 2026

Forget the bond rout, fund managers are in party mode
Robin Wigglesworth
FT, Aug 18 2026

JPMorgan says Warsh failure to buttress Fed credibility may force a rate hike before year-end
By Jules Rimmer
Marketwatch, Aug. 3, 2026

The Bond Market Is Returning to the Old Normal
Allison Schrager
Bloomberg, Aug 24 ,2026

KING CARNEY ACTIVATES KONG MODE WITH ZERO F*CKS
Carney Reads the Clock Like a Pro Wrestler
I F*cking Love Australia, Aug 22, 2026

__________

1. My friend (and neighbor, one town over) Ed Yardeni coined the term way back in 1983, while he was chief economist at E.F. Hutton…

2. If we wanted to add a 5th, then I would throw in the Private demand for capital. However, I am not (yet) convinced that the buyers of speculative AI capex boom high-yielding data center paper are the same allocators competing with the government for T-bills and Treasuries.

3. The full quote is: “Don’t say things. What you are stands over you the while, and thunders so that I cannot hear what you say to the contrary.”   -Letters and Social Aims

The post What’s Upsetting the Bond Market? appeared first on The Big Picture.

In this guest post, David Haughton, VP of Estate Planning at Carson Group, explores the ethical dynamics that financial planners must navigate when crafting Medicaid planning recommendations to clients.

The starting point is to recognize that to the extent Medicaid was designed as a needs-based government benefit (i.e., to provide for the care of lower-income individuals who could not provide for themselves), proactive "Medicaid planning" involves finding ways to reduce the assets of the individual who may otherwise need long-term care support, before those assets are otherwise spent outright on care itself. The tools are varied, including transferring assets into Medicaid trusts, or gifting outright to family members, or the use of Medicaid annuities to convert the institutionalized spouse's assets into the non-institutionalized spouse's income. But the common thread is that assets no longer held in the individual's name are no longer required to be spent on care… for which the caveat is that often they literally cannot be spent on care.

The end result of this planning is that strategies to preserve assets for a non-institutionalized spouse, or future heirs, come at the 'cost' of reducing the assets available to spend on care if desired. In many cases, this may mean restricting the range of facilities available (to only those that accept Medicaid), or the tiers of additional care services that may be chosen (that aren't available in a primarily-Medicaid facility). Which is especially concerning when often the planning process begins with an adult child, thrust into a decision-making situation after a parent's health event, who must now make decisions for their parent's care with a direct impact on their own future inheritance.

The added complication is that for many financial advisors, our own compensation systems can present an additional conflict of interest in the process. Some tools – such as Medicaid annuities or asset-based long-term care policies – compensate insurance-licensed advisors who can receive commissions, but not fee-only advisors. Other tools – such as Medicaid trusts – do the opposite, preserving assets that can be managed by advisors who are paid on assets under management. Which means at the least, advisors must be mindful of their own compensation conflicts of interest in navigating recommendations.

So what should advisors do? Ultimately, the key is to engage in proactive conversations with all stakeholders – ideally including parents and children (while still recognizing which, in particular, has hired the advisor as the client, to whom the advisor owes their primary fiduciary duty) – to ensure that all trade-offs and potential priorities are considered. And then ensuring that not only are recommendations documented, but all the strategies that were considered, and the trade-offs that were discussed.

Ultimately, the key is to recognize that Medicaid planning is, perhaps even more so than other types of financial planning, rife with trade-offs for which there are no clear answers. And because multiple family members are involved, the trade-offs aren't even a matter of just one person evaluating a trade-off (e.g., "should I spend less now to be able to save more for a higher standard of living in retirement?"), instead the decisions have impact across multiple people (an individual in need of care, his/her spouse, and their children or other heirs), each of whom have their own competing interests. Which raises the bar for how thoroughly advisors must explore – and document – the range of strategies that were considered, and how the trade-off decisions were made when there is no single right answer.

And if you want to go deeper on this topic, hear directly from the author on the Financial Advisor Technician podcast .

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My guest on today's podcast is Sheri Fitts. Sheri is the founder of Sheri Fitts and Co., a marketing, event, and consulting business that works alongside financial advisors and firms.

What's unique about Sheri, though, is how she helps financial advisors develop their personal brands to both stand out in the eyes of good-fit clients and to ensure their work is in sync with their values.

In this episode, we talk in-depth about how Sheri finds that intentionally cultivating a personal brand is important because an advisor will already have a brand (whether they like it or not), why Sheri suggests that a first step to establishing a personal brand for a financial advisor is to go where the ‘yeses’ are and investigate what made the last few new clients the advisor onboarded want to work with them, and how Sheri has found that these reasons can be illuminating to advisors because they show what clients truly value (and the attributes the advisor might want to lean into further in their marketing).

We also talk about how Sheri sees the next step in brand-building as identifying the client segment that both meshes with the advisor’s strengths and brings them joy to serve, why Sheri recommends that advisors then determine whether this particular client segment represents a viable market (perhaps aided by AI tools that can help find data on how many individuals might fit into this group and where they congregate), and how Sheri finds that experimentation can be a valuable (and low-cost) tool when building a brand (for example, by meeting individuals in the chosen client segment to find out whether the financial issues they face are a good match for the advisor’s strengths).

And be certain to listen to the end, where Sheri shares the value of being bold when it comes to building a personal or business brand, how Sheri has found that identifying one’s sense of purpose is key not only for making career decisions but also in constructing an advisor’s brand, and how Sheri’s own business-building journey has demonstrated the benefits of taking risks as long as they align with one’s values.

So, whether you’re interested in learning about building a personal brand, leveraging that brand to attract more good-fit clients, or how to overcome doubts about narrowing the field of potential clients you could serve, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Sheri Fitts.

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The transcript from this week’s, MiB: Alex Morris, “Buffett and Munger Unscripted,” 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 Alex Morris, Author, Buffett and Munger Unscripted

BARRY RITHOLTZ (00:00:07): This weekend on the podcast, another extra special guest. Alex Morris is the author of “Buffett and Munger Unscripted.” The amazing story of how he put this book together: by reading and watching 31 years of annual shareholder meetings — thousands and thousands of questions, hundreds and hundreds of hours of video — distilled into a fairly digestible compendium. I thought the book was fascinating and the conversation was fascinating, and I think you will too. With no further ado, my interview of Alex Morris.

BARRY RITHOLTZ (00:00:54): I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Alex Morris. He is the founder of the TSOH Investment Research Service, launched in 2021 after 10 years as a buy-side equities analyst. He is the author of “Buffett and Munger Unscripted: Three Decades of Investment and Business Insights from the Berkshire Hathaway Annual Shareholder Meetings.” Amazon named it one of the best books of 2025. It’s pretty beefy — I’ve been reading it over the past, I don’t know, eight months. It’s about 500 pages, and I have really, really been enjoying it. In fact, I’ve been enjoying it so much that I reached out to Alex and said, let’s talk about your research and the book. He has been a Berkshire Hathaway shareholder since 2011 and attended multiple annual meetings, including the 2026 meeting, the first of the Greg Abel era. Alex Morris, welcome to Bloomberg.

ALEX MORRIS (00:02:03): Thank you for having me. As I was saying to you before, Bloomberg headquarters is quite a building.

BARRY RITHOLTZ (00:02:07): Nice place to be.

ALEX MORRIS (00:02:07): I’m gonna drop my resume on the way out.

BARRY RITHOLTZ (00:02:10): So before we get to your resume, let’s roll back to what led you to where you are today. Both a bachelor’s and an MBA from the University of Florida — was finance always the career plan?

ALEX MORRIS (00:02:24): It was not. When I went to school, I really didn’t have any idea what I was gonna do, and my dad’s a plumber, so at first I did building construction, and took a couple physics classes and some other things that kind of threw me for a loop. And then I got my first internship working down in Miami, outside all day, and fairly quickly realized, let me find something a little easier. So I went to finance.

BARRY RITHOLTZ (00:02:43): What were you doing, working outside all day in Miami over the summers?

ALEX MORRIS (00:02:46): What were we doing? We were working on a high-rise that was being built, and I spent most of the time running from the rain that came every single day at noon or one o’clock.

BARRY RITHOLTZ (00:02:54): I spent a summer in college working with a crew, building decks, swinging a sledge, breaking up the concrete of an old pool to put in a new pool. And nothing makes you wanna buckle down and study more than physical labor. It’s like, oh my God, this is really hard work. I have tremendous respect for people who do that. It really forces you to see the world in a different way, doesn’t it?

ALEX MORRIS (00:03:17): Yes. It’s very different work than sitting and writing a book, as you and I both know.

BARRY RITHOLTZ (00:03:21): So after you get your bachelor’s and MBA in finance, you take the CFA exam — it’s a two-part exam — and you spend a decade as a buy-side equities analyst. What did you learn from those 10 years on the buy side?

ALEX MORRIS (00:03:37): Yeah, a lot. I kept my head down and learned as much as I could every single day. The first job I started at, I was brought in and basically told, hey, you’re running all the research for equities, but also you’re the secretary and you’re doing the trading — you’re doing everything else. So I got a lot of good experience there, but it was a role where my boss really was like, just go do what you think makes sense to do, which works really well with my kind of disposition. And as time went on, I learned a lot from making a lot of mistakes — that’s a really good way to learn — a ton of reading, a ton of writing online and sharing stuff with people, getting good feedback. So yeah, just time and effort.

BARRY RITHOLTZ (00:04:10): That’s one of the big problems with everybody: here’s what a billionaire’s morning routine is like. You seem to learn more — all of us learn more from our errors and mistakes than we do from our victories. Do these guys have anything to say about that?

ALEX MORRIS (00:04:26): Oh, yeah. They say learn all you can, particularly from other people’s mistakes if you can. But that seems to be hard to avoid, at least for me and most of us.

BARRY RITHOLTZ (00:04:34): So after 10 years on the buy side, you launch an independent research service in 2021. What made you take that leap? What were those initial couple of years like?

ALEX MORRIS (00:04:45): Yeah, I’d been writing online going back to college, and I continued to write online under a pseudonym, Science of Hitting, or TSOH. And again, I had built a network over time. I really enjoyed the process of writing. I had started making some supplemental income through writing, and I looked around and I saw people like Ben Thompson of Stratechery and other people who had built a business online sharing their research, I wanna call it that. So when I saw Substack come around, and it went from having to understand anything on the technical side to write-in-Word, copy, paste — which is more my speed for technology — I decided to give it a shot. I said, I’ll give myself a year, and if it doesn’t work out, I’ll go find another traditional job, but I wanna see if I can do this. And thankfully, it’s worked out.

BARRY RITHOLTZ (00:05:27): And “The Science of Hitting” was a book by Ted Williams that Buffett loves to cite for the whole strike zone analogy. If you Google image search this, there’s a strike zone, and Ted Williams literally figured out every position a ball can be thrown — just picture a grid, 12 by, I don’t know, 20, however many it is — and figured out the batting average for when a ball hit that spot, how likely he was to hit it. Buffett loves that analogy. Why did you name your research service after it?

ALEX MORRIS (00:06:04): I’d say partly luck. I don’t know if at the time I knew it was an analogy that I liked so much, and that it would be a good name to keep for the next — you know, coming up on 15 years now. But it really spoke to the way I think about investing, in terms of being patient and then also making big swings when you get the chance to.

BARRY RITHOLTZ (00:06:21): Waiting for your pitch. And when it finally comes, don’t be afraid. So I’m gonna assume you’re not averse to a concentrated portfolio.

ALEX MORRIS (00:06:28): I’m not.

BARRY RITHOLTZ (00:06:29): How many holdings do you typically have at any given time?

ALEX MORRIS (00:06:32): In the range of 10 to 15.

BARRY RITHOLTZ (00:06:34): Oh, really? That’s very concentrated. So big, big swings after waiting for your pitch.

ALEX MORRIS (00:06:39): Yeah. And there’s names — like you said, I’ve owned Berkshire since 2011, I’ve owned Microsoft since 2011. Most of the positions have been in there for a period of years. So, you know, it tends to be things that I’ve come to know quite well and have gotten familiar and comfortable with.

BARRY RITHOLTZ (00:06:53): So this raises the obvious question: when did you first become enamored of Buffett and Munger, if you’ve been a shareholder since 2011? When did they first show up on your radar?

ALEX MORRIS (00:07:04): Yeah, the late 2000s, when I was in school. I stumbled across the letters, and actually a buddy and I both became obsessed with it. We were at the University of Florida, and we actually drove to one of the annual meetings in Omaha.

BARRY RITHOLTZ (00:07:16): It’s like a 10-hour drive?

ALEX MORRIS (00:07:17): No, it’s like 20 or 25.

BARRY RITHOLTZ (00:07:19): Oh, really?

ALEX MORRIS (00:07:20): It’s a long way.

BARRY RITHOLTZ (00:07:20): Wow.

ALEX MORRIS (00:07:21): And we were college kids with no money, right? So we slept in the car, I think, one or two nights.

BARRY RITHOLTZ (00:07:25): Wow.

ALEX MORRIS (00:07:26): So yeah, we were very interested in it.

BARRY RITHOLTZ (00:07:29): Wait, you’re college kids, you have no money — but you didn’t own Berkshire A or B back then?

ALEX MORRIS (00:07:34): I think I bought one share — a B share, to be clear. Just to go, for the sake of getting in.

BARRY RITHOLTZ (00:07:40): Right, it’s open to anybody who’s a shareholder. What was that first trip as college kids to the Woodstock of Capitalism in Omaha like?

ALEX MORRIS (00:07:49): I mean, it’s tough to remember now. I don’t know how productive the trip was, but it was more just being in awe of seeing everything and, you know, really starting to learn about investing. And I didn’t do much. Now when I go, I go to a bunch of events and other things and network with people. At that time, it was walking around the convention center eating Dilly Bars, something like that.

BARRY RITHOLTZ (00:08:07): So you have sort of the opposite version, the inverse version, of how the sell side or typical newsletters operate. You disclose your buy or sell before you make the trade. You tell your subscribers, this is what I’m planning on doing. Why run it that way? It’s the inverse of the typical way.

ALEX MORRIS (00:08:30): Yeah. I think one part of finance that I didn’t love was what I considered a lot of talking about things that weren’t really particularly meaningful. And a lot of discussions about things like, “we like Google stock,” for example — but then not a discussion around position sizing, or when you like Google, what are you gonna sell to fund Google? Those kind of more detailed discussions around portfolio management and decision-making. So when I launched TSOH, I thought one way to differentiate this is to just take everything away and be completely transparent about all my decisions, my returns, et cetera. And I thought there’d be a group of people — maybe not the largest group, but a group of people — who would connect with that, and, you know, I could build a sustainable business as a result.

BARRY RITHOLTZ (00:09:11): I recall way back when, watching some talking heads on TV, and when they’d say “we like Google,” or whatever stock it happened to be, the immediate question was, what does that mean? Does that mean you own it? Does that mean you’re holding it? What? Like, liking a stock is very different than “I have allocated 6% of my portfolio to this position.”

ALEX MORRIS (00:09:31): Correct.

BARRY RITHOLTZ (00:09:33): And post-analyst scandal, they used to put the disclosures on screen. We seem to have moved away from that.

ALEX MORRIS (00:09:40): Yeah. I mean, it’s tricky. It’s tough to get on there and kind of explain these things, and a lot of it’s not black or white — it’s in the gray, a lot of these decisions, and there’s a lot of mental accounting and decision-making. And I think it’s just a reality of being an individual and being an investor, and it’s figuring out what are you comfortable with and what game are you trying to play. And, you know, I think talking about that resonates with some people who are kind of honest with themselves about what this game actually is.

BARRY RITHOLTZ (00:10:05): So I like the hundred percent transparency and the disclosure prior to trading, but it raises one question. When you are this public, does it make it more difficult to change your mind, or say, hey, we got this wrong and we’re now selling this?

ALEX MORRIS (00:10:20): Yeah, and that’s probably fair. It’s never fun to be wrong, of course. It’s less fun to be wrong when you’re telling people that you were wrong and you’re dealing with the pain of that. You know, the way I write my research, I kind of view it as an ongoing discussion for a given name. So there’s a lot of opportunities to link back to prior work and go, hey, this call is looking good for X, Y, Z reasons, or looking bad for X, Y, Z reasons. It allows for a continuity of thought and a level of honesty and transparency that I think kind of makes it easier to deal with that issue.

BARRY RITHOLTZ (00:10:52): The reason I asked this question was due to a quote right from the book, which is Charlie Munger’s: “Show me the incentive and I will show you the outcome.” First of all, I think that could be the most quoted line of his of all time. But how do you contextualize that? Is the whole transparency an attempt to stay honest within the Munger framework?

ALEX MORRIS (00:11:19): Absolutely. And yeah, it’s part of — and it goes back to writing when I was much younger and didn’t know nearly as much as I hopefully do today — it’s part of this just being a continual learning process. And it’s with the subscriber, and it’s also me on my own. And I think we’re collectively moving to a place where we can become better investors, or at least more thoughtful investors.

BARRY RITHOLTZ (00:11:38): I like that concept of becoming a better investor. I don’t remember — the problem with the book is, was that a Buffett quote? Was that a Munger quote? They all kind of blur together. The compounding of knowledge that you’re referring to — I think that’s a Munger observation.

ALEX MORRIS (00:11:58): I forget as well.

BARRY RITHOLTZ (00:12:00): But one thing that he definitely said was, Warren Buffett got better after 65. “We’re both learning machines, and we spend most of the day reading.” Explain — these guys are running hundreds of billions of dollars, or at least they were, and they spend their day reading.

ALEX MORRIS (00:12:19): Yeah. I think it’s all about trying to expand your circle of competence and learning as much as you can. As we said, learning from the mistakes, and the mistakes of others. And it’s a game where — you know, I’m thinking, as I’m getting a little bit older, when I go running some time, my knee hurts more and more, while in investing, I’m still quite young, ’cause in theory I could be doing this for another 40, 50 years. And all I need to do is be able to sit in a chair, which isn’t that difficult. So yeah, as long as you put the time and the effort in and remain open-minded — which is a huge thing that I think especially traditional value investors, Buffett and Munger fans, the last 15 years have been a good lesson in, in terms of being flexible and willing to learn. And the world’s obviously changed very significantly. Just turning your mind off from trying to learn about tech, as an example — you can’t really do that anymore in today’s world. You have to be able to at least try to learn about some of these things.

BARRY RITHOLTZ (00:13:08): So I know at TSOH you cover a number of individual names — things like Netflix, Microsoft. Ten to 15 names is pretty tight. Tell us about some of your other names, and are you sitting tight with all of these?

ALEX MORRIS (00:13:21): Yeah, so as I said before, I’ve owned Microsoft and Berkshire for a long time. I’ve owned Disney for a while, which has not worked out, but thankfully it taught me things about the business that then led to a decent Netflix investment back in ’22.

BARRY RITHOLTZ (00:13:34): Why is that? I was curious why you think it didn’t work out. Was it Netflix as a threat, or was it something else?

ALEX MORRIS (00:13:43): They saw where the world was going too late, and in their ability to truly pivot and make the investments they needed to make, they were behind. I think they’ve done better than a lot of their peers, at least among the legacy media companies, but they were slow to the party. And I think especially with ESPN, they’ve struggled with, what really is our strategy going forward? They have their strategy on the entertainment programming side, but in live programming and sports, it’s still really a challenge of how do we get from A to B over time. And obviously sports are expensive. So it’s been an issue for them.

BARRY RITHOLTZ (00:14:13): And yet, go back a few decades, they were very aggressive. They bought Star Wars, they bought Pixar. Those seemed like — wow, those $4 billion deals, that seems crazy. Meanwhile, it’s been a giant moneymaker for them. Was it just a change of leadership at Disney? What led to this failing to recognize the changing world?

ALEX MORRIS (00:14:36): Yeah, I think the media companies got lulled into a place where they thought Netflix or these other channels were incremental, as opposed to replacing what they were doing. And by the time they figured that out, you know, you’d gotten through a period where Netflix had been investing very aggressively and was going global and getting scale in a way that nobody else has basically been able to catch up to. And it changed a lot of their negotiating position amongst each other, and also how they had to price their products, and the reach and engagement of those products. They’re in a really tough place — or have become in a really tough place — relative to Netflix’s rise.

BARRY RITHOLTZ (00:15:09): Give us one more holding that is intriguing.

ALEX MORRIS (00:15:13): Yeah. One that at one point I would’ve probably thought I’d never own — it speaks to what I said before about reading about a company and writing a company up and following it for a couple years — is Peloton. When they brought Barry McCarthy on as CEO, who used to be at Spotify, that’s where my interest came from. The company went through a transition process — it still continues to this day; he has since left. But the stock got to a point where it appeared to be very cheap—

BARRY RITHOLTZ (00:15:40): Post-pandemic.

ALEX MORRIS (00:15:41): Post-pandemic, yeah.

BARRY RITHOLTZ (00:15:42): It had a crazy run-up when everyone was stuck at home and couldn’t get to the gym. Obviously, as did others in that space, but they were the poster child, right?

ALEX MORRIS (00:15:51): Yeah. I mean, I think it was a $150 stock at one point, and recently it traded below $4.

BARRY RITHOLTZ (00:15:56): Wow. That’s a 96, 97% drop.

ALEX MORRIS (00:15:59): Yeah, it’s pretty amazing. I think there’s this question of, what are they dealing with that’s cyclical versus structural? And I think people have a certain view on it that is kind of informed by their anecdotal experience. But you look at other industries — like mattresses, for example — where volumes are still meaningfully below what they were during the pandemic. I think most people would argue that’s probably not structural. People still need mattresses, but the supply-demand got outta whack. And in Peloton’s case, they went from 500,000 paid customers to 3 million in 36 months.

BARRY RITHOLTZ (00:16:29): Paying a monthly subscription fee on top of everything. So it’s a little bit of a razor blade model as well.

ALEX MORRIS (00:16:33): Yeah. Now they’ve bled off half a million, so they’re at two and a half. But, you know, if you step back and in the fullness of time went, hey, you guys are gonna go from 500,000 in ’19 to 2.5 million in ’26, everybody would say that’s great. Their strategy got outta line, their cost structure got outta line — I think they’re rectifying that now. And again, you’ve got a stock that in my mind was incredibly cheap. So it went from something that I probably didn’t think I would’ve ever owned a couple years ago to — it has been my largest position lately.

BARRY RITHOLTZ (00:17:02): Oh, interesting. Give us one more.

ALEX MORRIS (00:17:04): Another one that I bought recently, or relatively recently, is Dollar Tree. I think it’s a really interesting retail concept that is kind of on its own in the retail landscape. I mean, everybody competes with everybody in retail, but their position, and who they serve, and what they sell to them, is unique.

BARRY RITHOLTZ (00:17:20): No threat from the internet at Dollar Tree?

ALEX MORRIS (00:17:22): No. No, there’s not.

BARRY RITHOLTZ (00:17:24): What about from Amazon, or places like that? Or Target, where — you know, I can’t remember the last time I stepped into a Target, but I get Target deliveries every couple of months on a regular basis. It’s so delightful not to have to spend a couple of hours doing that.

ALEX MORRIS (00:17:41): Yeah. Dollar Tree sells product at a price point — obviously, it’s very low. The average ticket’s really small. The immediacy of the purchase is a tight window. The ability to cost-effectively do it with delivery is challenging, to say the least. They owned Family Dollar for a long time, which is a Dollar General competitor. They tried to turn it around, and it didn’t work. So I was watching from the sidelines for a long time. As they got that resolved, they changed the strategy to basically replicate what a company called Dollarama has already done in Canada. And if you look at that, the stock’s been a great performer and the business has done particularly well. I think there’s a lot of sense in the strategic evolution that they’re making, and the stock got pretty cheap — I think I bought in the second half of ’24. So yeah, it’s a business — retail, again, obviously is intensely competitive, but there’s little niches that people play in that I think can be attractive, and Dollar Tree is one of those niches.

BARRY RITHOLTZ (00:18:33): Really interesting. Coming up, we continue our conversation with Alex Morris, author of “Buffett and Munger Unscripted,” discussing how he plowed through hundreds of hours and 31 years’ worth of material to write this book. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

BARRY RITHOLTZ (00:18:44): I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Alex Morris. He is the author of “Buffett and Munger Unscripted: Three Decades of Investment and Business Insights from the Berkshire Hathaway Annual Shareholder Meetings.” So I found the book fascinating, but before we delve into the content, I have to discuss your process. Back in 2018, Berkshire releases the full archive of every Berkshire Hathaway annual meeting from 1994 forward. That’s 31 years’ worth of stuff, and you watch all of it — hundreds of hours, maybe even thousands of hours, 1,700 questions. What the hell? How do you start? Where do you begin with an archive that immense?

ALEX MORRIS (00:19:54): Yeah — slowly, and somewhat unwillingly at first.

BARRY RITHOLTZ (00:19:57): Did you just go back to ’94 and start plowing through? Was there a method to the madness?

ALEX MORRIS (00:20:04): Originally — well, first of all, when I was in college and got interested in investing, one of the books that really resonated with me was “The Essays of Warren Buffett,” which Lawrence Cunningham—

BARRY RITHOLTZ (00:20:14): I went to grad school with him.

ALEX MORRIS (00:20:15): He had the decades of shareholder letters, which you could just sit and plow through if you want, or he compiled it in a way where you could look at, what about capital returns to shareholders? — and look by topic.

BARRY RITHOLTZ (00:20:25): He had a much easier task, ’cause the letters are a couple of pages — 10, 20 pages each — and they’re already in print format. You had to fight your way through hundreds and hundreds of hours of video. How did you organize that material?

ALEX MORRIS (00:20:41): Well, originally it was only on CNBC’s website, with a web player where you couldn’t speed up the time. And one of those where, when you try to fast-forward 20 seconds, it goes 15 minutes and you can’t get back to your original spot. So that made it a little bit tough. When it eventually got on YouTube, that helped a ton. I originally went through it for the sake of learning and using it as writing material for TSOH. And as time went on — well, first I thought somebody else would do this, so I wouldn’t have to do it. And then I didn’t see anybody doing it. At one point, Harriman House reached out to me about writing a book, and I actually was working on something. Basically, the concept was for people like my parents or my grandparents, who had asked me questions about working with a financial advisor or managing their own finances. I was trying to write a book about how do you navigate that relationship with a financial advisor, and talking about active and passive and asset allocation. And then I started writing it, and as I got into it, I thought, well, one, I’m not hugely interested in this, and two, I don’t have the depth of knowledge on things like trusts or estates or a lot of financial planning stuff that’s a really important part of that discussion. I just don’t really have the depth of knowledge there — I shouldn’t be the person writing this. So when Harriman House reached out, I first said, you know, I have this book, but I think I’m gonna kind of drop it, and I don’t really have anything else. And then a week or two later, I wrote back to them and said, I think actually I might have something with the Berkshire meetings that I could explore a little more. But I can’t do it unless I reach out to Berkshire and get, if not approval, at least not disapproval from them.

BARRY RITHOLTZ (00:22:09): You don’t want them fighting you every step of the way.

ALEX MORRIS (00:22:10): Yes. So I put together a sample chapter and sent it to Warren’s assistant at the time, Debbie, and asked, can I please do this? I promised that I’m a massive fan of Warren and Charlie, and I’ll do a good job, and I’ll give away half the proceeds to Glide, which is a charity that Warren supported through the lunch auctions. So I got a response a couple days later saying, as long as you’re saying he didn’t approve this, you’re okay to go with it. So at that point I was like, okay, now I actually have to do this. And the process at first was not particularly well thought out. I remember I got through two or three or four meetings, and I realized I wasn’t getting to a place where I wasn’t gonna have to repeat that process again. So I went back to the start, created an Excel file where I timestamped everything, had like primary topic and secondary topic, and then a very simple green, yellow, red: is this gonna be in, or maybe be in? As time went on, I had a lot of overlapping things — I had to figure out which answer was better, which one should I keep. But as I got through 10 or 15 years, I knew what I was doing at that point.

BARRY RITHOLTZ (00:23:17): Did it reveal itself to you as you were working? By the way, full disclosure: Harriman House is my publisher. But one of the things I found fascinating about the writing process is when you happen onto a good framework, it sort of opens itself up to you. It reveals itself, and like, oh, I see what this should look like. I would imagine you might have had a similar experience — year after year, the same themes, the same ideas, although they must evolve over time somewhat.

ALEX MORRIS (00:23:51): Somewhat. And I got to a point where — well, one, yes, the meetings definitely have their place in time, as is kind of revealed — I mean, especially think of like the late nineties, or you get to the financial crisis, the discussions that are had there. The part of it that I found so useful, that I thought would resonate with people, was, you know, the letters are edited, and Warren’s very specific about what he says—

BARRY RITHOLTZ (00:24:12): Unscripted is very different.

ALEX MORRIS (00:24:13): Unscripted, when they’re off the cuff. And Charlie a lot of the time pushes Warren in directions that he may not want to go. The answers would be really revealing. And again, in a period like the late nineties, when people were really pressing them on, why aren’t you investing in tech companies — you know, as they’re pushing them, they get a little bit more honest and say things in a slightly different way than if they had written them. So anyways, as I worked through it, I just got to a point where I could imagine myself, the college kid, reading this book and getting a lot of value out of it. But I also could see myself, the person today who has a lot more experience, reading it and still getting value. So I thought, this is gonna be a worthwhile book for a wide range of people, so it hopefully could be a good project.

BARRY RITHOLTZ (00:24:53): So a recurring theme of all of the meetings, and therefore of the book: investing success is a temperament problem, not an IQ problem. Emotional stability, patience, and independence from crowd opinion do the compounding. Again, I don’t remember which of them I’m taking the quote from, but we’ve heard that over and over again. Give us a little color on temperament versus IQ.

ALEX MORRIS (00:25:24): Yeah. I mean, I think your book title sums it up well — “How Not to Invest.” What mistakes are you looking to avoid is a great place for starting to figure out where you’re trying to go. And I think that’s what they’ve done their entire career. And it’s funny how that mindset of “don’t be stupid” can still be connected to really big swings at points in time, ’cause that seems like an aggressive act and kind of a risky thing. But I think when you actually pair ’em together, they can work well.

BARRY RITHOLTZ (00:25:50): So the flip side of the Munger quote “be less stupid” is a Buffett quote: if you have an IQ of 160, well, you can sell 30 points — they’re not needed in investing. I love that. That goes and flies against everything we’ve ever heard about, you know, the genius hedge fund manager, the quants, the math whizzes. And clearly both Charlie and Warren — not dumb guys, right? They were more than less stupid. But how sincere is that — hey, you don’t need 160, and it’s probably gonna get in your way anyway?

ALEX MORRIS (00:26:28): I definitely think the latter part is true. It’s very easy to get overconfident in your abilities and to make mistakes that can be — particularly when you start doing things with options or leverage — you can make mistakes that are truly devastating. And if you just avoid those things, it’s much easier to, at a minimum, stay in the game. And to get to a decent place is also, I don’t think, overly difficult as a starting point.

BARRY RITHOLTZ (00:26:51): So over the three decades that the book covers, there have been wildly different environments, where there were those examples of people who should have been less stupid. So you had Long-Term Capital Management blow up in — what was that, ’98? — the dot-com implosion, the financial crisis, the zero interest rate policy of the 2010s, then COVID. How do the same principles that are espoused by Buffett and Munger apply to all these wildly different environments?

ALEX MORRIS (00:27:27): Yeah. I think it’s being consistently level-headed and not letting things get away from you, and having a long-term view, and staying within your circle — which I think is one of the biggest lessons I’ve had as an investor: learning what game you are playing and why you’re playing that game. And your answer may be different from mine. I think a funny example is, someone asked in one of the meetings about Peter Lynch, and Warren Buffett was talking about it and said, his approach works well for him and mine works well for me, and I think if he tried to adopt my approach, it would not work as well — and vice versa. There’s more than one way to get to heaven in this game. And as long as you understand that, I think you’re at least at a good starting point.

BARRY RITHOLTZ (00:28:04): Another quote that I can’t remember which of them said: volatility is the friend of the investor who knows values, and the enemy of the one who doesn’t. Explain that.

ALEX MORRIS (00:28:15): Yeah. Well, sometimes in real life it feels a little different than that, when you’re seeing a lot of volatility in your portfolio. But I think the idea is a sensible one, which is you don’t want your decisions to be led by the market. You want to be making decisions that are somewhat independent of what the market’s telling you. There’s a fine line there between just being stubborn and overconfident — I think especially when you’re younger. A quote like that — and this is true of a lot of quotes from Warren and Charlie — a little bit of experience helps you understand what they’re actually saying, versus maybe a more novice interpretation that can get you in trouble. So I think to completely disregard what the market’s saying is something that you should do cautiously, but the idea of acting based on what the facts tell you, as opposed to, you know, the short-term weighing machine, is the right mindset to have in investing.

BARRY RITHOLTZ (00:28:59): There are so many quotes of theirs that have just become so famous and repeated over and over again. What sort of buried gems did you find in there that people don’t really talk about? What stands out as, how is this not a more famous line?

ALEX MORRIS (00:29:15): I mean, I think some of the discussions on, again, things like stock option accounting in the late nineties, where — I think they say in the book, there were 500 companies, and two of them had adopted, quote-unquote, the right stock option accounting rules. Everybody else was playing this kind of game. And they talk about things like that so clearly, in a way that anybody can understand, that it’s just so useful to hear those things. I’m trying to think of other examples throughout the book that stand out. One example they give, in terms of their business, is National Indemnity Insurance Company. They talk about this idea of, there was a period of time where the volumes in that insurance business went up, I believe, five-x, then over a period of 15 years contracted 85%.

BARRY RITHOLTZ (00:30:00): Wow. That’s back below the original starting line.

ALEX MORRIS (00:30:03): Yeah. And you could imagine running a business and how painful that is. And they use it to teach a lesson — it applies differently in different businesses, but how in the insurance business, the only thing that matters is writing good business. And you have to get to a place where all the stakeholders, particularly employees, realize that writing bad business is not the decision to make. And you have to help them appreciate that they can keep their job, too, as you go through this. So it’s just an example of them laying out something that, when they explain it, is so sensible and logical. But you have to have that long-term mindset. And again, when you compare something like that to how a lot of public companies act, you start to notice things that you may want to avoid.

BARRY RITHOLTZ (00:30:41): That’s very much a Science of Hitting philosophy. You’re better off not writing bad business — not writing any business — than writing bad business. I think the modern Berkshire is underappreciated for the importance of the various insurers. So there’s GEICO, there’s Berkshire Re, there’s a few insurance companies, which essentially gave Warren a giant pool of capital — and patient capital — to work with. Talk about the significance of insurance to the success of Berkshire Hathaway.

ALEX MORRIS (00:31:17): Yeah, it’s been hugely important. That float has — I don’t know what the number is now, but it’s grown very significantly over a long period of time, and it has allowed them to make the investments that have, you know, gotten Berkshire to where it is today. One example that I come back to a lot, from one of those investments, is Coca-Cola. Everybody knows that Berkshire owns Coca-Cola. I think the part that people sometimes don’t know is that Warren started buying in, I believe it was ’88 or ’89, and he bought his last share in ’94. And he hasn’t bought or sold a single share since then. At a point in time, it was more than 30% of Berkshire’s equity portfolio — it’s not like it was 2% of their portfolio that they’re not touching. It was a hugely important position, and he hasn’t touched it for more than 30 years. Which is — you know, when someone’s really good at investing, like they are, and they do something like that, and you look around and see, well, nobody else is really acting in this way — it’s just something that stands out and I think is noteworthy.

BARRY RITHOLTZ (00:32:10): So I love the concept of, imagine you only get 20 investment decisions for a lifetime. When you look at Berkshire’s returns, it’s a handful of decisions and decades of sitting still that have been driving it. What is that thesis — hey, you’re only gonna make 20 meaningful investment decisions — what does that do to selectivity?

ALEX MORRIS (00:32:34): Yeah, it raises your bar a lot. The things that you’re willing to compromise on will — you know, if you need to find a hundred things to own, you gotta make a lot of compromises. If you can own 10 things, you can make less compromises. And if you can own one thing, you can get even more selective. So I think that idea of knowing what you’re looking for, being patient — and then these two are connected: if you’re gonna act in that way, you have to swing big, to some extent.

BARRY RITHOLTZ (00:32:57): So they repeat a lot of the same principles over and over over the years. I’m curious not only how things evolved, but what are some examples of them reaching a conclusion — hey, maybe we haven’t really thought this through, and we wanna pivot or tack away from a previous belief? Where did they really change their minds?

ALEX MORRIS (00:33:19): Yeah. Two really prominent examples. One, in an owned business, in GEICO: they basically missed the move in telematics, which is like the data measurement in the car, and Progressive was really early there. And Warren publicly, at the meetings, kind of said, we don’t think this is gonna be important to the rate-making decision. And they were wrong, and they were years behind.

BARRY RITHOLTZ (00:33:39): Explain what telematics does for an insurer.

ALEX MORRIS (00:33:41): Yeah. Basically, it gives you actual data from how someone drives, which, it turns out, is very important for determining how they drive and setting their rate and the riskiness, et cetera. So GEICO — or the way Warren talked about it, they were convinced—

BARRY RITHOLTZ (00:33:54): Is that built into the car, or is it something that you have to give permission for?

ALEX MORRIS (00:34:01): You have to get it — you had to get a device at one point. I believe you can do it with your phone now.

BARRY RITHOLTZ (00:34:07): And you get a discount if you use it?

ALEX MORRIS (00:34:08): You can get a discount for using it. And they’ve changed over time what they’re willing to do with your rates, but early on, you could just get a discount from it — you wouldn’t get a rate increase. So yeah, Berkshire, or GEICO, kind of missed that early, and they’ve kind of been playing catch-up since then. And Progressive went from millions of policyholders less than GEICO to now being quite a bit larger than GEICO.

BARRY RITHOLTZ (00:34:29): This is a huge growth story and change for them over the years. Is the telematics strategy what drove them?

ALEX MORRIS (00:34:40): Yeah, it’s a huge part of it.

BARRY RITHOLTZ (00:34:41): And then the other issue that comes up is that Buffett has been notoriously tech-averse, and then becomes one of the biggest shareholders of Apple. How did he explain that? How did he wrap his head around that major pivot?

ALEX MORRIS (00:34:58): That’s the other example I was gonna say. You go through a period of, I believe it’s 2011, 2012, 2013 — some select quotes are, when they owned IBM, they basically said — the person asking the question specifically asked about Apple and Google, which in hindsight is kind of funny, ’cause those are the two companies that they’ve now invested in — they basically said, we’ll never have the confidence in those two companies that we have in IBM. Which was not a good investment. And then, I think at the next meeting, Charlie even more forcefully said, basically, Apple’s too hard for us — we’ll never own it. Fast-forward a few years, and I think at one point it was almost a $200 billion position, and it’s one of the greatest investments of all time. And I think it just speaks to a willingness to continue learning. And, you know, Warren specifically talked about, on CNBC when they bought it, how at the Nebraska Furniture Mart — which is a retailer that they own — people come in and buy a TV, and they’re looking at the number of pixels or the quality of the screen, they’re comparing the prices, et cetera. And then when it comes to an iPhone versus an Android, it doesn’t matter if an Android phone is 60% cheaper — some people were just absolutely gonna buy the iPhone no matter what. So he noticed that, in terms of that differentiation between a technology question versus a consumer brand kind of question. I think he also recognized clearly the value of the screen and the services strategy that Apple, in the mid-2010s, really got underway. And also, the valuation was attractive, and they had a capital returns policy. That’s one of the things that really jumps out in terms of his investment approach: how much he valued, particularly in publicly traded companies, the combination of the valuation and a very clear capital return strategy. You see that at Apple. You see that at PetroChina in the early 2000s. It’s a very prominent part of what he seemed to be looking for.

BARRY RITHOLTZ (00:36:45): So I see how their ideas have changed over time. I’m curious — the process of going through the whole book, and all of the various meetings and videos you ended up watching: anything change the way you invest personally? Any ideas you’re still wrestling with, trying to put into practice?

ALEX MORRIS (00:37:07): Yeah. I think this idea of — again, I think I mentioned this before — kind of traditional value investors, this idea of change being a bad thing and trying to avoid it. It’s borderline impossible in today’s world. I mean, if you could give me a list of five companies that haven’t meaningfully changed in the last 10 or 15 years, it’d kind of be tough to do. Every industry is changing, and you have to be — you just can’t avoid it. It doesn’t mean you have to run into it, but you have to be really thoughtful about how every business is changing. And you think of the prominent examples that they gave over time of, you know, the greatest businesses — newspapers and other things that are either greatly changed or gone. And retailers, as an example.

BARRY RITHOLTZ (00:37:48): Adapt or die.

ALEX MORRIS (00:37:48): Yes, adapt or die. And I think that’s a reality of being a business manager. It’s a reality of being an investor. And you have to be willing to, you know, lean into that.

BARRY RITHOLTZ (00:37:57): Huh. Really, really interesting. Coming up, we continue our conversation with Alex Morris, author of “Buffett and Munger Unscripted,” discussing Berkshire Hathaway after Warren Buffett. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

BARRY RITHOLTZ (00:38:16): I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. Alex Morris is my extra special guest this week. He is the author of “Buffett and Munger Unscripted: Three Decades of Investment and Business Insights from the Berkshire Hathaway Annual Shareholder Meetings.” He is also the founder of TSOH Research. So let’s talk a little bit about their relationship before we get to the post-Buffett — and we’re already in the post-Munger — era. What did Munger contribute to Buffett’s thinking that Buffett probably wouldn’t have developed on his own? They really had kind of a unique partnership.

ALEX MORRIS (00:38:59): Yeah, they did. And Charlie will say he didn’t have as much of an impact as Warren says he did — so I guess you gotta pick which one you want to agree with or believe. You know, I think Warren’s strategy that he ran up until the point in time when they became friends with each other, and the decades after, was a cigar-butt strategy, a traditional value investing strategy. The main constraint it was gonna run into over time was size — and that’s the problem they have now, even as they’ve adjusted the strategy. And I think Charlie changed his mindset a little bit towards buying businesses that they’re gonna own, as opposed to things that are gonna be liquidated or sold, whatever it may be.

BARRY RITHOLTZ (00:39:34): When you say buying businesses — completely, like a full takeover? Not just, we don’t want 10% of GEICO, we want all of GEICO?

ALEX MORRIS (00:39:42): Yeah. I think one of the prominent early ones was See’s Candies, where they were getting a little touchy on the price, and I think they had someone who worked with them who said, if you guys don’t buy this ’cause the price is 10% higher than what you wanted, you’re idiots, basically.

BARRY RITHOLTZ (00:39:56): Really? Who says that to Warren Buffett? I’m curious.

ALEX MORRIS (00:39:58): I think it was Charlie Munger’s partner — I wanna say Ira Marshall, for some reason, but I could be incorrect. But anyways, they told him, if you don’t buy this business ’cause it’s 10% higher than what you want to pay, you’re not being very intelligent, because this is a really good brand and it’s gonna be a really good business over time. And thankfully, they listened.

BARRY RITHOLTZ (00:40:16): You know, I have a buddy, Jonathan Miller, who’s not only a data junkie with the back end of real estate, an appraiser, but he was saying, if you’re buying a house that you’re gonna live in for 25 years — this is the house — if you pay 10 or 15% over, who cares? Just look at houses sold 25 years ago: what would’ve happened if you paid 10% more for that? It’s meaningless. And Marc Andreessen said the same thing about Facebook. All right, it was a 40x or a 50x — imagine if we paid 25% over. It wouldn’t have made any difference. And yet this is coming from people with a value background. How do you reconcile that?

ALEX MORRIS (00:41:01): Yeah. Personally, my personal experience taught me, in some ways, to just get past that way of thinking. And again, as I said before, I bought Microsoft in 2011. It was a very traditional value investment — ex-cash, it was trading at a high-single-digit P/E. Again, a very traditional value investment. You get forward to 2015 or 2016, in that period, and now the P/E, as opposed to being in the high single digits, is, call it, mid-teens. And I can remember at that point in time, a lot of the, again, more traditional value investors, they were at a point where they’d go, okay, we’ve had our run here — it’s time to sell. It’s a situation where I looked and saw, with Satya Nadella, who was recently named the CEO at that time, the strategy they had in the cloud business — and not that I have any great technical knowledge on this, but the way they explained where they were going and what the opportunity was, it just seemed clear to me that to sell it simply because the P/E was a couple turns higher than, you know, what the quote-unquote fair price was — it just didn’t make a ton of sense. If you’ve found a business that has a really long runway, with a person running it that you think is the right person for that job, to let that go easily is a mistake. And it’s funny to look back now — I didn’t know this, ’cause I was updating on Microsoft the other day: over the last decade, the stock’s compounded at a mid-twenties annualized return.

BARRY RITHOLTZ (00:42:20): Amazing.

ALEX MORRIS (00:42:20): This happens all the time with companies like this, where people, if they become too focused on the valuation, they go, this isn’t gonna generate more than 12% a year over the next decade, or whatever.

BARRY RITHOLTZ (00:42:25): What’s the line? Price is what you pay, value is what you get.

ALEX MORRIS (00:42:30): Exactly.

BARRY RITHOLTZ (00:42:31): So clearly, even at an elevated price, Microsoft turned out to be a good value.

ALEX MORRIS (00:42:34): You have to consider both at all times. If you become overly focused on price as the driver of your decision-making, I think that’s kind of a flawed way to do things. And the same goes for — you know, theoretically, you have a portfolio, and theoretically you could re-rank it every single day on expected five-year returns, whatever it may be, and the answer’s gonna change based on what those positions did the day before. Obviously, I think that mindset, while it makes sense theoretically, guarantees you’re never gonna own anything particularly in size. You’re gonna be trimming it as it goes up 20, 30, 50%, because—

BARRY RITHOLTZ (00:43:07): Suddenly it’s fully valued.

ALEX MORRIS (00:43:08): The IRR is three points lower than it was six months ago. And I just think, if you look back — again, like the last 15, 20 years, and your example of Facebook — selling it because the IRR was down slightly was a mistake, if you understood what the business was, in some sense, and what the opportunity was. Again, you can deal with this through position sizing, but be really thoughtful about selling businesses that you actually think are worth owning.

BARRY RITHOLTZ (00:43:30): Yeah, that makes a lot of sense. Both Buffett and Munger have emphasized staying within one’s circle of competence. How can an investor expand that circle, and how do you avoid fooling yourself into thinking you have some competence when you don’t? This is classic Dunning-Kruger.

ALEX MORRIS (00:43:51): Yeah. I think it’s time; it’s a willingness to learn; it’s a willingness to feel around and not always, you know, have the answers right away. I mean, for example, at TSOH, a lot of my initiations on companies — they very rarely end with, you know, this is my price target, or this is a buy today. That’s very uncommon for me. The conclusion is almost always: here’s what I think is interesting about this company; these are the questions we kind of need to explore and get a better feel for over time. And it’s just that continual learning process, where sometimes you get, you know, three, four, five years down the road from there and you still don’t have the answers. Other times, you get a couple years down the road and things happen in a certain way, and you go, wait a second — I think I’m seeing this now in a way that I didn’t originally. And you find enough examples like that, and you can have a portfolio.

BARRY RITHOLTZ (00:44:34): Really, really interesting. What do you think, of all the principles that Buffett and Munger enumerated over the years, are often quoted but really infrequently practiced by professionals, or just difficult to put into effect by mom-and-pop investors?

ALEX MORRIS (00:44:54): Yeah. They’ve had things like, you know, permanent capital — which, you look at an example like Terry Smith at Fundsmith right now: when things go against you for a relatively short period of time, but your assets start going away, that’s a huge problem. So things like that are just a prominent example of how thoughtfully they’ve constructed everything, and what that then allows them in terms of their flexibility — of, you know, being really patient, or taking big swings, et cetera.

BARRY RITHOLTZ (00:45:19): What about “avoid difficult decisions”? Is that realistic today?

ALEX MORRIS (00:45:24): Again, I think it’s more difficult over time. But I think if you’re patient, you can — again, as you learn more and more, decisions that may appear difficult might be less so for you.

BARRY RITHOLTZ (00:45:34): I really like Buffett’s comment about market forecasts: they tell you nothing about the market, but a great deal about the forecaster. They claim to have never made a Berkshire decision based on a macro prediction. How true is that?

ALEX MORRIS (00:45:51): Well, I think you look at their cash position currently and wonder how much of that is, you know — maybe it’s not a macro forecast, but there has to be some belief about markets or prices generally. I guess you could look at it at a micro level and say, we can’t find anything — and collectively, all the micro is the macro, right? You know, I think the bigger point — and it’s something that we’ve all seen over the past 15 years — I mean, I’m sure you can remember well, 2011, 2012, people were like, okay, we’re back to another bubble; we got past the GFC, and now here we are again, and stocks aren’t gonna go anywhere for the next decade. And good call — people who overdosed on that have paid a very significant price.

BARRY RITHOLTZ (00:46:29): You know, it’s funny you bring that up. I remember — I don’t remember if it was late ’08 or early ’09, but Buffett wrote an op-ed, I think it was in the Times, “Buy American.” And that felt very much like a combination of, everything has gotten cheaper — so there’s a valuation issue — and, we weren’t quite down 56%, but we were on the way; maybe we were down a third by that time. But it felt like a macro call: hey, this is a temporary crisis and we’ll get past it. Or was it strictly a valuation decision?

ALEX MORRIS (00:47:04): Yeah, I think it was a little bit of both. I mean, as he said later on — you know, I wrote that in, I think he said, October of ’08, and to your point, people were like, wow, what a great call. It was like, well, it was down another 30% six months later, or whatever it was — so my timing wasn’t particularly great. You know, I think the bigger takeaway, particularly for individual investors, in my mind, is understanding something like a structural asset allocation and having clarity on what you’re trying to achieve. And again, coming back to this idea, over and over, of the mistakes you’re trying to avoid. We saw over the past 15 years people making big swings in and outta cash, in and out of the markets. I think you’re just making the game more difficult than it needs to be. And when you’re wrong, it really hurts.

BARRY RITHOLTZ (00:47:47): So, having studied every answer Buffett ever gave about succession over 31 years, what does the record tell us about how he set up his succession? And what did his Thanksgiving letter last year add?

ALEX MORRIS (00:48:04): It’s kind of funny — starting with the ’94 meeting, they were asked every single year about succession.

BARRY RITHOLTZ (00:48:11): He’s, what — he’s my age back then? He’s in his early sixties back then.

ALEX MORRIS (00:48:15): Yeah. It turns out he had another three decades to go. You know, I think they’ve said over time that there’s nobody who cares about the answer to this question more than we do. And you know, a lot of the businesses — at BNSF, the railroad, Warren’s not really involved in the decision-making there. Same at GEICO, same at a lot of other businesses. A lot of the equity positions, like I said — Coca-Cola or Amex, all these other ones — they’re just in there, and they’re almost certainly not going to be sold by Warren or anybody else. So I think a lot of the pieces are in place. The biggest challenges Berkshire has: as I mentioned, there were some operational issues at businesses like GEICO that had to be fixed, and the massive cash pile is another challenge. Those challenges existed two years ago with Warren, and, you know, they still exist today, and solutions are difficult. But it seems like Greg Abel is starting to move in the direction of trying to resolve those issues.

BARRY RITHOLTZ (00:49:09): So let’s talk a little bit about Greg Abel. He took over as CEO of Berkshire on January 1st of this year, 2026. You were at the meeting in Omaha, his first annual meeting — Buffett just sitting in the audience like any other Berkshire shareholder. Well, maybe not like any other Berkshire shareholder, but not on stage. What was that like? How was Abel? Are you confident that this was the right choice and Berkshire is in the right hands?

ALEX MORRIS (00:49:38): Yeah, I think that — and this is also informed by writing the book, the questions over time. In the early days, the questions were really focused on Berkshire and investing, and I think as time went on, they became a lot more about life advice and other things that, while still interesting, are not really Berkshire-specific. And when you got to things like, as I was saying, GEICO and telematics, or at BNSF, where their results were lagging some of the other Class I rails, I think Warren had a tendency to not wanna point fingers at the managers, and he wouldn’t really talk specifically about the issues there — which, you know, for the people who are kind of the diehard Berkshire shareholders, we want to hear those things. Greg took those questions head-on, which was really refreshing to hear. And I think everything we’ve seen so far would suggest that, you know, as Warren and Charlie said, we’ve thought about this more than anyone else — and I think that’s probably reflected in their decision.

BARRY RITHOLTZ (00:50:30): So you mentioned the huge cash pile — a couple hundred billion dollars just lying around. I know, that’s walking-around money. What does capital allocation look like under Greg Abel? Is he gonna emphasize buybacks, or going out elephant hunting and finding some big acquisition, or something else entirely?

ALEX MORRIS (00:50:50): I think repurchases will surely be a big part of the strategy.

BARRY RITHOLTZ (00:50:55): And by the way, Munger and Buffett have both been very explicit about buybacks: hey, when you’re below your true value, when you’re below fair value, it’s a deal — absolutely do buybacks. But if you’re fully or richly priced, it’s a disaster waiting to happen. They made no bones about it, and they acted on that. Where do you think Greg falls on that?

ALEX MORRIS (00:51:19): Yeah. I think Berkshire started buying shares more significantly — I think they started in 2019. The pace has slowed down lately.

BARRY RITHOLTZ (00:51:28): Implying they’re close to fully valued.

ALEX MORRIS (00:51:30): Yeah. I believe that they have views about the market, or the opportunity set more broadly — I think that would be fair to say, based on how they’ve been acting for some time now. You know, it would’ve been helpful if they’d started repurchasing shares earlier. I don’t think Warren was particularly interested in doing that for a good amount of time, and it got to a point where they basically had no choice: they either had to, or have to pay a large special dividend, whatever it may be. I think Greg will be a lot more open to leaning into these things. And as I said, many times — I mean, obviously we haven’t had huge shakeouts, outside of maybe a brief period during the pandemic, but if we get a period where equities really trade off meaningfully and they can put a decent amount of dollars to work, they’re willing to spend tens and tens of billions of dollars, or potentially even over a hundred billion dollars, if the right opportunity is there.

BARRY RITHOLTZ (00:52:16): What’s the cash holdings right now?

ALEX MORRIS (00:52:17): I think it’s north of 300.

BARRY RITHOLTZ (00:52:20): Yeah. It’s a crazy number. That sounds to me like a war chest waiting for a disaster to happen.

ALEX MORRIS (00:52:26): Yeah. I think the thing is, you gotta find a willing seller — which, if you’re gonna buy a whole business—

BARRY RITHOLTZ (00:52:30): Do you have to find a willing seller, or can you wait for an era of distress, where everybody’s a seller and you are the — well, you know. That’s what I meant by war chest waiting for disaster to strike.

ALEX MORRIS (00:52:44): Well, that’d be a nice way to deal with this issue. And we haven’t seen it yet, but I’m sure the day will come where things look really ugly, and I’m sure they’ll be ready to act — and will act.

BARRY RITHOLTZ (00:52:53): So the whole idea of the annual meeting taking place in Omaha was really built around these two men, Warren Buffett and Charlie Munger — one of whom is no longer with us, and the other one is now sitting in the audience. So the question that comes to mind is, does Omaha still matter today? What’s it gonna look like, you know, a decade from now?

ALEX MORRIS (00:53:17): Yeah. It’s funny — I think, and I’d say from my experience here, and from people I know who are also Berkshire shareholders, it sounds like their experience has been similar — it’s become an event where, you know, people go there, and there’s so many events around the meeting now that aren’t the meeting. It’s people coming together who are hosting their own meetings of one variety or another, or having investor conferences. And yeah, I think that’s become a really important part of this trip for a lot of people. So I sense — I mean, the size of the audience will get smaller, as it has already, I believe.

BARRY RITHOLTZ (00:53:47): Oh, is that true?

ALEX MORRIS (00:53:47): Yeah, I think it was smaller this year than it’s been in the past. But for the core group of, you know, the diehard value investors, I think they’ll continue to show up for a while, as long as those events keep going on.

BARRY RITHOLTZ (00:53:57): Do you have any insight into who the average Berkshire shareholder is? Is this primarily Main Street, or is this more professional investors, or some obvious combination?

ALEX MORRIS (00:54:09): Yeah, I think it’s a combo of the two. It feels like a combo of the two. They definitely attract a more Main Street audience than, I think, just investors do generally — or investment managers, especially.

BARRY RITHOLTZ (00:54:20): And I’ve never made it out to Omaha. I’m curious — who goes to these events?

ALEX MORRIS (00:54:25): Value weirdos.

BARRY RITHOLTZ (00:54:26): Really?

ALEX MORRIS (00:54:27): Yeah. People always like to joke that, you know, “I’m a contrarian” — and I’m sitting in here with 40,000 people who think the same way I do.

BARRY RITHOLTZ (00:54:35): It’s the scene from Monty Python’s Life of Brian.

ALEX MORRIS (00:54:38): Yes, exactly.

BARRY RITHOLTZ (00:54:39): You’re all individuals — you don’t have to follow the crowd. And they just repeat in unison, “We’re all individuals.”

ALEX MORRIS (00:54:46): No, I think it’s people who wanna learn. And for myself, it’s — you know, I’ve learned a ton from Warren and Charlie about business, but I’ve learned a lot more as well about life and other things that I think are, you know, as important as part of your development as an individual and as an investor. And it’s funny — I wrote Warren in 2010, and I said, hey, I’m not asking you for a job, and I have fantastic parents who are my role models, but outside of that, you’ve been really important to my life, and I just wanna say thank you for that. And he wrote a response, and it’s framed in my office. It’s probably the one material possession that I care about. But, you know, I think it’s people with that mindset, who have come to really appreciate all they’ve taught people. And obviously, Warren, through charity and other things, has done a lot for the world at large as well.

BARRY RITHOLTZ (00:55:33): Huh. Really, really interesting. So I only have you for so much time, and we don’t have the studio for so much time, so let’s jump to our favorite questions that I ask all of my guests — starting with, and I kind of have a suspicion as to the answer of this: who were your mentors who helped shape your career? I know you have the letter from Buffett, so I want you to address Buffett and Munger, as well as anybody else who might have shaped the curve of your career.

ALEX MORRIS (00:56:07): My start was with Peter Lynch, actually.

BARRY RITHOLTZ (00:56:09): Oh, really?

ALEX MORRIS (00:56:10): I think “One Up on Wall Street” was one of the first books I read, which, even to this day, when younger people ask me what should I read, I think that’s a perfect book for getting a feel for what investing is, and it’s very approachable. So I’ve always liked Peter Lynch. Other investors like Chuck Akre and some of these other fund managers — Ackman’s another example — fund managers, at least in the early 2010s, were names in the world that I tracked, and they were well known and people that I learned a lot from. Obviously, Warren and Charlie are at the top of that mountain for me.

BARRY RITHOLTZ (00:56:43): Let’s talk about books. What are some of your favorites, and what are you reading currently?

ALEX MORRIS (00:56:47): Currently reading the Jeremy Grantham book, which I thought is an interesting book. I’m reading a book about Fairfax. What else am I reading right now?

BARRY RITHOLTZ (00:56:55): About Fairfax?

ALEX MORRIS (00:56:56): Yeah, Fairfax — Canadian insurer. It’s called “The Fairfax Way.” It’s a good book. I have two young kids, so my reading time has been changed in for 4:00 AM walks with my daughter and podcasts. So I listen to a lot of podcasts now, as opposed to reading as many books as I’d like to.

BARRY RITHOLTZ (00:57:13): Well, that’s my next question. What are you streaming these days — either Netflix, Amazon, Disney, or podcasts? What’s keeping you busy?

ALEX MORRIS (00:57:20): I’ve been listening to your podcast. The Hagerty episode that you had here recently is really good — so interesting. I mean, your knowledge of cars was also — well, that helps the podcast.

BARRY RITHOLTZ (00:57:31): You know, I go outta my way to learn as much about each guest and their business as I can before the podcast, but that was easy. I didn’t have all that much research to do for that one.

ALEX MORRIS (00:57:43): You could tell you love that topic.

BARRY RITHOLTZ (00:57:45): It was fun. I’ve had a few really interesting automobile people over the years, but still — you have to do the deep dive, ’cause you’ll find stuff that you wouldn’t have without doing the research. I just think it makes a better conversation. What else? Give us some other podcasts.

ALEX MORRIS (00:58:04): My buddy Bill Brewster has his podcast, called The Business Brew. That’s a great podcast. And as part of my research, I listen to a ton of old interviews and things like that that I find — like, I’ll listen to Reed Hastings from 2005 and listen to him talking about Netflix and what their strategy is. I find those, along with old articles, so helpful in terms of getting your mind to, what were people seeing, and what were they thinking at this point in time, and how did that translate from then to now? As an investor, I think that’s like a fascinating way to learn about businesses and people.

BARRY RITHOLTZ (00:58:33): So, our final two questions. What sort of advice would you give to a recent college grad interested in a career in investing?

ALEX MORRIS (00:58:42): I mean, I think it’s become harder, with Twitter and some of these other tools, over time, in terms of getting your voice out there. But I recommend to people — writing is the greatest thing that I ever did in investing, because it helped me to, one, build my audience. But two, it helps you to learn how to think, which might sound weird to people. But when you put something on a piece of paper and you read it and you go, okay, well, there’s no defense for that part, or, this doesn’t even really make sense — what am I trying to say here? When you sit down and go through that process, I think there’s so much learning. And to the extent that you do it — and I find this as well — when you reach out to people who are established in the business and you say, hey, I did a one-pager on XYZ, I really worked my butt off on this, and I’m a college grad — almost everybody is willing to respond if you’re really showing the effort and you’re, you know, conscious of their time. So take advantage of that while you’re young and people are willing to talk to you.

BARRY RITHOLTZ (00:59:31): And our final question: what do you know about the world of investing today that might’ve been useful 15, 20 years ago, when you were really first starting up?

ALEX MORRIS (00:59:40): Yeah — I know that I don’t know everything. I know that I’ve learned a lot along the way. As I said before, there’s different ways to play the game, and I’ve kind of found the version of this game that I wanna play, and that I think I can do well at. And, you know, just continuing to try to get smarter every day.

BARRY RITHOLTZ (00:59:56): That sounds like you’re bringing it back to the circle of competence.

ALEX MORRIS (01:00:00): Yeah. A lot of things come back to what Warren and Charlie have said. They’re pretty smart. They had some good ideas on investing and business.

BARRY RITHOLTZ (01:00:06): Those guys are definitely onto something.

ALEX MORRIS (01:00:08): It was hard to get this to 500 pages.

BARRY RITHOLTZ (01:00:10): Oh, really? Yeah, because they just repeat.

ALEX MORRIS (01:00:12): Well, I went through 1,700 questions, and I was like, okay — I tried to keep 1,100 of them. I think we gotta cut this down a little more.

BARRY RITHOLTZ (01:00:18): What was the original length of this monster when it first —

ALEX MORRIS (01:00:21): Oh, it was a huge Word document. I think it was seven or 800 pages. But then I had to go through, okay, which of these comments on value investing do I really need to keep? So that was one of the harder processes of writing the book.

BARRY RITHOLTZ (01:00:35): I could imagine. Alex, thank you so much for coming in. I have really been enjoying it — I’m about halfway through, and this isn’t like a book you pick up and, you know, read three or four chapters. It’s just dense with knowledge and information, and you really have to chew on everything on the way through. And I’ve very much been enjoying it. We have been speaking with Alex Morris, author of “Buffett and Munger Unscripted.” If you enjoy this conversation, well, check out any of the 659 we’ve done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube — wherever you get your favorite podcasts. I would be remiss if I didn’t thank the crack team that helps us put these conversations together each week: 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.

~ END ~

~~~

The post Transcript: Alex Morris, “Buffett and Munger Unscripted appeared first on The Big Picture.

In this guest post, Rich Chen, founder of Brightstar Law Group, explores how today's serial acquirers of advisory firms commonly include retention, earnout, and other post-closing contingencies that can materially shape what sellers will actually receive for the sale of their firm.

The first key to recognize in evaluating the offer letter for an advisory firm acquisition is that in today's environment, deals are rarely ever paid out fully in cash at closing. At best, only 80% of the deal may be paid when the transaction closes, and in many cases as little as 50% or even just 25% of the deal occur in cash. Which at the very least, means advisors must adjust for the time value of money, at a reasonable discount rate (that reflects the risk of being an implicit creditor of the acquirer!), for the fact that much of the proceeds may take as many as three to five years to be paid out.

However, scrutinizing deferred payments is not just about the fact that they are delayed, it's that depending on the terms, they may never be paid, as they are commonly subject to contingencies of how the deal itself proceeds after closing.

For instance, acquirers often defer payments based on retention requirements, that a certain number of clients (or more commonly, a certain percentage of revenue) must be retained after closing, for at least 1 year and sometimes as long as 2-3 years after closing. Which not only creates an outright hurdle for sellers to navigate – in staying onboard and engaged enough to ensure clients stick with the transition – but an additional challenge in that sellers don't necessarily control the environment that they operate in after the deal closes! Clients may have outflows due to taxes, or a divorce, or terminate due to dissatisfaction with the new acquirer, and the seller is at risk. A market decline could cause clients to leave, or simply depress revenue (calculated on assets under management), and while some firms do offer a "market-neutral" revenue retention clause (where changes in market returns are backed out), that adjustment can turn out to sting if the markets went up and might have otherwise preserved the retention payment against other client outflows!

An even greater challenge in many acquisition situations are earnouts, which require not just retention but a certain "threshold" rate of growth (typically calculated as a Compound Annual Growth Rate, or CAGR) for several years after the closing. Which is difficult both because of the challenges of compounding – a 20% CAGR amounts to a requirement that the seller must 2.5X the business in 'just' five years to meet the earnout (and if they could 2.5X the business that quickly, should they have even sold it!?) – and also because the seller must achieve growth goals in a firm that they no longer control (which could change its investment strategy, or its pricing, or its staff support… and the advisor simply has to do their best with the situation). And many acquirers also retain the right to terminate the advisor, with or without cause… potentially curtailing their ability to achieve the earnout targets at all.

The good news is that at least some retention, earnout, and post-deal employment terms (with restrictions on terminations without cause) can be negotiated with buyers. And awareness of the importance of the terms, and how they work, makes it easier to compare and contrast different Offer letters that may have different structures. Still, though, the key point is that it's not enough to 'just' focus on the valuation multiple the business is receiving in the first place, because what matters is not what the deal is worth "on paper" when it closes, but what the seller actually receives in their pocket in the end!

Read More...

This week, I speak with Alex Morris, author of “Buffett and Munger Unscripted: Three Decades of Investment and Business Insights from the Berkshire Hathaway Annual Shareholder Meetings.” They discuss his research into the legendary investors and the challenges in interpreting markets.

The book dives into decades of Berkshire’s annual meetings. Morris began by creating a spreadsheet to track every meeting, topic, and subject matter. Expecting someone else would eventually write the Buffett/Munger annual meeting book, he took his time plowing through all of the videos of all of the meetings.

A list of his current reading/favorite books is here; A transcript of our conversation is available here Tuesday.

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 David Booth, Founder, Chairman, and former CEO of Dimensional Funds Advisors. DFA just crossed $1 trillion dollars, and has become the largest active equity ETF manager. Booth’s new book is “Stay Calm: Learn to Embrace Uncertainty in Investing and Life.”

Current Reading/Favorite Books

The Essays of Warren Buffett by Lawrence Cunningham

One Up On Wall Street by Peter Lynch

The Fairfax Way: Inside Prem Watsa’s Secret to Lasting Success by David Thomas

The Making of a Permabear: The Perils of Long-term Investing in a Short-term World by Jeremy Grantham

The post MiB: Alex Morris, “Buffett and Munger Unscripted” appeared first on The Big Picture.

There has been a lot of discussion about the impact of AI slop on writing and other creative works. I can’t speak to AI music or AI-created actors, but I can talk a bit about writing.

To me, the biggest single issue is output over process.

Any output – from a full-length book to a short blurb and everything in between – is only part of what the writer who creates a work accomplishes. It is what readers see, what professional writers get paid for, and the written legacy they leave behind.

The greatest value in writing (to me at least) is not necessarily this finished product, but rather, the process the author goes through to create that work. Putting a word down on paper or pixels forces a coherence and clarity that is typically unavailable until the writing is done. Perhaps the best observation on this predates AI by decades and comes from former Librarian of Congress Daniel Boorstin, who said, “I write to discover what I think…”1

The written word is the most visible work product, but it is not the most valuable part of writing – the process is…

Boorstin viewed the act of writing not merely as a regurgitation of what he knew, but rather as an exploratory process, a mechanism for thinking about ideas, context, framing, secondary effects, unintended consequences, inversions, and what-ifs. The process allows an author to strengthen and clarify their arguments and to formulate complex ideas.

I could spill another 10,000 words on this, but after 30 years of writing countless blog posts, it is not necessary. I have already figured out what I think about this.

See also:
How Much of the Internet Is Written With AI?
By Samuel Bestvater , Aaron Smith , Carson TerBush , Chris Baronavski and Janakee Chavda
Pew Research, August 20, 2026.

Previously:
Finding Value via Writing (October 13, 2021)

Barron’s: How Advisors Can Create Killer Content (May 18, 2023)

Revolutionizing RIA Marketing (June 6, 2019)

__________

1. The quote in full reads, “I write to discover what I think. After all, the bars aren’t open that early.”

The post The Written Word Is Not Your Work Product appeared first on The Big Picture.

Also in industry news this week:

• A recently acquired document indicates that SEC examiners are looking for evidence of 'AI-washing' and sufficient training of those using AI tools during recent examinations of RIAs
• CFP Board this week published a guide outlining how CFP professionals can engage in retirement plan rollover conversations (that can involve significant conflicts of interest for the advisor) while fulfilling their fiduciary responsibilities

From there, we have several articles on tax planning:

• How financial advisors can help clients avoid a tax surprise when it comes to receiving employer Roth 401(k) contributions
• Why receiving a "contemporaneous written acknowledgement" from the recipient is crucial in order to receive a charitable deduction for gifts valued at $250 or more
• Why clients and their advisors might consider potential IRMAA surcharges when evaluating the timing of the sale of a home that will result in a taxable capital gain

We also have a number of articles on estate planning:

• How conducting an annual account beneficiary check-up with clients can be a highly valued advisor service
• Why ethical wills can be a key part of communicating an individual's legacy to loved ones
• The benefits available to clients of identifying a trusted contact (and how they differ from a power of attorney)

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

• While a body of research indicates the benefits of 'trading' money for more time, this decision can come with psychological weight
• Why a certain level of 'lifestyle creep' could be worthwhile to better enjoy life in middle age and to flex the spending 'muscle' before retirement
• How an individual's spending rate is a key input to analyzing their ability to save and meet future financial goals but can be hard to compare to others'

Enjoy the 'light' reading!

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Recent claims of the “Closing of the K” are wishful thinking.

I have a longish piece on this that I plan to cut down to a manageable size soon. But before we can intelligently discuss “K” or “C” or “E,” we need to understand the two arms of the K. In particular, what is the source of wealth of the upper arm? 1

There are many great sources, but the Federal Reserve Survey of Consumer Finances, along with the Fed Z1 Flow of Funds, remains the gold standard.

1. Start a Business: At the $25 million level – aka the top 0.1% (UHNW) – it is all about founding and selling a business. This is by far the #1 source of wealth in America.

And no, it is not just Silicon Valley technology startups; rather, it is more mundane, everyday businesses. HVAC roll-ups, car dealerships, trash collection companies, beverage distributors, regional construction firms, medical practices scaled into groups, etc. The liquidity event is a sale to a larger national competitor, a strategic buyer, or a private equity purchaser.

Data from Altrata shows 70% of the UHNW individuals are self-made, with business ownership dominating.

2. Equity: (in someone else’s company). Early employees and executives at a company that IPOs, or a Fortune 500 C-suite, can compound RSUs, options, and performance shares over decades.

Since the mid-1980s, this has been one of the best wealth creation machines; it barely existed before the 1990s.

3. Inheritance and family wealth. 25% of UHNW wealth is inherited. Some of this was a small fortune that the next generation turned into a large fortune (massive market gains since 1982 did not hurt either). There is growing skepticism that the $105 trillion “great wealth transfer” will make this category appreciably bigger.

Surprising not to see this higher on the list

4. Real estate. No surprise here, development and ownership of commercial and residential real estate have been huge wealth creators.

I know quite a few multi-generational family real estate operations and developers who accumulated huge portfolios of commercial/multifamily through the modest, intelligent use of leverage. CRE/RRE are uniquely tax-advantaged via 1031 exchange, depreciation, and step-up at death.

My favorite quote from a buddy in the industry: “It’s the perfect business for your not-so-bright progeny.” (!)

5. Finance. Duh. Hedge fund, private equity, and VC principals, investment banking, trading, wealth management, M&A, you name it.2

And it is one of the few businesses with an inherent 10% structural tailwind built in…

6.  Professionals. Medical center ownerships, major accounting, law, and consulting firms. The key difference between just a doctor or lawyer and an operator is owning the enterprise, not just making money via billable hours.

7. Concentrated public-market positions held for decades. The person who bought (or was granted) Apple, Microsoft, Berkshire in the 80s–90s and never sold. Rare as a deliberate strategy, common as an outcome. Often overlaps with #2.

8. Entertainment, media, and sports. Small but culturally visible, it has become a source of wealth from the business built around the fame. Shaq is a major investor/business owner, Michael Jordan gets huge revenues from Nike’s Air Jordan and has a piece of the Hornets; LeBron is a major investor; lots of actors became moguls by owning a production company, in addition to licensing their name and brand to a product.

9. Franchising. Owning a few dozen McDonald’s, Taco Bells, or Planet Fitness locations is definitely unsexy, but it is a systematic, repeatable way to create predictable revenue over time. That compounds into real wealth.

10. Windfalls and asymmetric bets. Early crypto, lottery-like startup angel checks, litigation settlements, even mineral rights. Very small, and not at all replicable, but it has created some real wealth out there. I hesitated to put this one in because it encourages low-probability (dumb) behaviors, but the numbers back up that this longshot has created actual wealth for a lucky few.

~~~

The bottom-line: nobody gets wealthy on salary and a 401(k) alone.

There is another conversation to be had about what options and opportunities are open to Gen X (and younger). I will come back to that in the future.

Sources:
Survey of Consumer Finances (SCF)
Federal Reserve Research

Altrata’s World Ultra Wealth Report 2026 Annual Analysis of the Global UHNW Population

Portfolios Across the U.S. Wealth Distribution
By John Bailey Jones and Urvi Neelakantan
Richmond Fed, November 2023, No. 23-39

Trends in the Distribution of Family Wealth, 1989 to 2022
Congressional Budget Office

Previously:
Let’s Talk About Cash… (August 12, 2026)

Wealth Distribution Analysis (July 18, 2019)

Wealth Effect Rumors Have Been Greatly Exaggerated (November 16, 2010)

__________

1. Or whatever other ridiculous shorthand for the intricate complexity that is the $32 trillion US economy.

2. The carried interest deduction is arguably the single most efficient wealth-creation mechanism ever devised. And it’s an absolute scam, too.

The post How Wealth Is Created in America appeared first on The Big Picture.

Conceiving of this client as the "disengaged spouse" may be doing a disservice to the client. After all, several elements may be at play, including role specialization (where one partner handles the majority of financial decisions, while the other focuses elsewhere) as well as a difference in communication styles. In their 2018 Journal of Financial Planning article, "Planning for Conflict in Client Relationships," authors Sarah Asbedos and Emily Purdon presented a framework of conflict styles within couples, asserting that all individuals had some combination of high/low accommodation and high/low assertiveness. A client who has a high assertiveness/low accommodation style, for example, may be less willing to compromise – whereas a client with the opposite traits may be too willing to compromise, rather than speak their mind. These elements can make it more difficult for both partners to be heard and understood when the couple is in a meeting together.

As such, it may be more helpful to label these dynamics as a sort of "misengagement" between the client couple – gaps in a couple's priorities and communication styles that can make understanding what motivates both people challenging. An advisor who can quickly identify and adapt to these differences in early meetings stands a higher chance of keeping both parties engaged. 

What each couple needs will vary. For example, if one partner is more assertive, but not very cooperative, they may be prone to quickly sharing their judgement – and the advisor may need to use reflection language to 'neutralize' some of their assertiveness. On the other hand, if one partner is less assertive, they may need to be invited to share their thoughts first – or may benefit from opportunities to share their thoughts outside of the immediate pressure of a meeting.

Ultimately, the key point is that client "disengagement" is a multi-faceted issue, and advisors can use a variety of tools to increase their odds of connecting with both partners.  While some clients may willingly step back and opt to let their partners steer the relationship, the advisor can still encourage their presence within goal-setting or other decision-making meetings that may feel less 'technical' in nature. If advisors can thread the needle between providing options without being overbearing, they may be able to iterate with the client couple to find a rhythm inside (and outside of) meetings that works for everyone!

And if you want to go deeper on this topic, hear directly from the author on the Financial Advisor Technician podcast .

Read More...

In this 197th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how to dive into what clients 'really' want – even (and especially) when clients struggle to articulate it themselves. This is important as many of these life decisions are 'expensive' as they represent a deposit of not just cash, but also time and attention – all resources that can be spent elsewhere. Thus, it is essential for advisors to understand what the underlying desire is, such as connection, community, independence, or purpose. Once that underlying desire is revealed, through questions like, "what would having that allow you to do?", the advisor and client can reflect together on the options to fulfill that desire.

One of the most effective ways to evaluate these deeper priorities is through small, intentional experiments. Rather than making large, irreversible commitments, clients can test ideas in lower risk ways, such as renting a similar property in the area where they want a vacation home. Similarly, a client who desires more community might become a one-time volunteer before making a long-term commitment. These experiments can be informative about what the clients truly enjoy, what sacrifices they're willing to make, and whether the experience actually delivered the expected value.

Another thought experiment is to have the client imagine that it's three years in the future, and they've succeeded at whatever they aspire towards. What is their life like? How do they feel? This is especially valuable if the client is stuck between several different paths – often, in describing that imagined moment, more implicit excitement will show for one path or another, informing the direction in which a client can experiment.

Ultimately, these experiments are a practice in the art of paying attention to life's construction. The allocation of capital – be it money, time, or attention – is often what makes up a person's life. So if the advisor can continually hold conversations that nudge clients to look more deeply not only at what they want, but why they want it, clients may find themselves surprised at what 'actually' makes a difference to them in their lives. Over time, these large and small allocations accumulate into a deep value in financial planning!

Read More...

The transcript from this week’s, MiB: Ankur Crawford, Portfolio Manager, Alger Capital Appreciation, 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
Bloomberg Radio  ·  Hosted by Barry Ritholtz

Transcript: Dr. Ankur Crawford
Executive Vice President and Portfolio Manager, Alger

00:00:08  BARRY RITHOLTZ: This week on the podcast, another extra special guest: Dr. Ankur Crawford is co-head portfolio manager of large cap strategies at Alger. She’s got a fascinating background. She was an engineer at Intel, won a number of patents, and was the awardee of the Intel PhD Fellowship. She’s been recognized as one of the top women in asset management.

If you’re interested at all in the details of how artificial intelligence, semiconductors and software work, as I am, you’re going to find this to be a fascinating conversation. With no further ado, my conversation with Alger’s Ankur Crawford. Ankur Crawford, welcome to Bloomberg.

00:01:03  ANKUR CRAWFORD: Thank you for having me, Barry.

00:01:05  BARRY RITHOLTZ: So let’s start with your background, which is really kind of fascinating. Bachelor’s degree in mechanical engineering and materials science and engineering — that’s a double BS from UC Berkeley — and then a master’s and a PhD in materials science and engineering at Stanford. What was the original career plan?

00:01:27  ANKUR CRAWFORD: I didn’t have one, to be honest. When I made the decision to become a mechanical engineer, I was kind of following my brother’s footsteps. He was a mechanical engineer and became an orthopedic surgeon. And I realized if I didn’t know what I wanted to do, I wanted to keep my options open.

00:01:46  BARRY RITHOLTZ: So he becomes an orthopedic surgeon with a mechanical engineering degree. Is he designing replacement joints and things like that?

00:01:55  ANKUR CRAWFORD: He does. He does actually bring that aspect of his engineering background into devices, different device configurations. And he works a lot with the device companies as well. But there’s also — as a kid I loved figuring out how things work, whether it was a car or a calculator, and I would always be fidgeting to understand how things work. I loved building, so mechanical engineering kind of felt like — I’m just a curious person. So I like to satiate that need to know how things work.

00:02:34  BARRY RITHOLTZ: And I read somewhere that you originally wanted to be an astronaut. Is this correct?

00:02:39  ANKUR CRAWFORD: I did. I grew up — till I was five, we lived in Florida, close to Cape Canaveral, and we would go watch the space shuttle take off. And I was so fascinated by space because it was almost ethereal — this thing goes up into the sky. And for me, the astronauts were celebrities. So for a long time I did want to be an astronaut.

00:03:08  BARRY RITHOLTZ: So I have Florida somewhere in between. You’re born in Kansas — is this correct?

00:03:08  ANKUR CRAWFORD: Yes, yes. Kansas.

00:03:14  BARRY RITHOLTZ: But you end up in the Middle East.

00:03:16  ANKUR CRAWFORD: Yes.

00:03:17  BARRY RITHOLTZ: And then you’re sent to a convent boarding school in the Himalayas. Is this possibly right?

00:03:17  ANKUR CRAWFORD: Yes.

00:03:17  BARRY RITHOLTZ: That has to be an AI hallucination, right?

00:03:26  ANKUR CRAWFORD: No, that is all correct.

00:03:27  BARRY RITHOLTZ: And then you end up in Buffalo, New York.

00:03:30  ANKUR CRAWFORD: You got it.

00:03:31  BARRY RITHOLTZ: All right, so that’s real human research, not chat. I’m curious — that is a broad global life experience. How does that shape your views on either international investing, or just the concept of risk and reward?

00:03:49  ANKUR CRAWFORD: Yeah, I think it more so shapes the way I think about the cultural differences. When I look at companies, when I look at management teams, I understand very well that there are certain cultural differences that are simply endemic to businesses and to management teams. And just because a management team isn’t necessarily always bullish, or they’re always telling you the negative aspect of their company, doesn’t necessarily mean that there’s something wrong.

An example of this is this company called Nebius, where the CEO is a Russian CEO who is incredibly humble, and he will never tell you what’s right. He will always point out to you all the things that are wrong. And a lot of investors are like, “I don’t — that doesn’t sound good.” And I’m kind of looking at the opportunity, because that’s just his culture, right? It’s his culture not to be boastful.

So just living in all these different countries and having exposure as a kid to many different religions, it gives a really unique perspective on any problem that you look at, because it helps take the blinders off.

00:05:13  BARRY RITHOLTZ: It’s fascinating. I never really thought about how a societal, cultural set of norms makes its way to management. You think about the Japanese culture — the sort of bravado and very aggressive forecasts we tend to see in the United States, you would never see anything like that.

00:05:13  ANKUR CRAWFORD: That’s right.

00:05:35  BARRY RITHOLTZ: In Japan. How do you calibrate what is cultural nuance and what is just, hey, there’s a problem here and they’re telling us this is an issue?

00:05:48  ANKUR CRAWFORD: Yeah, I think you have to know the business, right? The first thing is, know the business, and then you can calibrate the tone of the management. An example is Taiwan Semiconductor. I remember speaking to them over many of these years that we’ve owned the stock.

And I would always say, “You guys are going to become the single supplier of leading edge. Why is it that you can’t take up pricing?” And they would always talk me down and say, “Oh no, we are here to serve our customer, we are here to —” And I was like, “There’s absolutely no reason for you not to be raising pricing.”

And they would just push back, because that wasn’t part of their philosophy. It wasn’t part of the philosophy that Morris Chang had kind of put into place in the early years. However, that is what they ended up doing. And so I had to take that with a grain of salt, understanding that’s their philosophy.

It was a little frustrating at the time, but a business is a business, and at some point the realization of how good that business was came into the numbers.

00:07:01  BARRY RITHOLTZ: So you mentioned the advantage of really understanding the business. You are an Intel doctorate fellow, you worked as an engineer at Intel, you hold multiple patents. How much of an advantage is that when you’re looking at semiconductors or AI or any of the hyperscalers? What advantage does that give you?

00:07:24  ANKUR CRAWFORD: Look, I think understanding the technology is kind of crucial right now, because in this world of AI, there are a lot of people who don’t really understand what is happening under the covers. And that’s dangerous. And that’s why you also see the volatility that you see today — they’re kind of loose holders and not truly understanding the different dynamics of the technology. And it’s just a hard way to invest when you can get shaken out because you don’t have conviction in the technologies.

So I feel like it’s always helped. And in part because — chips. I was a semiconductor analyst when I first started at Alger, and I kind of immediately understood, well, I understand what a deposition tool is. I used one. I understand what etching is. I used this tool. I understand what the issues are in fabricating a chip, and how hard it is to fabricate a chip. So it just gives you a little bit of an edge on the conceptual understanding and where the industry is going.

So early on, I remember in 2011, ’12 or ’13 — one of those years — I put together a presentation about how we’re at the end of Moore’s Law and what will happen if we’re at the end of Moore’s Law. And I sent the presentation out to all of the companies that I covered and I said, “I would like your feedback, and tell me why I’m wrong.” But that was thinking kind of eight, nine years ahead, because it had implications for the entire sector. And so those kinds of insights, I think, are easier. Not that everyone can’t have them — they just come probably a little easier because I understand the technology.

00:09:19  BARRY RITHOLTZ: So I see the advantage of having the technical background as an analyst. I’m curious what made you leave the technical field — being an engineer and working with semis — to becoming an analyst in the space and working on the financing of semis?

00:09:39  ANKUR CRAWFORD: Yeah, I had gone through my graduate career, and really I had set some goals for myself. I want to write this many papers. I want to present. I want to be useful to society. And at the end of it, I felt like I had kind of achieved all those goals, but I wasn’t happy.

I just wasn’t content and happy. And I thought to myself, my gosh, if I have achieved everything that I set out to do and yet I’m still not happy, what happens if I become a professor and we just go through a tough spot on raising money, or whatever it might be like in the research? Will I be even happier? And I think that self-awareness made me realize I needed to go look somewhere else.

And when I came to Alger, it was really like — I was thinking I’d be here for two years and then go back and do a postdoc somewhere and be a professor. And I never left.

00:10:46  BARRY RITHOLTZ: Really, really interesting. One of the complaints I’ve heard from people who are technologists or engineers or what have you is that everything has become so increasingly specialized and narrow that you get put into a silo. You have no idea what’s going on in any of the adjacent sciences, more or less even within your field. Everybody gets too specific. Was that a concern?

00:11:11  ANKUR CRAWFORD: Oh, for sure. And that’s a great insight. I was in a room — this is probably a 15-by-15 room. I spent three and a half years in the basement of a building at Stanford taking care of a tool that was about this big.

00:11:11  BARRY RITHOLTZ: Wow.

00:11:27  ANKUR CRAWFORD: I was the plumber and the electrician, carrying out cryopumps and fixing them. And it was a very narrow, lonely experience.

00:11:38  BARRY RITHOLTZ: I can imagine.

00:11:39  ANKUR CRAWFORD: And my advisor was fantastic, but just that process required — it was very narrow. And I’m very proud of the work that we did, but it was very, very niche.

00:11:53  BARRY RITHOLTZ: So you move from a field governed by the laws of physics and nature to another field kind of governed by the eccentricities of human behavior. What are the challenges in that transition?

00:12:10  ANKUR CRAWFORD: I didn’t know anything when I started in this business. I knew a lot about atoms and materials and magnets, and how to make a chip. But I really didn’t know very much about investing. So honestly, it was all new to me.

So the challenge was really understanding — I was always asking why. Well, why does this happen? Or why does the stock go up on this? Or why does the stock not go up on this? And understanding that human behavior aspect was more a fascination versus a challenge, because this idea of expectations versus the truth — I grew up in a world where there is a single answer, right?

Where you write an equation and there is a way to do it, versus people can skin the cat in so many different ways in what we do. You can get to the same result in an infinite number of ways. So I suppose that was the challenge, of understanding that there isn’t just one way of doing it, but perhaps you have to understand the different ways, then adopt your own way of approaching the problem.

00:13:41  BARRY RITHOLTZ: I love the Richard Feynman quote: imagine how much harder physics would be if electrons had feelings. Right? Always cracks me up, at the intersection of science and investing. So you answer a recruiting ad from Alger despite knowing nothing about investing. What made you think your skills might get you through the door at a shop like Alger?

00:14:13  ANKUR CRAWFORD: I didn’t really. I really didn’t. I was reading a book — it was written by a bunch of McKinsey consultants at the time, and I forgot the name of the book, but it was all about profit and loss and just businesses, how businesses are run. And I really didn’t know, honestly, Barry, what I was applying for.

I knew that I needed to do something else. I had worked at Merrill Lynch for a summer before I had started graduate school and I loved it. It was kind of the emerging markets debt desk. And I was like, let me give this a go again.

And when I applied to Alger, I knew that I was curious enough that I would be able to cross the chasm, and I would be able to learn and give back to our company.

00:15:07  BARRY RITHOLTZ: Huh. Really, really —

00:15:08  ANKUR CRAWFORD: But I really didn’t know.

00:15:10  BARRY RITHOLTZ: Well, that’s really fascinating. We’ll explore that more coming up.

We continue our conversation with Ankur Crawford, co-PM of the large cap strategy at Alger and PM of the concentrated portfolio ETF, talking about her career at Alger. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

00:15:35  BARRY RITHOLTZ: I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Dr. Ankur Crawford. She is portfolio manager at Alger, where she co-PMs the large capital appreciation strategy as well as running the concentrated ETF.

So we were talking earlier about — you answered an ad that Alger had put up to hire people. I read a story that Alger’s CEO Dan Chung hired you right on the spot. That’s kind of unusual in this space. Tell us about what happened there.

00:16:17  ANKUR CRAWFORD: It was funny. I actually walked into this meeting — I had just come back from Tahoe, I’m a big skier — and I was really frustrated because it was pouring outside, and I walked in like drenched and really upset. And I was like, the only good thing about this is that it’s snowing in Tahoe. And Dan happens to be a skier.

I didn’t know that. And so we started this conversation talking about our mutual love of skiing. After that, I think he realized I didn’t know very much at all about investing, and he asked me my opinion of Intel versus AMD. And this was 2003, 2004, and peak —

00:17:01  BARRY RITHOLTZ: Intel.

00:17:02  ANKUR CRAWFORD: It was peak Intel. And I remember saying, “You know, I worked at Intel, and I think I prefer AMD versus Intel, because this is kind of what I’m seeing inside of Intel.” Not inside information, but more the culture that had developed. And we had this long discussion about it.

That evening they hosted a kind of get-together for all of the applicants. And Dan and I got into an argument about NAND versus hard disk drives.

00:17:38  BARRY RITHOLTZ: And you were on the NAND side, right?

00:17:39  ANKUR CRAWFORD: Well, he was telling me that all hard drives were going to go to zero.

00:17:44  BARRY RITHOLTZ: And he was eventually right?

00:17:45  ANKUR CRAWFORD: And he will be eventually right. And you know what’s so funny? I just had this discussion with him yesterday, and I was like, “Dan, we had this discussion 22 years ago.”

00:17:55  BARRY RITHOLTZ: It only took you two decades to be right. In trading, early is the same as wrong.

00:18:01  ANKUR CRAWFORD: Yeah. Well, it was great, because we had this really — it wasn’t a heated conversation, but it was definitely kind of looking at this problem in two different ways. And as we were walking out, he was like, “You’re hired.”

00:18:15  BARRY RITHOLTZ: Just like that.

00:18:15  ANKUR CRAWFORD: Just like that.

00:18:15  BARRY RITHOLTZ: I need someone who’s not afraid of me, who will stand up and make me think of this problem from multiple angles.

00:18:23  ANKUR CRAWFORD: Well, I think it’s a little bit of the culture that we have at Alger, of it’s always better to have different perspectives versus go along with the norm and be consensus, and to always encourage that debate. And one thing I am for sure — especially because, again, I come from a place of, we’re always trying to find the truth. There is an answer. I do bring that to the table here too, in that there is an answer, right?

Whether or not you look at it from one angle versus the other, there is an answer. The earnings are the answer. The trajectory of earnings are the answer. And getting that right can be a topic of debate, and how you get there — we can debate it to make sure that we’re getting to the truth.

00:19:15  BARRY RITHOLTZ: So you start in the analyst training program at Alger, you advance to a research associate, then an analyst, then a tech sector head, and ultimately a portfolio manager. What transition was the most challenging? What changed the way you thought about the job?

00:19:36  ANKUR CRAWFORD: I would say that the transition from being an analyst to a portfolio manager. And even as a tech sector head, I kind of had my fingers in everything, and my little OCD tendencies were still able to play out a little bit. That transition to portfolio manager, however, required a different skill set, which was allowing for other people to do the thinking and the detailed work, which I loved to do. And kind of taking a much more macro perspective and a bigger picture perspective, where it was a much more Socratic methodology of questioning and asking the right questions to guide the analysts in the right direction. And that was like — I used to do that with the companies, right?

I would ask all these questions of the companies, but doing it with your peer set and people that work with you is a little bit different. And so that was kind of a tough transition for me.

00:20:52  BARRY RITHOLTZ: So you have a PhD but not an MBA. I’m curious, the apprenticeship you went through, going through all those steps at Alger — what do you think you learned through that process that, hey, a green MBA right out of school is going to take them a couple of years to figure out?

00:21:12  ANKUR CRAWFORD: When you are on the hook for real performance for real clients, and you make a wrong decision, it isn’t like doing poorly on a test, right? It’s simply not equivalent, because you actually feel the pain of having made that decision that impacted someone else. So I think learned abilities that are experiential just have a different impact than when you’re sitting in a classroom. Because I think in a classroom, the consequences are just lower than they are when you’re really investing other people’s money.

00:22:02  BARRY RITHOLTZ: That is the classic academia versus real life. All right, I didn’t get a hundred, I got a 96, isn’t the same as this one position is ruining all of my performance for the quarter.

00:22:15  ANKUR CRAWFORD: That’s right.

00:22:16  BARRY RITHOLTZ: It’s very different.

00:22:17  ANKUR CRAWFORD: And I think what you learn from it is — I have this book where I used to write down, and not so much anymore, but I have all my learnings from when I was a kid in the business, to remind myself not to make those same mistakes again. And I haven’t looked at it in a while. I probably should go back and see how I developed, because there were so many learnings that I would carry with me and have shaped who I am today.

00:22:49  BARRY RITHOLTZ: I think that’s how Ray Dalio wrote Principles — just writing all his mistakes and what he learned from them.

00:22:54  ANKUR CRAWFORD: Oh, really?

00:22:54  BARRY RITHOLTZ: Yeah.

00:22:54  ANKUR CRAWFORD: I love Principles. I actually have his book for kids.

00:22:58  BARRY RITHOLTZ: Oh, really?

00:22:59  ANKUR CRAWFORD: Yes. I thought it was so good.

00:22:59  BARRY RITHOLTZ: That one I haven’t read. But he’s described Principles as just every mistake he’s made, every adjustment he’s made, and ultimately how to turn errors into better performance. It’s really very insightful, especially from a time when Wall Street didn’t love to admit they ever got anything wrong.

It’s kind of fascinating. So you ran Alger’s tech sector and then took over, with your colleague, the capital appreciation strategies. Being hyper-focused in one sector versus broad capital appreciation — what’s that transition like? That sounds like a really big leap, from something you’re very comfortable with to, gee, there’s a lot of risk and a lot of uncertainty around that sort of new job description.

00:23:50  ANKUR CRAWFORD: Yeah, absolutely. But look, there’s things that rhyme. And I think the sector I struggled with most was healthcare, because it is so incredibly esoteric.

00:24:02  BARRY RITHOLTZ: Why is healthcare so esoteric? You come out with a drug, you sell a few billion dollars worth, everybody’s happy.

00:24:08  ANKUR CRAWFORD: Yeah, but it doesn’t quite work that way all the time.

00:24:08  BARRY RITHOLTZ: No, does it?

00:24:08  ANKUR CRAWFORD: So there’s all this legislative overhang, there’s regulatory stuff that’s happening. There’s subsidies that come and go. There’s a political backdrop that you have to always be aware of for healthcare. So healthcare actually was a part of the market where it didn’t really rhyme with anything that I had done before. But if you think about industrials and financials, those were cyclicals — cyclicals of a different nature.

Some were long-time cyclicals versus semis. Financials were also cyclicals tied to the economy. The emphasis more on the macro was something I started to incorporate more in my thinking. But for someone who is very curious — I’m always curious and I’m always asking questions — to me it was kind of a breath of fresh air to expand my purview, to understand and synthesize how the world works. I quite enjoy having that broader perspective.

And what else is super interesting — and I’ve only had this appreciation probably in the last decade — is how history rhymes. So I have become a bit of a history fan. And in part because I started when I was working with my now 18-year-old and doing history homework with her. And all of a sudden I started to realize there is so much that is similar that is going on today, as has happened before.

So I think that is also really fascinating as you start to pull the big picture together, because it just gives you a different perspective on sectors and how to invest.

00:26:18  BARRY RITHOLTZ: Huh. Really, really interesting. So you also are the sole manager of the Alger Concentrated Equity strategy, which is now in ETF form. When I think of concentrated portfolios, we’re talking 15, 20, 25 names. How many names are in it, and then how do you size them? Are they all equal weight, or how — what does that look like?

00:26:43  ANKUR CRAWFORD: Yeah, so this portfolio is 20 to 30 stocks. It is an actively managed, fully transparent ETF. And when we think about sizing for the portfolio — look, the concept of this portfolio is to just invest in the best businesses that are going to have the greatest change and have the best risk-reward at any given point in time.

00:27:10  BARRY RITHOLTZ: So tell us the full name of the ETF and the —

00:27:14  ANKUR CRAWFORD: It’s the Concentrated Equity portfolio, and the ticker CNEQ. So the idea here is we want to invest in the best companies that are going to be benefited by the best growing trends in the market, and the compounding nature of earnings should drive the portfolio and drive the companies that are within that portfolio. So position sizing is just like any other portfolio: the risk-reward dictates how big the companies are in the portfolio. And there are some that — Nvidia’s currently at a 13.5% position in the portfolio, whereas there’s other companies that we’re weighting at the bottom of the portfolio, kind of like Figure Technologies, that is smaller and waiting to see when the true traction in their markets starts and the overhang of some of the selling — and to take it up.

But each of the businesses that are owned in this portfolio have large opportunity and big TAM.

00:28:27  BARRY RITHOLTZ: Total addressable market. Yes. CNEQ. All right, I’m going to make a note of that.

So I know Alger, back when it was Alger Capital Growth or Alger Capital Management, launched in 1964. What does growth investing mean at Alger? Because there are definitions that seem to be different from place to place. What are you looking for that perhaps the market hasn’t priced correctly?

00:28:54  ANKUR CRAWFORD: So I think what makes us interesting as growth investors is that the fundamental thing we look for is not necessarily growth — it is change. And the change begets the growth, right? So the growth is an output of the change. And I think that’s an important differentiator, because it’s not just expressed as, let’s do a screen and find the companies that are growing the fastest.

It is, let us look for the change. Because where there is change, there is often unidentified opportunity, and because of that, we will get the growth. So we have a significant research team that is always looking for change. Now, the way that Fred had initially incepted this concept of change was to look at two different pillars.

The first is what we call high unit volume growth. And that is a typical kind of company that is growing their top line. They become market dominant, or have a positioning where they’re taking a lot of share, very forward thinking, and it expresses itself as high top line and growing bottom line. It could be small and mid-cap companies, it could be larger companies.

Really, it spans the gamut of change and growth. So that would be more of a typical growth company. Traditional growth.

00:30:21  BARRY RITHOLTZ: A kind of a traditional growth company.

00:30:21  ANKUR CRAWFORD: Yeah. The other side, which I think makes us really unique, is what we call lifecycle change.

And oftentimes we like to show this — it’s almost like an S-curve. We like to invest in the companies that are early on in the S-curve, and companies that have already gone through the S-curve, they’re kind of saturated out of their markets and they’re starting to question who they are.

00:31:05  BARRY RITHOLTZ: Saturated as in fully priced, or saturated as in, hey, that’s as big as their market share is going to get?

00:31:11  ANKUR CRAWFORD: Yeah, that’s as big as their market is going to get. So what you see is oftentimes companies where they were great growth companies, and all of a sudden their growth has stabilized, or growth is starting to approach GDP.

00:31:25  BARRY RITHOLTZ: Mature.

00:31:25  ANKUR CRAWFORD: Kind of more mature, right? So kind of a more mature company. And then the management has a decision to make: am I still a growth company, or am I going to just milk what we have? And oftentimes that begets change.

So a new management comes in and decides we’re going to jettison all our low-growth businesses and start buying higher-growth businesses, and it changes the profile of the business. It could be a regulatory change that makes the company a little bit more growthy than it was historically. It could be M&A that again re-accelerates top line growth. It could be a technological change that they really embrace.

And this was Microsoft in its early days, when Satya Nadella first came to the helm. So it’s almost as if the company had a decision to make, and we’re looking for changes where the decision from here is to get onto a growth trajectory — and then study how they execute, such that it drives both top line and bottom line growth. So oftentimes when we buy companies that are on that side of the ledger, people will think they’re value names, and they’re not really value names. They’re actually unidentified and misunderstood growth. And that’s how we think of them.

And a great example of this is what’s happening to the hard disk drive companies right now, where they were trading at single digit multiples, but in an era of AI, all of a sudden you need a lot more data and you need to store all that data. So hard disk drives all of a sudden became in shortage, and now they’re taking pricing, and their earnings power has gone up three, four, fivefold over the last few years.

00:33:24  BARRY RITHOLTZ: Even though people thought it was at the tail end of their useful —

00:33:24  ANKUR CRAWFORD: That’s right.

00:33:24  BARRY RITHOLTZ: — life cycle, they found a second life.

00:33:32  ANKUR CRAWFORD: That’s right. And so that is also a change, and it happens to be a change in the market broadly, right?

00:33:41  BARRY RITHOLTZ: So that raises a really fascinating question I have to ask you. There are companies that appear to be on the back end of their lifecycle, their growth has plateaued. Maybe they’re not gaining market share, maybe the market itself isn’t growing. How can you identify when something is legitimately fading, or potentially at the start — like, I know IBM just had a rough quarter, but how many times has that company reinvented itself and been left for dead only to surprise everybody?

And there’s a bunch of others. Microsoft, you brought up, is another example. What were they, 30, 40 years old when Nadella came in? That’s a huge turnaround story. So how do you identify when, hey, these guys are never going to be what they once were, versus, no, there’s something real happening?

00:34:42  ANKUR CRAWFORD: Okay, so there was this publicly traded fintech company that was just struggling, in part because they had saturated their markets and there was nowhere for them to grow. And it was becoming a lot more competitive. CEO and CFO leave, new management comes in, put together a brand new strategy that is fantastic. Our team looks at it, it’s like, promising.

However, the core issues of their business have not been resolved, right? Do you go from a four and 5% grower to a 10, 12, 15% grower with the strategy? We couldn’t really resolve that they would be able to get there, because the pressures in their markets were so significant.

00:35:33  BARRY RITHOLTZ: Competitive, mature, et —

00:35:35  ANKUR CRAWFORD: — cetera. Competitive maturity. They were just fighting to kind of stay alive, or stay at that like three, four, 5% type growth. So that was one that we looked at. The catalyst was a new CEO, a new management team.

Like, the entire management team was different, but to us it wasn’t really logical that they could change the trajectory of the business. Microsoft, a completely different story, because Satya comes in, he says, we’re going to turn the ship, we’re going to develop cloud. And then we started to understand what it meant to go to a SaaS-based business. Gosh, in the near term it would be depressing their earnings, but longer term it’s really interesting, right?

And they can get to a mid-teens type growth again, which they did get to. I mean, Microsoft, if you remember, everyone thought Google was going to take over. Google Sheets was going to take over Excel. And like, why do we all need Microsoft?

00:36:38  BARRY RITHOLTZ: I asked myself that question every time I launch and look at the annoying new ribbon that they changed a decade ago. But I use both.

00:36:47  ANKUR CRAWFORD: But you use both. Yeah. And after all these years — and I assume in 10 years we’ll still be using Microsoft. So Satya then pivoted the ship and got into the cloud business with Azure.

And so we watched the actions as well. So we can dream the dream and then test the hypothesis and see whether or not they’re executing against it.

00:37:13  BARRY RITHOLTZ: Hmm. Really, really interesting. Let me reverse the question to you and say, what leads you, when you’re running a concentrated portfolio, to say, I’m going to sell this? Is it the fundamentals deteriorating, the thesis not working out? Sometimes is it based on valuation? Or is it simply, we only have room for X number of companies, and this opportunity is here and that opportunity is all the way up here?

00:37:40  ANKUR CRAWFORD: It’s all of the above, right? There are examples of selling a company because there’s a better opportunity and you don’t want to take double the risk to the same end market, yet the upside of one is greater than the upside in the other. There are examples of you sell, or at least trim, because the price target has been achieved — and maybe beyond, the price target has been achieved. So the risk-reward is simply different.

There are examples of disappointments — companies that disappoint relative to our expectations, and they didn’t deliver on what we expected them to do, and the hypothesis didn’t play out. So I think there’s all of the above, and every sale has a different reason.

00:38:30  BARRY RITHOLTZ: Really, really interesting. Coming up, we continue our conversation with Dr. Ankur Crawford, executive vice president and portfolio manager at Alger, diving into her AI thesis. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

00:38:58  BARRY RITHOLTZ: I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My extra special guest today is Dr. Ankur Crawford. She’s portfolio manager at Alger, where she co-PMs the large capital appreciation strategy and runs the concentrated ETF for the firm.

So we are legally obligated to discuss artificial intelligence, but you are the perfect person to have this conversation with. There’s a quote of yours that I found fascinating. You said, when software begins to write software, innovation becomes exponential — that’s already happening. Walk us through what this means for earning power for the semiconductors, for the hyperscalers, and then for the rest of the S&P 500.

00:39:42  ANKUR CRAWFORD: Okay, so that is a very big question. Look, I think we are at this — I mean, Elon would call it a singularity — we’re at this point in time where we have never seen this kind of innovation. And imagine everything that — let’s take what’s easiest to describe. Software. We used to sit and code software, right? And we had to understand the coding, we had to debug it.

It would take a long time. Well, when software begins to write software, that whole process is truncated. And imagine what can be done in our largely digital world when software begins to code, decode and create.

00:40:36  BARRY RITHOLTZ: So let me push you a little bit there. The large language models that are out there give AI the ability to effectively cut and paste everything that’s been done before. How good is AI at creatively innovating code that’s never been written before?

00:40:59  ANKUR CRAWFORD: So look, I am not a coder, so I can’t tell you whether the code is elegant, or can be taken to production. I will tell you that I was able to build a pretty interesting app inside of a few months. And this is just doing it on the weekends — occasionally on the weekends, not even every weekend. And that was all vibe coded.

So it is adding this technology that is highly viable. You talk to coders, they are using it 90% of the time and are now just instructing, and have to have the logical framework of how to use the code. And I think the big picture here is that once the code begins to write the code, then it’s not going to necessarily be creative. The creation still has to come from you.

The insight still has to come from you, but it can actually innovate, right? The innovation curve for you is significantly higher. So that’s what we’re seeing today, where these digital assets are becoming more innovative, or they’re allowing us to be more innovative. And we’ve hit that point in time where we’re getting exponential innovation, and we’ve never really seen anything like this before.

Humanity hasn’t seen this before, in such a short period of time. If you look at previous industrial revolutions, they would be over generations. It wouldn’t be coming in the span of five years. And so this is what makes it really interesting. Because you asked, how good is it for semiconductors, and how good is it for the rest of the S&P and the hyperscalers — the impact on all of these differs. So, software: we wrote a paper three years ago called “AI and the Declining Cost to Create.”

And it was all about how, when software begins to write software, the cost to create software goes to zero. And what happens to the incumbents when the cost to create software is zero, right? One of the moats goes away. And that necessarily means that the operating profit of businesses must change.

Not that software is dead. It’s just that the operating profile of all of the companies must change, because it becomes more competitive, right? And where does that value go? We had five and a half trillion dollars of spending, now $6 trillion of IT spending. Fifty percent of that was IT services and software. And our contention was that the value would go from IT services and software into hardware and networking, because that is really what is driving this innovation curve.

So there’s entire sectors that have grown a lot and others that are facing their own pressures. I would say the same thing for any sector in the market. We spoke about healthcare earlier — how can a UnitedHealthcare actually use AI to bend the cost of care? And can there be incumbents that cross the chasm, or there might be some that can’t cross the chasm, and there are new companies that begin to use AI to bend the cost of care?

00:44:43  BARRY RITHOLTZ: So I’m glad you brought up healthcare. I’ve been fascinated not so much by bending the curve of cost from somebody like United, but all of the small biotechs and new molecules, and the huge wealth of existing chemistry and pharmaceuticals and studies we’ve done that nobody’s really had the ability to go back to and say, hey, maybe something’s in here that we’ve missed. The most clichéd example is — I never pronounce it right — sildenafil, Viagra, was supposed to be a heart treatment and had this unusual side effect, and now it’s a multibillion-dollar med. Same thing with GLP-1s, originally for diabetes, but hey, everyone’s losing a lot of weight on these.

I’m curious, not so much on the cost side, but there’s this giant body of unexcavated research that just seems like it’s waiting for AI to attack it.

00:45:50  ANKUR CRAWFORD: Yeah. And so recently I was actually on a panel where I was the moderator for a company — and I’ve forgotten the name of the CEO and the company — but they’re basically a new AI company that is taking this compendium of knowledge and taking it to companies and saying, marry it with the data that you have. And can we start finding not only the solutions for your targets, but use this history to get there faster? So there’s lots of efforts being made on this right now.

I do think that we will accelerate drug discovery and the impact it will have to healthcare. I mean, look, the holy grail is personalized healthcare at some point.

00:46:41  BARRY RITHOLTZ: Wasn’t DNA testing supposed to give us that a couple of years ago?

00:46:45  ANKUR CRAWFORD: Well, DNA, yes, but DNA testing used to cost a million dollars per sample, right? And today it’s a hundred. So we’re getting to the point where we can actually look at our individual DNA, and it just takes time. And at some point, can we marry it with some AI insights?

So look, I think healthcare is going to be greatly impacted. I think that I’m most excited actually to see how we can democratize healthcare, because really our healthcare system here is kind of broken.

00:47:19  BARRY RITHOLTZ: Not kind of.

00:47:21  ANKUR CRAWFORD: To be polite. And how can we take down that cost of care? I would love to have universal healthcare. It just can’t be done in the construct of healthcare as it is today. So can we use AI to provide universal healthcare? I think we can. It will take a few years, maybe a decade, but I think we can. And this is a global statement.

It’s not necessarily just the US. It’s bringing the cost of care down enough such that anyone on this planet will have access to healthcare.

00:48:01  BARRY RITHOLTZ: So I’m going to assume that you think all the AI bubble talk is wildly overblown?

00:48:09  ANKUR CRAWFORD: Yes, I do think it’s wildly overblown. Look, I think the trade has gotten a bit harder, in part because the first two to three years of the trade was, oh, you just have to buy the GPUs. And anything that the GPU touched was gold.

And then it became more nuanced. Well, agents use CPUs, and we have a memory shortage, and memory has now gone up four times in price. So capex budgets are going up. So that question of ROI is coming to the fore.

And how much does capex have to go up to accommodate the supply chains being as tight as they are? And there’s technological differences between a CPU versus a GPU and how they’re used, and the Chinese might be coming, and right? So there’s a lot of different aspects that have made it a little bit harder. The open versus closed source debate — the open model versus a closed model, that’s another debate. The debt and the CDS spreads widening, that’s another.

So all of a sudden we’ve gone from a relatively simple “we’re going to need AI, we are going to need compute” to there’s a slew of different narratives that one can press on for the bear case. Now, I structurally believe — we just talked about healthcare and the innovation curve in healthcare and what that can give back to society. That is true value, right? If we can bend the cost of care from X to X minus, that is value that’s created for humanity, and we will pay for that value.

The other day, there’s been this big debate about token maxing, and there was —

00:50:03  BARRY RITHOLTZ: Define that for the lay listener.

00:50:06  ANKUR CRAWFORD: Yeah. Token maxing was this behavior that companies were encouraging their engineers to basically have leaderboards of who can use the most tokens. Which sounds insane, right? It would almost be like telling your employees to see how much they can spend on lunch, and whoever spends the most on lunch gets an award, right?

00:50:31  BARRY RITHOLTZ: Well, I imagine if you’re a FedEx driver and the company holds a competition for who’s going to go through the most amount of gas and tires, meaning making the most deliveries — not a bad thing for the company.

00:50:44  ANKUR CRAWFORD: Not necessarily a bad thing. But in this case, what was being used is actually not necessarily tied to deliveries. It was just, use the most tokens as you can. It didn’t kind of matter what you built with it, right?

So there wasn’t as much scrutiny as to how many quote-unquote deliveries you made. You just burned through your tires. So it was kind of inefficient. But they came out and they said, we blew through our entire budget in a quarter —

00:51:27  BARRY RITHOLTZ: For the year. The whole —

00:51:28  ANKUR CRAWFORD: — budget for the year. Yeah, the entire budget for the year in a quarter. And we haven’t gotten an ROI. Well, no kidding.

Well, they turned around last week and they laid off 10% of the people that worked for the company because of AI. Well, somewhere along the way the use of artificial intelligence allowed them to kind of refine their workforce.

00:51:52  BARRY RITHOLTZ: That sounds like they didn’t lay off people because of AI. It sounds like they laid off people because management was kind of mis-incentivizing the employees.

00:52:03  ANKUR CRAWFORD: Well, I mean, they said that they laid off people because of AI. There’s been many companies — like Jack Dorsey at XYZ also, he cut 40% of the staff blaming AI. Who knows really what the real reason is? It could be AI, or it could be they just overhired.

00:52:23  BARRY RITHOLTZ: Which he has a history of.

00:52:24  ANKUR CRAWFORD: Which he has a history of.

00:52:25  BARRY RITHOLTZ: If you track him over his various companies.

00:52:27  ANKUR CRAWFORD: Right. And many of these companies did, right? So I can’t absolve that.

However, Uber in particular said it was because of AI. They have been very front-foot-forward on the use of AI, and now they’re able to increase productivity enough that they can titrate down their workforce. So I do think that there is value that is being created because of AI. I think that it is not necessarily a technology that’s plug and play into an enterprise, and there has to be some learnings before you can get to that ROI.

00:53:09  BARRY RITHOLTZ: And we’re seeing those stumbles in that learning curve.

00:53:12  ANKUR CRAWFORD: That’s right. And all these examples — it doesn’t mean that it’s never going to work. And my viewpoint is that where there is value, we work in a system of rewarding value. So if you can create value, I believe that whoever uses that system that creates the value, they will pay for it.

00:53:35  BARRY RITHOLTZ: So you’ve described the demand for compute as insatiable. What would have to happen for you to say, all right, we’re getting to saturation, or satiation? What does the top of the cycle look like? Or is it so far off in the future that we can’t even think about it?

00:53:54  ANKUR CRAWFORD: What I would say is that this is not a question where I can say, oh, in 2030 we won’t need compute. I think it’s a function of how much we put into the ground, right? It’s a delicate balance of, if we put X into the ground today — the hyperscalers are spending $650 billion, or whatever that number is —

00:54:18  BARRY RITHOLTZ: It’s circular, it’s this, it’s that. We’ve heard these complaints now for two years.

00:54:20  ANKUR CRAWFORD: Right. But $650 billion seemed like a really big number, yet we are still short compute, right? You’re hearing from the hyperscalers, we do not have enough. The neoclouds are telling you that there are four times as many asks for compute as they have capacity.

00:54:38  BARRY RITHOLTZ: Wow.

00:54:38  ANKUR CRAWFORD: So if one says that we are short compute today, I don’t really understand the logic. Now let’s fast forward two and three years. If we put $3 trillion into the ground next year or the year after — which we cannot do today, because we are short power, we are short people, we are short capacity, we can’t make those chips.

But let’s hypothetically say we put in $3 trillion of compute into the ground in 2028. I would say that that is overcapacity. But we can’t do it, because there is almost a natural limiter to the growth of this market in that we don’t have the chips, we don’t have the people, we don’t have the power, right? And so the market is being capped.

If all normal forces — and if we had an infinite supply of everything — I think we would be in overcapacity today, because it’s such a big market. Everyone would be building at a pace that they want it to be, that they would want to be first. But the fact is, it’s actually a blessing that the market is being capped by all of these supply chain shortages. The fact that we don’t have plumbers and electricians to actually work in the data centers is capping the growth of data centers.

And so it is allowing for duration versus kind of having a one-time growth pop, which you were not going to pay a high multiple for. So I think that oversupply is a function of how much we put into the ground and how we use it.

00:56:20  BARRY RITHOLTZ: So let’s unpack some of that. In the beginning of ’25, when DeepSeek first was released and everyone was startled, the initial reaction was, oh, we’ve overbuilt, we don’t need this many GPUs, we don’t need all these giant data centers, we just need slightly clever software that can do more with less. Didn’t take long before that just was overrun with, no, we need horsepower. We really need the ability for big problems to not come up with clever little workarounds, but we need the firepower.

And then again, more recently, we’ve seen a number of open source models out of China that seem to be doing a whole lot more with less. At what point does it begin to become, hey, do we really need $3 trillion worth of capacity? Don’t we just need to take a little bit of that, working out of the constraints we have, the way the Chinese models have?

00:57:23  ANKUR CRAWFORD: Yeah. So one of the things that I think is well understood is that the Chinese models didn’t do this on their own. So the way I like to think of it is, you have like an animal world, right? I just went on safari to Kenya, and giraffes almost always have birds sitting on their necks, and those birds are — it’s a mutually symbiotic relationship.

I suppose it’s not that symbiotic to the giraffe, but the bird gets to rest on the giraffe’s neck and benefits from the fact that the giraffe is walking around. So similarly, I think —

00:58:06  BARRY RITHOLTZ: What does a giraffe get out of that?

00:58:07  ANKUR CRAWFORD: I suppose the bird might keep the —

00:58:10  BARRY RITHOLTZ: Bugs away.

00:58:11  ANKUR CRAWFORD: — keep the bugs away, or eat the ticks on the giraffe.

00:58:11  BARRY RITHOLTZ: Gotcha.

00:58:11  ANKUR CRAWFORD: I don’t know. But similarly, the Kimi model is a little bit like the bird on the giraffe. Whereas I look and I think that the Chinese are very innovative in their own right.

I think they’re very good fast followers. However, they need the giraffe, which is our LLMs, in order to survive. And so I think there are many different ways to address what is happening. The scenario that I think is actually most logical — which I’m not quite sure that the large language models will do — is basically to hold the n and n-minus-one model internal, and allow for certain businesses, certain companies, the US government, other governments who are not going to distill this model and kind of feed a Kimi-type model, allow for them use of that model, and only make public the n-minus-two model. And that way it keeps any of the distillation at bay.

Now, in order for that to happen, all of the frontier models will have to agree to do this, because if there’s any frontier model that is equivalently as good, then it kind of breaks the ecosystem that I’m describing. But so I think the point is that you need to spend the capex for the training in order to get that output, so that Kimi can train on that output.

01:00:05  BARRY RITHOLTZ: So these open — training on the output, not creating their own LLM.

01:00:09  ANKUR CRAWFORD: Well, Kimi has created their own LLM by feeding off the — it’s called distilling — feeding off the output from the large language models. So a lot of the spending that is happening is actually coming from the use of the compute, from the inference aspect. So you train, and then you have to infer.

So then the inference is what we experience as consumers. And so that inference is driving a majority of the spend. And you look at the revenues of OpenAI, Anthropic — I’ve never seen growth like this. I don’t think we ever have seen growth that is as significant as what we’re seeing today.

01:00:55  BARRY RITHOLTZ: You know, people frequently make a comparison to the dot-coms, and I always feel like that’s a terrible comparison, because these are real companies with real revenue, real potential profits — not clicks and eyeballs. But the one thing some of the skeptics have pointed out that almost resonates is, during the internet era we had this huge boom where most of that value ended up landing in the consumer’s lap, not the investors’ laps, because so many of those companies crashed and burned. How similar or different is this environment to that?

01:01:39  ANKUR CRAWFORD: So I think it’s quite different. Look, there may be parallels at some point — i.e., do we overbuild, and how long does it take to actually eat through that overbuild? So you think about the 2000s.

One of the reasons we overbuilt is because we had dreamed the dream of what the internet would be. And pets.com was actually a brilliant idea.

01:02:05  BARRY RITHOLTZ: Just a little early.

01:02:06  ANKUR CRAWFORD: Just early. Now it’s Chewy. But Chewy became a significant business. Amazon has built a multi-trillion-dollar business off the back of consumers buying on the internet. But we didn’t have the internet, right?

We had dial-up, right? Dial-up is not good enough to increase productivity back then. What I would argue today is that we actually have the tools. All we needed — we had the internet, we had the productivity, we had the infrastructure that was needed for ubiquitous intelligence. All we needed was the chips, right?

We need the data centers and the chips, and that’s what is happening today. And so if we actually need ubiquitous intelligence and infinite intelligence to some extent — if we overbuild, we will eat through that overbuild as well.

01:03:14  BARRY RITHOLTZ: So what do you think the skeptics misunderstand about AI? Is it the scale, the economics, how durable the investment cycle is? What are the bears getting wrong here?

01:03:27  ANKUR CRAWFORD: I think it’s the duration. I definitively think — I think maybe it’s all of the above, really. But it’s duration, it’s the scale, it’s the economics. All three of those is where I think they’re pushing on the wrong thread.

01:03:45  BARRY RITHOLTZ: So last question before I get to all of my favorite questions I ask all my guests: what do you think investors aren’t talking about or thinking about that perhaps they should be? What is getting overlooked here? And it could be any asset, geography, policy, whatever — but what aren’t people talking about but should?

01:04:08  ANKUR CRAWFORD: Yeah. I think that people aren’t really talking about the net positive benefits to humanity from AI. We talked about healthcare, and how we can make healthcare available to any human on this planet. The same goes for education. There’s no reason why any child should be quote-unquote left behind. I mean, I’ve been shocked at what I’ve been reading recently — kids going to college and they can’t read.

Right? That is a failure of our education system that can be solved using artificial intelligence. And this is again a global issue. It is not a local issue.

This is something that we can — there’s no one that should not be educated. And the anti-AI, or climate change, right? I mean, I do think that using AI, will we be able to solve the problems that we have with climate change? Will we be able to engineer things that will help with the rapid rate of climate change? And a lot of the AI doomers or AI naysayers, who don’t want the data center built in their backyard or a data center built anywhere, are ignoring the fact that there are many different aspects of AI that will be good for humanity.

And does it require great change? And is change scary? It is, and it will require change. It will require change from all of us. But the end point is actually quite beautiful.

01:05:58  BARRY RITHOLTZ: I like that. You’re such a techno-optimist. All right, let’s jump to our favorite questions, starting with who your mentors were who helped shape your career.

01:06:09  ANKUR CRAWFORD: Oh gosh. I think that’s a pretty easy one. Our CEO Dan Chung has been pivotal in my career growth. And I told you, he hired me from Stanford without my knowing anything — I really knew nothing about this business.

And he recognized that. Why not take a shot on someone who’s non-traditional? And he himself is a non-traditional thinker. He was a lawyer, and he thinks very much outside of the box. So over the years he’s challenged me in ways that have been sometimes frustrating.

But I learn from it. He pushes me in ways that sometimes I don’t understand, but again, I learn from and grow from. So yeah, I think Dan’s like my number one mentor.

01:07:11  BARRY RITHOLTZ: Let’s talk about books. What are some of your favorites? What are you reading currently?

01:07:15  ANKUR CRAWFORD: So my favorite book is a book called Think Again. It’s by Adam Grant.

01:07:15  BARRY RITHOLTZ: Oh, of course.

01:07:15  ANKUR CRAWFORD: Who’s an organizational psychologist. And I know it’s an odd — was he at Harvard? Wharton?

01:07:24  BARRY RITHOLTZ: Wharton, I think.

01:07:24  ANKUR CRAWFORD: Yeah. And I know it’s an odd book to be a favorite book of mine. But in the context of business, it definitively is. And in part it’s because it talks about how you can have a hypothesis, but you have to be humble enough to understand that you can also change your hypothesis — but you have to have the confidence enough to hold a hypothesis.

And really, intelligence is about the ability to morph and be nimble. And it’s not about arrogance. Our business requires a constant questioning of what you think, right?

And those that become very tied to a thesis end up, I think, on the wrong side of a lot of trades. And so I just loved the book because of the way he writes about intelligence and the humility of questioning, and of holding conversations with people. And I think this is true for society in general right now — of having conversations where you may not agree, but to hear other people out, even if they don’t agree with you.

01:08:53  BARRY RITHOLTZ: Anything you’re reading currently?

01:08:55  ANKUR CRAWFORD: The last book I read was the recent one by Brad Jacobs, which was How to Make a Few More Billion Dollars. Brad Jacobs is the CEO of QXO. And he wrote his first book, How to Make a Few Billion Dollars.

And then he wrote How to Make a Few More Billion Dollars. And what I thought was so interesting about the book is the first two chapters are about how he centers himself. And he’s an incredibly successful entrepreneur, has built many businesses really from scratch — he’s a self-made billionaire — and he starts every morning meditating, right? And how he finds that center.

And to me it’s — we often don’t talk about that aspect of investing and business. It feels sometimes really transactional. But hearing that aspect of Brad, it only puts him in even higher regard for me.

01:09:58  BARRY RITHOLTZ: Hmm. Really interesting. What are you streaming these days? What are you either listening to or watching?

01:10:04  ANKUR CRAWFORD: Oh gosh, I don’t watch much. I don’t have that much time. And usually when I do watch something with my kids, I fall asleep. But I am a runner, and so I have a lot of time that I spend running, and I’m constantly listening to podcasts.

My favorite ones happen to be MacroVoices. I love The Knowledge Project.

01:10:26  BARRY RITHOLTZ: Oh, Shane Parrish. Yeah, he’s a regular on Sunday mornings for me.

01:10:31  ANKUR CRAWFORD: Yeah. And so, I mean, the variety of conversations that he has with different people, from wellness and wellbeing — I was listening to one about the Alpha School and how education should be reshaped. There’s just an awesome amount of diversity of thought.

The Circuit, which is all about semiconductors and chips. I’m trying to think of other ones that I listen to regularly. That’s all that comes to mind.

01:11:04  BARRY RITHOLTZ: That’s a nice list. To start with our final two questions: what sort of advice would you give to a recent college grad interested in a career in either engineering, materials science, or investing?

01:11:18  ANKUR CRAWFORD: Oh wow. Well look, I think for any college grad, make sure that you do something that you love, right? And it doesn’t have to be that you love it every day, but you spend a lot of your time at work. A third — more than a third — of your life is going to be spent from here on out at work.

Make sure that you do something that you believe in, that gives you great gratification, that you feel like you’re contributing to society. Don’t just do it because you’re on a treadmill of, I’m going to go do this because I set out to do this path and I just have to go trotting along. Allow yourself the grace to change and to change your mind. I did, and it was probably the best risk that I ever took.

The best gamble that I ever took on was completely pivoting in my career. So allow yourself to explore, because you change over time as well. What you want today may be different from what you want in five, in 10 years. But definitively, make sure that you love what you do, because once you know that you love what you do, you will be the best at it.

01:12:40  BARRY RITHOLTZ: Huh. And our final question: what do you know about the world of investing today that might have been useful 20 or so years ago, when you were first starting out?

01:12:53  ANKUR CRAWFORD: So you told me this question would stump me, and it is stumping me.

01:12:58  BARRY RITHOLTZ: Well, the answers that I’m not looking for are, you know, buy Amazon in ’02 when it was $7. It’s what insight might have been useful way back when. What have you learned? What expensive lessons came along that, you know, I could have saved myself a lot of headache had I figured this out sooner?

01:13:23  ANKUR CRAWFORD: You know what, Barry? I don’t think I would — in my way-back machine, I wouldn’t go tell myself anything.

01:13:30  BARRY RITHOLTZ: So it’s the path, and not necessarily —

01:13:32  ANKUR CRAWFORD: Yeah, it’s the journey. My most painful moments as an investor have been the biggest learning moments for me. They’ve branded me in some way with that experience. And so I wouldn’t want to shortcut that, because it has shaped me. And every single time I’ve fallen on my face, it has shaped me and it has reminded me of the perils of not paying attention to X, Y or Z. Or, I won’t make that same mistake again. Because again, it goes back to that first question you asked me about academic versus learning on the job.

01:14:20  BARRY RITHOLTZ: You need the real experience. You need the scars. You need the —

01:14:22  ANKUR CRAWFORD: You need the experience, you need the scars. And it’s a little bit like your kids, right? You can tell your kids, don’t do that, you’re going to get hurt. Don’t do that, you’re going to get hurt. Well, sometimes they just have to fall down and get hurt to realize they’re going to get hurt.

01:14:34  BARRY RITHOLTZ: Makes a ton of sense. Ankur, thank you so much for being so generous with your time.

We have been speaking with Ankur Crawford, portfolio manager at Alger. If you enjoy this conversation, well, be sure and check out any of the 653 we’ve done over the past 12 years. We launched July 2014. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts.

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 producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

~~~

The post Transcript: Ankur Crawford, Portfolio Manager, Alger Capital Appreciation appeared first on The Big Picture.

My guest on today's podcast is David Brooks. David is the founder of Retire SMART, an RIA based in Omaha, Nebraska, that oversees approximately $800 million in assets under management for 1,000 client households.

What's unique about David, though, is how he has achieved rapid growth in part by investing in multiple marketing tactics, including in-person educational events and an extensive network of radio, television, YouTube, and podcast content.

In this episode, we talk in-depth about how David committed to spending 25% of his revenue on marketing during his first two years in business (and still spends approximately 12% of revenue on marketing today), why David is willing to continue to invest in legacy marketing tactics that have a lower return on investment than newer ones he implements, and how David invests 20% of his marketing budget in pure branding activities, both to expand name recognition of his firm and because of the synergies these activities have with his marketing funnels that have a more direct ROI.

We also talk about how David has found success by holding in-person educational events (including traditional lunch and dinner seminars as well as classroom-based discussions in his firm’s offices), how David built a large audience through radio and television shows (which have now expanded to include a podcast, YouTube channel, and social media content), and how David analyzes key metrics to assess the return he gets from each of the marketing investments he makes.

And be certain to listen to the end, where David shares how taking a tax-centric planning approach allows him to demonstrate hard-dollar value for his pre-retiree, retiree, and business owner clients, how David decided to launch his own ETFs both to allow smaller-dollar clients to access his active investments strategies and as a potential profit center from external investors, and how David has navigated the bottlenecks that can come with rapid firm growth.

So, whether you’re interested in learning about marketing through educational content, measuring the ROI of marketing investments, or how to manage a rapidly growing firm, then we hope you enjoy this episode of the Financial Advisor Success podcast, with David Brooks.

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Well, that was no fun…

I have been testing negative since the weekend; maybe it’s the availability heuristic talking, but I have been hearing about (many? some?) other people catching it.

The fog is annoying as is the FOMO for several events I had to miss.

The one thing I did manage to do was catch up on a mix of meh streaming series and movies I would be too bored with had I not had fog brain or otherwise been meaning to watch.

These include:

Movies:

The Dink
Wrecking Crew
Fast Charlie

ReWatched

Atomic Blonde
Beekeeper
High Fidelity
The Hitman’s Bodyguard
Lady Eve

Streamers:

Blackish
Clarkson’s Farm (Season 5)
The Hawk

Stand Up:

Mary Beth Barone, Galaxy Brain
Jordan Jensen, Take Me With You
Langston Kerman, Bad Poetry

~~~

Back to the real world starting tomorrow.

The post Negative. Yay! appeared first on The Big Picture.

But in the past several years, the cost of building and developing new software has decreased thanks to the emergence of AI-powered 'vibe coding' tools, which can convert plain-English instructions from users into the code needed to make the software work – greatly reducing the need to hire a human developer to manually code the whole project (and in many cases allowing developers to work faster and more cheaply). Which in turn has changed the math about when it makes sense to build versus buy technology: Where it once might have only made sense for firms with 20+ advisors to build custom technology, many smaller firms and even solo advisors now can (and do) create their own tools. The lowering of barriers to self-built technology has led to many predictions that advisors will overwhelmingly drop their third-party software licenses and turn to 'homegrown' tools, causing mass disruption and consolidation of existing AdvisorTech providers.

While some advisors are embracing the possibilities of vibe coding and building their own tools, the evidence so far shows that third-party software providers as a whole are under no threat from vibe coded alternatives. Because even among advisors who are diving into tools like Claude to build their own technology, the vast majority are creating software that supplements, rather than replaces, their existing third-party solutions. For example, advisors in vibe coding communities like Builder FP have primarily focused on either tools that can help integrate reporting outputs from their existing software platforms into a single streamlined deliverable, or that are specific to the needs of their own niche clientele. Which makes sense given that most advisors are already fairly happy with the software that they use, and there's little reason to go through the effort of building custom software from scratch (even with the help of AI) to replace something that's already working well!

And in fact, the proliferation of AI coding tools will more likely lead to an increase, not a decrease, in the number of third-party technology solutions available. Entrepreneurs can use those same vibe coding tools to develop technology at a quicker pace and in areas that might not have been economically viable in the past (including niche areas like real estate and long-term care planning as well as categories like CRM and tax planning where there is well-established competition). Advisors may soon be able to find more tools to fill in the gaps between their existing technology – making the already crowded technology landscape even more so, and forcing advisors to spend even more time evaluating and managing their technology.

The key point is that although AI vibe coding might lower the bar for advisors to build their own tools, the reality is that few advisors consider themselves technologists and most are instead satisfied with letting a specialized third-party provider do the work of building, developing, and distributing the software that they use (not to mention handling the finer points of things like data security that are harder to master with self-built software). And while advisors can choose to build their own tools in the specific areas that their existing software doesn't cover, the proliferation of new technology suggests that those who aren't inclined to do it themselves may be able to simply wait a little while for the right solution to appear from a third party!

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This week, I speak with Ankur Crawford, Executive Vice President at Alger and Portfolio Manager of the Alger Capital Appreciation, Focus Equity, and Spectra Strategies.

We discuss her journey from engineering to investment, along with understanding AI and compute investment cycles. She discusses how she builds an investment strategy.

A transcript of our conversation is available here Tuesday.

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 Alex Morris of TSOH Investment Research. He is the author of “Buffett and Munger Unscripted: Three Decades of Investment and Business Insights from the Berkshire Hathaway Annual Shareholder Meetings.” The book was namedm one of Amazon’s “Best Books of 2025.” To write it, he reviewed every Berkshire annual meeting from 1994 through 2024 — 100s of hours of video covering more than 1,700 shareholder questions over 31 years — after Berkshire released the meeting archives.

The post MiB: Ankur Crawford, Portfolio Manager, Alger Capital Appreciation appeared first on The Big Picture.

Also in industry news this week:

• The Treasury Department said this week that it is issuing a final rule that permanently removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information to FinCEN under the Corporate Transparency Act
• Advisors and their clients alike appear to be more optimistic than they were earlier in the year, according to a recent survey, with a strong majority of advisors also reporting growth in the size of their client bases

From there, we have several articles on investment planning:

• While increased correlations between stocks and bonds in recent years might have some investors questioning the value of bonds within a portfolio, this statistic alone might not tell the full story of the potential benefits of a bond allocation
• How advisors are working with clients who want to maintain larger cash holdings amidst market uncertainty
• Why diversification might be better thought of as an ingredient in successful asset allocation rather than the goal itself

We also have a number of articles on retirement planning:

• Why the relative flexibility and simplicity of the SEP IRA could make it a useful tool for certain business owners and freelancers
• How cash balance plans have experienced growing popularity in recent years as a tool for high earners to defer taxes and build their retirement savings
• The nuts and bolts of establishing Solo 401(k) plans for self-employed clients

We wrap up with three final articles, all about the role of financial advisors:

• The history of musical conductors and how it mirrors the role of the financial advisor in supporting clients
• How financial advisors might 'conduct' clients' financial lives in a world of advancing Artificial Intelligence (AI)-powered tools
• How financial advisors can once again move to 'higher ground' amidst a potential technological 'threat'

Enjoy the 'light' reading!

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I did not have COVID on my August bingo card, but — goddamn — there it is.

Coming back from Maine, I felt a little run down — 5 days of fishing, drinking, and cigars will have that effect.

I missed an MiB recording, an evening seeing J.B. Smooth, and then had to cancel a giant family event at our place out East.

It’s pretty mild; I feel mostly fine; it’s like a summer cold plus a little brain fog. Glad I am vaxxed up the wazoo.

Light posting until next week…

The post Ugh… appeared first on The Big Picture.

On this special, bonus episode of Masters in Business, I speak with Filippo Gori, co-head of Global Banking at J.P. Morgan. Gori shares insights from his climb through the firm’s ranks across London and Hong Kong, plus discuss the current state of banking, capital markets and more.

A transcript of our conversation is available below.

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

~~~

MASTERS IN BUSINESS
A Conversation with Filippo Gori Co-Head of Global Banking, JP Morgan
Bloomberg Radio  •  Transcript

ANNOUNCER (00:00:02):  Bloomberg Audio Studios. Podcasts. Radio. News. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ (00:00:17):  This week on the podcast — what a fascinating conversation. Filippo Gori is co-head of global banking at JP Morgan. He started in London and eventually moved over to Hong Kong, where he worked for 13 years before coming recently to New York. He’s seen just about every aspect there is when it comes to commercial, corporate and investment banking around the world. I thought this conversation was quite fascinating, and I think you will also. With no further ado, JP Morgan’s Filippo Gori.

FILIPPO GORI (00:00:51):  Thank you for having me.

BARRY RITHOLTZ (00:00:52):  I’m fascinated by the mispronunciation of your name — “Philip O’Gorey.” Did the people in Hong Kong really think you were Scottish or Irish?

FILIPPO GORI (00:01:03):  At the beginning, when I just moved to Hong Kong, people were surprised when I arrived there, because the way they pronounce my name and surname, it sounds more like “Philip O’Gorey.” So they were expecting an Irish or a Scottish person — then they had an Italian, so they had to adjust to that.

BARRY RITHOLTZ (00:01:20):  That’s very funny. So let’s roll back a little. Before Hong Kong, you get your master’s of science in economics, summa cum laude, from Bocconi University in Milan. Was markets and investment banking always the career plan?

FILIPPO GORI (00:01:37):  No, absolutely not the plan — well, not that I really had any plans back then, but my passion was, and still is, history. I grew up in rural Tuscany, and I’m a byproduct of the Italian state education. You take your high school exam at the age of 19, and then you apply to university. So in the three months between finishing high school and deciding where you go to university, I thought I was going to go and study history in Florence. But my dad, who has been a central figure in my life, suggested to me, why don’t you apply to Bocconi University? I didn’t really have an idea what it was — I only knew it was in Milan — and maybe more to please him, I took the tests, and I went on with the rest of my summer holidays. And then I got accepted to Bocconi, and I decided to go there, but with no real plans back then.

BARRY RITHOLTZ (00:02:51):  Well, you mentioned you were thinking about going into history. You taught classical civilization in the UK. Tell us, was an academic career ever in the cards?

FILIPPO GORI (00:03:05):  Yeah. When I finished with Bocconi — I graduated in economic history — I thought I was going to do a PhD in that topic. Back then, there was a rule whereby you’re not allowed to move from a master’s directly to a PhD. You need to work for a couple of years, and then you apply for the PhD. And therefore it made sense to think, okay, you know what, I’m going to remain in academia as I start thinking about the dissertation that I will work on for my PhD. And therefore, for a variety of totally strange reasons, I ended up as a teacher in North Yorkshire, in an English college, teaching Italian as a foreign language and classical civilization too. And then, by pure chance, I stepped into the opportunity to apply to JP Morgan. And I applied to JP Morgan, and I’ve never left since then.

BARRY RITHOLTZ (00:04:11):  That was London in 1999. So first — did you start in markets, or asset management, or banking?

FILIPPO GORI (00:04:22):  That’s a very good question. I started in a graduate program back then. I joined JP Morgan pre-merger with Chase. It was a tiny — back then — global institution of around 15,000 people globally. Think about now: we have 330,000. We had lost the coveted AAA rating back in the middle of the nineties, and it was a bank that was trying to find its roots back. We were not one of the five broker-dealers that were the shining objects of the era; we were probably a tier-two, if not tier-three, institution back then. And I joined in a graduate program called Internal Consulting Services. The idea was they were hiring the most diverse people, with the most diverse of backgrounds, and somebody like me would work on a variety of different things, including the internet, which was something that was coming to be back then.

BARRY RITHOLTZ (00:05:26):  1999 — the internet was big back then.

FILIPPO GORI (00:05:28):  So they hired me, and the idea was you would rotate in this graduate program every three months in a different part of the firm, so you learn how the firm operates and you can decide how you can help interject the internet into all of this. My first rotation was in asset management. My second rotation was in CRM — client relationship management, believe it or not. And then — back then, literally, the world was so small — suddenly they need an analyst in the Milan office to do FX sales. They look around and say, who is the last Italian who has joined us? And somebody says, there is this guy — I’ve seen him around. So they call me up and say, okay, do you know one plus one? That was the interview. Okay, you move to Milan to do FX sales. So that’s how I moved to markets, to do FX sales. And then the merger happened, they brought me back to London, I moved to derivatives, and I grew up on the markets side of the business.

BARRY RITHOLTZ (00:06:34):  So London to Milan. And then what brought you to Hong Kong in 2013?

FILIPPO GORI (00:06:39):  2013 — that’s another interesting story. So we need to wind the clock back. It’s 2012. I’ve been running Southern Europe for quite some time with a friend who was my co-head back then, and the opportunity to move to New York started to develop. So I discussed with my wife, who back then was working at the Bank of England, whether she could be seconded to the Fed, and so on and so forth. So the conversation started happening as, okay, you know what, after 12 or 13 years at the firm in London, we’re going to move to New York.

And then suddenly, May 2012, the London Whale happened, and the decision was, forget about it — you stay put. Back then my wife said to me, please, I know that Asia is not on your cards, you want to move to New York, but if there is ever the opportunity to move to Asia, please promise me that you will consider it. And as every Italian man does — of course, darling, absolutely.

So roughly a year later, I get a call from my boss, who says, okay, Daniel Pinto — who was the CEO of the CIB back then — wants to see you tomorrow to discuss an opportunity to move to Hong Kong. Don’t sit on it thinking about it too much; they’re considering somebody external, so make up your mind pretty quickly. So, as you do in those circumstances as an Italian man, what I did was send a text to my wife. And the text was something along the lines of: darling, maybe tonight after dinner we should have a conversation, because there is an option to move to Asia — but it’s unlikely, I’m not so sure. She replied five minutes later: tell them that we are going. So the following morning, when I went to interview with the boss, it was kind of — that’s fine, whatever, we’re going.

So literally, I moved to Hong Kong having never been to Hong Kong in my life — and I had never been to Asia in my life. But the family was happy, so it was a family adventure, and we took it like that. Literally, the furthest east I had been was India; I had never been to Asia when I moved there.

BARRY RITHOLTZ (00:09:12):  Why was your wife so enthusiastic about Hong Kong and Asia? Had she been before?

FILIPPO GORI (00:09:16):  She had traveled around Asia already, definitely. She had been to Japan and other parts of the region.

BARRY RITHOLTZ (00:09:23):  Japan and Hong Kong — very different.

FILIPPO GORI (00:09:25):  Very different. And she said, it’s the right time — we were both late thirties, the girls were still young. Life is about the journey, and therefore it was the right thing to do. Interestingly enough, from a career standpoint, it was a totally non-traditional choice. And everyone was saying to me, you’re going to come back in a body bag. Or there was this acronym, FILTH — Failed In London, Try Hong Kong — because there was a little bit of an idea back then that if you were not good enough to operate in Europe, they used to ship you to Asia, back from the colonial days.

BARRY RITHOLTZ (00:10:12):  I was going to say, that might have been true 50 years ago — but in the nineties and two thousands?

FILIPPO GORI (00:10:18):  Well, still, there was that view. But we went there and we loved it. We absolutely loved Hong Kong, to the point that we spent 12 years there.

BARRY RITHOLTZ (00:10:28):  Wow. So obviously there’s a bit of culture shock, but I’m really interested in what it was like being an Italian who worked in London, now going to an entirely different culture, a different way they do business. How challenging was that transition?

FILIPPO GORI (00:10:49):  It was interesting in the sense that I thought I knew diversity, because back then I was running Southern Europe — Italy, Spain, Greece and Portugal — where, although there are commonalities from a culture standpoint, there are different ways of doing business. And I know that for us, Italians and Spaniards are not the same thing. But largely, the reality is that we have a lot in common culturally. So you move to Hong Kong and you run a region of 16, 17 countries that is truly, truly diverse. And the best definition that I got of Asia was: it is a conglomerate of countries that happens to share the same time zone.

BARRY RITHOLTZ (00:11:36):  But that’s it.

FILIPPO GORI (00:11:37):  And even that definition is wrong, because if you think about Wellington in New Zealand and Mumbai, there’s seven and a half hours, right? So it’s wider than the US. So they have really nothing in common. So you spend a lot of time trying to understand how the business operates around you. And there is no way that you manage to do it unless you put in the experience, you put in the years. So after 12 years, I feel I am comfortable in understanding how Asia operates — but it took me truly, truly a long time.

BARRY RITHOLTZ (00:12:14):  So I was going to ask — you say how Asia operates, but that’s 16 different countries, different regulations, different ways of doing business, different cultures, different languages.

FILIPPO GORI (00:12:26):  Absolutely. So let me give you an example. You go to Japan — it’s not so important what is said in the meeting, but what is not said in the meeting, and the concept of face, and how things operate. You go to Australia, at the opposite end of the region, and it’s very much in your face — they tell you very clearly what they think of you, and so on and so forth. And then between these two extremes, you have every shape of things. So it takes time. But it’s fascinating, and I loved getting to know the culture, getting to know the history, getting to know, quote-unquote, the biases, getting to know the opportunities. And if you think about it — and this is probably not well known — most likely by the end of this decade, 50 percent of global GDP will be housed in Asia Pacific, and the second, third and fourth largest countries from a GDP standpoint will be Asian.

BARRY RITHOLTZ (00:13:31):  China, Japan, Korea — is that it?

FILIPPO GORI (00:13:33):  No — China, India, Japan, most likely.

BARRY RITHOLTZ (00:13:36):  South Korea doesn’t make the top four?

FILIPPO GORI (00:13:38):  South Korea doesn’t make the top four.

BARRY RITHOLTZ (00:13:40):  Hmm, really, really interesting — to say nothing of Taiwan. And then obviously Vietnam and other countries are much smaller.

FILIPPO GORI (00:13:47):  Yeah — or Australia, which is a continent in itself, with all the peculiarities. So it is a remarkable, interesting region that is not well understood, both from an opportunity standpoint and a challenges standpoint. And it’s interesting — in Chinese, the sign for opportunity and challenge is the same.

BARRY RITHOLTZ (00:14:12):  Really, really interesting. Is English the universal language over there? Obviously Australia and New Zealand are going to be easy — two people separated by a common language is the old joke about America and the UK — but what was it like trying to communicate in places like Thailand, or Vietnam, or the Philippines, or Malaysia?

FILIPPO GORI (00:14:41):  In Southeast Asia, English is more widely used, for historical reasons. Think about Singapore, Thailand and some of the others —

BARRY RITHOLTZ (00:14:56):  Colonialism, sure.

FILIPPO GORI (00:14:57):  Yeah, sure — Malaysia and so on and so forth. In North Asia, it is not as widely used, and therefore you need to learn how to communicate through translations, or the whole ritual that there is at times related to the translation. And at times, especially on the mainland in China, even in meetings where your audience will speak English, the meeting will be held in Chinese with a translation. So there is a whole understanding of how you operate in those countries that is complicated.

BARRY RITHOLTZ (00:15:39):  So you’ve said that the corporate outlook has remained very resilient despite what seems like an endless run of geopolitical uncertainty. We’ve had tariffs, we’ve had wars, we’ve had inflation. What are people in various regions doing to cope with this, and what underlines this ongoing resiliency?

FILIPPO GORI (00:16:04):  The resilience is probably one of the most surprising factors of 2026. If you think about what has been put through the global economy in the last couple of years, the global economy has been exceptionally, exceptionally resilient. This is true of the world. Then, depending on where you are around the world, clients are focused — or regulators or governments are focused — on different topics.

If you start, for instance, with the US: clearly the economy is doing fantastically well, and there is a sense of, how can we continue to dream about outcomes that were not even possible a few years back, and how can we participate in this incredible engine of growth, this super-resilient economy? There are some concerns around inflation — every now and then you hear people talking about it — but generically, and this tells you a lot about the cultural attitudes of different places in the world, here there is a sense of optimism that is clearly palpable.

You move to Europe, and the environment is resilient. Europe is doing, to a certain extent, better than we at times give it credit for, but it is preparing for a heavy electoral cycle that will come next year. Italy will go to election — the parliament will come to an end next year — so will France, and the UK most likely will have a new prime minister after the summer. So there is already, as you go around Europe, a sense of, we are beginning the electoral cycle. There are concerns around inflation in Europe, spillover from the Iran crisis, and how that would prompt the ECB, which already has high rates, and how that would shape the European economy. There is a war on the eastern border, between Ukraine and Russia, that is impacting the rest of the region, and it’s shaping the way leaders and business leaders are thinking about the future. And there is, to a certain extent, a sense of admiration looking towards the US, and a sense of, is there more that can be done to make Europe like the US?

Then you go to the Middle East. Clearly the Middle East is still recovering from what’s going on, but that part of the world is for sure the winner in a global South narrative, for a variety of different reasons. It will remain a winner of the global South narrative. And notwithstanding the geopolitical headwinds, you can see the investments that are still going there — and they will keep on going there. There is an infrastructural shift in the way the Middle East thinks, and also in building infrastructure, that is fundamental.

Then you go to Africa, which is a supremely important continent for a variety of different reasons — probably the most extreme in terms of dealing with countries which we are not really used to. We have a large presence in South Africa and Nigeria, Côte d’Ivoire and Kenya. And there you see the importance of critical minerals, the importance of urbanization, the demographics that are exceptionally in favor of that part of the world. So while for the past decade and this decade Asia has been a fundamental part of the global economic landscape, we need to start thinking that after the Middle East, Africa will become the next big thing.

And then you move to Asia. Asia, to a certain extent, is not up-and-coming — it has really arrived. I already mentioned the second, third and fourth largest economies in the world. And there, it will be a matter of dealing, to a certain extent, with the geopolitical winds — sometimes they blow in one direction, sometimes they blow in a different direction — and the strategic angle of that part of the world. There is a narrative out there that globalization is finished. I beg to disagree — a little exaggerated — because the economies are so intertwined. And if you see how much manufacturing happens in Asia, it is very difficult to reverse. It doesn’t mean that you should not try, but shifting supply chains takes years, if not decades. So that part of the world will remain fundamental. And there you have Japan, which is performing exceptionally well and is super, super interesting. You have China, which remains supremely interesting from an opportunity standpoint, and the way they’re changing their own economy. You mentioned Korea — think about the importance of Korea from a memory standpoint for the AI ecosystem. Then you have India, you have Southeast Asia, you have critical minerals in Australia. So different parts of the world are dealing with the current setup in different ways. And you have probably the two extremes, if I think about it, with Europe in the middle: the US and Asia really gunning for growth, while Europe is still trying to figure out a way to grow more in this current environment.

BARRY RITHOLTZ (00:22:03):  So we’re going to talk a whole lot more about Asia in a bit, but I want to circle back to the Middle East and to Africa. I think a lot of us think of the Middle East as just a collection of petro-states, with Israel in the middle, and then whatever geopolitical turmoil surrounds that structure. It sounds like you are looking at the Middle East as not only a changing set of infrastructure, but becoming a financial center. What else is happening in the Middle East? That’s a huge change.

FILIPPO GORI (00:22:41):  You mentioned part of it already. So it is becoming a more relevant financial center — for sure, the UAE is becoming much more important from that standpoint, and you can perceive, when you go there, the degree of investment that is taking place from global players positioning themselves over there. Then there is the whole set of investments and reforms to the economy of the Kingdom, and how that is shaping the changes of Saudi into the future — and again, it is remarkable, the changes that you see happening day to day over there. Then you have Qatar. And there is an enormous infrastructure play taking place in that part of the world — typical solid infrastructure, but there is also digital infrastructure taking place over there. Think about energy, and how fundamental energy is for data centers. That part of the world becomes super fundamental from that point of view too.

BARRY RITHOLTZ (00:23:55):  We used to think of finance centers as New York, London, Hong Kong. Do we add Dubai to it? Is Dubai in that group?

FILIPPO GORI (00:24:05):  I think you need to add Dubai, and for sure Singapore too — you cannot forget Singapore. And to a certain extent, I think Tokyo is still a fundamental player, especially in the equity markets globally. Those are the ones that in my mind I would consider fundamental. And then, if you allow me, there is also continental Europe — there are a few centers there.

BARRY RITHOLTZ (00:24:32):  So we’re going to circle back to Europe also. But one last question about this area — I have to ask about Africa. We all know about rare earths and other minerals. Africa stands out as one of the few regions that isn’t going through the same sort of fertility crisis that we’re seeing in the rest of the world. Is that a driver, or is it something more fundamental than that?

FILIPPO GORI (00:24:57):  I think you have what you said — demographics and urbanization are super fundamental. Then you have the richness in critical minerals. And I would add that Africa, to a certain extent, has probably been — not ignored, but not on the radar screen of the Western world for too long. To the point that the influence in Africa is heavy from Russia and China. So I think it’s in our interest to make sure that the Western world understands Africa and operates over there, for a variety of different reasons. Africa is the southern border of the European Union, and it is fundamental, and it is not well understood. For instance, at times Russia does not only create problems for Europe from an eastern border standpoint; it creates problems for Europe from a southern border standpoint, by operating in some of the sub-Saharan African countries and pushing immigrants towards the shores of Europe.

BARRY RITHOLTZ (00:26:08):  Which has been a problem in Europe — it led to Brexit. It’s a problem here in the United States — or I should say it’s an issue, not so much a problem.

FILIPPO GORI (00:26:18):  Starting from the assumption, though, that Europe has a demographic issue, and therefore we need to figure out a way to —

BARRY RITHOLTZ (00:26:31):  Increase population, or —

FILIPPO GORI (00:26:32):  — or accept that Europe needs a certain degree of immigration. How to do that is not well understood.

BARRY RITHOLTZ (00:26:42):  It seems to be a function of wealth — that when a country hits a certain per capita income, people have options, and they tend to have fewer children. Is anything going to change that, or is that just the way it is?

FILIPPO GORI (00:26:57):  I think there are some components of it — I don’t think it’s only wealth; it’s also cultural. If I look at Italy, which is a wealthy country in itself, although relatively small — if you think about it, fewer than 60 million people live in Italy — Italy has been in a demographic crisis now for 40 years. And at the current pace, there will be no more Italians in just over a century. And Italy is also losing a lot of talent — every year, between 100,000 and 115,000 young Italians leave the country to go and work somewhere else. So there is a lot of it that is cultural too.

BARRY RITHOLTZ (00:27:47):  Hmm, really, really interesting. Coming up, we continue our conversation with Filippo Gori, co-head of global banking at JP Morgan, talking about the growth of JP Morgan into a powerhouse. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

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BARRY RITHOLTZ (00:28:18):  I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest today is Filippo Gori. He’s co-head of global banking at JP Morgan. Having joined the firm in London in 1999, he has since relocated through Hong Kong to New York. So you’ve had really such a unique perspective — you’ve led businesses in Asia Pacific, in emerging markets, in London, and now in New York. Do you have to adapt your leadership style or your strategy when you move from one region to another?

FILIPPO GORI (00:28:57):  Absolutely. It is part of the exercise of growing into the job. One of the things I learned early on in my career: you cannot have the same leadership style with every colleague. That was particularly true in Asia, where if you use the same tone of approach with a Japanese colleague and an Australian colleague, for sure you get it wrong in one of the two cases. So you need to adjust how you react to your colleagues and your clients, and you adjust your communication, your delivery, how you deliver the importance of certain things, and so on and so forth. I’m still trying to figure out the US — full disclaimer.

BARRY RITHOLTZ (00:29:42):  Well, I’m curious — I’m going to assume New York is more like Australia than Japan. But I would also imagine a lot of differences from London.

FILIPPO GORI (00:29:52):  Absolutely. London is very much understated, and there is a way in which you say something, but without really saying it outright.

BARRY RITHOLTZ (00:30:04):  And New York is pretty much the opposite, huh? No mincing words.

FILIPPO GORI (00:30:09):  So it’s been interesting so far.

BARRY RITHOLTZ (00:30:11):  I can imagine. So your charge is global banking. And when I think of that department, that’s everything from investment banking to corporate services to commercial banking. How do you get all those lines of business to collaborate, as opposed to compete? It seems like all the horses are pulling in different directions.

FILIPPO GORI (00:30:36):  It is actually the other way around. Global banking is three lines of business — commercial banking, corporate banking and investment banking — that have been put together under this global banking umbrella that spans 46 countries, around 200 major locations around the world, and, let’s call it, around 70,000 clients, give or take. And the idea is you cover all the wholesale banking businesses under one umbrella. So, every corporate that makes at least $20 million of revenues and above — less than $20 million is called business banking, and it belongs to Chase, so you’re still using the branches. The moment you qualify, let’s say from a revenue standpoint or a size-of-business standpoint, for the wholesale part of the firm, you become part of JP Morgan. Then the whole client continuum is covered by the same management team, the same group of leaders, with the same rules, the same capital allocation, and so on and so forth.

It is becoming particularly important, especially in this day and age — think about the innovation economy, whereby a corporate or a startup graduates to become a multi-billion-dollar corporation supremely fast nowadays. In the past, it could take 20 years, 30 years for a corporate to grow through the various stages of life. Here it’s from cradle to infinity at the speed of light. So it is important that the transition and the support happen within a homogeneous management, and the same way of looking at the clients.

BARRY RITHOLTZ (00:32:29):  So JP Morgan emphasizes technology investment and the importance of artificial intelligence. What parts of banking is AI changing? What is very much ahead of the curve, and what do you think are the areas that are most ripe for disruption?

FILIPPO GORI (00:32:48):  It is very difficult to assess whether you are ahead of the curve, or ahead of the pack, or whether you’re just doing what everyone else is doing, because things are changing so rapidly. So I would not dare to say, oh, we are ahead of the curve. We are investing — it is a giant leap of mankind, in terms of the revolution that is happening under our eyes. There is clearly efficiency that can be achieved through the use of AI processes and procedures and tools, so that you can provide better client service, or better customer service, while being more efficient — which means that you can probably cover more clients. And our ambition is to cover more clients — let’s say to reach a hundred thousand clients by 2030 — in a more efficient way. So technology and, quote-unquote, AI are helping us scale the business much faster than before, and ideally without having to increase the costs.

BARRY RITHOLTZ (00:33:55):  Hmm, really, really interesting. I think we’re all aware that AI is changing everything so rapidly. Where do you think human judgment is irreplaceable? What part of the business is, hey, we could become more efficient with AI, but the ultimate decision-maker has to be a person?

FILIPPO GORI (00:34:17):  It’s fundamental that a human is in the loop, for a variety of different reasons. Ultimately, I would simplify it this way: you are dealing with clients, clients are human beings, and at the end of the day, I think a client wants to be dealt with by a person. So the human in the loop remains fundamental. AI can help speed up some processes, it can help achieve better scale, but the individual remains fundamental in our business.

BARRY RITHOLTZ (00:34:54):  So when you joined JP Morgan back in 1999, you mentioned it was not at the top of the league tables. What was the reason it managed to break into the top tier? Was it this emphasis on technology investment? Was it a strategy? What led the firm to becoming a global top-tier bank?

FILIPPO GORI (00:35:20):  Okay, so I think there is an obvious answer, and then there is a less obvious one. I would say the obvious answer is JP Morgan Chase went through a series of mergers, including acquiring Bank One in 2004, which brought to the firm a certain Jamie Dimon, who changed the way in which the firm operated. Think back then — the JP Morgan Chase–Bank One merger was still a conglomerate of institutions that had merged together over the previous 20 years, and many of those mergers had not actually been fully executed. You had Manufacturers Hanover merging into Chemical, merging into Chase. You had First Chicago merging into Bank One. You had JP Morgan and a variety of different things — there was Cazenove in the middle too. So the integration of all of this was a fundamental piece that made us who we are today. And Jamie was the leader, and the individual that could have the vision of how to do this and create the fortress balance sheet and everything else that came with that, that made us who we are today.

I think the less obvious answer is we went through 2007 — and I hope I’m not being controversial here, but probably we were still busy with the merger and everything else, so we didn’t have time to focus on some of the other stuff that then caused the problems. And Jamie’s view was very clear: we do things that make sense for the customers, we do things that make sense for the firm, fortress balance sheet, and so on and so forth.

BARRY RITHOLTZ (00:37:17):  If I recall correctly — I want to say it was around ’05 — there was a minor little subprime issue with JP Morgan, long before it was a problem everywhere else. And if I remember correctly, Dimon said, get all that crap off our balance sheet; we don’t play in those sorts of speculative waters. So when the real trouble hit in ’08–’09, they had a very clean balance sheet. So that’s a factor.

FILIPPO GORI (00:37:49):  And then, since then: investing, investing, investing, and investing again — through the cycle. You invest, you keep growing — you’re growing not because you like it per se, but because you can provide better customer service, you work towards the betterment of the communities where you operate, and you keep investing, absolutely, through the cycle. When I arrived in Asia in 2013, the firmwide revenues that we made in that year are less than what we made in the first quarter of this year. What has happened there has definitely been the growth of Asia in the meantime, but it has also been us investing in the region across products, countries and jurisdictions — so that if you build the infrastructure, and you are there to serve the clients, the business will come.

BARRY RITHOLTZ (00:38:44):  Hmm, interesting. What does “one firm” mean in practice — this big motion towards JP Morgan as one firm? Whether you’re in the middle market, or a global enterprise, or the public markets — explain the thinking behind this.

FILIPPO GORI (00:39:02):  So the thinking is: the organization is huge — it’s 330,000 people. So the idea is to make the company feel small to our clients, and to a certain extent to our employees.

BARRY RITHOLTZ (00:39:17):  In other words, you don’t want scale to be a disadvantage.

FILIPPO GORI (00:39:20):  Absolutely. Because when you have 330,000 people, maybe the adjective that you associate with us is not “nimble” — but we try to be. We make the firm feel small to our clients, to our employees, to the communities and everything else. So we try to maintain a personal, human angle in everything that we do.

BARRY RITHOLTZ (00:39:43):  And you’ve now been at JP Morgan 26, almost 27 years — kind of unusual these days, people staying with one firm.

FILIPPO GORI (00:39:51):  I’m one of the new kids on the block at the firm. There are people that have been there really — yeah, absolutely. Doug Petno, I think, is going on 37, and many of the other seniors — my co-head, John Simmons, I think is just crossing 34. And many of the other folks around me are in the same zip code, if not having spent more time than me.

BARRY RITHOLTZ (00:40:14):  So what keeps you and these folks at the firm for so long?

FILIPPO GORI (00:40:19):  I think the people and the culture. For me, JP Morgan became part of me and my family. And you stay because you like the people, you like the environment, you like what you do on your day-to-day — but fundamentally, I think, the people.

BARRY RITHOLTZ (00:40:37):  And you mentioned 330,000 people. How big can JP Morgan Chase get? Is this going to be a half-a-million-person employer sometime soon?

FILIPPO GORI (00:40:49):  I think from a scale standpoint, we are where we need to be in terms of people. The idea is, can we use AI to grow the business without having to grow the footprint much more?

BARRY RITHOLTZ (00:41:02):  So this is probably it for the next decade.

FILIPPO GORI (00:41:05):  I would — I mean, I’m not Jamie, so you should ask the question to Jamie. But from a global banking standpoint, yes — I think the headcount we have now, we are trying to keep stable for the next few years.

BARRY RITHOLTZ (00:41:17):  Huh, really, really interesting. Coming up, we continue our conversation with Filippo Gori, co-head of global banking at JP Morgan, discussing the state of capital markets today. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

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BARRY RITHOLTZ (00:41:52):  I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest today is Filippo Gori. He’s co-head of global banking at JP Morgan, where he’s been working since 1999 — in London, Hong Kong, and now New York. So we touched on this earlier, about resiliency in the face of all this macro volatility. But it’s not just the economy — it’s been a ton of M&A and dealmaking, and this year we’ve seen a lot of IPOs, and giant IPOs at that. Why is all this holding up so well despite all of the geopolitical turmoil we see?

FILIPPO GORI (00:42:35):  I think there is a variety of different things. To a certain extent, there was a little bit of pipeline that had been built over the years that needed to find its way —

BARRY RITHOLTZ (00:42:46):  It had slowed down post-pandemic for a while.

FILIPPO GORI (00:42:48):  Exactly. So IPOs — we thought in 2024 they were going to come back; then in 2025, finally, we see the return of the IPOs, which is good as a component of cyclicality — it’s the right time for this to happen. M&A — I think there is probably an extent of what we discussed earlier on. Boards are observing the resiliency of the economy, of the global economy. They think it’s the right time to make strategic decisions. They’re probably getting comfortable that the cost of capital will not go much lower than where it is now — probably there’s a sense of higher-for-longer, to a certain extent. And therefore people are getting their hands dirty in terms of dealing. And we are just witnessing what could be, from a wallet standpoint in pure investment banking, if not the best-ever year — which was 2021 — very close to the best-ever year in terms of volumes.

BARRY RITHOLTZ (00:43:56):  Probably the biggest change over the past decade has been the rise of private capital — whether it’s private debt, private credit, private equity. How is that changing a global bank? Do you guys look at this as competition, or is it expanding the range of solutions you can offer to clients?

FILIPPO GORI (00:44:15):  It’s a little bit of both. Private capital definitely plays a role in the everyday economy, in the sense that after the GFC, for traditional banks, certain sectors in certain cases became harder to deploy capital to. And therefore, to a certain extent, there is a group of clients that arrived to be the beneficiaries of private credit — because of the simplicity of the solution, the unitranche, and so on and so forth. So that has caused the growth of that sector. And we have been operating — we have been doing loans, and a private loan is just another form of loan — for 225 years. So we launched our own initiative, our own private credit business, a few years back, but we increased it last year — officially around February last year — to $50 billion of our own capital allocated to it. And the idea is, when you go to a client, you try to offer an agnostic set of solutions: we can do anything you want, from the traditional private lending solutions, to more innovative solutions, to the traditional syndicated financing facilities, and so on and so forth. So the idea is to offer the clients all the potential tools in the JP Morgan armory.

BARRY RITHOLTZ (00:45:51):  So these private transactions have been rising really since after the financial crisis. What does this tell us about public market M&A? How do you look at the difference between these few public companies and this rising number of private companies?

FILIPPO GORI (00:46:14):  Look, it’s a trend that has been going on since the 1980s. The number of public companies in the US, and around the world, has reduced substantially since then. There are various reasons for that. Part of it could be the cost associated with being a public company. Part of it could be the fact that some of the companies have grown in size and have acquired some of the smaller companies, and so on and so forth. I am absolutely in favor of a healthy public market, because it’s one of the greatest strengths of the United States — the fact that there is a market out there where you can raise capital, you can finance yourself, there is a price discovery mechanism, which I enormously love. If I look at other countries where I’ve operated, where the size of those public markets is smaller, you see that those economies struggle to gain scale, struggle to gain opportunity. So for me, the public market in the US is a treasure that must be cherished.

BARRY RITHOLTZ (00:47:25):  Fair enough. We’ve seen a number of mega-deals happen over the past couple of quarters, including the giant SpaceX IPO. We have Anthropic coming up; there are a bunch of other AI IPOs coming up. But there’s also been a lot of merger activity in that space. What’s driving these big transformative deals?

FILIPPO GORI (00:47:51):  As I mentioned, to a certain extent it is the perception of stability of the cost of financing, the opportunity from regulation that will make some transactions possible, and, I think, the backlog that had been created over the years. But in general, boards are very sanguine that this is the right moment — let’s take the opportunity, let’s transform. Many boards are also looking at what’s happening with AI and thinking, okay, it’s a Copernican revolution that is happening, therefore I’d better be ahead of it and take the opportunity, and so on and so forth.

BARRY RITHOLTZ (00:48:37):  Otherwise you’re behind. So your charge is global — you get to look around the world at opportunities. I’m curious, how do you measure where opportunities are greatest? Are there specific data points you’re looking at, like volume of IPOs or mergers? How do you look at the world region by region and figure out, hey, we need to spend more time and capital in region X?

FILIPPO GORI (00:49:06):  So what we do — this is a constant process whereby we challenge ourselves consistently as the CIB, the commercial and investment bank, management team. And we say, okay, we operate in 46 countries — should we operate in five more? And if so, which ones do we look at? What is the opportunity? Why does it strategically make sense to invest more in that country versus another? Or why don’t we invest more in an existing country? And so on and so forth. Bearing in mind that one of the fundamental ways in which we look at the world is the following: we have never left a single country since we entered it. So being in a country is not the same thing as owning a share or a stock — you don’t like it anymore, you sell it. Once you make the decision to enter a country, you are there forever, because you’re there for the employees, for the clients, for the communities, the regulators, and so on and so forth. So we think about that very carefully.

We look at some macro trends, we try to understand where the world is going, where the opportunities are coming. We ask our clients — some of our clients are some of the largest companies in the world — and you try to see how they think, how they operate: can we support them everywhere around the world where they operate, or not? Or similarly, there are companies that are developing in some of these countries and want to go global — can we support them in that case? So that’s the exercise that we do, and we look at it collectively as a CIB management team across the various products — whether it’s banking, whether it’s payments, whether it’s markets, whether it’s security services — and we collectively make a decision on where to invest. And we do it on a quasi-regular basis; we discuss this.

BARRY RITHOLTZ (00:50:57):  So I want to talk about the EU and Asia, but before we dive into those areas — any other areas of the world that are presenting a great number of opportunities?

FILIPPO GORI (00:51:10):  Well, Latin America, for sure. We have not discussed it, but if you think about Brazil and Mexico — for sure, super interesting markets, super important for us. And they are at the doorstep of the United States. So it is fundamental that we have a critical presence over there, and that we keep on growing it.

BARRY RITHOLTZ (00:51:33):  And you mentioned earlier you think the European area is almost overlooked — that they’re on the verge of the next phase of growth. What’s going on in Europe?

FILIPPO GORI (00:51:46):  So what I meant is, there is generically a degree of pessimism around Europe. The pessimism comes from the fact that the growth of the European Union, in terms of GDP growth, has been anemic for now — call it 25 years. It grows 0.5, 0.7, maybe 1 percent, and we consider ourselves lucky. And that has been one of the challenges, because growth brings jobs, growth brings wealth, growth brings all the things that I see here in the United States. At the same time, as a European, I always want to remind folks that Europe at times is not widely understood. The European Union concept was not born out of the idea of an economic union. It was born out of the dream of the founding fathers of the European Union not to have war on European soil ever again.

BARRY RITHOLTZ (00:52:49):  From a security perspective, not an economic perspective.

FILIPPO GORI (00:52:51):  They were visionaries, actually. If you think about De Gasperi in Italy, and Adenauer in Germany, and some of the others — the Second World War had just finished, the coal and steel treaties of the beginning of the 1950s. The idea was, if we are intertwined from an economic standpoint, it is less likely we will go to war together.

BARRY RITHOLTZ (00:53:17):  It’s mostly worked.

FILIPPO GORI (00:53:18):  And this worked. And the next thing was the Treaty of Rome, and that was the beginning of the European Union as we know it, and Maastricht and everything else. So I just want to remind people that Europe does exist — the European Union exists first and foremost not to have war on European soil. And we need to grow, don’t get me wrong — less bureaucracy, more growth — but we should not lose sight of what the founding fathers gave us.

BARRY RITHOLTZ (00:53:45):  So let’s talk about the perspective from the United States about Europe: a lovely place to visit, but a challenging place to do business. A great place to live — because in much of Europe there’s guaranteed healthcare, guaranteed paid education, paid retirement — but it makes it expensive to do business there. It’s very hard to fire anybody. Is that American bias accurate, or no?

FILIPPO GORI (00:54:21):  The criticism that is laid at the steps of the European Union is perfectly valid — all of the things you just mentioned, and more; the list is forever long. What I’m trying to say, though, is something different. This year we’re celebrating 250 years of the United States of America. Europe has over 3,000 years of history. So you can’t expect that 3,000 years of history get wiped out and they all row in the same direction. We have come from having had war every 10 years to not having had war since 1945. We have strengthened that. We have culturally enormous social nets. And my concern is, if the economies don’t grow, and we have a problem of demography, then in the future we will not be able to afford those social nets. So things have to happen in Europe — and I’m perfectly fine with that. Former President Draghi, in his white paper, told us what we have to do. We don’t need to reinvent the world; we just need to go and implement what he told us. Will we do it? Yes. Will it take us a long time? Absolutely, yes — because it’s Europe. But Europe exists for a variety of different reasons, and we should never forget that.

BARRY RITHOLTZ (00:55:55):  Really, really interesting. So we’ve talked about regions; let’s talk about sectors. AI and technology, obviously a big sector. Manufacturing and industrial reshoring is going on. Infrastructure changes, financial services, energy and renewable energy, healthcare, defense — so many different areas seem to be going through massive transitions. What do you do with a target-rich environment like that? How do you decide where to focus? Or do the companies reveal themselves, and it becomes self-evident?

FILIPPO GORI (00:56:37):  So we have an account planning process — year by year, sector by sector, region by region — where we look at the various sectors. And while you mentioned all of them in one go, not every sector is hot at the same time. So the focus is, within all the sectors in every country, and by subsector — we have 28 subsectors — do we have enough bankers? Do we have enough resources allocated? Can we do more? Should we do more? If we have to prioritize, how do we prioritize those asks? And that’s what we do. So there is an enormous amount of account planning — which, if you do it well, then the results will come.

BARRY RITHOLTZ (00:57:25):  And you know, the Draghi white paper sort of veers into government-driven industrial policy. Obviously that’s big in China; it was big in the United States up until about 40 years ago. It seems like it’s coming back. How do you think about government involvement in these private-company decisions and growth?

FILIPPO GORI (00:57:50):  So Europe already has a larger component of the economy that is state-owned or partially state-owned companies. So from a European standpoint, in itself, it is not so rare to have concepts like that. The idea, to me, is more: can we have pan-European champions? We have done that in the automotive sector; we have done that in the airline industry. We have not really done that in other sectors. Europe has freedom of movement for people, for capital — but there is no real freedom of movement for services yet. So that’s one of the things that we should try to implement, and therefore facilitate the growth of European champions in the various sectors, some of which you mentioned, so that we will be able to compete better with the US on one side, or with Asia on the other side. Europe still has a little bit of a bias that small is good, because small protects the consumer, from an economic standpoint — thinking about oligopolies and everything else. I think we’re at a stage where right now size matters, and therefore we should facilitate the creation of larger European companies — pan-European, not country-specific.

BARRY RITHOLTZ (00:59:38):  Like Airbus — that’s the model.

FILIPPO GORI (00:59:41):  Airbus could be one. There are plenty of other examples — in consumer there are a few; in cars, Stellantis is an example. We should do that in financial services, for instance. I think it’s fundamental that Europe has larger financial services players, and so on and so forth.

BARRY RITHOLTZ (01:00:06):  What’s fascinating to me about Europe — and I appreciate what you’re saying about smaller companies needing to get big — in the US, where we used to enforce antitrust rules but kind of stopped in the 1980s, not only have these companies gotten big, but they’ve become mega-companies that dominate their space. To be clear, that’s very unlikely to happen in Europe, right? You want them large and global and competitive, but not necessarily dominant — at least if I’m going by what you’re describing.

FILIPPO GORI (01:00:38):  Yes — that would be a step too far from a European Union standpoint, given the fundamental way in which Europeans look at business. But larger companies, absolutely.

BARRY RITHOLTZ (01:00:50):  Right. I was curious, because they seem to be very — I don’t want to say hostile, but very specific — about regulating the Facebooks and Apples and Googles of the world, versus smaller companies that are trying to get a toehold in the global marketplace. All right, so before I get to my favorite questions, one last question. What do you think most people in investment banking, and/or commercial or corporate banking, aren’t thinking about, but really should be? What’s the important topic that’s not getting enough focus?

FILIPPO GORI (01:01:32):  That’s a good question. I think there is a ton of focus on AI, geopolitics, inflation and other things. And I think we don’t spend enough time focusing on the people, and how we prepare the people for the future that is coming.

BARRY RITHOLTZ (01:01:55):  So is that education? Is that corporate training?

FILIPPO GORI (01:01:58):  It’s a little bit of everything. How do we explain to folks how we see the future? We should do more from that point of view, and prepare them for a future that is coming. But that starts with academia, and how we recruit people, and so on and so forth.

BARRY RITHOLTZ (01:02:17):  So let’s jump to our favorite questions that we ask all of our guests — starting with, tell us about your early mentors who helped shape your career.

FILIPPO GORI (01:02:26):  Man, I’ve been lucky to have had many people looking after me over the years. I’ve been lucky to have worked for the same individual for 19 years — I joined as his analyst, he was the associate on the desk, and 19 years later we were two senior managing directors, but I was still working for him. But there are three that I would like to mention. One is Matteo Del Fante. When I joined in London, he was the most senior Italian at the firm, and he is now the CEO of Poste Italiane — as a friend, as somebody who has looked after me and helped me, guided me. He’s from Tuscany too. And then probably Marc Badrichani, who retired in 2024, and he was running the markets business. And Carlos Hernandez, who was running banking before me. And I still remember, when I was in Hong Kong during COVID, he used to call me twice a week, religiously, every week, without booking a meeting — just call and say, how is everything going? All good? Tell me what’s happening. So the human element was really, really, really important for me.

BARRY RITHOLTZ (01:03:39):  Let’s talk about books. What are some of your favorites, and what are you reading currently?

FILIPPO GORI (01:03:43):  So I’m an avid reader — I read lots of stuff, nothing finance-driven. Right now I’m reading three Italian books at the same time, which is a little bit complicated. I like novels, I like fiction. But the one book that I read quite recently that impressed me was a book called The Wealth of Shadows.

BARRY RITHOLTZ (01:04:14):  The Wealth of Shadows.

FILIPPO GORI (01:04:15):  By Graham Moore. And it explains, in a fictionalized way, how the US during the Second World War used its economy to cripple the German economy. And you have individuals like Keynes playing into this, and how ultimately this became Bretton Woods, and the role of how the dollar overtook the pound, and so on and so forth. That was fascinating. And I read another book called A Girl Called Samson, which is about the Revolutionary War here in the United States, and a woman — it’s a real history — a woman that fought in the Continental Army under Washington, dressed as a boy.

BARRY RITHOLTZ (01:05:07):  Oh really? Very, very interesting.

FILIPPO GORI (01:05:09):  Those are two. But I also use Audible a lot. So audiobooks have lately been my saving grace, because I can listen to them while I’m traveling on planes, so I don’t need to carry the physical books with me. I’m a heavy user of Audible.

BARRY RITHOLTZ (01:05:31):  Besides Audible, what else are you streaming? What are you either watching or listening to?

FILIPPO GORI (01:05:37):  Watching — apart from your program, obviously — my wife and I loved Outlander, which just streamed its last season, on Starz I think it is, here in the US. And then Drops of God, about wine — it’s a fascinating series — and a few others.

BARRY RITHOLTZ (01:06:02):  Huh, really, really interesting. We watched Outlander until the previous season, and kind of said, all right, we’re good right here — when they were stuck in the United States. But it was a really fascinating show. Final two questions. What sort of advice would you give to a recent college graduate interested in a career in either corporate, commercial or investment banking?

FILIPPO GORI (01:06:28):  It’s not a sprint, it’s a marathon. So take your time; understand the environment in which you operate. Try to focus on the bigger, important things — don’t be too focused just on the product, but understand the environment in which you operate. Remember, it’s a people business, both internally and externally. So make sure that you invest in creating human relationships.

BARRY RITHOLTZ (01:06:53):  And our final question: what do you know about the world of investing and investment banking today that might have been useful back in 1999, when you were first getting started?

FILIPPO GORI (01:07:05):  It’s a marathon, not a sprint. So never take things for granted. And above all, don’t make personal sacrifices that you’re going to regret later. At times, I’ve not been as present as I would have liked with my family.

BARRY RITHOLTZ (01:07:28):  Hmm, interesting enough. Filippo, thank you so much for being so generous with your time. We have been speaking with Filippo Gori. He is co-head of global banking at JP Morgan. If you enjoyed this conversation, well, check out any of the 650 we’ve done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, Apple Podcasts, YouTube, or wherever you get your favorite podcasts. I would be remiss if I didn’t thank the crack team that helps us 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 MiB: Filippo Gori, J.P. Morgan co-head of Global Banking appeared first on The Big Picture.

An interesting article about investors carrying too much cash was in today’s Wall Street Journal. There’s nothing in the piece that is inaccurate or misleading; it’s just a little narrow and could use better framing.1

I want to address five elements that put the issue of how much cash you should be carrying into a broader perspective:

1. House Money: Everybody wants to compare the current market boom to the late 90s – I disagree on valuations and bubbliciousness, but allow me to share my experience from that era; people who were not managing money then might not be aware of the history.

I have vivid mid-1990s recollections of clients calling to sell stocks. It was the 14th or 15th year of a 19-year bull market. They wanted to roll out of some highly appreciated equities into real estate – a vacation property or an upgrade to their primary residence. They willingly gave up a few years of future equity returns in exchange for an immediate improvement to their lifestyle.

A reminder for individual investors: you are not hedge fund managers competing in league tables for bragging rights; you are individuals trying to live and enjoy your life, giving your family the best opportunities and experiences you can.

Today, we are 17 years post-GFC bottom; many people are sitting on huge gains. I never have a problem when clients want to take something off the table to make a major purchase that a) they can afford and b) brings them joy.

2. Why Not Bonds? If you’re in your 20s, 30s, or 40s, you’re probably better off in an all-equity portfolio (assuming you have the self-discipline to not panic every drawdown). The anecdote the WSJ starts with is a 75-year-old retiree with 85% equity and 15% money market. It asks, “Why not own some bonds instead of the money market?”

The short answer is certainty. If you are mapping out your annual spend, you know exactly what you have and what it will be when any of those bills come due.

The longer answer is the tradeoff: Are you getting paid enough yield to compensate for any additional risk you assume? SNAXX is a favorite Money Market yielding 3.65%. (0.19% expense ratio). In an era of 3% inflation, you are only slightly ahead.

Investment-grade (IG) bond funds yield ~4.4%; go out 5–10 years and, in exchange for more duration risk, yield ~4.9%. At 10+ years, you are at ~5.4%. The longer the duration, the more sensitive bonds are to changes in interest rates. If you look at Munis, you are getting ~4% – a 6.4% taxable equivalent yield for investors who are high-income and live in a high-tax state.

The trade-off? Most of these funds experienced a lot of volatility in 2024-25. The concern is the timing of when cash is needed into a bond drawdown.2

3. Good Planning: For a 65-year-old+ investor, keeping a modest pile of cash is not the worst thing they can do. Mapping out your liabilities for the year, whether it’s quarterly tax filings, philanthropy, mortgage payments, wedding gifts, or the like, is simply a comfortable form of planning.

If knowing these cash uses are not at risk of a bond fund drawdown; if it makes it easier to budget your annual spending; if all of the above allows you to sleep well at night, then you have your answer to the MM or Bond fund question.

4. My priors: I do not believe individual investors need to wring out every last basis point of yield at the cost of their own comfort levels. Sometimes, we give up rounding errors or returns in exchange for less stress.

Everything in investing (and life) is a series of tradeoffs; we want to make the best decisions we can with limited information about an uncertain future. This includes yields, inflation, and the direction of future interest rates.

5. Embrace Joy: The time to defer gratification is when you are young, with decades of compounding ahead of you.

My favorite stories from advisors and clients are about families who are reluctant to spend because they are nervous, having lived through the Dotcom implosion, the GFC, Flash Crash, COVID, and 2022. But if the numbers say they can easily afford to take the entire extended family to visit the old country, or to buy that vacation property, or to pay for their kids’ first-home down payments or their grandkids’ college, then why the hell not?

What else is the purpose of money if not to live and be joyful in our limited time on this planet?

~~~

If you are the kind of person who wants to squeeze every last basis point of yield out of your cash, then – depending upon your income and tax situation – an intermediate IG Corp or Muni fund makes a lot of sense.

If a few thousand dollars in additional yield over the course of spending down a pile of cash each year isn’t as important as your peace of mind, if it makes you more comfortable, then perhaps a money market fund is the right answer for you. It depends on the specifics of your circumstances, preferences, and individual psychology.

Like so much in this space, there is no one-size-fits-all solution.

The key to making a good cash management decision is understanding the trade-offs and the dollars involved. An informed, thoughtful process that considers all of these factors will lead you to the best decision for you and your individual circumstances.

See also:
Wealth Management Has a $3 Trillion Problem: Investors Are Keeping Too Much Cash
By Miriam Gottfried
WSJ, Aug. 12, 2026

Previously:
Overvalued, Bubble, or Revolution? (July 17, 2026)

__________

1. The best news about this article? At least we are not talking about people sitting with 100s of 1000s of dollars in 0.25% checking accounts…

2. There may be some PTSD following the 16% drawdown in the Bloomberg US Aggregate Bond Index (AGG) in 2022.

The post Let’s Talk About Cash… appeared first on The Big Picture.

With this in mind, financial advisors have the opportunity to create a potential 'aha' moment for their clients by introducing them to alternative retirement paths that could better match their preferences. Further, because these strategies come with their own respective risks and planning opportunities, advisors are also well-positioned to support clients pursuing one of these paths on an ongoing basis.

To start, clients who have amassed significant savings might be able to achieve financial independence, where paid work is no longer required to support their lifestyle expenses. While leaving the workforce before 'traditional' retirement age comes with direct costs (e.g., purchasing health insurance) and risks (e.g., portfolio sustainability over an extended retirement period), it can also present tax planning opportunities (such as Roth conversion and/or capital gains harvesting during lower-income years).

Rather than leave the workforce completely, some individuals might prefer to take extended breaks during the course of their career (e.g., for caretaking, or to travel while they're in good health) while planning to return to their existing job or a similar position at a different company. These "sabbaticals" offer flexibility (in terms of their length and frequency) and require fewer assets than financial independence, but could necessitate working past 'traditional' retirement age (given the inability to save during the sabbatical period, and the risk that the individual won't be able to find a commensurate job when they return to the workforce).   

For those who haven't saved enough to achieve 'full' financial independence but who might want to work in a more meaningful and/or less stressful (but lower paying job), "Coast FIRE" could be an attractive alternative path. An individual can take advantage of this path when their retirement savings are projected to grow – without further contributions – into a portfolio large enough to support their anticipated future retirement spending needs. At that point, they 'only' need to earn enough to cover their ongoing expenses while continuing to work.

Finally, under the semi-retirement path, an individual can 'test' retirement by reducing their work hours. In this way, they can see what it's like to have more free hours during the week while still tapping into the financial, social, and psychological benefits that can come from work. A willingness to work at least part-time past 'traditional' retirement age can also be supportive of a client's long-term plan, as it could allow them to delay Social Security benefits and mitigate sequence of return risk.

Ultimately, the key point is that financial advisors are well-positioned to introduce alternative retirement paths to clients who express interest, and to support them on an ongoing basis in navigating the resulting financial planning challenges and opportunities.

And if you want to go deeper on this topic, hear directly from the author on the Financial Advisor Technician podcast .

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Guest post by Josh Frankel

In April 2025, my NYS municipality rushed to sign a contract for Automated License Plate Readers (ALPRs), live view cameras, and drone-as-first-responder technology with Flock Safety. The Flock contract was hastily put on the agenda for a vote that same evening, bypassing the customary public notice, as required by law. The subject was misleadingly referred to as “Public Safety Equipment” and gave no further detail as to what was under consideration or why.

Curious about where the cameras would be placed, I filed a Freedom of Information Law (FOIL) request for the exact locations of the new Flock cameras. My request was denied three times, despite an extremely favorable opinion from the NYS Committee on Open Government (COOG).

So I sued. I filed an Article 78 litigation against the Village of Scarsdale (Index # 57090/2026 – February, 2026, Westchester County Supreme Court¹); last submissions to the judge were April 27. There is similar litigation, brought by the same New York Civil Liberties Union (NYCLU) attorneys representing me, pending against Westchester County.2

~~~

A veil of secrecy is an essential component of Flock’s playbook, and what happened in my village is the playbook in municipalities nationwide. Flock makes inroads, secures support — and, I believe, personally coaches local law enforcement and trustees on how to keep it all on the down-low. Before you know it, Flock cameras are popping up everywhere.

Worse, some communities vote them through “consent agendas” — bulk votes on what are supposed to be routine matters. One community, Lucas County Ohio, rammed through on a consent agenda and tried to cancel once local officials realized exactly what they’d done.

The story of what happened in my community was perfectly chronicled by independent journalist Jessica Burbank. She wrote a killer piece for DropSite News and produced an outstanding one-hour documentary. Jessica’s work was a catalyst in bringing mass surveillance front and center nationwide. Her work, along with that of 404Media and the Electronic Frontier Foundation, has been indispensable in the effort to rein in this out-of-control technology.

Ultimately, intense public outcry and the failure to secure grant funding led to the cancellation of the contract in my community.

My involvement in opposing mass surveillance continues through my ongoing litigation with the NYCLU and volunteer work with the Institute for Justice (IJ). I am slated to join an IJ webinar in the coming days to discuss my experience. To that end, I have put together the following “toolkit,” which I hope other like-minded folks will use as a roadmap in their local communities.

Each and every tool in the kit was useful in its own way, and taken together, they are very powerful.

Good luck!

NOTE: FOIA/FOIL laws vary greatly from state to state. What works in NYS might not work elsewhere (and vice versa). Familiarize yourself with your state’s law so you can extract everything to which you are legally entitled.

~~~

LOCAL ALPR ADVOCACY: A CITIZEN’S TOOLKIT
Be Vigilant. Be Engaged. Ask Questions.

Local surveillance programs can move from proposal to approval quickly—and sometimes with relatively little public attention. Residents do not need to be lawyers, technologists, or privacy experts to have an impact. They do need to pay attention, ask questions, obtain the records, and persist.

-Watch local government agendas. Search Board, Council, Police Commission and committee agendas for terms such as ALPR, license plate reader, camera, public safety technology, surveillance, and vendor names such as Flock Safety.

-Attend or watch public meetings. Important details often emerge during discussion that never appear in the agenda or resolution.

-Read the actual documents. Don’t rely solely on how a proposal is characterized publicly. Obtain the proposed contract, staff memoranda, policies, presentations and supporting materials.

-Ask questions early. Who will have access? How long will data be retained? Who can search it? Can other agencies access it? Is data shared across jurisdictions? What audit controls exist? Where will cameras be located? What happens when the contract ends?

-NYS FOIL is a powerful investigative tool (with a strong presumption of access). Request contracts, proposals, vendor correspondence, policies, data-retention rules, audit logs, camera locations, internal memoranda and communications with neighboring agencies. AI can be very helpful in crafting comprehensive requests that are impossible to dodge.

-Ask for records—not answers. A well-crafted request identifies existing records rather than asking the government to explain itself.

-Request native electronic records when useful. Spreadsheets and databases can reveal considerably more than PDFs.

-Appeal denials. An agency’s initial “no” is not necessarily the final word.

-Know the exemptions being asserted. Ask the government to identify specifically why records are being withheld rather than accepting generalized claims about “security” or “law enforcement.”

-Use New York’s Committee on Open Government. COOG advisory opinions and guidance can be valuable when challenging an agency’s interpretation of FOIL. The Advisory Opinion I got — F19882 — could be very useful in other NYS municipalities.

-Build a chronology.

-Save agendas, meeting videos, resolutions and contracts.

-Preserve emails and correspondence.

-Compare what officials say publicly with what the underlying documents show.

-Follow the money: grants, purchase orders, contracts, renewals and amendments can reveal where a program is headed.

-Set up a Google Alert for “Flock Safety” — stay current on what is going on nationwide.

–Look beyond your municipality. Counties, neighboring police departments and other agencies may possess records involving the same system or vendor.

-Speak during public comment.

-Write to elected officials both collectively and individually.

-Ask specific questions that require specific answers.

-Draft and circulate a petition (one targeted petition is better than several that are fragmented).

-Encourage officials to adopt written policies before deployment rather than after cameras are operating.

-Ask for meaningful legislative oversight—not simply administrative approval by a police department.

–Bring other interested residents into the discussion. One inquiry is easy to dismiss; sustained public interest is much harder to ignore.

-Local reporters are often looking for well-documented stories about government, policing, technology and privacy.

-Give journalists documents and facts, not merely conclusions.

-Explain why the issue affects ordinary residents—not just people concerned about surveillance.

-Simplify: A complicated technology story becomes much more understandable when framed around these simple questions: Who is watching? What are they collecting? Who can see it? How long do they keep it?

Supporting effective law enforcement and questioning government surveillance are not mutually exclusive.

False question:

“Are ALPRs good or bad?”

Better questions:

What problem are we trying to solve?

Does this technology materially solve it?

What information will be collected about innocent people in the process?

What safeguards, oversight and transparency should accompany it?

Access the FBI’s National Incident-Based Reporting System (NIBRS) to get actual crime and clearance data for your municipality. Doing so can go a long way toward determining if you even have a problem that needs to be solved. I believe “Motor Vehicle Theft” should be the most relevant crime to explore. What is, or has been, the trajectory of clearance rates, i.e. are they rising dramatically, as they should be? This data is readily available and should match up to what you would receive from a FOIL request, without the wait.

Government processes move slowly. Records requests get delayed. Answers may generate more questions. Policies change. Vendors return with revised proposals.

Persistence matters.

Local government works differently when people are watching.

You don’t need special access. You need curiosity, public records, patience—and a willingness to keep asking reasonable questions until you get reasonable answers.

FOOTNOTES

1. JOSHUA FRANKEL v. VILLAGE OF SCARSDALE
Special Proceedings – CPLR Article 78

2. I am not a named party in the new case against the County, though that COOG opinion and my FOIL work were foundational. (Index # 57090/2026 – Westchester County Supreme Court)

The post Flock Around and Find Out: A Citizen’s Guide to Local ALPR Oversight appeared first on The Big Picture.

Transcript:

The transcript from this week’s, MiB: NAME, TITLE, 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.

~~~

XXXXX insert transcript here XXXXX

~~~

The post Transcript: Jack Raines appeared first on The Big Picture.

Part II of my discussion with Vanguard’s Joe Davis and Rebecca Choo Quan about why we all make so many investing mistakes:

Breaking the Biggest Wealth-Destroying Habits
Knowing what not to do is only half the battle—the other half is actually avoiding those missteps. In part two of our conversation, Barry Ritholtz of Ritholtz Wealth Management gets practical: how to safeguard your portfolio against panic, minimize regret when making high-stakes decisions and think about wealth in terms of decades, not days.

Here is part I of our conversation.

See also:
Wall Street Journal

Apple Podcasts

Spotify

YouTube

Previously:
Vanguard: The Costliest Mistakes Even Experienced Investors Make (July 23, 2026)

How Not to Invest (full archive)

Vanguard Group (full archive)

The post Vanguard: Breaking the Biggest Wealth-Destroying Habits appeared first on The Big Picture.

From the business perspective, we (as many organizations) embrace this at Kitces.com by always looking for opportunities to make incremental "1% better" improvements to what we deliver to the financial advicer community, the platform that we’ve built to deliver it, and how we operate the business internally. With the caveat that, particularly in an era where AI can expedite the building of almost anything, the biggest question is not whether improvements can be achieved, but which improvements in particular are most important to focus on first.

And so every year, we ask you – our readers – to take a brief survey and provide your feedback about what you want to make this website even better for you, to ensure we stay on the right track in adding value to the financial planning community and pursuing our mission to make financial advicers better and more successful. And especially after the amount of change over the past few years, from expanding with our new "Financial Advisor Technician" podcasts (and creating a new industry-wide "Best Advisor Podcasts" list), to building an Advisor Services Map to complement our popular AdvisorTech Map, to the expansion of our Annual Tax CE Intensive to pair with our Annual (IAR) Ethics CE Day and most recently the rollout of our new "Level Up" case-study-based training program for newer advisors… we’re more eager than ever for your feedback about how we’re doing, where we can improve, your thoughts about some new ideas we’re considering, and your feedback about what else we could be doing to help the advicer community.

Because we really do take your feedback seriously. Over the years, Nerd’s Eye View reader feedback has shaped everything from the visual design of the blog (from its original dense small font!), to the ongoing expansion of our Members section from offering CFP to now CPE credits for CPAs and IAR CE for RIAs that can be earned by reading Nerd's Eye View blog articles (and now listening to the Financial Advisor Technician podcast!), the launch of the Financial Advisor Success and Kitces & Carl podcasts, our popular "Master List" of all the major Financial Advisor conferences and Best Books for Advisors, and now the coming design refresh of our Nerd’s Eye View blog later this year.

So regardless of what kind of reader you are: an advisor or someone who works in an advisory firm home office, an individual consumer who reads this blog for your own benefit, a CPA, attorney, or another related professional that works with financial advisors, or you're associated with a vendor who serves advisors... I hope you'll participate in this year's survey. It's only 12 feedback questions, should take no more than a few minutes, and will remain open until the end of next week.

Thanks in advance for taking a few minutes to access our Reader Survey below, and share your feedback! 😊

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